NVR, the Reston, Va.–based builder that already has a dominant position in the Pittsburgh market, reportedly is in talks to acquire Heartland Homes, a leading local semi-custom builder that is expected to close more than 400 homes in 2012.

A source familiar with conversations between the two companies tells Builder that NVR disclosed its plans to its employees on Monday, and sent officials to Heartland’s headquarters offices in Upper St. Clair, Pa., to examine its financial records the following day. 

Kevin Oakley, Heartland’s vice president of sales and marketing, said his company would not comment on “rumors or speculation.” He added, however, “I certainly understand why Heartland would be of interest” to other companies.

Paul Saville, NVR’s chief executive, and Dan Malzahn, its spokesman, did not respond to Builder’s request for comment.

News of this possible acquisition first appeared in the Pittsburgh Tribune-Review on Wednesday. Citing unnamed sources, the newspaper reported that if this deal goes through, NVR plans to form a regional division, called NVRHeartland, which Heartland’s president Martin Gillespie would run. 

Pittsburgh was the country’s 46th largest market in residential permits issued in 2011, according to Hanley Wood Market Intelligence. That year, NVR and Heartland ranked first and second, respectively, in market share on Bulider's Local Leaders ranking, and combined settled nearly 60% of the market’s 1,401 closings. “If they merged it would essentially be a near-monopoly in terms of new homes there,” says Jonathan Dienhart, director of published research for Hanley Wood Market Intelligence, which estimates that the two builders closed at least 633 homes in the Greater Pittsburgh market this year through the end of October 2012, representing more than half of the market’s total settlements during that period.

“Given our belief that one of the best ways to drive operating efficiencies and margin expansion is through greater local share, we see the potential combination as a significant competitive advantage for NVR in Pittsburgh,” wrote Adam Rudiger, a senior homebuilding analyst for Wells Fargo.

 

NVR doesn’t break out sales by specific markets, but overall it’s been having a respectable, if not spectacular, year. Through the nine-month period ended Sept. 30, its home building revenue was up 16.6% to $2.195 billion, and its settlements increased by 17.5% to 8,329 units.

Heartland identifies itself as Pittsburgh’s No. 1 custom builder. It is currently active in 29 communities, and expects to close more than 400 homes in 2012, says Oakley. It has also been building for on-your-lot customers since 2007.

Its founder, CEO, and chairman Gus Gillespie was the son-in-law of the late Ed Ryan, whose Ryan Homes merged with NVR in 1984, the year Gillespie broke away to form Heartland Homes. A 2009 profile of the company quotes Gillespie—who earned a master’s degree in architecture from Carnegie Mellon—as explaining his decision to go out on his own this way: “I’ve always been most interested in the design of the homes, and I wanted to work more with individual customers and build the best custom homes I could.”

 

Heartland moved into tract building in 1991, but continued to provide buyers with a customizable product. In the late 2000s Heartland met requirements to have its homes Energy-Star certified.

Marty Gillespie, who joined his father’s business in 2001, is quoted in that profile as stating that the builder’s growth ambitions extended beyond greater Pittsburgh. “If we’re going to build 1,000 homes a year someday, those 1,000 won’t [all] be in Western PA.” The company currently has communities in Chapel Hill, N.C., and Morgantown, W.Va.

 

Gillespie said he expected “another ‘next big thing’” over the next five to 10 years to further propel Heartland’s growth. Maybe joining forces with NVR is just that.

  

John Caulfield is senior editor for Builder magazine.

Learn more about markets featured in this article: Pittsburgh, PA.