LGI's Current Denver Communities
Houston-based entry-level builder LGI Homes continues its aggressive expansion program into new markets, with an impending move into Nashville and Seattle and the purchase of 400 lots from Centerville, Utah-based Jack Fisher Homes to bolster a burgeoning Denver division.
In his first quarter conference call in May, CEO Eric Lipar spoke about the builder's expansion plans, expressing optimisim that the builder would begin constructing homes there this . "In preparation for closings in 2016 and 2017 we have begun to evaluate expansion opportunities in new markets such as Seattle and Nashville as well as opportunities to leverage our existing management teams and expand to adjacent markets such as Jacksonville Raleigh-Durham," he said on the call.
After LGI went public in 2013 with a $90 million initial public offering, the builder, which didn’t return a call for comment on this story, has been an active dealmaker in new markets. Occasionally, LGI acquires a local builder's land pipeline to enter a market, like last September’s purchase of the real estate assets, including 1,000 owned and controlled lots, of Charlotte-based builder Oakmont Home Builders.
More often than not, however, such as the purchase of 87 lots in Rio Rancho in Albuquerque in November 2013, LGI, which is piloted by Eric Lipar, entered new markets organically through straight land buys, according to Albuquerque Business First. That appears to be the case in Nashville, which will operate under its Southeast Division.
“We know they’ve been looking at other growth opportunity so it doesn’t surprise me at all to see them expand,” says Scott Davis, the Regional Director for Metrostudy's Houston office.
Once LGI takes its entry-level formula to these new markets, Davis thinks other builders will be “challenged” to compete at that lower price tier.
“They’re efficient and tight on land costs,” he says. “It’s [the land cost advantage] is on the strength of their sales and marketing program in terms of identifying those purchasers, pre-qualifying them before sales pitch [getting them into the model home], and getting them to right price location.”
John Covert, Metrostudy’s Denver regional director, has been extremely impressed with LGI’s entrance into the Denver market. Currently, it has two entry-level communities, Bella Vista and Legacy Park, in Denver. From 2014, the builder has closed 45 homes in those communities, according to Metrostudy.
“These first couple of projects they’ve gone into, they’ve done incredibly well,” Covert says.
With the sale of its 400 lots to LGI, Jack Fisher, owned by Colin Wright, is essentially exiting the market. Wright, who was part owner of Henry Walker Homes purchased distressed lots during the recession, and eventually sold that company and his Salt Lake City projects to Denver-based Oakwood Homes. After that sale, Wright started Jack Fisher Homes and built on the lots that were not in the Henry Walker transaction. Jack Fisher started building homes in Denver in 2012.
The 400 lots LGI is buying, all north of the Denver metro, were in more rural, C and D locations that weren’t ready for primetime when the builder bought them, according to observers. But that’s the kind of dirt LGI is accustomed to turning a profit on.
“The acquisition of the Jack Fisher lots, is right down the middle of the fairway for where LGI communities usually exist,” Covert says.
Right now, Jack Fisher, which operates a Colorado division out of Westminster, Col., currently has seven communities for sale. The price range from the mid $200,000’s to the mid $300,000’s, according to Jack Fisher’s website. In the first quarter of 2015, Jack Fisher sold nine homes in Weld County and 13 homes in Boulder, according to Metrostudy.
With LGI’s ability to execute, Covert is confident they’ll do well with Jack Fisher’s lots.
“It will be really interesting to see how they reposition these projects,” Covert says. “I suspect they’ll do very well with them because they’re providing a home price in a market that is craving entry-level and first-time home buyer product and most builders are unable to get to that price point. And, LGI can.”
LGI, known for its sub 200,000’s homes, has also expanded its price point in its home market. In its Benders Landing development, near The Woodlands, it is offering homes from $450,000 to $1.2 million, according to Metrostudy. The development has proven so popular that luxury builders, like TRI Pointe’s Trendmaker Homes, have scooped up lots.
“It is more of a large lot development,” Davis says. “It’s not a traditional suburban 80-foot lot product.”
LGI has also expanded its offerings for the entry-level segment, around the Houston market. As home prices have increased up to 35% since the recession in the metro area, Davis says the builder’s decision to build a nicer lower-end home has given it an advantage in the marketplace.
“They are building a nicer quality home for that entry-level segment, which has enabled them to service the entry level and get that next higher bracket,” Davis says.