If all goes well with final closing details today, Taylor Morrison officially will join the parade of publics moving into Atlanta by purchasing JEH Homes.
Motivations and strategy around mergers and acquisitions in home building may be calibrating around more precise, opportunistic positions and operational capabilities, as a glacially slow recovery has been obstinate about clear revelation of where and when land and people investment moves make the most sense. Still, it's widely expected that M&A and consolidation in home building will continue, as smaller, privately held companies thirst for capital to grow, and larger companies with public and investor capital structures hunger for quickly turnable inventory and the ability to absorb growing overhead costs.
An Atlanta deal not only gives the Scottsdale, Ariz.–based public home building company an entrance into Atlanta (it’s only non-Florida market east of Texas), but it also provides it with a well-respected operator and lot positions all around A-Town.
Owners Jim Jacobi, Bill Evans Jr., and George Hovis have built Alpharetta, Ga.–based JEH into the No. 10 builder in Atlanta with 317 closings and 2.1% market share for the 12 months ending March 31, 2015, according to Metrostudy. Lou Steffens, president of Taylor Morrison's East Region and a former Beazer and Pulte veteran, worked with members of JEH's leadership team at a previous stop. "They respected each other's work," said one observer.
Bill Evans Jr. is an Atlanta real estate veteran who helped charter Heritage Bank, Premier Bank Shares, and Piedmont Bank of Georgia, according to the Atlanta Business Journal. “He’s the best builder around,” says Eugene James, director of Metrostudy’s Atlanta region.
Last year JEH closed 307 homes; in 2013, it closed 286 homes. The company posted 151 sales in 2012, and 87 sales in 2011, according to Metrostudy. “They have pretty good land and lot positions, as well,” James says.
Right now, JEH’s website lists 19 active selling communities—all north of Atlanta. In a 2014 interview with the Atlanta Business Journal, Evans and Jacobi said their strongest markets were in the northern suburbs, especially in north Gwinnett and Forsyth counties.
JEH is strong in the first-time and move-up markets. Its average home price is $251,000 and its median price is $245,000. Right now, the lowest-priced home for sale on its website is $143,900 at its Brookstone Community in Cumming, Ga. The Atlanta metro’s average price is $316,000 and its median price is $266,000. “They are right there at the typical overall median price for new home,” James says. “They do a good job competing against and beating the resale market.”
JEH's entry-level and first move-up homes would provide complimentary options to current offerings from Taylor Morrison, which plays at the higher levels of the price spectrum. In a way, the pairing harkens back to the July 2007 merger of Taylor Woodrow and Morrison Homes that created Taylor Morrison. Taylor Woodrow's offered a more upscale product in the United States while Morrison Homes provided mid-market offerings.
JEH is the fourth major builder to be bought in Atlanta in the past 18 months. In May 2014, Atlanta's No. 1 builder, Crown Communities, was bought by D.R. Horton, and the No. 2 builder, Peachtree Communities, was purchased by Century Communities. “The sheer size of it [Atlanta] makes it attractive,” Dale Francescon, co-CEO of Century, told BUILDER in November when his deal was announced. “The other thing that makes it attractive, at least to us, is that Atlanta is still a recovering market as far as home building is concerned. So we think there’s upside in that market.”
In July, Meritage bought Atlanta-based Legendary Communities, which wasn’t in Atlanta’s top 10.
“Atlanta ranks as the No. 3 largest new-home market in the country,” James says. “No wonder it has caught the attention of so many public builders.”
At the end of the first quarter, three private builders (aside from JEH) were in the Atlanta’s top 10—Smith Douglas Communities, The Providence Group, and Wilson Parker Homes. With the public’s appetite for Atlanta, they could soon be acquisition candidates.
“I wouldn’t be surprised if any of those guys got bought in the next year or less, especially if they have lot positions,” James says.
Long-time Atlanta-area builder John Wieland Homes and Neighborhoods is owned by private equity, which could make it a target as well. "It's hard for a builder of any size or ownership structure to say what the future holds," says John Weiland Homes CEO Greg Huff, who has been focused on upgrading the company's system and doubling its community openings.