ASK BIG BUILDERS ABOUT THEIR ABILITY to obtain working capital nowadays and the answer seems to be that the sky's the limit. “We see the best access to capital that we've ever seen,” says Centex Corp.'s Larry Angelilli, senior vice president of finance. And he emphasizes that this holds true not just for the Dallas-based builder. “That's the case with all the major builders,” he says. For the first time, Angelilli says, banks and fixed-income investors are finally coming to realize that even if the economy hits a major speed bump, home builders are in a position to continue delivering healthy returns.

“Our ratings have been upgraded,” Angelilli notes, and home building is “becoming a sector that people are spending a lot of time” studying. The evidence of investor confidence in home building is more than a feeling: “We've seen 69 new investors in the past year,” Angelilli says, including mutual funds, pension funds, and life insurance companies, all of which represent huge classes of buyers. “We're really in a position where we're getting a lot of liquidity and are very knowledgeable investors,” Angelilli says, and he says he sees little on the horizon to stem the steady stream of capital searching for fewer big builders.

That stream of capital appears to be widening as interest in home builders continues to grow from international players.

According to Tony Avila, managing director of JMP Securities in San Francisco, “The Royal Bank of Scotland has been the most aggressive by taking on 11 new clients in the past year and committing approximately $700 million to the top 11 builders, predominantly via their unsecured lines of credit.” Foreign lenders are generally investing for the long term, he adds, so an up-tick in interest rates might not spook them as much as it might domestic sources.

It's not just big institutions showing interest from outside the United States. According to James Pugash, CEO of San Francisco's Hearthstone Advisor, in certain markets—notably in southern Florida but also in greater Washington, D.C.—wealthy foreigners are looking for development projects to bankroll in the U.S.

It is clear, however, that the majority of capital is flowing from established institutional lenders.

Favorable Debt While builders' stock prices continue to generate the majority of headlines—most recently for the hits they have endured over worries about rising interest rates—the bigger news is how much capital builders have successfully raised in the debt markets. According to Lisa Sarajian, managing director for Standard & Poor's, the volume of public debt issuance has steadily increased over the past five years, with builders issuing more than $5.1 billion in publicly rated debt just in 2003. And by all indications, it is on pace to eclipse that figure this year (see “Capital Stockpiling,” page 99).

Angelilli says he sees several reasons for the growing availability of debt capital.

“One of the best things that has happened is that the top builders have had improving credit stories,” says Angelilli. “The markets are increasingly appreciating” that home building is “viewed as an improving credit industry,” he says. And it's “not just Centex or Pulte, it's everyone.”

Angelilli contends that, “Equity analysts don't even discuss the credit issues. They're concerned about earnings growth. Bond investors care if you can pay the money back.” If bond investors worry that home builders' earnings are starting to slow but see builders “de-leveraging at the same time,” argues Angelilli, then investors are “very comfortable buying [builders'] bonds. Fixed-income analysts have a different story to tell from the equity analysts, he claims.

The other reason, of course, is that interest rates remain relatively attractive for lenders as well as builders.

As Avila describes it, “The bond market has been open for business and builders have been locking in fixed rates in the 5-percent to 7-percent range for seven- to 30-year [periods].”

Fred Cooper, senior vice president of finance and investor relations at Huntingdon Valley, Pa.-based Toll Brothers, concurs that the markets are treating builders far more favorably as of late.

“Home builders have demonstrated their stability and their ability to navigate difficult economic times over the past decade,” he says. “We've survived three recessions: in 1995, 1997, and 2000. We've survived a major stock market crash, a major employment recession, two ongoing wars, and a number of global financial crises, and we have still been able to build and sell new homes to meet a strong and stable appetite among buyers.”

Cooper adds that home builders are growing stronger as the years pass: The biggest builders are much more diversified geographically—and by product—than a decade ago; they enjoy greater access to a wider variety of capital, and the demographic data show that homeownership is the dream of more and more Americans. Investing in a home is seen as safe and wise by virtually every immigrant group and every economic class. “In the United States, people are starting to view putting money in their home as putting money in the mattress,” says Cooper. It's that safe.

“Challenges remain,” acknowledges Cooper. “We have to make investors comfortable.” Home building can and must prove its stability and immunity from cyclicality, and show, through hard numbers and solid management, that even if interest rates tick up and housing starts decline, major builders can continue to build market share, he says. The industry has been so hot lately that it is only natural for some indicators to drop, says Cooper, and in these emotional times, even a small drop might set off a disproportionate reaction.

Capital Concerns That legacy of cyclicality continues to complicate the otherwise positive outlook for some CFOs, however, in the hunt for financing.

Many mid-size builders, for instance, are discovering that capital is coming with increased scrutiny and controls compared to a year ago, observes Steven Friedman, a partner with Ernst & Young, in McLean, Va., which advises a number of leading builders.

The distinction is not just in the size but in the type of financing the two classes of builders generally seek, notes Friedman. Big builders generally pursue entity-level and long-term financing. The knowledgeable and well-heeled institutions that can fund companies of that size are relatively few. But medium-sized builders are looking far more often for project finance, which attracts a different group of investment and lending institutions.

Ernst & Young's Friedman emphasizes that personal as well as professional relationships matter—a fact that smaller builders often overlook. If there's a change at the top of the corporate ladder, it can also change the direction of a loan portfolio at the local level, Friedman notes. “Maybe they want 50 percent in land and the rest in real estate, and my loan to you has to be the one that goes.”

The concern that home building is still a cyclical business can actually prove to be an advantage in these times, says Friedman. Builders can point to the last recession in the early 1990s and show how they pulled through.

The private equity markets, meanwhile, continue to make a good deal of capital available, although they have predominantly been limited to project equity. CalPERS-sponsored organizations such as IHP Capital Partners and Hearthstone have been leading the charge making major league investments this past year. There are also other entities backed by Wall Street firms such as Lehman Bros. and Morgan Stanley providing project equity capital.

Access to capital via the public equity markets also is quite robust and is likely to remain so, says Avila. “The public equity markets have been accessible, with predominantly smaller public builders such as Orleans and Levitt taking advantage of the open equity window,” he says. He notes, however, what's plain to every publicly held builder: “Public equity valuations are relatively low at six to seven times 2005 earnings. Thus, builders are looking at stock buybacks rather than equity issuance.”

Big builders still have work to do on Wall Street to attract investors large and small, says Avila. “Since the end of 1996, the aggregate market cap for public builders has increased by nine times, while revenue has only gone up by four times and closings have only increased by three times. That is a tremendous wealth creation story. Everyone should shout it from the mountaintop,” he says, preaching perhaps to the converted.

Builders' tremendous year-over-year earnings growth, their increasing fiscal discipline and low inventories “measured in days or weeks, not months,” all bodes well for builders, says Avila, in being able to secure future expansion capital.

See below for BIG BUILDER's annual directory of financial service firms and leading capital providers to the home building industry.

A.G. Edwards
Web site: www.agedwards.com
Contact: Douglas Rubenstein
Title: Managing Director
Phone: 314-955-3098
E-mail: douglas.rubenstein@agedwards.com

Ableco Finance LLC
Web site: www.ablecofinance.com
Contact: Kevin Genda
Title: Senior Vice President
Phone: 212-891-2117
E-mail: kgenda@ablecofinance.com

Amsouth Bank
Web site: www.amsouth.com
Contact: Ronny Hudspeth
Title: Senior Vice President
Phone: 205-307-4227
E-mail: rhudspeth@amsouth.com

Argosy Investment Partners
Web site: www.argosycapital.com
Contact: John Kirwin
Title: Partner
Phone: 610-971-9685
E-mail: john@argosycapital.com

Banc of America Securities
Web site: www.bofasecurities.com
Contact: Robert Dowling
Title: Principal
Phone: 212-583-8227
E-mail: bdowling@bofasecurities.com

Banc One Capital Markets Inc.
Web site: www.bankone.com
Contact: F. Patt Schiewitz
Title: Director Capital Markets
Phone: 312-732-1148
E-mail: patt_schiewitz@bankone.com

Bank of America N.A.
Web site: www.bankofamerica.com
Contact: Mark Lariviere
Title: Managing Director
Phone: 312-828-2513
E-mail: mark.lariviere@bankofamerica.com

Bank of the West
Web site: www.bankofthewest.com
Contact: Al Timpson
Title: Senior Vice President
Phone: 925-942-8661
E-mail: atimpson@bankofthewest.com

Bank One
Web site: www.bankone.com
Contact: Michael L. Higgins
Title: First Vice President
Phone: 925-977-6349
E-mail: michael_l_higgins@bankone.com

BB&T Capital Partners LLC
Web site: www.bbandt.com
Contact: David Townsend
Title: Managing Partner
Phone: 336-733-2424
E-mail: dgtownsend@bbandt.com

BNP Paribas
Web site: www.bnpparibas.com
Contact: Duane Helkowski
Title: Managing Director
Phone: 212-841-2940
E-mail: duane.helkowski@americas.bnpparibas.com

Californian Bank & Trust
Web site: www.calbanktrust.com
Contact: Jennifer Pescatore
Title: Senior Vice President
Phone: 602-241-2212
E-mail: pescatorej@calbt.com

CALYON
Web site: www.creditlyonnais.com
Contact: Samuel Hill
Title: Managing Director
Phone: 214-220-2305
E-mail: hill@us.calyon.com

CapitalSource Structured Finance
Web site: www.capitalsource.com
Contact: Timothy Hall
Title: Development Officer
Phone: 301-841-2700
E-mail: thall@capitalsource.com

Churchill Equity Partners
Web site: www.churchillnet.com
Contact: Bill Haan
Title: Partner
Phone: 612-673-6732
E-mail: bhaan@churchillnet.com

The CIT Group
Web site: www.cit.com
Contact: Frederick Hill
Title: Director
Phone: 212-790-9157
E-mail: fred.hill@cit.com

Citigroup Global Markets
Web site: www.smithbarney.com
Contact: Richard Moriarty
Title: Managing Director
Phone: 212-816-7545
E-mail: richard.moriarty@citigroup.com

City-View
Contact: Joel Shine
Title: CEO
Phone: 310-656-4283
E-mail: jshine@city-view.net

Comerica Bank
Web site: www.comerica.com
Contact: Charles Weddell
Title: Vice President
Phone: 313-222-3323
E-mail: charles_l_weddell@comerica.com

Compass Bank
Web site: www.compassweb.com
Contact: Douglas Vibert
Title: Senior Vice President
Phone: 305-569-4250

Credit Suisse First Boston
Web site: www.csfb.com
Contact: Donald Meltzer
Title: Vice Chairman, Global
Phone: 212-325-2000
E-mail: donald.meltzer@csfb.com

Deutsche Bank Securities
Web site: www.db.com
Contact: Tom Bradshaw
Title: Director, Industrials Group
Phone: 212-250-8153
E-mail: tom.bradshaw@db.com

Fannie Mae American Communities Fund
Web site: www.efanniemae.com
Contact: Jonathan Parrish
Phone: 626-396-5388

Fifth Third Bank
Web site: www.53.com
Contact: Christine Wagner
Title: Assistant Vice President
Phone: 513-534-7348
E-mail: christine.wagner@53.com

First Capital Corp.
Web site: www.firstcapital.com
Contact: Chris Mitchell
Title: Vice President
Phone: 770 303-0101
E-mail: cmitchell@frstcapital.com

First Horizon Construction Lending
Web site: www.fhhlc.com
Contact: Bob Davis
Title: Senior Vice President
Phone: 214-441-7018
E-mail: bdavis@fhhlc.com

Fleet Bank
Web site: www.fleet.com
Contact: Paul DiVito
Title: Senior Banker
Phone: 770-390-6581

Fleet Capital Corp.
Web site: www.fleetcapital.com
Contact: Michael Nieberding
Title: Senior Vice President
Phone: 410-740-3048
E-mail: michael_nieberding@fleetcapital.com

Gladstone Capital
Web site: www.gladstonecapital.com
Contact: David Gladstone
Title: Chairman
Phone: 301-588-9442
E-mail: david.gladstone@gladstonecapital.com

Goldman Sachs
Web site: www.gs.com
Contact: Richard Lieb
Title: Managing Directo
Phone: 212-902-1000

Greenwich Capital
Web site: www.gcm.com
Contact: Mark Finerman
Title: Managing Director
Phone: 203-618-2230
E-mail: mark.finerman@gcm.com

Guaranty Bank
Web site: www.guarantygroup.com
Contact: Randy Reid
Title: Senior Vice President
Phone: 214-360-2735

Harris Nesbitt Commercial Finance
Web site: www.harrisnesbitt.com
Contact: Reid Barker
Title: Vice President
Phone: 404-364-6562
E-mail: reid.barker@harrisbank.com

Harris Williams
Web site: www.harriswilliams.com
Contact: Tiff Armstrong
Title: Managing Director
Phone: 415-288-4260
E-mail: tarmstrong@harriswilliams.com

Hearthstone
Web site: www.hearthstone.com
Contact: James Pugash
Title: CEO
Phone: 415-249-1500
E-mail: jpugash@hearthstone.com

Highbridge Capital Management
Contact: Barbara Donohue
Title: Director, Investor Relations
Phone: 212-287-4900
E-mail: barbara.donohue@hcmny.com

Hilco Capital
Web site: www.hilcocapital.com
Contact: Tom Aronson
Title: Senior Vice President
Phone: 847-559-9300
E-mail: taronson@hilcocapital.com

IHP Capital Partners
Web site: www.ihpinc.com
Contact: Doug Neff
Title: President
Phone: 949-851-2121

JMP Securities LLC
Web site: www.jmpsecurities.com
Contact: Tony Avila
Title: Managing Director
Phone: 877-263-1333
E-mail: tavila@jmpsecurities.com

JP Morgan
Web site: www.jpmorgan.com
Contact: Matthew McGrath
Title: Vice President
Phone: 310-860-7202
E-mail: matthew.mcgrath@jpmorgan.com

KBC Bank
Web site: www.kbc.com
Contact: Kenneth Connor
Title: Vice President, Real Estate
Phone: 212-541-0623
E-mail: kenneth.connor@kbc.be

Key Bank
Web site: www.keybank.com
Contact: Dan Heberle
Title: Senior Vice President
Phone: 202-452-4943
E-mail: dan_r_heberle@keybank.com

Key Principal Partners LLC
Web site: www.keyprincipalpartners.com
Contact: Samir Desai
Title: Vice President, Business Development
Phone: 216-828-8147
E-mail: sdesai@kppinvest.com

KeyBank Real Estate
Web site: www.keybank.com
Contact: Dan Heberle
Title: Senior Vice President
Phone: 202-452-4943
E-mail: dan_r_heberle@keybank.com

Legg Mason Real Estate Services
Web site: www.lmres.com
Contact: William Loving
Title: Executive Vice President
Phone: 904-858-5303
E-mail: bloving@lmres.com

Lehman Brothers
Web site: www.lehman.com
Contact: Raymond Mikulich
Title: Managing Director
Phone: 212-526-7000

Lennar Partners
Web site: www.lnrproperty.com
Contact: Bret Berry
Title: Director of Business Development
Phone: 949-885-8500

Lowe Enterprises
Web site: www.loweenterprises.com
Contact: Craig Furniss
Title: Senior Vice President
Phone: 310-820-6661

Matrix Capital Markets Group Inc.
Web site: www.matrixcapitalmarkets.com
Contact: Nicholas Beare
Title: Managing Director
Phone: 704-335-0500

Mellon Bank
Web site: www.mellon.com
Contact: Ronald Bloch
Title: First Vice President
Phone: 215-553-3612
E-mail: bloch.rj@mellon.com

Merrill Lynch & Co.
Web site: www.ml.com
Contact: Brian Hogan
Title: Director
Phone: 212-449-2100
E-mail: b_hogan@ml.com

Morgan Stanley
Web site: www.morganstanley.com
Contact: Andrew Silberstein
Title: Executive Director
Phone: 212-761-4016
E-mail: andrew.silberstein@morganstanley.com

National Bank of South Carolina
Web site: www.nationalbanksc.com
Contact: Wade King
Title: Vice President
Phone: 803-929-2118

Ohio Savings Bank/Am Trust Bank
Web site: www.osbuild.com
Contact: Frank J. Bolognia
Phone: 216-588-4038
E-mail: fbolognia@ohiosavings.com

PNC Bank
Web site: www.pncbank.com
Contact: Paul Douglas
Title: Senior Vice President
Phone: 732-220-3548

Questech
Web site: www.questechfinancial.com
Contact: Richard Rowella
Title: Senior Vice President
Phone: 203-778-1000
E-mail: rrowella@qtfc.com

Raymond James & Associates
Web site: www.rjf.com
Contact: Paul Puryear
Title: Director, Real Estate
Phone: 727-573-3800

RBC Builder Finances (Royal Bank of Canada)
Web site: www.rbcbuilderfinance.com
Contact: Ken Shaw
Title: National Production Manager
Phone: 888-729-5014

Resmark Equity Partners
Web site: www.calpers.ca.gov
Contact: Robert Goodman
Title: President
Phone: 310-474-8400

The Royal Bank of Scotland
Web site: www.rbos.com
Contact: David Apps
Title: Senior Vice President
Phone: 212-401-3745
E-mail: david.apps@rbos.com

Saybrook Capital
Web site: www.saybrook.net
Contact: Jon Schotz
Title: Partner
Phone: 310-899-9200

Strand Capital
Web site: www.strandcapitalcorp.com
Contact: Dave Schaffer
Title: Senior Vice President
Phone: 714-751-1342
E-mail: dschaffer@strandcapitalcorp.com

SunTrust Banks
Web site: www.suntrust.com
Contact: John Wendler
Title: Director
Phone: 703-902-9041
E-mail: john.wendler@suntrust.com

Texas Growth Fund
Web site: www.texasgrowthfund.com
Contact: Brent Humphries
Title: Managing Director
Phone: 512-322-3100
E-mail: jbh@tgfmanagement.com

The Troxler Group
Web site: www.troxler.com
Contact: Christopher Bley
Title: Director of Acquisitions
Phone: 800-690-9077
E-mail: cbley@toxler.com

UBS Securities
Web site: www.ubs.com
Contact: Robert Crowley
Title: Executive Director
Phone: 212-821-4076
E-mail: robert.crowley@ubs.com

Union Bank of California
Web site: www.uboc.com
Contact: Michael Pearce
Title: Executive Vice President
Phone: 415-705-7536
E-mail: michael.pearce@uboc.com

US Bancorp Piper Jaffray
Web site: www.piperjaffray.com
Contact: Thomas Wright
Title: Managing Director
Phone: 612-303-6039
E-mail: twright@pjc.com

US Bank
Web site: www.usbank.com
Contact: Cort O'Haver
Title: Senior Vice President
Phone: 503-275-3418
E-mail: cort.ohaver@usbank.com

Wachovia Bank
Web site: www.wachovia.com
Contact: Glen Gallagher
Title: Senior Vice President
Phone: 215-670-6522

Warburg Pincus
Web site: www.warburgpincus.com
Contact: John Santoleri
Title: Managing Director
Phone: 212-878-0600

Washington Mutual Bank
Web site: www.wamu.net
Contact: Tom Griffin
Title: Senior Vice President
Phone: 760-804-8595
E-mail: thomas.griffin@wamu.net

Weyerhaeuser Realty Investment
Web site: www.wri-online.com
Contact: James Lawrence
Title: Executive Vice President
Phone: 206-264-2240