At first glance, a residential developer that generated $350 million in revenue last year may not seem like a formidable presence in today's multi-billion dollar home builder market. But don't be too quick to dismiss La Jolla, Calif.-based Newland Communities. With 63 master planned developments, experience in 11 states, a knack for winning coveted entitlements, and respected CEO Bob McLeod at the helm, Newland brings a lot to the table when it comes to securing future residential properties.

Specializing in large tracts of land in the country's top 15 MSAs, Newland has successfully combined financial strength with deep-seated disciplines to harvest long-term residential property deals in many of the nation's leading markets.

But a flurry of acquisition activity -- nine deals are expected in the final quarter of 2003 including one with top-ranking rival Terrabrook -- is expected to put Newland in a dominant position in the race for future housing property. If the acquisitions go through as planned, Newland will potentially control land for more than 90,000 housing units.

Even without the deals, Newland's growing portfolio of properties under development and its proven ability to master local entitlement mazes has made the developer an increasingly important property merchant to big builders in some of the nation's fastest growing markets. On its own, Newland Communities carries about 35,000 lots in the company's pipeline. But with its Oct. 20 announcement "to purchase substantially all of the primary housing portfolio and related management operations of Terrabrook" for approximately $600 million, the company is expected to virtually double its assets -- adding about 27,000 lots in 21 communities.

According to a joint statement: "The transaction will create the country's largest developer of premier master planned communities."

As a head-to-head competitor of Newland, Dallas-based Terrabrook owns more than 45 properties in 26 markets throughout the United States and Puerto Rico. Known for its community creation philosophy, the majority of Terrabrook communities are located in or near major urban markets including Atlanta, Charlotte, Houston, Dallas, Denver, Tampa, Orlando, Phoenix, Los Angeles, Reno, South Florida, and Washington, D.C.

With the eight additional pending acquisitions -- two are expected to contribute approximately 7,000 lots each, and the remaining six will add another 16,000 -- Newland's management team is likely to be putting in some long hours over the coming weeks. "It hasn't been a corporate strategy to grow at this pace," says McLeod. "But we have been able to find what fits our criteria and we've had the resources to do it."

McLeod predicts Newland's backlog will carry the company to the year 2012. "We expect to easily do 8,000 to 9,000 lots in 2004," says McLeod. And that's great news for builders who count on the company's consistency of lot delivery. "In the larger markets, if builders have to buy the land, they go through two to four years of entitlements and another year of development -- that's three to five years of unproductive capital in major metropolitan markets," says McLeod. "They can't live with that."

But as a privately held company, Newland can.

Flexible Partnerships

Emerging from a dissolved partnership in 1994, McLeod -- along with other principals of the former Newland Group, including COO Derek Thomas and president LaDonna Monsees -- recast Newland and began managing new residential project opportunities. At that time, the company received impetus from an initial allocation of $60 million from the California Public Employees Retirement System (CalPERS), which is widely vested in real estate. The name was changed to Newland Communities in 1999, and a year later, the company, in partnership with Institutional Housing Partners, purchased Genstar Land Co. from a subsidiary of British American Tobacco for $223 million. The assets of Genstar Land consisted of 27 land development projects in seven states. By the end of 2002, CalPERS' investment commitment to Newland had grown to more than $500 million.

For Newland, financial freedom provides flexibility. "CalPERS has invested in us knowing there is a longer return. As a result, we aren't tied to quarterly returns [and] hard assets on the balance sheet and we aren't graded negatively for working on long-term deals," says McLeod.

It's this adaptability that has helped Newland build deep relationships, develop a wide range of partnership deals, and ultimately play a variety of distinctive roles with their national and regional builder partners.

Some builders are just looking for security. "Our partners can count on those lots coming out year after year and they can go from phase one to phase two to phase three," says McLeod. In San Diego, a 5,000-unit Newland project called 4S includes builders such as Ryland, Pulte, and Centex. "They just keep re-upping -- it keeps their product line running consistently in an area that took 12 years to get entitled," he adds.

For other builders, Newland's willingness to structure land deals to suit more strategic demands is what makes them appealing. In the Seven Meadows community in the Houston suburb of Katy, Texas, Newland created a bulk land sale arrangement with local builder/developer Jeff Smith, division president of Taylor Woodrow. After Newland bought and entitled the property, Taylor Woodrow purchased 150 acres in bulk with the option to purchase 75 more.

"It's a compromise position," concedes Emily Traficante, Newland's senior vice president of marketing. "They don't buy the land until it has been approved and is ready to go. But getting a section gives a few more choices, a few more options, and you can position yourself for 2 to 3 years instead of 50 lots at a time." The flexibility to do their own land plan allowed Taylor Woodrow to create 300 home sites where 95 percent are adjacent to water, golf, or some type of amenity. "The real advantage of buying a pod of land is that we're not going head-to-head with other builders on standard development lots," says Smith. Because it gives builders the ability to differentiate themselves, Newland predicts bulk land sales will become increasingly popular. "We have a handshake on some future deals to do it the same way," says Smith. "This is just the start of many more to come."

Role Play

In a more common scenario, builders take control of a parcel of land but want someone to fill the developer role -- in a variety of ways. In the Atlanta area, Ryland Homes bought and entitled a 900-acre parcel, then sold it to Newland -- along with the first right of refusal on 158 lots in one section and 88 in another. "It gave us the opportunity to take a land profit in that quarter and we just devaluate it from there as an arm's length lot purchase," says Chuck Fuhr, division president. Currently under development, the community of Sterling Ridge is zoned for 1,800 units. "Atlanta doesn't have as many large master planned communities as other cities its size," says Fuhr. "They've brought in their financial resources and expertise. They have a better knowledge of what works in a large community than we would."

In other deals, Newland's role becomes increasingly complex. In the San Diego suburb of Chula Vista, Calif., builder and developer TriMark Pacific purchased a 750-acre piece of land with complicated wildlife issues and obtained entitlements for the master planned community of San Miguel Ranch. Then, Newland was brought in. "No matter how you work with them, they bring an enhanced value to the equation," says TriMark Pacific executive vice president Steve Hester. "[As] developers, they understand the infrastructure and habitat issues" says Hester. A partnership was structured where Newland provided the development capital and divided the decision rights with TriMark Pacific. "We had more decision authority in the project than is typical," says Hester. "But we had an excellent relationship with Newland from prior projects, and it created a platform for this type of arrangement."

Newland has been actively putting together creative partnerships involving both the development and building operations like they did in Santa Barbara, Calif.'s Storke Ranch community. When Santa Barbara-based Bermant Developing Co. had access to a 55-acre tract, president Jeff Bermant brought it to Newland. After Bermant entitled the tract for a mix of 275 residential units, Newland served as financial advisers with CalPERS backing for the land side of the deal. For the home building side of the deal, Newland brought in a different group of backers. "They were creative in their deal structure to allow us a fair deal on the development side and the flexibility to make it up on the vertical side," says Bermant.

Real Relations

What's common across most deals, however, is the lengths to which Newland's team go to develop deep and trusted relationships. In the Tampa, Fla., metro area, Newland created a joint venture deal to develop Bexley Ranch, a 7,000-acre project with family land owners. "They're a sophisticated family, and they were as concerned with leaving a legacy on the land as they were with the dollar return," says Southeast division president Don Whyte. "Our approach to the land is to look at the existing site, catalog what opportunities are on the site, and make use of natural, distinctive elements."

The family was impressed with the finesse Newland displayed during negotiations. "We work hard to understand the needs of the family. It takes a long time to develop these relationships," says McLeod. It often means being willing to "literally fly in and sit on the front porch having iced tea with these people. They like that about our company."

The other factor that continues to build credibility for Newland's communities is the effort it dedicates to researching local market needs and preferences and the experience it has gained developing designs that set their communities apart.

"Our preference, and something we have been known for, is taking a project through the entire life cycle," says Traficante. "A project needs to mature beautifully. It needs to look as good in phase one as it does six years later while you're doing the back phases."

This vision of long-term quality has evolved from the company's dedication to marketing and market research. To establish the vision for a community, members from every discipline work together to set the direction in the early stages. Intensive market research information weighs heavily. "Instead of basing your assumptions and direction on what you have done historically, we're basing them on what people are telling us today that is important," says Traficante. "We've taken it a lot further than we did previously in order to have better information."

The research benefits builders, too. Says Taylor Woodrow's Smith: "[Newland's] research was very important. We still refer to it on a regular basis."

As Newland becomes even more dominant with land holdings, look for elevated creativity in its partnerships with builders. "The easy deals have been done," says Traficante. "There are people who have held their land just waiting for the right developer partners; [now] those will happen."

Robert B. McLeod

Job: Chairman of the Board and CEO of Newland Communities and its affiliates since 1985

Born: Cleveland, Ohio, 1941

Education: B.S. in Business Administration, UC Berkeley, 1965

Family: Married to Nancy. They have three children: Melissa, 32; Alex, 25; and Michelle, 23.

Career: McLeod worked as a district manager for Chrysler Corp. until 1969, when he joined the mechanical contracting firm, University Industries, as vice president. In 1972, he joined Mondex, a diversified real estate company as vice president of land planning and development. Eight years later, he returned to University Industries as vice president of the residential developing business until 1982 when he became president and CEO of Genstar Southwest, a subsidiary of Genstar U.S.

Proudest Achievement: "Raising a wonderful family and the creation of the most successful [residential] developing operation in the country."

Last Book Read:City of Bones by Michael Connelly

Spends His Weekends: Body surfing, boogie-boarding, snow skiing, and hiking. Also pursuing his "intellectual passion" for history.

Learn more about markets featured in this article: Los Angeles, CA, Santa Barbara, CA.