I ran into Eric Lipar in Vancouver last month, shortly after the CEO of home building’s second newest public company announced LGI Homes’ fourth quarter and full-year 2013 earnings. He told me that after having successfully steered the LGI juggernaut into Atlanta and Orlando and Tampa, Fla., in 2013, he’s looking at a three-peat for footprint expansion this year.
Camino Crossing in Albuquerque, N.M., became LGI’s first-new beachhead in February. “Denver and the Carolinas are next, that’s public information now,” Lipar told me. Another home building and development executive standing nearby mentioned that Denver would be a bit of a stretch for a company whose average selling price in 2013 was $149,000. In the hot Denver market, entry-level price points are in the low $300s, and currently LGI is not selling anything in its 10 markets in five states for more than $270,000.
“We’re moving up,” Lipar said, with nary a trace of trepidation or doubt.
Confidence runs in Lipar’s bloodstream. It also springs out of solid data. In 2013, LGI Homes’ closings reached its all-time high for the year ended Dec. 31, 2013, increasing 52.3 percent to 1,617, while active selling communities increased by 10, totaling 25 active selling communities in five states and 10 communities at the end of the year. Home sales revenues for 2013 were $241 million, an increase of $97.6 million, or 68.1 percent, from $143.4 million for 2012. The average home sales price during 2013 was $149,018—that’s up 10.4 percent from an average selling price of $135,008 for 2012.
While LGI may refer to average selling prices in a Wall Street context, it’s not a real-world quantity in the “LGI system” that Lipar says anchors the company’s hyper-focused, purpose-driven culture. An asking price is almost never a reference point among LGI associates and the renters it courts by the scores each month into homeownership. The number you’ll hear in those conversations is $799 or $899—a monthly payment amount rather than a sticker price.
If they hadn’t gone public so late in the year, LGI would have shone in many of the financial and operational metrics we looked at and weighted in our 2014 public builder report card, which itself grew by 31 percent this year as we added AV Homes, Taylor Morrison, TRI Pointe Homes, and William Lyon Homes to our bucket list from last year.
No doubt LGI will contend for honors on both financial and operational measures in next year’s version, partly because of that LGI system. “All we need to do is plug people into that system, and we know they’ll succeed,” Lipar said.
Which is one of the most astonishing things about LGI’s success. Its “system” seems to solve one of housing’s most baffling riddles of the moment: winning entry-level, first-time buyers over from renting apartments into homeownership. One might have guessed that outside its comfort-zone Texas markets, LGI would run into resistance that seems to plague other builders positioned for entry-level right now. But so far, the system seems to be working, regardless of location.
So, enjoy Les Shaver’s “First Time’s a Charm” dive into what sparks the LGI system, but not before you have a look at Jennifer Goodman’s “Myth Busters” analysis, which is a crowd-sourced, candid look at what home builders commonly get wrong in disciplines such as hiring, customer care, supply chain management, land acquisition, and operations, along with practical, tactical ideas about how to improve performance in each of these areas.
Finally, the report card, which is an annual time-honored Big Builder initiative that dates back to 2007. Then, there were 19 public companies to analyze and grade for financial and operational performance skills, leadership, and positioning for success. This year’s list includes 17 publics, and there were massive secular improvements despite continued challenges. We salute the stalwarts and welcome the growing list of daring new-comers to the fray.
Learn more about markets featured in this article: Orlando, FL.