M/I Homes expects to start its first homes in Houston by the end of this year, and to have what its CEO Bob Schottenstein is hopeful will be “reasonable selling activity” in that market within the next 18 to 24 months.

Earlier this week, Columbus, Ohio-based M/I disclosed that it would expand into Houston, the builder’s first new market since 2007, when it moved into Chicago. The circumstances, though, could not be more different, says Schottenstein, whom BUILDER interviewed on Wednesday. “When we entered Chicago, the market had turned for the worse, and we didn’t buy any land for more than a year,” recalls Schottenstein. Midwest Region President Dennis Bailey, who will oversee the company’s expansion in Houston, adds that it took M/I 18 months “to really get into business” in Chicago.

Houston, in contrast, is the country’s largest housing market, where builders started 19,000 homes and closed 22,902 in 2009, according to Metrostudy estimates. Those starts, says Schottenstein, exceeded the cumulative totals that year in four of M/I’s other markets: Columbus and Cincinnati, Ohio; Indianapolis, and Chicago. “And you can probably throw in a few other cities, too," he says.

M/I generated 45.4% of its $570 million in revenue last year from its Midwest region. “We felt we could use a bit more geographic diversity, and we now have balance sheet and capital to selectively and prudently expand our footprint,” says Schottenstein, who notes that his company had been contemplating this first step into Texas “for quite a while.”

M/I has hired Craig Westmoreland as its area president for Houston, where he’s now based. Westmoreland has more than 25 years’ of home building experience, including six years as president of KB Home’s San Antonio division. Bailey says he and Westmoreland will be spending the next several months devising what kinds of homes M/I will sell in Houston. “For us, product is always a local issue,” says Bailey.

About two-fifths of the homes M/I builds are bought by first-time buyers. (For the year ended Dec. 31, 2009, the base selling price for homes in M/I’s 101 communities in nine markets ranged for $90,000 to $1.3 million.) However, its first homes in Chicago were built in an upscale neighborhood and targeted second-time move-up buyers. The land it acquires in Houston, and where it's located will drive what M/I builds in this market, says Schottenstein. “Our first project there will be our first opportunity to show Houston who M/I is and will determine how Houston [buyers] perceive us.” (The median price for a single-family home in Houston stood at $144,500, according to the Houston Association of Realtors.)

M/I budgeted $75 million for land acquisitions in all of its markets this year, compared to $44.3 million in 2009, according to its 10-K filing with the U.S. Securities and Exchange Commission. Schottenstein and Bailey say they can’t comment yet on how many lots M/I intends to acquire in the Houston area. (As of Wednesday M/I  hadn’t made its first deal, and Schottenstein says he made the announcement about his company's expansion “to let developers there know we're in the market.”) They also could not say what M/I's annual construction targets might eventually be. Bailey did offer that the builder is focusing on “high-value communities that are supported by customer activity.”

Schottenstein notes that even with his company’s slow start in Chicago, it will have five communities open there by mid-2010, and is making money. “We’re looking to take the same approach in Houston,” where Schottenstein is confident M/I Homes can find sufficient numbers of finished lots to meet its production and sales goals.

John Caulfield is senior editor for BUILDER magazine.

Learn more about markets featured in this article: Houston, TX, Chicago, IL, Columbus, OH.