3 minute readExecutives of
“I am extremely proud of our team and the progress we’ve made over the last few years in transforming the company into a more profitable, better positioned homebuilder,” said Leonard Miller, President & Chief Executive Officer of New Home [in a press statement]. “We are excited to enter into this new chapter together with Apollo, who shares our strategic vision for New Home as a platform for delivering quality homes and communities with award-winning design and unparalleled customer experience. By joining forces with Apollo, we will have the financial flexibility to build on our recent successes and take the company to new heights.”
The macro real estate and homebuilding and development backdrop for merger, acquisition, and “financial event” activity in 2021 to date, and the back half of 2021 into and beyond 2022 coalesces around several once-in-a-generation force factors that accompany an array of relatively normal – if unpredictable – cyclical tides.
- The Pandemic Disruption to a more normalized, stabilized, unaided economic cycle: The gigantic and unprecedented series of offsets – economic apocalypse to economic and financial rescue to economic recovery to economic equilibrium without intervention – intensifies risk-reward scenarios for the foreseeable, forecastable future.
- The Millennial moment – an age-defined juggernaut cohort that has only just begun to release its collective impact on household formation and economic performance – may sustain an altered state of consumption on the housing and consumer spending front for several years to come.
- An accommodative Fed: Despite indications that the Federal Reserve may have to accelerate its plans to taper its purchase of bonds, and, even potentially, begin ratcheting up its prime lending rates, expectations remain in place that the U.S. Central Bank will keep support of housing and economic activity as fully flowing as it takes to drive unemployment toward full employment. This should put a long-term lid on capital costs, which pushes investment farther forward into the future.
- The proliferation of company sellers. Age demographics on the owner, founder, principal front has drawn more belles to the ball, as succession plans, earn outs, estate plans, personal loan guarantees all factor into why a potential operator may have an especially attentive ear to the ground on potential opportunities to sell.
- The super-charging of potential buyers. Developed, vacant lot land scarcity, structural chronic underbuilding, and a dashboard full of demand for housing and historically low costs of capital – all energized by pandemic fear and protectionism as well as time-delayed biological clocks – have entities teaming into the havens of single-family residential construction as one of few places for a crush of liquidity. Strategic homebuilders, global homebuilding companies from Asia, Canada, even South America, mega-manufactured housing player – Clayton – and, recently, a host of institutional capital investment blue chip names have become active suitors, trolling for local, regional, and multi-regional homebuilders and their ecosystem of business partner and homebuyer customer relationships.
For the reason that both potential sellers and potential buyers can be intensely motivated owing to particulars of their individual cases, a welter of deal conversations, letters of intent, and agreements is likely, all due to a single, overriding fact.
There’s too little new housing; and too much demand for it. But, that supply-demand reality doesn’t mean every bet on land will pay, for every bet has its own local realities and its own set of timing factors that make it a win or a lose.
For The New Home Company, the timing was right for it to pivot from being the public company that acted in most ways like a private, to being a private company whose professional financial disciplines make it feel in important ways like a public.
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