Housing construction has become a lottery.
Take the builder New Home Co. in Irvine. It just bought Epic Homes of Denver and placed a diversification bet in a new market outside of California and Arizona. Epic founder Chris Presley will continue to lead the new operations in Colorado.
Epic owns what has become the hottest property in the industry: ready-to-use land. The company has 294 lots and 102 unfulfilled sales contracts averaging $ 1 million each to supplement New Home’s 2,000 lots.
The housing industry is catching up amid a pandemic-triggered home buying crisis. Low mortgage rates and the desire for larger living spaces have spiked home sales and quickly changed the plans of many property managers.
When COVID-19 first hit the economy a year ago, “we thought a big downturn was imminent. We were wrong, ”said Leonard Miller, CEO of New Home.
The sales spurt was so quick that developers are now concerned that they might run out of construction sites – just a few months after fears of another housing debacle were raised.
Now Miller says he has “never seen a stronger market”.
How hot is it New Home’s 520 orders in the second half of 2020 increased 75% from the first half of the pandemic and 95% from the second half of 2019. The company’s projects in Southern California include communities in Irvine, Orange, South Corona, and Rancho Cucamonga.
Builders across the country are compensating for land shortages by buying land – and competitors – as well as increasing sales prices and limiting the number of “specified” homes built – those with no committed buyers.
Many builders, says Miller, “are doing everything they can to curb sales.”
According to builder tracker Zonda, builders had 20% less land available to build at the end of the year than in the fourth quarter of 2019. Many in Los Angeles and Orange counties fell 35% and 32% in the Inland Empire, respectively. That makes Denver’s 16% decline attractive.
For two years, New Home has been keeping an eye on this smaller Colorado developer who primarily caters to upscale buyers with homes up to $ 1.4 million in value. Epic also has a cheaper project with homes starting at $ 600,000.
After New Home felt its finances were strong enough to buy – and the initial shock of the pandemic worsened – dealmaking began late last year and ended late last month. According to SEC documents, New Home paid $ 8.4 million for Epic, $ 24 million to pay off Epic’s debt, and another $ 4.3 million for certain lots.
“It was a golden opportunity,” says Miller.