Lennar to buy CalAtantic to become No. 1 home builder

Home builder Lennar has announced an industry-changing purchase of CalAtlantic (itself the merger of Ryland and Standard Pacific in 2015):

The business combination will create the nation's largest homebuilder with the last twelve months of revenues in excess of $17 billion and equity market capitalization, based on current market prices, of approximately $18 billion. The combined company will control approximately 240,000 homesites and will have approximately 1,300 active communities in 49 markets across 21 states, where approximately 50% of the U.S. population currently lives.

It is currently anticipated that the transaction will generate annual cost savings and synergies of approximately $250 million, with approximately $75 million achieved in fiscal year 2018. These synergies are expected to be achieved through direct cost savings, reduced overhead costs and the elimination of duplicate public company expenses. Additional savings are also expected through production efficiencies, technology initiatives, and the roll out of Lennar's digital marketing and dynamic pricing programs.

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March column for Builder & Developer now online

My column for the March 2011 issue of Builder & Developer magazine is now online. For this issue, I reviewed how the nation's builders continue to improve the quality of their products and services to home buyers. This is crucial in order to compete against both heavily discounted foreclosures as well as fairly new homes they themselves built just a few years ago. In fact, the results from the 2010 JD Power survey were the highest since the company started covering new homes in 1997. An excerpt:

During the boom years in new home construction, by far the largest challenge to builders was maintaining build quality and customer service to a dramatically larger customer base – an issue which continues to hit the bottom line of some the country’s larger builders with increased costs to address warranty issues and defects. But as boom turned to bust and new home starts plummeted, builders refocused on improving their entire production chain to great effect.

According to the most recent J.D. Power & Associates survey in 2010, customer satisfaction with home builders has risen for the third year in a row to 826 on a 1,000-point scale – the highest level since the study was started in 1997. The 2010 survey was based on responses from over 16,400 buyers of newly built, single-family homes in 17 different markets. Most buyers had lived in their homes for four to 18 eighteen months.

Not surprisingly, the most important takeaway from the survey was that those builders who actively listened to what customers wanted and were sincere about building ongoing relationships have endured the best. Alternatively, those companies which lost this consistent focus either had to scale back operations or leave the marketplace entirely...

Click here to read the entire article.

Click here to read the entire magazine in digital format.

New Home Satisfaction Continues to Improve

During the boom years in new home construction, by far the largest challenge to builders was maintaining build quality and customer service to a dramatically larger customer base – an issue which continues to hit the bottom line of some the country’s larger builders with increased costs to address warranty issues and defects. But as boom turned to bust and new home starts plummeted, builders refocused on improving their entire production chain to great effect.

According to the most recent J.D. Powers & Associates survey in 2010, customer satisfaction with home builders has risen for the third year in a row to 826 on a 1,000-point scale – the highest level since the study was started in 1997. The 2010 survey was based on responses from over 16,400 buyers of newly built, single-family homes in 17 different markets. Most buyers had lived in their homes for four to 18 eighteen months.

Not surprisingly, the most important takeaway from the survey was that those builders who actively listened to what customers wanted and were sincere about building ongoing relationships have endured the best. Alternatively, those companies which lost this consistent focus either had to scale back operations or leave the marketplace entirely.

Between 2009 and 2010, customer satisfaction improved in eight of nine categories with the largest jumps in workmanship & materials, home readiness and the builder’s design center; the only factor not seeing an improvement from 2009 were the recreational facilities provided by the builder.

But what was most interesting to me was that the importance of factors driving that overall satisfaction has shifted from 2009: whereas the ranking of price/value and warranty/customer service fell, it rose for the builder’s sales staff as well as the construction manager. This rise seems to have matched up directly with the renewed focus on retraining sales managers as well as hiring or retaining the most professional construction experts in the business in order to shepherd skittish buyers from contract through closing.

Another big trend showing up in the survey results was the awareness of ‘green’ features in their homes; whereas just 31 percent of new-home owners perceived their homes as environmentally friendly in 2009, a year later that rate had nearly doubled to 61 percent. In some markets, builders such as KBHome are even marketing annual energy savings as a means to separate their new designs from the competition.

J.D. Powers also surveys buyers on new-home quality alone, and that also reached a record high of 844 in 2010 after improving in 15 of 17 markets. The biggest remaining quality issues? Landscaping, kitchen cabinets and HVAC systems.

In terms of the highest-performing markets in 2010, those included Phoenix, Las Vegas, Southern California, Orlando and Sacramento – all challenging markets in which builders are competing with a high level of discounted foreclosures.Since builders tend to be strong in specific markets, it’s difficult to hand one builder a national #1 ranking, but Shea Homes and Standard Pacific Homes both ranked highest in three separate markets, while KBHome ranked highest in two markets. Other builders which are well-known regionally also led the survey in their respective home markets.

Finally, J.D. Power also ranks home appliances, and the winners for 2010 were the following: Samsung (refrigerators), Wolf (range/cooktop/oven), Miele (dishwasher) and Samsung (clothes washer and dryer). While the traditional brands seen most often in new homes such as GE, Whirlpool or KitchenAid certainly performed well in the surveys, it’s clear that Samsung’s renewed focus on improving its own quality has also paid off well for the company – and something smart builders could leverage to boost their own rankings.

For the complete surveys mentioned, visit www.jdpower.com/homes.

An update on the "Is Standard Pacific for Sale?" Post

I blogged earlier this week about a story in the L.A. Times theorizing that builder Standard Pacific might be for sale. Last night at a networking event, I got an update: there was a conference call on the company's most recent earnings, and as part of that call, management discussed that a sale was one of many possibilities available to the company, but that there were no plans to do so. The Times article made it seem like they were moving in that direction, but my source said it was stated simply because public companies are obligated to divulge all possibilities to their shareholders.

Homebuilder Standard Pacific for sale?

According to Peter Hong in the L.A. Times, Irvine-based homebuilder Standard Pacific may be considering putting itself up for sale after a sixth straight quarterly loss. I personally have always liked Standard Pacific's designs and quality (my cousins have owned an SP home in Corona for over 10 years and seem very happy with it), so it'd be interesting to see which builders have the financial strength to make such a purchase, and even if such a match would make sense:

Irvine home builder Standard Pacific Corp. raised the prospect of selling itself Monday as it reported its sixth straight quarterly loss. Its shares plunged 21%.

Standard Pacific Chief Executive Jeffrey V. Peterson told analysts in a conference call that falling house prices accounted for much of the company's losses and will continue to dog the builder for the rest of the year.

In a regulatory filing, the firm said a sale of the company was among six options it was considering, including a merger or sales of non-core assets...

The company delivered 42% fewer new homes in Southern California in the three months ended March 31 than it did in the same period last year. In all of California, new-home deliveries for the quarter were down 30% from a year earlier.

The company's average home price for California was down 19% in the first quarter of 2008 from a year earlier. In Southern California, the average home price fell 10% for the quarter compared with a year earlier.

The truth about new home price guarantees

A couple of weeks ago at a building industry function, I asked a panel of homebuilders including reps from Centex, Standard Pacific and John Laing why weren't offering price guarantee programs along the lines of those offered by KBHome and Ryland.

Their answer: most builders will refund money to a potential buyer still in escrow if the value of their home falls in between the time they sign the contract and closing, but you have to ASK for it. The fact that KBHome and Ryland are promoting the program has more to do with their ad strategies and creating higher comfort levels among potential buyers than a totally unique program. Although the fact that they have announced these programs would certainly make it easier for a home buyer to benefit, it's probably good advice to simply ask all builders what they plan to do should prices fall before homes close escrow.

CEO of homebuilder Standard Pacific retires

Home builder Standard Pacific, based in Orange County, has announced that CEO Steven Scarborough will be retiring, effectively immediately. The imperiled builder, which reported losses of $767 million last year, will be temporarily led by a member of the board of directors. From the Lansner on Real Estate blog at the Orange County Register:

The longtime chairman and CEO of Standard Pacific Corp. has retired — effective immediately — with a member of the board taking over the reins of the Irvine-based homebuilder in the midst of a housing slump that threatens the survival of many development firms.

Stephen J. Scarborough, the highest paid Orange County executive in 2004, is leaving the company after 27 years. He is being replaced by Jeffrey Peterson, a board member since 2001 and a former managing director at Trust Company of the West and Kidder, Peabody & Co.

In a conference call, Peterson declined to say whether the company is contemplating the filing of bankruptcy or to explain why Scarborough abruptly retired after seven years at the helm...

Although Peterson said the board has ordered management to act with “a sense of urgency,” company officials declined to say what, if any, conditions have changed to make such urgency necessary. Management could not have done a better job in addressing the challenges of the housing slump, said company chief financial officer Andy Parnes. But Parnes and Peterson would not say if conditions for Standard Pacific have deteriorated.