Tri Pointe Shifts Land Plans as Price Surge SurprisesJohn Gittelsohn and Nadja Brandt
Tri Pointe Homes Inc., the first U.S. homebuilder to go public since 2004, is altering designs and buying lots farther from city centers as land prices rise faster than expected, President Tom Mitchell said.
The company, based in Irvine, California, is accelerating purchases of lots in such inland areas as Riverside County and Sacramento, California, as land prices surge in large coastal cities, Mitchell said. Tri Pointe, 38 percent owned by Barry Sternlicht’s Starwood Capital Group LLC, raised $233 million in a January initial public offering, with most of the proceeds being used for land purchases.
“A couple years ago you heard everybody talking about a slow, stabilized recovery bouncing along the bottom, and not experiencing a hockey-stick appreciation,” Mitchell said at a March 26 Bloomberg dinner in Newport Beach, California, focused on housing. “We’ve seen just the opposite of that.”
U.S. new-home sales are recovering from their biggest collapse since the Great Depression as low mortgage rates and a limited supply of existing houses drive demand. The prices homebuilders pay for land have climbed 40 percent over the past year in Orange County, Los Angeles and San Francisco, according to Emile Haddad, chief executive officer of FivePoint Communities Inc., an Aliso Viejo, California-based developer with 50,000 lots in California communities.
Tri Pointe today announced fourth-quarter earnings of $6.45 million, compared with a loss of $1.45 million a year earlier. Revenue rose to $56 million from $4.42 million. The company owned or controlled more than 2,100 lots as of Dec. 31, up 35 percent from a year earlier.
The results were released after the close of regular U.S. trading. Tri Pointe fell 1.6 percent to $20.15 today in New York. The shares are up 19 percent since the company’s Jan. 30 IPO, compared with a 0.2 percent decline for the 11-member Standard & Poor’s Supercomposite Homebuilding Index.
Lennar Corp., the third-largest U.S. builder and the biggest investor in FivePoint Communities, has deliberately slowed home sales in states such as California to help raise prices, Jon Jaffe, chief operating officer of the Miami-based company, said on a March 20 conference call.
“Since there hasn’t been much in the way of finished lots being produced by the industry over the last several years, there are many communities in which we do meter the rate of sales and suppress it below what the market would demand,” he said. “So, in that case, we are seeing more significant price increases.”
Contracts signed for existing U.S. homes fell 0.4 percent in February from a month earlier, as a limited supply of homes on the market reduced transactions, the National Association of Realtors reported yesterday. New homes sold at an annual pace of 411,000 in February, following a 431,000 rate in January, the best back-to-back months in more than four years, the Commerce Department said earlier this week.
Housing prices in 20 cities increased 8.1 percent in January from a year earlier, the biggest 12-month gain since June 2006, according to S&P/Case-Shiller data.
“As pricing has accelerated so quickly, there’s a concern if that’s real and sustainable,” Mitchell said. “We see kind of a two-year window of the higher levels of appreciation that we’re currently seeing. We think it’s going to level off.”
Tri Pointe, which began building in Colorado in the fourth quarter and expects to expand to other parts of the U.S. Southwest, will have to change its product line as buyers face higher costs, he said.
“We’ll probably shift toward more-affordable, entry-level product,” Mitchell said.