Last year’s Lewis Homes acquisition is paying off for Kaufman and Broad

Phil Levine

Tuesday, Dec. 14, 1999 | 10:49 a.m.

Higher interest rates and home prices can't deter Bruce Karatz from his bullish view of Las Vegas' home building market.

Karatz, chief executive officer of the nation's largest home builder, Los Angeles-based Kaufman and Broad Home Corp., has set lofty goals for his company on the eve of a new millennium.

"Nationwide, I expect we will see our home sales grow by 10 to 15 percent next year," said Karatz. "That will follow the record 22,460 homes we delivered this year. Despite slight (rate) increases, a 30-year mortgage at 8 percent remains very attractive to most home buyers."

Kaufman and Broad is Las Vegas' largest home builder. Following its 1998 acquisition of Lewis Homes, the company's Las Vegas sales totaled more than 2,500 homes. That figure is expected to top 3,000 this year.

Real estate being a traditionally cyclical business, a prolonged boom is normally followed by a decline in new home sales.

Karatz is convinced that won't be the case this time.

"In Las Vegas, for example, we see continued strong in-migration over the next few years," he said. "Our company is well-positioned to meet that demand, as we have enough acquired land to ensure availability of homes for the next two to three years."

Karatz said as a result of that stockpiled supply of land, Kaufman and Broad can continue to offer affordable single-family homes.

"Our (Las Vegas) homes run the gamut from the low hundred thousands to above the $250,000 mark," said Karatz. "Within that range, we've targeted the first-time new home buyer and move-up buyer as our primary target market.

"People continue to move here to establish their family roots, and usually are looking to purchase a house sooner than in other cities where homes may not be as affordable."

A key ingredient in the company's Las Vegas growth was last year's acquisition of Upland, Calif.-based Lewis Homes. Kaufman and Broad agreed to pay $409 million in cash and stock plus the assumption of about $135 million in debt for Lewis.

"We've just celebrated our first anniversary since the acquisition, and things have gone exceptionally well during that time," said Karatz. "I've known the Lewis family for years, and (former Lewis Homes' president) Robert has been intimately involved with our growth here in this market."

The New Year also marks the end of Lewis' current position as chairman of Kaufman and Broad's Nevada operations. He is stepping down this week, replaced by longtime associate Leah Bryant.

Karatz said Lewis will remain with the company, serving as a consultant.

Although the company's stock value has declined from an early year high, that doesn't deter industry watchers from sharing Karatz's corporate enthusiasm.

"Their bottom line really got a boost in the Las Vegas market when they acquired Lewis Homes," said John Stanley, industry analyst with Stamford, Conn.-based Warburg Dillon Reed. "Their stock is down to about $22 from a high of $30, but that's just reflecting the general trend in the industry."

Stanley said the company's senior management understand the inherent benefits of acquiring -- rather than competing with -- local competition.

"They looked at Lewis Homes and said 'if we can't beat 'em, let's buy 'em,"' he said. "Their management team was smart enough to see the continued trend of consolidation that's ongoing within the home building industry. They've also put together an efficient operating model that helps their bottom line."

Karatz said boosting that bottom line is also the driving factor behind the company's decision to sell off its multi-housing division.

"We currently have about six prospective buyers and are in the process of selling that division," said Karatz. "We examined the areas not considered to be our core assets, and are looking to use the sale of that division to generate the monies needed to pay down our debt and buy back stock."

Last month, the company hired Banc of America Securities LLC to assist it with the sale of its multi-housing branch. Since its inception in 1994, the division developed or invested in more than 7,000 units nationwide.

Recent demographic and technological changes have also led to alterations in the design of Kaufman and Broad single-family homes.

"We've done electronic upgrades throughout the homes to provide easier access for customers to use their computers and other electronics," said Karatz. "Many people retiring are younger than in previous years, and they demand their own space -- often including office space -- in the home.

"That market -- the 'pre-retiree' -- will become increasingly important and is changing the way we think about building single-family homes."