LV home builder buys assets of rival

Jennifer Robison

Thursday, April 4, 2002 | 11:10 a.m.

M.D.C. Holdings Inc. of Denver, a publicly traded builder that delivered 8,200 new homes across the country last year as Richmond American Homes, is acquiring the Las Vegas and Salt Lake City operations and assets of W.L. Homes LLC, which builds as John Laing Homes.

Assets Richmond American is acquiring include more than 1,600 home lots in Las Vegas and more than 800 home lots in Utah, M.D.C. said today. The deal includes a combined 150 homes under construction in both markets. Both companies compete in the big mid-priced home market in Las Vegas.

In 2001, Richmond American sold 704 new homes in Las Vegas, while John Laing delivered 353 new units in Las Vegas. Combined, that would make the new company the third largest builder in the Las Vegas market after KB Home and the combined Pulte-Del Webb.

The acquisition price was not disclosed. M.D.C. said the all-cash deal would add to its earnings by 2003, but its stock fell 40 cents to $42.59 on the news this morning.

Gary Reece, president and chief financial officer for M.D.C., said the company acquired John Laing for several reasons.

"Those reasons relate to significant lot supply in Las Vegas, which is one of the markets we've targeted for growth," Reece said. "With 1,600 lots, that will put us in a good position to grow. We'll be able to add active subdivisions that will add immediate revenue and contribute to profitability in a big way each year."

"This acquisition not only continues our strategy of expanding our presence in our existing markets, but also gives us entry into the Salt Lake City market, where almost 6,000 single-family permits were issued in 2001," said David Mandarich, M.D.C.'s chief executive.

Reece said M.D.C. executives had previously announced their objective of doubling the company in size over the next five years.

"For the first time in a decade, we have a desire to expand outside existing markets," he said. "We just opened startup operations in Dallas-Ft. Worth, and we've also discussed the fact that Las Vegas is going to be growing significantly in 2003. This opportunity just facilitates that effort."

John Laing, which in Las Vegas has two actively selling new-home communities and two planned, is known locally for designing unusual floor plans that minimize a home's footprint on the land and thus allow for smaller lot sizes.

Reece said the John Laing brand will cease to exist in Las Vegas and Utah. But M.D.C. will continue to build John Laing's product line on the lots it acquired, and the company will also mix some of John Laing's home designs into existing Richmond American subdivisions, of which there are 15 in Southern Nevada.

He also said M.D.C. would build some Richmond American product lines on John Laing home sites, with price points on the lots remaining in the mid-$100,000s.

Reece said the two companies have just over 160 employees in Las Vegas, and no layoffs are planned.

"The plan right now is to have them join us," he said. "Things change with time, but our plan now is to put the two operations together with the people we have and see where they are. We've got a huge operation and we're going to need their people."

"We are pleased to have most of the W.L. Homes management and employees in these markets join the M.D.C. team," Mandarich said. "Their market knowledge and expertise will effectively complement our current operations in Las Vegas, and should provide the solid foundation and leadership necessary to accomplish our vision for the Salt Lake City market.

"We expect the addition of the W.L. Homes personnel and projects to position us as a leading builder in Las Vegas and Salt Lake City for years to come."

Sandy Rose, regional director of the Meyers Group, a real estate research firm, said the deal is good for both builders.

"John Laing really did this for sound business reasons," Rose said. "They did it based on debt. They want to focus on their core market, which is California. It's not that they don't love Las Vegas, but Las Vegas is not their back yard."

Newport Beach, Calif.-based John Laing, which closed on 2,261 homes across the country in fiscal 2000, builds in California markets that include Los Angeles, Ventura, Orange County, Sacramento, San Diego and Riverside.

The company also builds in Washington D.C., Denver and Colorado Springs, Colo.

In addition to Nevada, Richmond American builds in Arizona, California, Colorado, Maryland, Texas and Virginia.

Though there is overlap in other markets in which both companies build, Reece said M.D.C. isn't acquiring John Laing operations in Washington D.C. and Colorado, where M.D.C is one of the state's biggest builders.

"We do want (those assets), but they weren't for sale," he said. "They were only wiling to sell these two divisions, so we took what we could."

John Laing officials couldn't be reached for comment.

"Richmond American has acquired good property," Rose said of the company's new Las Vegas land. "What kind of product they can bring to market just depends on what kind of price they paid for it."

Rose said the deal is a sign the home-building industry's decade-long wave of consolidation will continue.

"The buzz is, we're going to see a lot more of this," Rose said. "The big, national builders are going to keep buying everyone up, and the number of builders in the market is going to be shrinking. The mom-and-pop builders won't be able to survive against the national companies. It becomes so competitive that builders need that national backing to get their land deals done, and to hire the right number of staff."

Rose said the deal also symbolizes the concern many builders have about land supply.

She said several home builders -- including some of the largest builders in the valley -- showed interest in John Laing because of the company's land holdings.

"It speaks to land scarcity. In buying John Laing, a builder gets instant product they can take to market," Rose said.

The deal is expected to close in the middle of this month.