Another small home builder giving up on Las Vegas

Jennifer Shubinski

Monday, Nov. 24, 2003 | 10:52 a.m.

The big Las Vegas home builders keep getting bigger and many of the small ones are, well, leaving.

Rich Priesing, president and owner of Hearthstone Homes, said he agreed to sell the company's 500 residential lots to home building giant Richmond American Homes. He said increasing difficulties for residential developers in the Las Vegas Valley contributed to his decision.

The lots, which total 50 acres, are in the northeast, south and southwest areas of Clark County. Terms were not disclosed.

Hearthstone Homes is not the first private, locally owned builder to be affected by increasing competition from large, national companies and the rising cost of doing business in a boom market.

Gair & Associates, which sold 362 homes in 2002, shut down earlier this year and Trophy Homes Inc., which closed escrow on 61 homes in 2002, sold to Florida-based Technical Olympic USA Inc. in February.

"It's a double-barreled shotgun," said Richard Lee, vice president and director of public relations for First American Title Co. and a local real estate expert. "One, it's bad enough with land prices and then the city entities have become so inundated with stuff, builders are on the verge of being irate about it."

Lee said he doesn't think the county or local municipalities are purposely trying to slow down the entitlement process, but said it's the nature of one of the tightest real estate markets in the nation.

The entitlement process starts with zoning and land-use approval, but also includes pulling permits and submitting some of the drawings for the project.

"It's the inability to keep up with demand," he said.

Rich Priesing, who owns Hearthstone with his wife and company vice president Sally Priesing, will retain ownership and will keep his Nevada contractor's license. He said Hearthstone will continue to honor warranties on homes the company has built.

As part of the sale, which will close escrow at the beginning of the year, 14 employees were laid off, Rich Priesing said, leaving just family members and the company's accountant.

Officials with Richmond American Homes, owned by Denver, Colo.-based M.D.C. Holdings, declined comment. Richmond American, which ranks in the top five home builders in the Las Vegas Valley based on completed sales, closed escrow on more than 1,200 homes last year. As of Oct. 10 of this year, the company already has sold 1,359 homes.

Richmond American is no stranger to growth through acquisition. In April 2002 the builder purchased the Las Vegas and Salt Lake City operations and assets of W.L. Homes LLC, which built under the name John Laing Homes.

In an effort to keep up with its own growth, M.D.C. split its Las Vegas subsidiary into two divisions in September. The two divisions, Las Vegas North and Las Vegas South, were prompted by home order increases and the company's significant growth in the region.

For Hearthstone, the rising cost of land and the length of time that it takes to entitle a land parcel were the two main factors that led to the sale of the company's inventory, Priesing said.

"I've been doing entitlements since 1986 for other builders, (while I was) learning the business. We used to get a project done in four to five months," Priesing said. "The last couple projects have taken 15 months to get entitlements done and it cost a lot of money."

In 2003 Hearthstone sold 73 homes. One year before, he sold more than 100 homes, the same number he sold in 2001. At the start of 2003, Priesing had expectations that his company would sell more than 120 homes this year.

Hearthstone built affordable homes. When the company began building and selling homes in 1997, they sold in the $90,000 range. Priesing said that number crept over the years, along with rising land prices, to reach $140,000 this year.

While still considered affordable in the local real estate world -- the average new home in Clark County in October cost $206,852 -- Priesing said that rising land prices were making it increasingly difficult to provide what he considers reasonably priced housing.

Priesing said Hearthstone does not have any active projects in the Las Vegas Valley.

"The delays by the county worked to our benefit this time," he said. "Our only active project we recently finished up, and other projects were delayed by the entitlement process.

"We finished up what we had and didn't get anything else started. We had three to four projects that were three to four months behind."

Priesing said he is looking outside Nevada for future development opportunities.

Dennis Smith, president of Home Builders Research Inc., said Priesing didn't sell Hearthstone's lots just to get out of the business.

"It is so different for small builders to deal with the day-to-day frustrations that come with doing everything for yourself," Smith said. "He just decided the timing is right because the demand is so strong."

Monica Caruso, spokeswoman for the Southern Nevada Home Builders Association, said the business environment has become difficult for both small and large builders.

"Rising land costs and the costs of doing business and governmental requirements are a weekly subject on the table," she said.

The increase in land prices is evidenced in the Bureau of Land Management's land auctions.

In November 1999, the average price of land sold at the BLM auction was $90,271 an acre. In June 2003, the average price of land sold at auction jumped to $233,739 an acre. And at a BLM auction earlier this month, about 734 acres were sold for an average price of $173,245 an acre, while some parcels went for $346,000 an acre.

"It's very difficult to pencil a project with the rising costs of land and the time it takes to get it entitled," Lee said. "All it does is increase the costs of houses."

Priesing said he and his wife will take a break from home building for a while -- but are looking to Phoenix and North Carolina as new markets to enter.

"Land prices in Phoenix for comparable land that is $200,000 to $250,000 here, is $120,000 to $150,000 in Phoenix," he said. "You can buy on the outskirts of Phoenix for $30,000 an acre. I've also done some looking in North Carolina and the land is almost free."