After breaking into the market last year in Pierce County, one of the nation’s largest homebuilders is moving aggressively into Western Washington.
Miami-based Lennar Corp. will announce today that it has bought or has under contract 1,073 home lots in Snohomish, King, Pierce and Thurston counties.
This purchase is on top of the 650 lots it acquired in December when it bought Puyallup-based Premier Communities. It cements Lennar’s hold in a market traditionally unfriendly to national, publicly traded builders. And it further signals a recovery in the new-home market.
Lennar is not “necessarily trying to be the most aggressive out there,” said Ryan McGowan, Premier’s founder and now a Lennar division president. “We do have an aggressive business plan but first our plan is to make smart acquisitions.”
Lennar plans to build 350 homes by the end of the year. In Pierce and Thurston counties, they will be between 1,100 square feet to 2,800 square feet and sell between $180,000 and $270,000. Homes in King and Snohomish are a bit bigger, and a bit pricier – up to $400,000.
The company’s rapid expansion into a market it’s been trying to crack for a decade shows how cheap finished lots have become since the Great Recession.
In the past, big, public homebuilders haven’t been able to work in Western Washington. The high development costs per lot, related to restrictive urban growth boundaries and environmental issues, don’t allow the volume big companies are accustomed to. For example, Lennar builds about 4,000 homes a year in Florida. McGowan said Thursday that Washington’s targets are between 450-500.
Now banks are selling repossessed lots at fire sale prices. Meanwhile, several years of little to no building has reduced new-home inventory. Buyers are starting to come back, and builders are racing to gobble up as many cheap lots in the best places possible before they’re all gone.
“Everyone is doing that now and it’s kind of a scramble,” McGowan said. “Lennar has invested $40 million in the state so far.”
The first step for the national companies seemed to be buying local ones. In addition to the Lennar-Premier deal at the end of 2011, Pennsylvania-based Toll Brothers bought Kirkland-based CamWest. And Denver-based Richmond American Homes bought SDC Homes, a large Seattle-area builder.
Lennar will announce today that it has closed on 118 lots in Pierce County, 117 in Snohomish, 50 in King and 29 in Thurston. Additionally it has 759 lots under contract across those four counties.
The lion’s share of the company’s lots so far is in Pierce, so it’s turning its focus north toward “core growth markets” in south Snohomish and King, McGowan said. Those hold the key job sectors of tech and aerospace.
“Snohomish and King are the ones that have recovered. It’s working its way south, but it started north,” McGowan said.
As hard as it is to imagine, the current low-cost land race is fueled by a belief that a lot shortage is a few years away, said Dennis Hanberg, Pierce County’s director of Planning and Land Services. “It’s a few years out – three or four years,” he said Thursday.
Developing raw land is expensive, so it’s smart for companies who can afford it to snap up cheap lots. It’s also a new squeeze on local builders. Big companies already have economies of scale over small and regional builders, so they can charge less for their homes. Big companies also can afford to buy land outright, instead of needing a loan.
Small builders are “in a tough spot,” Hanberg said. “They can’t afford to tie up a bunch of money in inventory, and pay interest on it, when they’re only building so much out front.”
Kurt Wilson, vice president of the Master Builders Association of Pierce County, said overall the Lennar purchase is good news. He also understands that the presence of national builders worries the local ones.
“Large builders aren’t buying those small projects, those onesie, twosie lots. They’re buying 25 to 30 in larger communities,” he said. “Small builders still have their niche.”email@example.com 253-597-8546