Mid-Summer Homebuilder Market Update
After years of surging demand, housing sales have cooled and new home inventory is rising. Savvy homebuilders are responding by employing targeted strategies to maintain sales velocity and cash flow, while also capitalizing on opportunities to secure land positions at increasingly favorable prices. Despite current headwinds, the U.S. housing market dynamics remain attractive – underscored by persistent supply shortages and healthy returns on capital.
Capital Availability – A Surplus of Dry Powder: We’re seeing unprecedented levels of capital partners seeking exposure to the homebuilding market. In many cases, capital feels like a solution in search of a problem, as many builders are already well-capitalized or focused on harvesting rather than deploying capital given the cyclical dip. The more seasoned investors understand the market dynamics and risks, making them the favored partners we recommend to our clients.
M&A – A Seller’s Market: While there are many reasons private builders may be feeling more pressure than their public peers, valuations in the private M&A market remain attractive. Transactions continue to command significant premiums to public market comps – supported by the deep buyer universe. There are more buyers, with more capital, from more places in the world than ever before – including the first acquisition by a new Japanese entrant – which was announced at the end of July.
What’s Driving Acquisitions: Buyers are seeking to expand into new markets and strengthen their foothold in existing ones, with an emphasis on acquiring seasoned local teams and robust land pipelines with closings for 2025 and beyond. As always, we recommend that our private builder clients prepare in earnest ahead of a transaction to ensure a successful closing at an attractive valuation.
Opportunities for Land Pipeline Upgrades: Well-capitalized builders with defined growth strategies are taking advantage of market dislocations by securing lots for future growth. We expect to see more land and lot transactions in the coming months as certain markets show rising finished lot inventory confronting slower starts, creating an attractive entry point for a new owner and an elegant solution for a motivated seller. Smaller, nimble builders are also positioned to acquire additional lots in quality locations as larger public builders or developers may abandon longer-duration projects. We expect the land bankers who control lots to act as a clearinghouse in markets that start to experience distress.
New Deal Announcement: In 2024, our team advised McGuinn Homes, a fast-growing top 100 builder based in Columbia, SC, on a successful recapitalization with a PE investor, unlocking growth capital. Last week, McGuinn completed an asset acquisition of several new communities from another Southeastern homebuilder, expanding its existing footprint. This exemplifies the opportunity to take advantage of current market dislocations and acquire additional lots for near-term deliveries. Whelan Advisory acted as the exclusive financial advisor to McGuinn Homes on this land acquisition.
Whelan Advisory Update
Our team has been busy this year as we announce our fourth successful closing, with several more to come before year-end. We are also working with several new clients on investment positioning as we look to launch these transactions in the fall. Contact us and let’s start a conversation!
