A Start-Up With A Model Built To Scale Up In Scattered Infill Sites

For homebuilding start-ups, obstacles and opportunities fit hand in glove.

Specifically, a knack for solving land deals that have enough "hair" on them to ward off some local competitors and still stir satisfaction, excitement, and joy among willing homebuyers can give a fledgling operator a runway.

In the context of homebuilding start-ups, this competitive advantage is often referred to as a 'moat,' a term borrowed from classic business models and modern tech ventures. When something's hard for everybody and you've figured out how to do it well, and faster, and more efficiently than others, there's reason to believe there's a sustainable path of growth and profit ahead.

That appears to be the case for two-year-old Jacksonville, FL-based Southern Legacy Home Builders. It's a freshly minted operator, the brainchild of Nickolas Gabel, whose hyper customer focus and big builder pedigree might remind peers of an early-stage version of Dream Finders Homes, an asset-light, fast-tracking Jacksonville start-up in the darkest of GFC days and now one of the nation's top 20 national builders.

A competitive advantage for a new homebuilding firm in a hotbed of market share-thirsty rivals in North and Central Florida can come only one way – and it's not by outspending them in any part of the end-to-end building lifecycle – the hard way.

• an operations/building process, design, land-basis, and sales system that delivers a superior product offering for less money than competitors

Gabel, a New York native whose blend of business management, finance, residential real estate sales, and relationships skills fed into ladder-rung home sales success at Mungo Homes, Lennar, and D.R. Horton in the Charleston, S.C. market, characterizes the Southern Legacy Home Builder difference through the lens of a customer's experience of value.

One thing that we have is we build a legacy one home at a time, and we are the ultimate included-feature home builder," Gabel says. "All of our products have more included features than our competitors do, and we still are either in line or less than them price-wise. This is because we don't have large overheads like some of these big-box guys. We think about the consumer, and we add many features to our homes that others don't. Doing things slightly different from everybody else that are cost-efficient, but also good for the homeowner and allows us to prevail with a unique product."

Gabel says that as part of Southern Legacy's early 2024 focus on growth and development, the firm invested in build-cycle software that will provide new tools to accelerate growth with scheduling, operations, sales, and marketing integration, along with a trade and vendor partner platform that sustains the firm's production output.

Moreover, we have continued to develop our land light strategy to keep our land off our books while developing and purchasing pad-ready home sites," Gabel notes. "This allows us to maintain our cash flow for outstanding debt allocations and cash flow initiatives. With our strategic partnerships, we were able to get capital funded to cover our land acquisitions of over 21 home sites in Q1 for our affordable housing initiative, which will be developed, constructed, and ready for closing by Q4. By doing so, we will be able to add additional closings to our projected 2024 goal of 32 homes."

Getting back to that moat — the ability to take on "hairier" parcels and transform them into winners for home-buying customers — Gabel believes Southern Legacy's infill counter-punching strategy fills the bill.

Thanks to the fact that we have the same relationships with the national vendors and trades as the largest builders, we have good pricing and buying power," says Gabel. "This means we're able to pay a little bit more for development sites, which gives us more supply and demand. We're not looking to have a minimum of 100 to 200 home sites in one neighborhood. We're able to purchase scattered home sites in a large quantity. That allows us to execute at a high level and we don't have to wait for 100 homesites to be pad-ready. We can have 20 or 30 sites in various parts of an area, and add more to our quarterly numbers than our competitors. At our size, there are not many people in the infill strategy. We pick up the crumbs of the other home builders that pass on the 15-unit subdivision. We'll gladly take that. And that's what gives us our competitive driving force."

The other "moat" factor – one that has arisen as a consumer pain in purchase categories across the board – is bundling "ultimate included-features" into a home, setting Southern Legacy Home Builders apart from increasingly unbundled peers' offerings.

A Wall Street Journal article today notes:

Business owners say fees are needed to cover costs and show customers where their money is going. But retail analysts and advocates like the Consumer Financial Protection Bureau (CFPB) say secondary fees diminish people’s ability to shop around. CFPB data also show fees cause people to pay more overall because businesses can charge more than what the market will let them get away with in the sticker price.

'People don’t shop based on fees. They shop based on the price of the product,' a CFPB spokesman says.

"Ultimate included" features – whether the product pitches to a more affordable entry-level buyer or to a $500,000-plus level move-up buyer – are a differentiator, Gabel says.

Our focus for this ultimate-included feature offering is on the limited supply of affordable housing, where we're offering an average selling price offset of 20% to 25%, and in the $500k-plus space as well. We will continue to show that our brand can cover both spectrums. Residential existing inventory is going to get stale, but new homes allow more flexibility and more incentives for the consumer. People coming out of renting will open up the floodgates for affordable offerings that stand apart in a sea of sameness. That's our focus point."