An Insider's Look At Tri Pointe's Organic Expansion Playbook

A short answer to the question of why Tri Pointe chooses to expand into the Utah market, and why now is plain and simple: Roughly $250 million.

For Tri Pointe President and Chief Operating Officer Tom Mitchell – who's had Salt Lake City and surrounding areas literally on his research and discovery radar for more than a decade – a longer, more strategically thought-out explanation counts as well.

Strong fundamentals and demographics give Utah's more recent economic and population growth dynamism legs, Mitchell says, and that's just the start of it. As you peel back the surface, investments and commitment to infrastructure and commerce development provide a dashboard into sustaining strides upward, which is particularly relevant in attracting a younger-, more-educated, and higher-earning professional-level in-migrant. Plus, the natural amenity of the aesthetics makes the region a next-adventure and retirement magnet as well. Last but certainly not least, people in Utah tend to prefer homeownership.

All of those reasons – and the sense that the Tri Pointe Home approach to matching product and community offerings that set it just enough apart from the rest will create competitive separation and opportunity – are how both the place and the timing add up in Tri Pointe strategists' roadmap.

The quarter-billion dollar answer, is also relevant, as Mitchell will attest. There are not too many moments an enterprise like Tri Pointe will have $1.7 billion or so in cash liquidity to work with to ignite growth and income opportunity, but now is one of them, and they want to get it right.

The landscape is changing and some of what used to be deemed as smaller markets are much more viable," Tri Pointe's Tom Mitchell tells us in a conversation we had with he and Ken Krivanec, the division president who'll lead Tri Pointe's entry into the market where he cut his teeth out of the University of Utah. "As we look at it from an enterprise proposition, we're trying to say, ‘Can we enter a market that is going to produce enough scale to us to be meaningful. In our world right now, ideally, we'd like that to generate and have the potential to generate $250 million in revenue, which is going to drop a significant amount to the pre-tax-net income line that really moves the needle in the overall operation."

If that sounds like a tall order, hang onto your hat, because to hear Mitchell, a few more new Tri Pointe divisions – both de novo organic and possibly via acquisition – will follow closely on the heels of the Utah expansion. One of them sounds imminent: Orlando and/or Tampa-St. Pete, FL.

As you look at our footprint, the biggest area of focus is in the Southeast," Mitchell tells us. "We are absent in Florida, one of those stronger markets, where every other public is there and we'd like to get it presence there. And we're looking at organically starting up there. Ideally, it would be in the Orlando and/or Tampa markets as a first entry point. And then it just comes down to finding that right leadership to lead the charge on an organic startup. One of the things we've learned through the years is, you may have great leaders, but not everybody can lead a startup. It's a different animal, and you have to have a skill-set and an ability that is somewhat different than operating in an existing environment."

To go from zero to $250 million, and meanwhile fast-track from last-place to the top 10 in marketshare to validate the presence, and from top 10 to top 5 to command the full competitive advantages of deep local scale among homebuyers, land sellers, distribution partners, construction trades, and even local officials and agencies takes trust and relationships capital to pull off, Mitchell says.

Enter Ken Krivanec, Tri Pointe's man-with-a-plan on point for the quarter-billion challenge that lay ahead for the enterprise.

Now, the background story about Ken is that he's had prior experience in the Utah market earlier in his career, 23 years ago, when he first joined Quadrant Homes, an erstwhile Weyerhaeuser portfolio builder that became part of Tri Pointe in 2013.

Perhaps less well known are the specifics of that background, which go far to clarifying the depth and extensiveness of Krivanec's relationships, experience, and insight into the particular dynamics of Utah residential development and construction.

He learned from a master of his domain, Ivory Homes founder Ellis Ivory. Krivanec's path crossed with one of Ellis Ivory's sons, current CEO of Ivory Homes Clark Ivory, as a student at University of Utah.

The rest, as they say, is history, which is relevant today in Krivanec's resume and recipe for Tri Pointe Homes' successful entree into a tough competitive market, where it'll take deliveries of no less than 100 closings in the Salt Lake City market and upwards of 200 in the Provo-Orem market to break into the top 10.

I got to know Ellis Ivory before graduating, and he put me to work," says Krivanec. I remember early in my career going to Salt Lake City Council for a variance. I don't even know how to spell variance at the time. But I learned under his guidance. I was able to get into a world of knowledge about all parts of the business and I'm forever grateful for that. I'm still close with the Ivories."

Those very same Ivories whose operations have delivered more homes than any other single enterprise in Utah over the span of two decades.

Krivanec's training in the Ivory system, and subsequently at KB Home following their acquisition and integration of the Rayco operational model, developed further as a marketing strategist at WRECO's Quadrant Homes. A triple-threat skill-set of product design, customer insight, and land acquisition and finance – and a focus all along on building a people culture – has evolved and refined itself in Krivanec's experience.

Now it'll all get a challenge – particularly on the land, design, and value-creation among home-buying customers and prospects – three areas already well-served by established incumbent players in the market.

So key questions for Krivanec and Tom Mitchell include these:

Q: How do you evolve Tri Pointe's signature 'premium lifestyle' brand and product lines to do well in the Utah market?

Ken Krivanec

We should say first that premium isn't necessarily a price-point or tier. When we get into thinking about how we look at the consumer and the market research behind that – like here in Seattle -- we've really designed products that get out ahead of the customer and surprise them. There's an opportunity for that in Utah to find the right place in that market. And in some cases, it could be closer to first-time and we believe we can create separation with the things that we do really well in the design and the customer experience, and then build a culture locally that understands that and can execute on it.

As for floor plan and product design direction, we've done one test case with one of our best-selling plans here. We put a basement on it, which is in fact one of the regional requirements that occurs in Utah. People like to put their cold storage, and food storage, storage in general, down there. Whether we determine as part of our personalization process to let people finish that basement, that's going to be something I'm actually excited to introduce into our design concepts, depending on the lot, topography, a walkout basement, some of those things are natural footage that comes with the home.

We're big on personalization, giving people a choice, and I think that's an area that if we focus on it, right, that we'll be able to continue to get the right separation in the marketplace. We understand the balance of building to-be-built homes versus specs. And so, in that whole process design becomes critical to how we provide choices up front, understand the demographic -- downstairs, main floor living versus basement. Basements are one of the bigger adaptations. So far I like what we've seen in our case study."

From there, it becomes taking the local data we get from the research about what's most important to the Utah buyer, working with our trade partners to actually execute what we design and what we intend to build. I really like what I see so far in the market. As far as our our product design, that'll translate."

Q: Will the land positioning and acquisition strategy focus more on some of the well-established masterplan community developers in the market, or will you be looking to acquire more raw undeveloped tracts and do the placemaking yourselves?

Ken Krivanec

We continue to refine and define our local land acquisition strategy. We've studied this in depth. There are a lot of master plans within the Salt Lake Valley. And those are certainly an opportunity. There are relationships we continue to develop that would allow us to get a larger footprint maybe upfront. What's unique is when you go north to Davis County, or south to Utah County, there's a lot of opportunity in just normal acquisition. We're looking at both: opportunities to get in some of the master plans where we can complement some of the builders that are there now and find the right segmentation. There's been some lessons-learned from others in this entry into this market. And so we're cautious about how we start and in which demographic we're going to start with. To be able to get two or three communities out of the gate that best represent our alignment with the market is what we're searching for.

Tom Mitchell

Ideally, with some of those early and well-established master plans where we can bring our brand into play, that would be beneficial. But overall, this operation is going to be no different than all of our others. We want definitely to have the ability to be a merchant builder and operate in those master plans. But we also have the ability to entitle and self-develop lots. That'll be something Ken will be building the team to do so we'll have a full playbook of being able to go as a self-developed builder as well."

That full playbook, for starters, calls for a fast-track program to go from zero to a quarter billion sooner than later. Then comes the opportunity to go for a top-5 position that can ignite even greater upside on the pre-tax net income axis everyone pays so much attention to.