What you'd want to ask – or, maybe better yet, be a fly on the wall to learn – a homebuilding or residential development invested senior strategic executive or owner right now is this.

Are you playing on defense? Or are you playing on offense?

The answer to the two questions, according to Builder Advisor Group ceo Tony Avila, is simple. "Yes."

Avila's actual reply to the questions when we spoke this week were:

There are more builders playing on offense than on defense," he says, adding, "It comes down to two intentional goals for a lot of the companies right now. One, is how to crystallize future growth, and the second is how to get a better handle on where [our] profits are going to be."

Avila should know.

He and his team last week hosted the Builder Advisor Group 2023 Forum For Housing Executives in San Francisco. Their high-level take-aways – how, precisely to grow, and where precisely to make money -- speak to a collective conviction that homebuilders' critical capital priorities dial has shifted from "survive" to "thrive."

Senior level strategists, C-suite executives, and principals and owners from some 55 homebuilding enterprises, whose total closings net out to about half of 2022 new home deliveries in the U.S., plus strategic counterparts from among seven of the nation's leading land development firms, four of the top capital lenders, investors, and data intelligence leaders took one anothers' pulse, again and again during the daylong leadership forum.

Capital with a capital 'C' – in all its incarnations, terms, and structures, be they for projects, entities, ventures, and all of the above – played a central role in the BAG Forum agenda. Among them, Avila noted, mergers and acquisitions discussions are alive and kicking.

During the day's proceedings, we were working hands-on on the sale of a builder," Avila says. "The 2023 outlook for many of the stronger homebuilders is to generate a tremendous amount of cash [as they pare new land investments, shrink their costs, and focus on monetizing their current owned lot inventory]. Land prices have not reset downward, so there are definitely a number of potential acquirers looking to buy a homebuilder. Three of them came up to me during the day at the forum and said, 'hey, what have you got for me?'"

Fundamental drivers for M&A deal flow in 2023 suggest entity transaction volume that'll run roughly consistent with 2022, Avila notes. The conspicuous absence of the catalyst of extraordinary inexpensive debt and investment capital hasn't upset the basics of why a truckload of domestic, strategic, financial, international, etc. would-be acquirers want to buy time-tested operators who've got land, relationships, product, systems, and fire-in-the-belly with headroom to grow.

For potential sellers, a stack of motivators to engage in sale conversations and consideration has showed staying power, without sharp variation, for the past decade:

• Desire (often age-demographics-related for a principal owner) to diversify net worth
• Retirement/exit succession planning
• Removal of personally-guaranteed debt "chips from the table"
• Or, seeking growth/expansion with a strategic partner, or international capital investor

The new fundamentals wrinkle powering at least some of the M&A deal interest is geography, and more specifically, secondary and tertiary metro markets that might at one time been regarded as too small to support big builder overhead infrastructure. This division-lite approach is marginally different from the goals acquirers prioritized during the past decade of lower-cost capital and dirt-cheap mortgage interest rates, namely land positions and product/operational systems that catered to millennial entry-level, first-time homebuyers.

That entry-level, affordable price-point focus is not completely off the table, but rather, it's been subsumed into the latter-day viability of markets and submarkets builders could not typically profit in in the past.

As longterm and sustainable remote work and hybrid work trends crystallize, dynamics of a housing market evolving geographically to support affordability and quality of living opportunities combine with homebuilders' growing capability to operate leaner, more nimble, more real-time data and technology enabled divisions, leading to a coming new era of "small ball" regional and divisional portfolio management.

Moreover, the hybridization and increasingly deliberate integration of single-family for sale and build-to-rent operating models in concentrated submarket geographies can allow homebuilders to pull more steady "evenflow" volume through their operations that allow them to purchase at scale from materials, installations, and manufactured products partners, as well as "securing" front-line subcontractor capabilities on a smoothed basis.

To "crystallize future growth," as Avila puts it means gaining a clear and exclusive hold on the next half of the 2020s, as mobility, geography, affordability, the future of life-work balance, and the future of connecting day to day with the ones we love are in flux, only now beginning to take on their better definition.

The dialog we saw last week – builder to builder, builders to land sellers, and a massive amount of dialog builders had with the BAG/Encore team members on ways that we can provide capital for them to growth their business and improve their profitability – suggests a positive outlook, despite the headwinds," Avila says.

He noted that since BAG/Encore introduced its $300 million real estate income fund last fall, the fund has closed on more than $200 million in acquisition and development loans to homebuilders to date.

Given the disruption has occurred in the last month with the failure of Silicon Valley Bank and the ripple effect among important regional banks, it's sent up a red flag for builders that depend on those capital sources. The outflow of deposits from local and regional homebuilders' go-to lending institutions for project-based financing means that at least some of these banks will be less capable of lending," says Avila. "At the same time, we're hearing from builders whose operating footprint includes the Carolinas, Texas, Florida, and Georgia that they're all seeing strong demand for housing, or they've got projects earmarked, and they need capital to buy the land. Those are instances that make the timing of our debt fund so prescient."

This is why the answer to two questions – Are you playing on offense? Or, are you playing on defensive? – is yes.