Capital Restructure Powers S.C.-Based McGuinn's Arc Of Growth

Hang around U.S. homebuilding and homebuilders long enough, and you get humble about what you know, what you don't know, and what you think you know but don't.

Even after over 20 years in the industry, this humility is a constant companion, particularly during moments of uncertainty and volatility. The dynamic nature of the homebuilding industry means that these forces can and do sometimes alter housing cycles.

Like now.

For instance, it's evident that many privately held homebuilders in the U.S. are operating at a distinct disadvantage in today's market. They are up against large publics, big-portfolio Asia- or Canada-based site-builders, and operators in the Clayton Homes stable of homebuilders.

Smaller private operators feel a double-whammy pain of having constricted access to higher-cost acquisition and development capital, only to have little choice but to invest that higher-cost, higher-risk capital in lot pipelines often contested by multiple bidders at cycle-high asking prices per lot.

Still, while it's safe to say private builders face odds stacked against their success, it's also safe to say that privately held homebuilders continue to make up some of the fastest-growing, most dynamic operators in their markets right now. That's the case despite — and, some would almost say — because of that underdog position on the capital access and land risk fronts.

Three reasons mainly explain why these teams buck the odds and defy the trends.

High performance
Price and product
Character

An example, McGuinn Homes, currently selling new homes in 11 active communities in Columbia, and Greenville, South Carolina, and Savanna, GA. at prices from the high $100s to the mid-$200s, announced a reorganization with long-term capital providers, aimed at powering further growth and expansion. According to a provided statement, McGuinn Homes is in year two of a five-year plan to quadruple its annual closings to 1,500 homes across three geographic markets. The press statement notes that Whelan Advisory acted as McGuinn Homes' advisor in the capital restructuring.

We are excited to begin this new phase in the evolution of McGuinn Homes," Wade McGuinn, Founder and Managing Shareholder of McGuinn Homes, said in the statement. "Due to our exceptional team, we are on pace to exceed 700 annual home closings by 2024 year-end. We recognize the significant consumer demand for efficient, affordable homes. With the commitment from our capital providers, we are confident we will continue to fulfill our mission of providing quality homes to the underserved new home buyer and fostering community for the homebuyers we serve."

Nearly three years ago, we wrote about an earlier McGuinn Homes recapitalization, one that helped fuel the enterprise's growth and success during a tricky, uncertain, and volatile patch in the early post-pandemic era.

McGuinn, working since 2017 with the Builder Advisor Group team in exploring capital structure and sale options, crafted a "win-win-win" recapitalization structure that, he projects will trigger operational growth from current annual home-sale revenues of about $50 million to $200 million by 2026.
The recap allows mid-60s-aged McGuinn to "take chips off the table," earning a cash windfall in 2021 on the basis of the McGuinn Hybrid Homes assets, replacing those assets with 100% non-recourse debt, and a rampway of active operating involvement minus the angst of personal financial liability.
Ultimately, the recapitalization plan reflects both the founder's and the family office private equity partner's expectations for what's ahead. Both McGuinn and his PE partners believe the biggest upside of the new structure, capital infusion, and growth arc will be an eventual entity sale when the company has grown by an order-of-magnitude it could never achieve without the deal.

Fast-forward three-years, and here McGuinn Homes is, ready to take the reins of its growth in its own team's hands for the foreseeable future.

In an earlier conversation with Wade McGuinn and McGuinn Homes CEO Nate Gibson, we focused on the product and high-performance operational platform that powers McGuinn Homes' ability to build affordably when so many other builders struggle to do so.

McGuinn Homes has effectively positioned itself in a unique market niche by maintaining a hybrid business model that serves retail homebuyers and wholesale purchasers in the build-to-rent (BTR) sector. This dual focus allows the company to capitalize on different housing market segments, offering affordable homes to owner-occupiers while meeting the stringent requirements of BTR developers and investors.

Wade McGuinn highlights the company’s ability to navigate this dual approach:

We've always focused on what we called the underserved client in the new home market... We figured out how to build houses people could afford, at a price lower than our national competitors, while maintaining the margins we needed."

This approach has allowed McGuinn Homes to produce homes efficiently, ensuring they can meet both retail and wholesale demands.

In terms of growth, Nate Gibson underscores the company’s significant expansion efforts.

This year, we will grow by about 80% from last year, and next year will grow by another 40% just based on the jobs we have in front of us and the communities we have with normal absorptions."

This growth trajectory is supported by a strategic focus on capital acquisition, expertise in all areas of the organization, and geographic expansion across the Southeast.

The company’s hybrid model, which involves designing and constructing homes that appeal to both retail buyers and BTR investors, is key to its success. McGuinn Homes ensures that the product doesn’t change significantly between these two markets, allowing them to leverage efficiencies in design, purchasing, and construction. This consistency in product design and execution, combined with strong relationships with construction trades and material suppliers, allows McGuinn Homes to achieve the velocity and cost controls necessary to make BTR projects "pencil."

Wade McGuinn also emphasizes the importance of flexibility in their business model:

We’re not beholden to strict margin targets like public companies, which allows us to adapt and find ways to make deals work even in tough conditions."

This adaptability, coupled with the ability to scale operations efficiently, positions McGuinn Homes as a leader in both the retail and BTR markets.

These dimensions speak to the price and high-performance traits that inevitably set homebuilding outliers apart from homebuilding operator peers. McGuinn Homes also taps into an outsized measure of character, the third necessary ingredient for an organization to buck the odds and defy more widely occurring business trends.

Character comes to the fore with the firm's launch of McGuinn Homes Foundation, formerly Next Generation Ministries, which is deeply integrated into the organization's mission and operating DNA.

The newly formed McGuinn Homes Inc. has a common goal of ‘doing good’ in our local markets with our business as a ministry team and internationally with our foundation,” says McGuinn, “We give not only money but also our time and business acumen to ensure the non-profit agencies we serve are growing and focused.”

That tells of the kind of character trait that goes hand-in-glove with a homebuilder capable of bucking the odds, defying the trends.