Competition, "coopetition," combination, concession, or capitulation. You get to pick one. Choose wisely.

Private homebuilders may have steep capital-access disadvantages and fewer options navigating housing and economic uncertainty now and the months to come. But, that doesn't mean some of them won't come out of the turbulence stretch in even better shape than they're in now. Adaptability and trusted relationships with a few local land-sellers may be what it takes to play for time, and many local and regional private firms have earned just that.

A Carolinas-area private-to-public land-asset deal unveiled this week to clients and contacts of Builder Advisor Group – a supporting partner of The Builder's Daily – can help illustrate:

BAG was recently engaged by Glenwood Homes, a prominent Raleigh and Winston-Salem builder/developer, to sell substantially all the company’s land assets. As a result, we organized a competitive process involving several interested parties, securing the most favorable terms for our client. LGI Homes is looking forward to further enhancing their presence in the Raleigh and Winston Salem markets with the purchase of this portfolio of finished lots and entitled land."

While it's not a typical entity-level merger and acquisitions deal, LGI's agreement with the three owner-principals of Raleigh, N.C.-based Glenwood Homes will transfer upwards of 1,000 vacant-developed and raw-entitled lots in three tranches to LGI – one batch already signed-over and two to go in the next week or so. At LGI's current ASP's in the range of $350,000, the three-tranche pact with Glenwood would supercharge LGI's revenue opportunity in the Triad, Coastal and Triangle markets in North Carolina by $350 million, not dissimilar from what an acquirer might expect from a more traditional M&A combination in an active operating division.

We three partners – Tom Quackenbush, Mitch Murphy, and I sat down and valued the homesites that we had," says Glenwood Homes partner and sales and marketing director Carla Sevilla. "Our lots include both developed and finished as well as and raw-and-entitled, and we worked together to put together pricing for LGI. They were agreeable. So far, the first closing went incredibly smoothly with LGI. And we are on track to do our second closing the first week of October. It looks like that's going to go smoothly as well. So we've been very happy with how the transaction has transpired between both parties. They're a great company to work with."

And here is the kicker – the proverbial "win-win-win" for a private homebuilding operation that might otherwise find itself in rough straits and higher risks with lenders and capital providers, carrying higher borrowing costs, higher rates, fees, insurance, etc.

We can continue our homebuilding operations as Glenwood Homes, and look to purchase and acquire more land, more lots, and grow even bigger than we were before we sold our home sites," says Glenwood Homes partner Carla Sevilla

A higher-for-longer interest rate regime raises the heat on many privately-held homebuilding and residential development firms, even as it squeezes the pocketbooks of their rate- and price-sensitive homebuyers. This is especially the case for private firms that need to replenish their land pipelines sooner than later, against a backdrop where both prices and borrowing costs – and access to credit – are under pressure to rise more. National and mega-regional public homebuilders – flush with billions of dollars of cash they've stockpiled since curbing land acquisition and development spending early last year -- have made no secret of the extraordinary lengths they'll go to to put both higher volume and expanded profits out ahead of themselves, partly by capturing greater marketshare in their operating arenas.

There's most certainly a 'coopetition' note to how this came together, and you're seeing this theme and variations going on in the market right now," says Tony Avila, CEO at Builder Advisor Group. "For Carla, Mitch, and Tom, the deal allowed them to take some of their own chips off the table, and at the same time it gives them all the financial flexibility they need to do everything they want to do, even as it provides LGI fantastic lot positions in a market where they're going great."

Like many of the publics, LGI has forecast business momentum and improved performance through the balance of 2023 and into 2024. Specifically, promising unit volume and financial results gains in the near-future, LGI's strategic executives declared in Q2 earnings commentary in early August, that they're on course to expand LGI's community count by 20% to 30% in 2024, on top of a backend of 2023 burst of new communities as well.

This year's ending community count end-of-year 2023, we expect to be 115 to 125," LGI Chairman and CEO Eric Lipar told analysts. "That's going to be backend loaded. We're opening up a lot of new communities in Q4 that we expect to have closings in November and December of this year. The 20% to 30% growth in community count next year is off of the year-end number this year 2023. The only new market we're entering is Salt Lake City, and we expect to have 2 communities opening and having closings by the end of '24."

Further, in that same call, Eric Lipar telegraphed deals like the one LGI has now finalized with Glenwood Homes:

The other thing that's positive about community count growth next year is we are starting to see some finished lot opportunities," Lipar said. "We have approved multiple finished lot deals through our acquisitions committee that will have closings in 2024 that we didn't know about 90 days ago. So we are starting to see more opportunities to drive community count through both finished lots and what I'll say is shovel-ready development opportunities, which will be additive to community count in '25 and '26."

The playbook of buying out assets from a local builder developer – reminiscent of an earlier burst of growth for LGI that powered a near-tripling of home closings, a doubling of community count, and a five-times revenue growth between 2015 and 2021 – hearkens back to around this time in 2015, when Lipar shared with equity research and investment analysts:

In early July, we are able to dramatically increase our land position in the Denver, Colorado market. We acquired approximately 400 lots including finished lots in undeveloped land from Jack Fisher Homes."

That very same playbook can work as an advantage to private builders that may want to keep their own independent operations going, and at the same time relieve pressure on themselves with banks and other capital providers. Firms that happen to be sitting on – or are sustainably capable of sourcing and developing – the very lots national, public builders covet – particularly in metros in fast-growing regions like Florida, the Southeast, Texas, where both organic household growth and domestic in-migration from jobs and retirement living have fueled housing activity can find cover.

And, further, they turn it to a greater advantage for when markets turn up and growth – for publics and private companies alike – reignites.

We started in 2017 as primarily a first-time/first-move builder, incredibly affordable," says Glenwood Homes' Carla Sevilla. "We have a very strong value proposition for our buyers. We have active communities in Clayton and the Winston-Salem markets, where we can build a single-family ranch home in Clayton for $299,000, which is a price point that eludes many nationals. The reason is, we have great relationships with our subs, vendors and land partners to be able to provide that affordability and that value play for our buyers."

Sevilla, Murphy, and Quackenbush may feel a good deal lighter on the land side right now, but they're confident as developers with deep relationships in the market among landsellers, a new pipeline is out there awaiting them. They're now more financially nimble than they'd been to move on the right deals as they surface without as much personal guarantee exposure as they'd had. Further, Builder Advisor Group may extend Glenwood "land debt" as part of a recent private debt fund it created to offer builders like Glenwood longer capital runway for future deals.

Meanwhile, it's heads down and 100% focus on challenges and opportunities right smack in front of them.

We're actually seeing very solid demand in our core markets even with the 7% interest rates," says Sevilla. "The buy-downs we can do with our preferred lenders and making sure that we are in the pricing ballpark where these buyers need to be have been effective. Last month, we just grand-opened our Barbour Farms community in Clayton last month. We have a total of 65 home sites sitting on approximately one-acre each. We've already sold 21 homes out there. All pre-sales, no inventory, and we've got an incredible amount of demand. We are actually going to be starting between 10 and 15 spec homes, because we do miss out on some buyers because we don't have available inventory. But we're primarily a pre-sell builder. My sales team is well-versed on how to sell off of plans, off video tours, off of paper. That's one of the ways that we create value for our customer – we don't have a lot of overhead. We don't build homes that could sit, maybe for months. We typically do the pre-sale opportunities with our buyers, which allows us to turn the asset even quicker."

If it takes teaming up strange-bedfellows-style with an interested national public builder to keep the doors of that kind of opportunity open – think Sevilla, Murphy, and Quackenbush – well then, there you are.

I would say it's a relationship with LGI," says Sevilla. "We're looking forward to working with him beyond the closing."