Tri Pointe Coastal Carolinas, Florida Entries Follow Game Plan

Almost 15 years ago to the moment, Doug Bauer and Tom Mitchell and their friend and colleague Mike Grubbs hatched a big bold strategy on a kitchen table. It would become Tri Pointe Homes, a top 20 U.S. homebuilding enterprise.

As far back as that moment, the company they modeled and the customers they set out to serve put Tri Pointe Homes' new plans to enter Central Florida and the Coastal Carolinas' gangbusters markets right there on the table as part of the firm's origin story. It would be "the best of big and small," with an entrepreneurial soul, and deep-pocketed, highly professional operations. What's more, its designs, locations, and communities would serve a higher-tier price point in each of housing's entry-level, move-up, and second-time move-up segments, angling to secure a value proposition that would set it apart in a sea of big builder sameness.

Tri Pointe's latest geographic foray – coming at a time the nation's biggest homebuilding enterprises are scrambling not only for incremental volume and revenue growth, but for an ever-greater slice of new home construction and real estate's future – runs true to Bauer, Mitchell, and Grubbs legal pad brain storm 15 in 2009.

Going into Orlando and the Coastal Carolinas fits our strategy for bringing our 15 divisions into all of the core market areas,” Tri Pointe Homes CEO Doug Bauer tells The Builder’s Daily in an interview about the Florida and Carolinas market entries. “This can be a tougher strategy because land in those core market areas can take varying entitlement skill sets and timelines. But that's our wheelhouse in the best of big and small: Having good, local, strong leadership that understands the consumer, the architecture, and the product that drives that consumer and then being in those core locations. When the market gets a little bumpy, the consumer will typically want to be in those core locations rather than being out in the B-minus or C-plus locations. Nobody can predict those ebbs and flows of housing, but that's been our strategy since we started the company. Even when we bought the Weyerhaeuser Companies [2013], we strategically focused those divisions on the core market, premium lifestyle brand.”

The announcement early today attests not just to a corporate footprint expansion, but rather to a strategic program and residential investment thesis – reaching a "premium, lifestyle brand" customer – long-haul manifest destiny.

Per this morning's media announcement:

Tri Pointe Homes’ expansion into Orlando and the Coastal Carolinas reflects the company’s strategic plan of growing its business organically in the top 25 homebuilding markets in the U.S. The Southeast has emerged as an economic engine with South Carolina and Florida being the two fastest-growing states in the nation in 2023, growing their populations by 1.7% and 1.6%, respectively. This growth is a significant factor driving housing demand in these areas. Moreover, these states boast diverse economies that fuel robust job markets. The thriving conditions and diverse industries in these states, from technology and life sciences to aerospace and financial services, as well as tourism, provide a fertile ground for Tri Pointe Homes to introduce its premium lifestyle brand, catering to the growing demand for premium entry-level and move-up housing in markets ripe with opportunity."

As Bauer notes above, an elevated level of difficulty goes hand-in-glove with Tri Pointe's recipe for market entry, as we explored in September, when the company planted its operational flag in Utah. A homebuilder's "moat" consists of a blend of high barriers – cost, intricacy, complexity, deep local relationships and intel, and deft understanding of local and in-migrating households – that add up, in Tri Pointe's case, to validation of a fast, three-to-five year trajectory from zero to $250 million for each of its new, organic divisional start-ups.

That takes, as Bauer notes, "good, local, strong leadership," on point in each of the fledgling locations. Joel Underwood, formerly VP of Operations for Taylor Morrison's Orlando division, and Ali Heavener, most recently division manager for Lennar's Carolinas operations, fit exactly the criteria Tri Pointe set to give their fledgling operations a solid start out of the gate.

We've been studying and analyzing these markets, seeing the strategic growth opportunities there, and the right timing depended on finding exemplary leadership,” Tri Pointe Homes President Tom Mitchell tells us. “It's all about that leadership. We went through a thorough and exhausting process to make sure we had an alignment of vision, values, and business philosophies. With Ali and Joel, we're convinced they are the right team members to lead this charge. We see a bright opportunity – an under-served portion of sub-markets for our premium lifestyle brand. Those two will make that happen, and we will do it just as we've done all the other successful organic startups."

Heavener's and Underwood's work will be cut out for them, for while the Carolinas and Florida have been overachievers in pandemic and post-pandemic era magnetism, growth, and development opportunities – with multi-level appeal among both current area residents and incoming young adult and 55+ "next adventure" home seekers – the markets now rank with Texas, California, and Arizona – among the nation's most competitive. That concentration of players and competition extends well beyond homebuying customers, inflating land buys, tightening access to local trades and timely product and materials distribution to job sites, not to mention face-time with local permitting, planning, and inspections officials.

Even though you hire the best local talent and have the relationships and the know-how of the coastal Carolinas or Orlando, you're building a reputation," Bauer tells us. "The most immediate challenge for an organic division startup is building relationships with the land sellers and the trades to say, 'These guys are real now.' Until you are making land deals and building homes, there tends to be a challenge there. If you were to ask Ali and Joel what we offer, a huge advantage in their mind in a big market like Orlando and the coastal Carolinas is that the larger public builders have homogenized their product offering and are very production oriented and if it doesn't fit into this box, it doesn't work for their land appetite. One of the things that we've talked about as we've explored the opportunities with both these people is their excitement about finding a piece of dirt that they'll have the latitude to create and build a community that offers a product that syncs up with an entry-level premium or a first move up premium lifestyle level and enhance the value of the community. So, having that reputation can create an advantage."

What's Next For Tri Pointe Expansion?

Tom Mitchell

It's a balance – one step at a time. We've got three new organic operations that require significant resources and capital. We're cognizant of our responsibility to produce appropriate returns for our shareholders. These markets are at the top of our minds that we're going to have success with. Over the next couple of years, we'll be in a different position. And there are logically some areas you highlight future expansion opportunities, and so we continue to look at those and keep them at the top of our minds. But right now, we're indeed focused on Orlando, the coastal Carolinas, and Utah for a launch point."

Why Organic Vs. Acquisition?

Doug Bauer

If there's an acquisition opportunity, I'm always acquisitive. The nice thing about organic is, number one, you get to pick people that fit your DNA, and then they hire people that fit the team. Number two, you're buying land at book. Whenever you buy somebody, you're paying a premium. At times, when you buy a company with a lot of different people, you find out there are skeletons buried in the closet; you can never seem to find that during due diligence. The organic play playbook isn't perfect, but it's cleaner. And again, we've been doing it for 15 years. So we're very comfortable with the playbook."