Landsea Homes Talks Texas

23 December 2024

The California-to-Texas pipeline isn’t slowing anytime soon — just ask Landsea Homes.

The homebuilder, founded in 2013 and initially backed by Chinese real estate development firm Landsea Group, moved its national headquarters to Dallas last year, ditching Newport Beach for Tower 1320 in Irving after signing a deal for over 14,700 square feet of office space in November.

Landsea began eyeing a central location after it acquired Florida-based Vintage Estate Homes in 2021 for $54.6 million. The deal came with developments in Florida as well as San Antonio.

“The mission then was to scale — to really double-down, triple-down on Texas,” said Landsea’s vice president of corporate homebuilding operations Josh Santos.

Landsea acquired Arlington-based builder Antares Homes for $232 million in cash in January, cementing developments in North Texas communities, including Midlothian, Azle, Cleburne, Granbury and Fort Worth. It’s selling homes at two of its communities in the Austin area, with two more master-planned communities on the way in Kyle, between Austin and San Antonio.

Supply for new homes in Texas dropped as supply for existing homes rose, making inventory for both equal for the first time in over a decade at about 4.4 months of inventory this August, according to data provided by Texas A&M University’s Texas Real Estate Research Center. Buyers quickly absorbed new home stock this year as homebuilders increasingly leveraged discounted blocks of lending, provided mortgage rate-buydowns and other incentives while the market struggled with high mortgage rates.

Four of the nation’s five top markets for new homes this year are in Texas. Dallas took a long lead with 42,840 closings, followed by Houston with 32,791, according to Zonda.

Landsea holds 21 home communities in Texas, the second-most among its five main markets, behind Florida, where Landsea has 30, according to the company’s third quarter earnings report. Yet, Texas was only its fourth-highest earning market in the third quarter with about $51.7 million, or 15 percent of its total $338.5 million in revenue. California is its highest-earning market with almost $97 million in revenue.

Santos spoke with The Real Deal about Landsea’s Texas growth strategy and how the firm plans to approach market challenges heading into the new year.

How has Landsea’s strategy for Texas evolved over the last few years? How do you decide which communities and regions to target?

These past couple of years … it became apparent to us that we needed to be in Texas. Knowing we were going to have an operation to Florida, which is another hot bed, and in Texas, it just made sense for the company to relocate its corporate headquarters from California to Dallas because it was right in the heart, in the center, Texas being an absolutely thriving market for home building and the demography of Texas over the past couple of years post-Covid blowing up. It was a better place to be.

Landsea sold all 45 of its homes in Manor, Texas, last month — what contributed to that rapid success?

It’s definitely an outlier performance of a community in that market; it’s been a tougher year with sales in Austin this year.

That’s a market that boomed tremendously post-Covid, and when interest rates went up, things softened. When we opened up Village at Manor Commons, this was a community that was a little bit closer to central Austin. We’ve got a community in Liberty Hill up to the north, and another one in Avery Center — the Avery Center one is attached townhomes, while Village at Manor Commons was traditional single family detached homes, with front loaded garages and backyard, and it’s the first time we were able to open up our brand of home in an area that is more centralized into that Greater Austin Metro area — and Manor’s exploding.

With our value proposition, that we were able to go to market with our high-performance home platform features, with the Apple home environment and with our price point and included features, the market just screamed and said, “we want in.”

On those affordability challenges — what buyer incentives have you been offering? Are you offering more in some Texas metros than others?

We absolutely customize our incentive offering for each community, and right now, yes, incentives are huge.

As we’ve been able to scale up, we were able to introduce our financial services part of the business, which includes Landsea Mortgage. Since we have our own mortgage company, we’ve been able to go out into the mortgage market and buy tranches of money to offer to our buyers. We’ve got some communities that are offering a 3.99 percent, 30-year fixed interest rate. Some are 4.99 percent, and we have to utilize different kinds of levels of incentives for each of our areas.

Our communities to the South are very focused on entry-level, first-time home buyers. That group is definitely using more 3.99 percent financing than some of our projects up to the north, where the North is a bit more move-up buyer, large lot, and some of it’s even half-acre lot. They don’t need 3.99 percent, they’re okay with, say, 4.99 percent.

Are you anticipating any potential impacts on construction costs or operations from U.S. tariff policies under Donald Trump’s second term, considering Landsea Green Management, Landsea Homes’ parent company, is based in Hong Kong??

When we went public, Landsea Green Management had a pretty substantial ownership of the shares, but as time has gone on, that group has sold down, and they’re no longer a controlling entity of our company. So we are now a company that is U.S.-based — a [publicly traded] home building company that is run by our board of directors, so we don’t interact with [Landsea Green Management] anymore.

We’re certainly watching it. Obviously there’s been a ton of noise out there regarding potential policy changes with the new administration going in. We have a roster of those things that are being imported, which, fortunately, less and less is coming from overseas — I’d say, now, maybe 30 percent of materials that are going into our homes are coming from overseas.

We’re not necessarily super concerned. If there is a big, significant shift, we recognize that it could have an impact on our cost structure. But we’ve got some great alliances with our manufacturers, so we can ensure that, if there is going to be a significant hit to some of those categories, hopefully there’s an opportunity to shift to something else. As of right now, there isn’t anything solid that tells us that it’s absolutely going to happen, but we’re watching it very closely,

What opportunities or challenges do you foresee in the Texas housing market over the next few years? Are there any specific regulatory or economic factors unique to Texas?

In California, regulation is at its utmost compared to other places.

When we showed up in Texas, we were like, “well, this is amazing.” So for us, it’s full throttle, foot fully on the gas. From a regulatory standpoint, it’s been phenomenal.

For us, it’s been, “where do we want to be, and what is that balance of the different buyer types that we want to attract?” Right now, a lot of housing is very focused on the entry-level, the first-time home buyer, that has been challenged to purchase in this higher interest-rate environment. Our tool has been to provide below-market financing.

We’re also doing luxury communities [priced up to $880,000]. In that segment, there’s a lot of features and design elements for our architects and designers to take a few more chances and give us an opportunity to stand out.

Our high-performance home platform is one of those items that spurred out of a higher-end segment. We figured out a way to be able to include that on every one of our homes. In Texas, we’re hunting for opportunities that can bring us into some of those upper-end segments. We’re covering both ends from supply and demand.