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Big Home Builders Gobble Up Rivals Starved for Cash
Robbie Whelan and Dawn Wotapka / The Wall Street Journal / July 15, 2013
The nation’s biggest publicly traded home builders are on a buying spree, snapping up small privately held companies who made it through the housing slump but now are struggling to find financing.
Big builders are seeing their profits healthy and their homes selling at higher prices. For their smaller, privately owned competitors, times remain tough.
What sets the big builders apart is access to capital. The bond market has been kind to big builders, which issued a record $8.1 billion in bonds last year. Bond issues are on pace to have one of the strongest years ever this year, according to a recent analysis by J.P. Morgan.
Private builders have traditionally relied on small or regional banks for funding. But many of those lenders stopped making loans for construction and development during the financial crisis and have been slow to resume. More than 480 banks have failed since the beginning of the downturn, according to the Federal Deposit Insurance Corp.
And lenders haven’t been eager to make new loans to the industry: According to the FDIC, the dollar value of outstanding construction and development loans has declined 68% since the peak of the market in early 2008.
Without bank credit, small builders are unable to buy and develop the land necessary to build homes. That has allowed the biggest builders to rapidly gain market share, in large part by acquiring their smaller competition.
“It’s getting tougher and tougher for the little guy,” said Michael P. Kahn, a building-industry consultant based in Palm Coast, Fla. “The big builders are coming in with big purses and saying, ‘Sell me what you’ve got, I’ll write you a check for it.'”
Mr. Kahn, who has advised builders on 96 mergers and acquisitions since 1987, retired from real-estate deal-making in January 2011, but came out of retirement late last year. He has since advised on three deals, and predicts there will be as many as 20 more over the next two years. “The floodgates have opened,” he said.