Real Estate: Local and Hawaiian Developers Join National Trend
CARLSBAD , A San Diego County homebuilder’s recently announced merger with a Hawaiian developer is part of a national trend where construction companies join forces to get credit and materials cheaper than before, an industry observer said.
Privately held Western Pacific Housing will merge with publicly traded Schuler Homes Inc. through an exchange of stock, company officials said late last month.
A new holding company will be formed and will continue to market homes under the Schuler and Western Pacific brand names, said Eugene S. Rosenfeld, chairman of Western Pacific Housing. He expects the transaction to close in late December or early January.
Western Pacific Housing is the sixth most-active homebuilder in San Diego County, according to the San Diego Business Journal’s 2000 Book of Lists.
In the fiscal year ended March 30, Western Pacific built 1,693 homes in California, Rosenfeld said. It built 260 homes in San Diego in 1999. Western Pacific, which is headquartered in El Segundo, has a Carlsbad office as well.
Among Western Pacific’s developments in the county are Sonoma Hills in Oceanside and Viadana at Rancho Carrillo in Carlsbad, Rosenfeld said.
The merger will make it more economical for the joined firms to develop housing than before, one local housing executive said.
“When you join two companies you enjoy economies of scale, since you are able to buy larger quantities of material at a lower price and your borrowing costs also go down because you are borrowing more money and are usually more credit-worthy than a smaller firm,” said Jay Kerr, president of D.R. Horton-San Diego, a residential developer.
The merger makes sense because Schuler wants to expand its presence in California and it’s cheaper to buy an existing business than start a new one, he said.
Slowing national demand for new housing has reduced the number of mergers and acquisitions in the building industry this year, said Kurt Kunert, editor of Mergerstats M & A; Research, a Los Angeles-based newsletter that tracks merger activity in a variety of industries nationwide.
“There’s been a lot of consolidation in the construction industry for the past several years,” Kunert said. “There was sort of a lull in the number of big public deals in the second quarter because of the stock market correction.
“The construction industry nationally is very fragmented,” Kunert said. “There are a lot of small private companies out there that can be acquired and that allows major developers to enter particular geographic markets relatively economically.”
