Scottsdale-based AV Homes, Inc. just received a $135 million capital investment from the private investment firm of TPG. AV Homes attracts $135 million in capital Phoenix homebuilding veteran Carl Mulac, AV Homes executive vice president wrote for Rose Law Group Reporter about what the investment means for the company and his perspectives on the homebuilding industry.
Q: TPG made a significant investment in AV Homes. What motivated that decision?
A: I think they saw a company that had made smart decisions during the downturn. In 2011, we began the process of preparing ourselves for the homebuilding recovery. We right-sized our operations, recruited a group of very experienced senior-level executives, invested in a new, scalable information technology platform and instituted new processes and procedures that enhance our efficiency as a homebuilder. The only element that was holding us back was capital, and now we have the resources to grow.
What are the company’s plans?
We have a solid base of operations here in Phoenix and in Orlando. In fact, we own more than 9,000 lots in these two markets. These locations are among the strongest housing markets in the country right now. In the short-term, we plan to grow our Joseph Carl Homes brand that serves first-time and move-up buyers. We’ll be acquiring new land in Phoenix and commencing development of land that we own near Orlando. This is the strongest segment of the market right now and gives us the opportunity to grow our bottom line more quickly.
What about the company’s active adult communities?
In Phoenix, we have a strong presence in the active adult market with CantaMia in the West Valley and our recently announced acquisition of 310 acres at Eastmark in Mesa, which will become our second Vitalia-branded community here. Our flagship active adult community in Orlando is Solivita where we still have more than 2,000 homes to build. By nature of their size and amenities, active adult communities require more time to plan, develop and bring to market. We’re exploring other opportunities in this segment of the industry in new Sunbelt locations, but in the short-term, our most rapid growth will take place with our Joseph Carl Homes brand.
What’s your opinion about the direction of the Arizona real estate market?
Recent statistics speak for themselves. We’ve seen our inventory levels drop rapidly. There’s less than a three-month supply of home inventories, and that’s half the level we had just two years ago. Home prices have increased in the neighborhood of 25% during the past 12 months and that reacquired equity is prompting people to sell their existing homes and buy new homes. We expect to see permit growth in the 30% to 35% range in each of the next two years, and that’s nearly double the expected growth rate nationally. Phoenix is living up to its name.
Do you expect home prices to continue to rise?
Yes, but sustaining that 25% annual rate of increase is probably not in the cards. Nationally, we saw prices rise in the order of 10% during the last year. Analyst are projecting that rate of growth to temper a bit, settling in at about 6% to 7% in 2014 and 2015. There are markets that will exceed that rate, and others that will fall short. I expect we’ll see better that average growth in Phoenix because our overall market dynamics are strong. Our unemployment rate is below the national average, we’re seeing above average growth in incomes, and our population growth is nearly three times the national average.
After the past five years, are you still excited about being a homebuilder?
The past five years were the most challenging, but at the same time the most rewarding of my career. I had the opportunity to launch Joseph Carl Homes and merge that company with AV Homes. That was very exciting. On the downside, no one expected the industry to crash like it did. But out of adversity comes opportunity. Those of us who survived are now in a position to grow their business as the recovery continues to gain momentum. Yes, I’m still excited about being a homebuilder because at the end of the day, we’re still working to deliver the American Dream to millions of people.
