Through a strategy of finding off-market niche deals and avoiding head-to-head competition with public builders, Warmington Residential once again was among the industry’s biggest gainers with a 65-percent jump in revenue last year to $123.5 million, as closings more than doubled to 623 compared with 2012. The family owned business started as a custom home builder in 1926 and is now the Warmington Group of Companies, which includes Warmington Properties, Château Interiors & Design, and Studio Chateau, a startup that provides interior design software support to other builders.
Q: Do you think being part of a group of companies that includes a full-service real estate division and multifamily/commercial property management makes the home building company more attractive for private equity partners and lenders than would being solely a home builder?
A: I’m not sure that the combination of business in investment properties, home building and interior design make our group of companies inherently more attractive to debt and equity partners, as they are truly separate companies and operations. However, I do believe that the synergies between these different operations makes us better at what we do in all these areas, as ideas are shared across divisions, which then makes our deals and reputation more appealing to equity and debt partners. For instance, for decades our operations have included apartment management, apartment development and attached for-sale housing (podiums, HD condos, townhomes, etc. across all price ranges). On the construction side, we have been able to utilize construction and design efficiencies from the different product types for use across our development platform. Managing apartments has allowed us to build more efficient communities for our renters and for our management team. On the home building side, our inclusion of a full-service design center has benefited our homebuyers, home building operations as well as our design business. Our design center, Chateau Interiors and Design, is a standalone business, which not only provides its services to Warmington Residential but also to numerous other builders in our region. So, it is the added value that these combined operations add to every project that improves our ability to meet and exceed our equity and debt partners’ expectations.
Q: Warmington remade its product during the recession and focused on building communities that were different from the rest of the market. What were some of those offerings?
A: We have always prided ourselves on producing community and product design that was better than the general market, and it has become part of our reputation. During the recession, we needed to find a way to compete with other builders offering only lower prices and with recently built homes that were often more expensive construction with full landscaping, upgrades and even pools already installed. We found that in many communities we could be unique by offering “special and different” features than our new and used competition to great success. At The Legacy Collection in Covenant Hills, we realized that although the product build during the previous cycle was still wonderful in design, quality, and location and relatively new, there were almost no single-story homes, literally hundreds out of 9,000 homes. So we conducted some research and found there was significant demand for single-story homes with outdoor living seamlessly integrated into the houses. The introduction of large sliding exterior glass pocket doors, along with larger lots and a great team effort on design, allowed us to build two of the greatest homes in the history of our company. We have taken this theme to our new community, Warmington at Stellan Ridge in Riverside, which opened recently, and we have already seen similar excitement from homebuyers about the new design elements and livability. In Costa Mesa, we are working with MW Custom homes on a smaller 14-unit detached community that also promises to offer something different than is currently offered in the market. Costa Mesa has a plethora of very old (1950-1970s) smaller homes in the 1,100 to 1,400 sq ft range on 6,000 square foot lots. Most of the projects built in the past are single-loaded homes with one access alley for all the homes which are very tightly packed in. Homebuyers want to be in the area due to the great schools, lifestyle and proximity to the beach, but often must accept sub-optimal housing choices, or pay much higher prices for the better options. East Haven, as our project is known, was designed with 2,250 square feet detached homes with a targeted focus on offering a better community layout, along with much more livable homes for families in the area.
Q: How is Warmington faring in the land market?
Acquiring enough good properties today is a problem all builders are facing. While we are getting our fair share of new land deals, we still have capacity to grow more quickly. Land deals today tend to be more difficult than in the past, requiring some level of re-entitlement, environmental cleanup, assemblages, and solution of other difficult issues. We have proven to be successful at taking on these challenges which many others avoid, to create value either for a homebuilding project, which we build out ourself, or sell off to another builder as part of our strategy to flip some deals while building others. We continue to look into areas with little or no home builder competition, close to job growth, with good schools, near transportation, all of which often mean repurposing the site from retail, industrial, etc., into residential.
Q: Are you considering building more rentals in the near future? Will multifamily have staying power?
A: Since 2007 we have built around 1,000 multifamily units, many of which we plan on keeping as long term holds and adding to the nearly 1,100 apartment units in California and nearly 1,100 owned in Las Vegas (includes Everett and Chandler), heading toward nearly 1,700 with the completion of those being started this year. S ince we first built apartments in the late 1960s—which we still own and manage—they have been an important part of our diversification efforts, which help us through the difficult recessions home builders regularly face. We like this asset class and anticipate continuing our efforts to acquire and develop more in the future. However, in many markets the tide has turned, and it now makes more financial sense to build attached-for-sale housing than apartments. This is the case in most California markets. In Las Vegas, most areas don’t yet support attached housing, given the affordability of single-family detached, but many sites that previously would have been apartments are now being reworked for single-family detached. However, I do expect we will look at a few more apartment communities in Las Vegas in the near future. PB