Professional Builder Giant 400: High-Rise Fraught with Risk

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Who knows how deep the current downturn in home sales will go? The crystal ball is cloudy for everyone. But one thing is clear: many Giants are rushing into high-density infill development — including high-rise condo buildings — just as housing demand is faltering, and that's a dangerous move.

April 01, 2006

 

Who knows how deep the current downturn in home sales will go? The crystal ball is cloudy for everyone. But one thing is clear: many Giants are rushing into high-density infill development — including high-rise condo buildings — just as housing demand is faltering, and that's a dangerous move.

 
Masters Of The Universe (Giants 6-31), which includes majority of publicly-held home builders, have a big lead in closing high-rise condos, but projects under construction indicate Supernovas (Giants 1-5) will soon find traction in this market segment.

High-rise condos have much in common with rental apartments, including an easy propensity for over-building. When there's demand that everyone can see, too many builders may rush to meet it, and two years later there's a surge of inventory. A lot can change during the 18 months to two years it takes to build a high-rise.

Unlike a suburban subdivision, where a builder can slow down — or even stop construction — a condo tower is an all-or-nothing proposition: "Once you get past the foundation, and start putting bricks in the air, you're going the whole way," admits Toll Brothers chairman Bob Toll, "whether people are canceling contracts or not. You can't stop a high-rise."

The demographics of housing demand indicate an upswing in urban projects for at least the next ten years, risk or no risk.

Top 10 Townhouse & Low-Rise Condo Leaders

2006 Rank Builder City ST Townhouse/Condo Closings
1 Pulte Homes, Inc. * Bloomfield Hills MI 12,776
2 D.R. Horton, Inc. Ft. Worth TX 8,735
3 Lennar Corporation* Miami FL 8,243
4 Centex Corporation Dallas TX 7,515
8 NVR, Inc. * Reston VA 4,136
44 Pasquinelli, Etal. Burr Ridge IL 3,277
7 Hovnanian Enterprises, Inc. Red Bank NJ 3,214
35 Tarragon Corporation New York NY 3,081
12 Standard Pacific Corp. Irvine CA 2,742
61 Epcon Communities Franchising, Inc. Dublin Oh 2,677
* Estimated

Source: Professional Builder, 2006

SUPERNOVAS (GIANTS 1–5) already lead in townhouse and low-rise condo closings, with the notable absence of No.5 KB Home. PB (so far) has no statistical category for mid-rise. Low-rise goes up to four stories. Five stories or more are high-rises.


Top 10 High-Rise For-Sale Builders


2005 Rank Builder City 2005 High-Rise Sale Closes % Change Over 2004
22 MCZ Development Chicago, IL 3,670 -7.8%
53 Wood Partners Marietta, GA 671 148.5%
3 Lennar Corporation* Miami, FL 600 -
17 WCI Communities, Inc Bonita Springs, FL 563 6.0%
18 Taylor Woodrow, Inc. Bradenton, FL 531 5.4%
89 Magellan Development Group Chicago, IL 410 71.5%
30 JPI Irving, TX 330 247.4%
268 The IDI Group Companies Arlington, VA 278 -20.1%
136 The Enterprise Companies Chicago, IL 230 -39.3%
128 The Cornerstone Group Coral Gables, FL 181 -
Source: Professional Builder, 2006

CHICAGO-BASED MCZ DEVELOPMENT is still the leader in high-rise closings. MCZ peaked at No. 21 in rankings last year, but dropped a spot this year. Note that Supernova Lennar Corp. hit the top 10 for the first time with 600 closings in a Miami joint venture.



View Additional 2006 Giant 400 Report Articles:
Topping Out or Just A Pause?
Publics Diversify Products
High-Rise Fraught with Risk
Public v. Private Debate Continues
Publics' Profits at Peak
Even Small Private Builders Can Compete
What Happens Next?

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