Look for more deals in coming months that mirror Detroit-area builder Gary Tadian's sale of minority interest (he won't say how much) in Tadian Homes to California investment behemoth Institutional Housing Partners.
Florida lawyer Michael Kahn middle-manned this deal and has others in the works.
IHP has invested nearly $4 billion for America's largest life insurance companies and pension funds during the past 10 years.
"They'll provide the capital we need to grow much faster," Tadian says.
For years Tadian has been among the most profitable builders but built only 60 houses a year. He recently brought in Dennis Bailey as president with a management team that ratcheted production to 161 units for $41.5 million in 2002 and a projected 365 houses for $82 million this year.
IHP is counting on Tadian to hold his historic profit level through three to seven years of fast growth. Then we look for Tadian and IHP to sell the whole company to a big builder, probably a public one interested in adding the Detroit market. Only Pulte, Centex and Toll Brothers operate there now.
"It's a great approach for a builder who wants to cash out but needs more critical mass to attract a buyer," Kahn says. "You sell up to 50% of the business to institutional investors, then use their capital to grow the business. In three to seven years, you sell for a much higher price. Institutional investors are comfortable with up to seven years. They're used to investing in real estate projects."
This is just another kind of project. Tadian will now compete for big land deals. It won't take many to get him to easy street.
"I've been a workaholic," he says. "I can't work 80 hours a week forever."