By Catherine Reagor| January 31st, 2020
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Scottsdale-based Taylor Morrison is about to become the fifth biggest homebuilder in the U.S.

Shareholders approved the $2.4 billion deal for the builder to buy California-based competitor William Lyon Homes on Thursday. It’s Taylor Morrison’s second seven-figure acquisition in two years.

The builder is growing as demand for new houses, including rentals, hits a 10-year high. Millennial first-time and even second-time buyers looking for affordable homes are fueling a growing share of its sales.  

Led by CEO Sheryl Palmer, Taylor Morrison has been on an acquisition role. It bought competitor Scottsdale-based AV Homes for $1 billion in 2018. The builder is also a big player buying metro Phoenix land.

An executive with another Valley homebuilder recently joked at a housing forecast meeting that he hoped Taylor Morrison would soon turn its buying spree to another part of the U.S.

“Taylor Morrison’s growth has been phenomenal to watch,” said housing analyst Jim Belfiore to 1,000 people from the homebuilding industry at his AZ Deal Makers forecast in Phoenix last week.

More building but no boom

Builders, buyers and investors are more bullish on new homes now because of the extreme shortage of existing houses for sale in metro Phoenix and other growing areas.

Housing experts say builders will have to ramp up construction so there are enough homes for new residents.

But a repeat of the overbuilding mess of 2005-07 that left tens of thousands of vacant new houses in metro Phoenix isn’t on the drawing board. In 2006, more than 60,000 new houses went up Valley-wide.

During 2019, about 22,000 new homes were built in the Phoenix area, and about 23,000 are expected to be constructed this year because of a lack of new home lots available, higher construction costs and a labor shortage.

“People are very bullish on homebuilding now, but the market is very different than 10 to 12 years ago,” Palmer said. “The run-up in building in the early 2000s was based on very speculative demand.

“We are seeing a very different consumer with a down payment and real mortgage show up now,” she said.

Taylor Morrison’s growth spree

The deal with William Lyon will make Taylor Morrison the biggest publicly traded homebuilder in Arizona. It will likely be No. 3 in metro Phoenix for new-home sales.

Taylor Morrison sold nearly 1,500 homes in metro Phoenix last year in communities spanning from Eastmark in Mesa to Verrado in Buckeye. Some of its most affordable houses start at $226,000 in Goodyear’s Estrella, and prices climb to almost $500,000 at its new community Venture at Black Mountain in Cave Creek.

William Lyon built about 500 Valley homes in 2019, mostly priced below $300,000. Its communities range from Queen Creek’s Ovation at Meridian to Rio Vista at Rancho Mercado in Surprise.

The combined firms could sell more than 14,000 houses across the U.S. during the next year, according to a Taylor Morrison estimate.

John McManus of Builder Magazine described Taylor Morrison with the merger as a builder with a “suddenly massive footprint of markets stretching from coast to coast.”

Building to rent, instead of sell

To tap into the growing market for affordable new homes to rent, the builder has partnered with Mesa-based Christopher Todd Communities.

Christopher Todd builds single-story, unattached rental homes with private backyards that look much like small single-family home neighborhoods in Valley suburbs. Rents range from $1,100 to $1,600 for the homes that have one to three bedrooms.

Construction recently started on the two firms’ first project that's going up on 12 acres near Ellsworth Road and University Drive in Mesa.

 “This partnership enables us to serve more customers, flex our production-builder muscles and quickly address demand for an increasingly appealing housing experience,” said Darin Rowe, president of Taylor Morrison’s build-to-rent operation.

While these relatively tiny homes have become popular among renters in metro Phoenix, Palmer said there are several markets outside of Arizona where they haven’t been built but will be by the two firms soon.

The merger

The purchase of William Lyon, expected to close in early February, is Taylor Morrison’s sixth builder acquisition since its $526 million initial public offering in 2013.

Taylor Morrison builds for first-time, move-up and active adult homebuyers. About 54% of William Lyon’s business is for the first-time buyer.

The combined company is expected to generate more than $6.7 billion in revenue and own 83,000 lots.

Leading the way

Palmer, a former Del Webb executive, is the only woman CEO running one of the nation’s 10 biggest homebuilders.

In 2018, veteran New York Times executive Denise Warren and former Banana Republic Global President Andi Owen joined Taylor Morrison’s seven-member board.

Palmer and former Del Webb President Anne Mariucci were already on the board.  

REAGOR: More Arizona women real estate leaders than ever

The 4-to-3 women ratio on Taylor Morrison’s board is rare among U.S. public companies.

Women hold one out of every five seats on corporate boards for the country's 3,000 largest publicly traded companies, according to the Wall Street Journal.

“We didn’t have a women quota,” Palmer said. “We went out looking for the best people to join the board.”

Palmer said the company’s growth is about being in the right place with the right people and resources.

“Our growth is very strategic,” she said.

Investors could agree. Taylor Morrison’s stock closed at about $26 a share on Thursday. up from a 12-month low of $16 last March.

Reach the reporter at [email protected] or 602-444-8040. Follow her on Twitter @Catherinereagor.

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