Looking to cash in on a rebounding housing market, a Pennsylvania home building giant has agreed to pay $1.6 billion for the luxury home building business of Shapell Industries Inc., the Beverly Hills firm behind more than 70,000 homes throughout California.
Toll Bros.' deal would significantly boost the Horsham, Pa., company's land holdings within the California market at a time when builders frequently cite the lack of buildable lots as a key impediment to ramping up construction.
"The Shapell acquisition adds meaningfully to our position in premium coastal locations and will immediately ramp up our California operations," Toll Bros. Chief Executive Douglas C. Yearley Jr. said in a conference call Thursday morning. "The tremendous land portfolio the Shapell family has amassed over decades in California presents an incredible opportunity for Toll Bros."
Most of the Southern California land Toll Bros. would get in the sale is in two communities: Porter Ranch in the San Fernando Valley and Plum Canyon in Santa Clarita.
California home prices have soared this year, although builders have yet to ramp up construction to historically normal levels. Among the issues they cite is the lack of ready-to-build lots after development stalled during the recession.
Toll Bros. would gain roughly 5,200 lots in California with the deal, more than doubling its holdings within the state. Toll Bros.' stock closed at $32.68, up 16 cents, or 0.49%.
The deal, subject to regulatory approval, is expected to close in the first quarter of 2014.
Nearly all the lots Toll Bros. would acquire are approved for development and are in established communities, the company said. The land is in the sought-after coastal markets of Los Angeles, the Bay Area, Orange County and northern San Diego County.
"We think the recovery in these areas is still in the early stages," Yearley said.
The Shapell deal is just the latest move by builders to acquire more land to develop and capitalize on the housing recovery.
On Monday, Irvine builder TRI Pointe Homes Inc. announced plans to merge with
"What we are seeing is possibly the beginning of a trend," said Gerd-Ulf Krueger, chief economist with KruegerEconomics, which consults for home builders. "They are realizing, at least in relatively nice areas, they are running out of lots."
Shapell Industries is an iconic name in the home building industry. The company amassed its vast land holdings over decades, scooping up former ranch land and spinning out luxury communities.
Nathan Shapell, a Holocaust survivor from Poland, founded the company in 1955, along with his brother David and brother-in-law Max Webb. The former MGM ranch in Thousand Oaks and Porter Ranch are among its prominent developments.
Nathan Shapell died in 2007. He drew accolades for not only his home building, but also his civic engagement and philanthropy.
"Nathan Shapell exemplified generosity, tolerance and civic responsibility," former Los Angeles Mayor
Shapell Chief Executive Bill West did not return a call seeking comment. In a news release, he said, "the board of directors of Shapell made the difficult decision to sell their home building business after careful deliberation."
The sale, announced late Wednesday night, includes Shapell Industries' home building unit and vast residential land holdings. Shapell's other retail, commercial and multifamily assets are not part of the deal, Toll Bros. said.