Sale of Major Home Builder Leaving Few Independents

A decade ago, some of the largest home builders in Orange County were independents. But when Kaufman & Broad Home Corp. completes its acquisition of Lewis Homes, independent builders will have all but vanished in Orange County.

In the mid- to late 1980s, independents sprouted like wildflowers. Financing was not an issue, and they could assemble enough vacant lots to turn profits. But by the early 1990s, some lenders were forced out of business because of risky loans and tighter government regulations, just as the recession slammed Orange County’s housing market, said Russ Valone, president of Market Profile/Residential Trends, a firm that tracks new-home development in Southern California.

As a result, builders without deep pockets were not able to sell their inventories during the recession and went belly up. As bigger companies began competing in the lucrative Orange County market, others found themselves squeezed. “They didn’t have the staying power,” Valone said.

“We’re moving to a point where a dozen major builders will dominate the Southern California marketplace,” Valone said. “They’ll be competing among themselves, but the competition may become even more fierce.”

Access to adequate capital is a challenge even for veteran independent firms. Land costs have mushroomed in Orange County amid soaring demand, making it harder to build homes in quantity. For many smaller developers, profit margins have shrunk to about 5% from 15% a few years ago, stretching their resources to the limit, said Al Gobar, a housing consultant based in Placentia.

The Kaufman and Broad acquisition of Lewis will create the nation’s largest home builder. The company will be the biggest in the Inland Empire, where most of the region’s vacant land is, and in Orange County, where it will control more than 10% of the new-home market, according to the Meyers Group, a real estate research firm.