Heading into territory long ignored by the nation’s top builders, KB Home said Monday that it planned to build houses in the New Orleans area and other parts of hurricane-devastated Louisiana.
The Los Angeles-based builder has formed a 50-50 joint venture with Shaw Group Inc., a Baton Rouge, La.-based construction and engineering firm that is among the top contractors involved in rebuilding the Gulf Coast region, KB Home Chief Executive Bruce Karatz said.
The companies will search for undeveloped land to construct communities of single-family tract homes in metropolitan New Orleans and other mostly suburban locales away from the flood-prone urban neighborhoods that were hardest hit by Hurricane Katrina and its aftermath, Karatz said.
Already, the firms have a pending agreement to acquire 3,000 acres of farmland in Jefferson Parish, a 30-minute drive from downtown New Orleans, KB executives said. The partners also are considering properties in Baton Rouge and elsewhere in the state, they said. The number of homes they will build has yet to be determined.
KB Home’s entry into Louisiana would be among the first by any major U.S. builder. Most of those builders have shied away from the state because of its lackluster economy, receding population and unusual geographic features, such as parts of the area that are below sea level.
D.R. Horton Inc., the largest U.S. home builder, said last month that it had started to acquire lots near Baton Rouge, where the population has skyrocketed since hurricane evacuees began to seek housing there.
Although the lasting economic effect of Katrina is unclear, Karatz said, “there’s such enormous need” for housing.
“If we develop the ability to execute home building in the region and do it successfully, it will be a sizable market,” Karatz said by phone while touring the 9th Ward, one of the hardest-hit neighborhoods in New Orleans.
Local economists have estimated that more than 300,000 homes were destroyed or rendered uninhabitable in the affected Gulf Coast; two-thirds of those are in the New Orleans area.
KB Home is the nation’s fifth-largest builder, constructing more than 25,000 homes this year with an average price of $250,000. It specializes in so-called entry-level homes for first-time buyers in California, the Southwest and the East Coast. The median home price in the New Orleans area is $152,000.
Karatz declined to say when any new units from the joint venture would be available in Louisiana or at what price.
KB Home and other large builders have profited mightily from the nation’s housing boom. KB Home earned $228 million in its fiscal third quarter ended Aug. 31, nearly double the profit of the year-earlier period.
Moving into overlooked markets will help dominant players expand even as hot regions, such as California and Florida, start to cool down.
“Companies that want to continue to grow will have to seek out the niches in the country where there will be opportunity,” said Mark Vitner, a senior economist with Wachovia Corp., a banking company in Charlotte, N.C. “And there’s a lot of opportunity in New Orleans.”
As rebuilding efforts ramp up, the region is seeing an explosion in the need for new jobs, said Loren C. Scott, a Louisiana State University economist and business consultant. But a severe lack of housing for workers means many jobs would go unfilled, according to Scott’s analysis. “If they bring back the housing, then they will bring back the people,” he said.
Many local residents who lost their homes have moved to other locales and commute long distances to New Orleans or have found jobs in other states.
KB Home’s partnership with Shaw Group made sense to Greg Gieber, an analyst with A.G. Edwards & Sons in St. Louis. “Before they can build homes, they have to rebuild the infrastructure, so this is a great combination in my opinion,” he said.
As a government contractor, Shaw Group has constructed housing for the military. In the wake of the hurricane, the company won a government contract to pump out the flood water that inundated New Orleans. It also won other pacts, including a controversial $100-million no-bid contract from the Federal Emergency Management Agency to provide emergency housing and other temporary shelters. The agency recently said it would rebid the contract.
“We’re happy to join in a venture to provide residences for our returning citizens,” J.M. Bernhard Jr., Shaw Group chairman and chief executive, said of the deal with KB Home. “It’s important to start rebuilding the state and have New Orleans rebound.”
Financial terms of the partnership were not released Monday.
Karatz said KB Home would not be involved with any of Shaw Group’s public-sector contracting work in the region.
Executives from both companies are expected to announce more details on the venture at a news conference today with New Orleans Mayor C. Ray Nagin.