Larry Mizel is bullish on the Denver-area housing market.
At a recent conference call, Carl Reichardt, an analyst for Wells Fargo, asked Mizel, what he thought of the Denver market. Mizel’s opinion matters, because he is the CEO and chairman of Denver-based MDC Holdings Inc., parent of Richmond American Homes, one of the nation’s largest home building companies.
MDC: Denver’s “big gorilla”
Reichardt prefaced his question by saying that MDC appears to be the “big gorilla” in Denver, noting that a lot of its competitors have left the local market.
“Well, having competitors exit never hurts,” Mizel said. “Colorado is a great place to live. And I expect some interesting dynamic leadership after Tuesday’s (today’s) election. I can give you a lot more color 90 days from where we are now. I expect a change in tone and that tone will convert into real and improved market conditions around the country and more consumer confidence.”
Colorado key for MDC
At the end of September, MDC owned 2,762 lots in Colorado, more than in any other state where it builds. Colorado lots accounted for 38.4 percent of the 7,194 lots owned by the company. In addition to Colorado, MDC builds in Arizona, California, Nevada, Utah, Delaware, Maryland, Virginia, Florida and Illinois. MDC has more lots in Colorado than it does in Arizona, California and Florida combined. The average price of a Colorado home sold by the company at the end of the third quarter was $322,600, compared with its national average of $299,900.
Mizel, during the conference call last Friday, went on to say that Denver has received “all sorts of national and international recognition” during the past 24 months and that is continuing. The analyst conference call was held following the company’s third-quarter release, in which it reported a net loss of $10.2 million, or 22 cents per share, compared with a net loss of $32 million, or 69 cents per share in the third quarter of 2009. MDC has a market cap of more than $1.2 billion. By comparison, KB Home’s market cap is about $844 million.
Now, with “few major competitors left” in Denver, MDC “will continues to expand our assets in this market because we know it very, very well,” Mizel. At one point, he compared buying lots to buying buying stocks. Mizel said noted there is one school of thought that when “you can see the value, it is already priced into the product.” Because it so difficult to buy land in today’s environment, in part because so many prospecive buyers are afraid to commit capital to purchase land, which he says sends a contrarian signal that now is “good time to buy.”
Vegas, Phoenix poised to bounce back
Along the same lines, Mizel said, “No one should count Las Vegas out.” Over the next couple of years, he said he expects a “lot more activity” by buyers seeking “quality lots,” in Vegas.
He also said that Phoenix, in the past, has bounced back strongly from downturns as severe, or even worse, as the current one. Bob Martin, the vice president of finance for MDC, said that Phoenix is tougher for the company than Vegas at this time.
“Phoenix is a great place to live, and when you look at it over a long-term basis, and I’m not speaking decades, but years,” Phoenix will rebound smartly, Mizel said.
Mizel added that when you “drill down” in Phoenix, you find there really are two markets: the foreclosure market and the new-home building market. He said the “hot thing” right now in Phoenix is to invest in “buyer syndicates” that pool money to buy foreclosed properties. Efforts such as these are slowly taking the foreclosed properties off the market, he said.
New homes not competing against foreclosures
He said that builders now are competing against each other for the most part, and not against resale, foreclosed properties on the market. He also criticized the delay in banks being able to complete foreclosures because of “legislative interferences with all of these new legal nuances” such as robo-signing of documents. “It should be enough that the guy hasn’t paid you,” for six months or a year, Mizel said.
Mizel also indicated that the bottom of the market passed this summer.
It appears the market has hit an “inflection point,” Mizel said. “I like to think of August as the low point of the cycle and the season. If it is the low point of the cycle, there will be rewards for those companies that are able to properly execute and what we hope will be an expanding market.”
MDC, he notes, appears to be poised to take advantage of its goal of owning enough lots to have a two- to three-year supply of land.
“With $1.6 billion in cash and investments at the end of the quarter, which exceed total debt by more than $350 million, we are well-positioned for continued expansion into new projects, even if overall market conditions remain weak,” Mizel said.
Contact John Rebchook at 303-945-6865.
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