July 21--Taylor Morrison, an Arizona-based homebuilder in an expansion mode, has acquired the assets of Orleans Homebuilders in Chicago and two other markets for $166 million.
The deal, announced Tuesday, injects another out-of-town builder's name into the Chicago area's new-home market, a market whose recovery has lagged behind most others but is generally viewed as ripe for growth.
"Builders look at Chicago and they see a massive market that is completely underserved," said Lance Ramella, a senior vice president at John Burns Real Estate Consulting. "Last year, there were 110,000 home sales (in the Chicago market). Four percent of those were new homes. Historically we're 15 percent."
Orleans has about a dozen projects in various stages of development in the Chicago area, in a wide band that stretches from Kildeer to Oswego. Warranties on homes will be honored and serviced by Taylor Morrison. Over time, the Orleans name will be replaced by Taylor Morrison.
The acquisition of three of Orleans' seven markets comes more than four years after the Bethlehem, Pa.-based builder emerged from bankruptcy and went from being publicly held to a private company. Taylor Morrison President and CEO Sheryl Palmer credited the work done during Orleans' reorganization, which included new management and strong land deals, as paving the way for this week's deal.
In the Chicago market, population trends, affordability and lack of product sealed the deal. Taylor Morrison, based in Scottsdale, Ariz., will own and control 2,100 lots in the combined three markets.
"It's perfectly aligned with our strategy," Palmer said. "It's consistent with our focus on the right geographic expansion in high-growth markets where we think people want to be."
In recent years, other ambitious out-of-town companies have arrived in the Chicago market. David Weekley Homes of Houston started with custom-built homes in a few suburbs and now is building or has projects proposed in Wheaton, Glenview, Barrington and Naperville. Reston, Va.-based NVR's Ryan Homes division came into the market three years ago and has a number of communities in the northwest, west and southwest suburbs.
Despite their interest in the Chicago area and its submarkets, and often buying land at rock-bottom prices, the recovery has gone slower than many expected. The desire for larger newly constructed homes is pushing prices higher and out of reach for some entry-level buyers.
About 45 percent of new homes started were priced at less than $250,000 during the market's peak years, versus 35 percent today, according to housing research firm Metrostudy. "The resale market is your affordable housing market," said Chris Huecksteadt, director of Metrostudy's Midwest region.
Last year, publicly held Taylor Morrison closed on almost 6,800 homes in Arizona, California, Colorado, Florida and Texas. Earlier this year, it sold its Canadian operations to focus on the U.S., and in May it acquired JEH Homes in Atlanta.
Palmer said she did not expect significant changes in pricing or product from Orleans. Local management will stay in place, she added.
mepodmolik@tribpub.com
