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Home Builders Close on Two Major Deals

Housing: Industry change intensifies with O.C. leader Laing agreeing to merger and Miami's Lennar Corp. buying three private companies.


The reshaping of Southern California's home-building industry intensified Wednesday with two huge deals involving some of the region's best-known residential companies.

In one transaction, Orange County's largest home builder will merge with a company spun off from the empire of Ray Watt, a prominent Santa Monica developer who has built more than 100,000 homes since 1947.

The combination of Irvine-based John Laing Homes and Watt Residential Partners of Encino creates a company that expects to sell 2,000 homes for $400 million this year. The chief executive of the new WL Homes LLC, Laing's Larry Webb, hopes to take the company public within three years.

In the second deal, Miami-based Lennar Corp. is buying three privately held builders: ColRich Communities of San Diego and Communities Southwest and Polygon Communities, both of Irvine. Lennar is paying a total of $370 million in stock, cash and assumed debt.

Those three companies' 14,000 lots will bolster Lennar's position in Orange and San Diego counties, and give it entry to the Inland Empire, where housing markets are beginning to take off.

"This fills the hole in the doughnut for us," said Jon Jaffe, who heads Lennar's regional operations from Irvine.

Lennar is among several large, publicly traded builders expanding in California's hot housing markets after the long recession that crippled many of the state's home-grown builders and developers.

Lennar purchased Pacific Greystone Corp. of Los Angeles last year, and in 1996 bought the Stevenson Ranch development in Santa Clarita and Coto de Caza in south Orange County.

The company now is California's second-largest home builder, and by Jaffe's calculations had a greater dollar backlog of residential work than any builder in the state even before Wednesday's deal was announced.

Laing is a subsidiary of the British construction company John Laing PLC. According to the Meyers Group, an Irvine consulting firm, Laing built more homes than anyone else in Orange County last year, an area once dominated by such regional titans as William Lyon, the Baldwin brothers and Kathryn Thompson.

Ray Watt, for decades one of the Southland's biggest home builders, ran into trouble in the early 1990s. He stumbled on such developments as the proposed Watt City Center complex on the Thomas Cadillac site west of the Harbor Freeway in downtown Los Angeles, and the Jess Ranch retirement community in Apple Valley.

Watt sold some residential assets to Beazer Homes USA in 1993, and in 1994 put other California, Utah, Nevada, Colorado and Hawaii properties into Watt Residential Partners, a joint venture with Whitehall Street Limited Partnership III, an investment group administered by Goldman, Sachs & Co.

Laing will walk away with about $80 million in cash and the two companies each will own 50% of the new venture, said Wayne Stelmar, Watt's chief financial officer. WL Homes, which will be based in Irvine, will have six board members, three from each side, including Ray Watt.

Webb, who will head the merged company, said that size matters on Wall Street, where investors prefer publicly held home builders to have at least $500 million in annual sales. The combined companies could achieve that sales pace next year.

"It is clear to me that there will always be room for all size builders, including smaller ones. This is a very entrepreneurial business," Webb said.

But he said the economies of scale for purchasing, the financial muscle to capitalize on opportunities to buy land, and even the wherewithal to hire top managers increasingly will give the advantage to large, geographically diversified companies.

Intensifying the consolidation trend has been a run-up in the share prices of many publicly held builders, making it easy to use stock to pay for acquisitions.

The trend got another boost with the recent announcement of the industry's biggest deal yet, the pending takeover of Continental Homes Holding Corp. in Scottsdale, Ariz., by D.R. Horton Inc. of Arlington, Texas.

The West's No. 1 builder, Kaufman & Broad Home Corp. of Los Angeles, also has been on an acquisition tear.

Last month, it announced three purchases: a $47-million deal for Estes Homebuilding Co. of Tucson, a $50-million buy of Houston-based Hallmark Residential Group, and a $65-million takeover of Pridemark Homes in Denver.

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