The rich get richer: A common theme?
Homebuilding is an interesting cousin to commercial real estate. And although it has some complications, it seems like a pretty simple business...
1. Preserve and drive operating margin
2. Turn inventory as quickly as possible
3. Maximize sales and market share
The last four years in homebuilding in a nutshell...
-- 2020: "A pandemic? This could be really bad."
-- 2021: "More people want houses. This is great."
-- 2022: "Higher interest rates? This could be really bad."
-- 2023: "Rate buydowns but solid sales. This is great."
But an interesting trend has emerged over the last few years...
The biggest builders are clearly separating from the pack.
Three builders--DR Horton, Lennar, and Pulte--account for 55% of the sales from the top 17 public builders vs. 52% share in 2019. And their operating margins simultaneously increased from 21.5% to 26.3%.
Sidenote: Why do we track the top 17? Because they each have at least a billion in annual sales.
A quick comparison of some of the public real estate-related sectors we follow...
----- REITs -----
Goal: Give shareholders perpetual income via rents
Big trend: Higher interest rates give investors better alternatives
Rich getting richer? Largest 13 REITs = 50% of the sector (w/162 REITs).
----- Investment managers -----
Goal: Give private investors solid returns for share of profits
Big trend: Slower fundraising
Rich getting richer? Blackstone could have bought every distressed deal in the U.S. over the last year with less than 5% of its dry powder.
----- Brokers -----
Goal: Rent intermediary talent on a temporary basis
Big trend: Fewer deals, cost cutting
Rich getting richer? CBRE and JLL now make up more than 75% of public brokerage revenue.
----- Homebuilders -----
Goal: Build and sell fast, max sales and margin
Big trend: Continued sales with tax via rate buydowns
Rich getting richer? 3 out of the top 17 builders account for 55% of sales with growing margins.
----- Banking -----
Goal: Lend short and pray depositors don't want their money back soon
Big trends: Falling deposits, unrealized losses
Rich getting richer? Of the 4,000+ banks in the U.S., the largest 15 banks account for 75% of deposits.
Do you see this trend in your corner of the industry?
Would you rather work at a dominant company or be slugging it out in a smaller shop?
COMMENTS