As we reported earlier this week, fast-growing public homebuilder Landsea Homes entered its eighth U.S. state market – Colorado – with its asset purchase of 11-year-old Longmont, CO-based Richfield Homes, a strong local brand with a proven, highly-capable local team.

Following our report, Landsea announced the deal through a press statement, and we followed that with a dive into the details, impacts, and implications of the transaction with Landsea president and COO Mike Forsum. Our conversation spanned a gamut of topics key to understanding both Landsea strategy and tactics in its systematic, disciplined track to become one of the nation's leading new-home construction and residential real estate enterprises, and a broader housing market analysts describe as "completely broken."

Broken or not, for big and small businesses in the sector a time full of unknowns, uncertainties, doubts, and threats, the patch ahead is one of high risk and high reward. Unbalanced and disproportionately risky for privately held, bank-financed operators on a good day, recent dynamics have intensified the asymmetries and given the period ahead a tone of convulsive concentration and consolidation favoring large organizations with patient, low-cost-of-capital resources.

To pick up on insights – both explicit and inferred – we feel that a full capture of Landsea's Mike Forsum is an opportunity to lay bare some of these themes so that other firms, public, private, large, and small can fortify their plans for the weird times ahead.

What follows is an edited account of a conversation that peers with some depth into six key topic areas:

1. What Landsea Bought: The Colorado Kickstart
2. Local Colorado Challenges & Capability
3. Why Colorado? Why Now?
4. Landsea Homes' Manifest Destiny
5. Sustaining Pace In Today's Market
6. The Higher-For-Longer Imperative: Stand Out

Here we go, with the conversation.

What Landsea Bought: The Colorado Kickstart

Mike Forsum

There are three new communities coming online, as well as a couple we're winding down. In total, there are five, two of which we're just going to finish off the last several of the houses there. We're looking at a new beginning with the three new communities, and they also have lot options on a couple of others that will be coming online here next year.

We did this as an asset purchase and not an entity purchase. There are reasons for that around warranty and some other things that just made it simpler. However, for all intents and purposes, we acquired whole cloth the Richfield platform. Importantly, that includes Lisa Weibelhaus, who was a partner there under the old regime. We’re excited to bring her on as our division president for the Colorado Division. We've actually had our first Landsea Colorado closings and sales this week with her team."

Local Colorado Challenges & Capability

Mike Forsum

With the Richfield deal come about 30 new Landsea employees that we're excited as hell to have join us. We had a great town hall last week. Lisa and her full operating team are now a part of the Landsea Homes family.

So we're already up and running and getting after it. Lisa has spent her entire working life in Colorado. She spent the bulk of her early career at Richmond American Homes. She moved her way up through the sales ranks and became head of sales for the Colorado Division. Lisa then joined Will [Edgington] and Serge [Goldberg] about seven, seven-and-a-half years ago. I think that went with Lisa's idea of attacking an entrepreneurial instinct to start her own home-building company. She had a real passion for creating her own culture and team and could realize that by joining forces with those two."

They did a nice job, but like a lot of small companies, you can be capital-constrained and there's a lot of risk associated with it around banks and loan guarantees. At some point, there was a certain kind of ceiling as far as where they could go and where they could take it."

I think the conclusion recently was that probably they were at the point where there was value created in the brand that they had, and they had taken the homebuilding business property as far as the partnership wanted to take it. And then it was time to find a different future for Richfield, and in different ways for Lisa and from Will and Serge and that was kind of how we got together with them. So it was really perfect timing in where they were in their evolution, and for us in our ongoing goal to operate in highly desirable markets."

Why Colorado? Why Now?

Mike Forsum

I'm very, very familiar with the Colorado Metro market, from all the way up to Fort Collins and all the way down to Colorado Springs. I have a long history there and I have always loved that market. It's an incredible place to live, raise a family, and to build a career. It's it's a really beautiful spot and frankly, if people could afford to live in Denver it's a unique place, with a thriving downtown. It has all the things that you would expect from a large metropolitan area in terms of culture. It has all four major professional sports there, great universities, etc. It also has a thriving business culture supported by a state legislature that is generally business-friendly."

On the other hand, they do love their land. They're very thoughtful and respectful when it comes to growth, and particularly, what growth can do to either enhance or cause a detriment to the surrounding areas.

But my entire working life has been in California, particularly up in the Bay Area, where I cut my teeth in working environments like that. We know specifically how to address those entitlement issues. We know how to balance what the community wants versus what we're trying to attempt to do in providing housing solutions.

You have to have intellectual skills to be able to navigate the regulatory maze to get from raw dirt to something that can be developed to build and close homes. And you have to take care of those families who've bought our homes and the ones who are going to buy them in the future.

So we're not daunted by that challenge at all. In fact, we like it. We like higher barriers to entry because they de-commoditize them to some degree. Those barriers hone the skills of our competition, too because they have to be really good at what they do. They have to also have the intellectual capacity to navigate those waters as well as we do.

We will thrive in those waters. We Excel when those challenges are put before us because we think that's how we separate ourselves. If it's just pure capital and manufacturing muscle then there are a lot of markets that are out there and we think we're competitive in those as well. Where we really thrive is in markets like Colorado, California, and other places that put that extra element of discipline, expertise, and challenge in front of us that makes only the best survive."

Landsea Homes: Manifest Destiny

Mike Forsum

We're consistent in the way we look at a long runway of growth for us. In Texas, we're very active in conversations and pursuits and those markets. These things take time and they kind of ebb and flow as every every deal has its timing. We're around the hoop on everything that we possibly can be – whether it be in Dallas, Houston, other Texas markets, or in Florida, working our way around the west side and up into the Panhandle and down. Then, moving up into the mid-Atlantic.

Where we're always opportunistic is in these backfills. Colorado maybe isn't necessarily farther up in line, in a linear sense of how we want to go. But, it was always on our radar as a market that we wanted to be in at some point.

What's happened for us – because of our success with the last five acquisitions, and the value we deliver – is we start to become one of the builders of choice when somebody is looking to sell their company. That's particularly the case for these types of sizes and shapes. We're the ones who can show that we love to take the team whole-cloth and integrate them fully into our operations and bring them into our culture. That's a very compelling proposition for an owner visionary, who has worked really hard to grow a business has created value in it is looking to exit but doesn't just want to sell off assets and then have their people become synergistic cost events for them. Owners like that want their teams to have a future and that's what we provide.

And so we get in the conversation a lot, and get in them in a lot of different markets, almost weekly, and we pass on most of them. But this one, with Lisa and her team in particular, and what they've started, and the fact that I've always been a big fan of the Denver, Colorado market long term – it all was just too hard to pass up."

When it comes to reloading our business as relates to M&A, we're not looking to bet the ranch on anybody at this point. When we see strategic opportunities that seem to be bite-size – for lack of a better word – that can help us to continue to get that sort of incremental growth into our business, and strategically get us into markets we want to get into in a thoughtful, risk-adjusted way. We're always in the game. I don't think this is a business you can just go off to the sidelines and just kind of hang out, especially being public. We always have to be in the game. However, being thoughtful and strategic and clever in how we're going about doing these deals is important to us, particularly when these times are kind of a little bit strange. We want to be careful."

Sustaining Pace In Today's Market

Mike Forsum

Today's market is tough sledding. The ground is shifting constantly under our feet as rates continue to rise. We continue to find challenges to consistently drive sales through our sales offices, and position our homes so they're attainable to those who are seeking affordability and an ability to acquire a new home."

We're still in the process of alternating and calibrating between pricing incentives and rate buy-downs to keep our sales absorption pace consistent with the markets in which we're operating. Every community within every submarket has its natural rhythm and momentum to it. We look for that 2.5 or 3.5 per month absorption rate. We do what we need to do to stay within that band – this is a business of momentum and you can't let the rhythm just stop."

But you also don't want to do things to the point where you're you have an unnatural absorption rate on the high side either. It's what we signed up for. It's just another macro challenge out there. We have to deal with it at the local level, too, to continue to build, sell, and close homes, to run our business, always within sight of the future. Things are constantly calibrating themselves against the backdrop of where the market is, so if we have land, we have communities, and we're working through them."

We're always out looking to replenish those but we to do it in such a way that's more reflective of current market conditions and where the world is currently indexed, as builders like us have to reload it. We have to make sure that we're thinking, 'hey, rates aren't going back to 3 or 3-and-a half-percent.' That means our land residuals have to reflect a new reality that factors in what it takes to get rates down to a point where we can get people to have monthly mortgage payments that are acceptable to them and that they can qualify for."

The good news is – despite the fact that there are headwinds that are negative in our sector – we've worked our way through a lot of the supply chain challenges that we were dealing with a year or two years back. For the most part, all that has been wrung out, and that's been a huge relief. Our cycle times have come down measurably. In some cases, in some product lines in Arizona, we're actually at pre-pandemic cycle times. That gives us a lot more optionality and maneuverability in dealing with this rate market in terms of how quickly we can go from starting the house to getting the homeowner into it. So the focus really is around creating affordability and delivering mortgage products that can get people into comfortable monthly rates and get them qualified. That's where all our attention is."

The Higher-For-Longer Imperative: Stand Out

Mike Forsum

At times like this, a value proposition that differentiates yourself is super important. We believe that our high-performance home strategy – created at the very get-go of this company – ties back to our brand and integrates automation, sustainability, energy efficiency, and healthy living. These tent poles really resonate right now as people are thinking about making a buying decision in the face of market conditions that really are uncertain. They're saying, 'is this the right time to be doing this? Where's the world going? What's going to happen?' I'm hearing all these things. Selling a commodity is a tough job but when you're selling a home value proposition that meets the needs of the buyer today in a fully comprehensive way – I know I'm sounding preachy here but I really think it works. People are looking for thoughtfulness and comfort that they're they're buying more than a house. They're buying a lifestyle in a house that's going to meet their needs and years to come. That's a big deal for us, and it's working."