Housing crisis developers’ strategies for taking over Portland & Seattle metro areas

Metropolis, 1927 film

National homebuilder Lennar enters Portland market as regional builder Arbor regroups

Arbor Custom Homes, one of the Portland areas largest builders, has sold more than 90 of its vacant finished lots in Washington and Clackamas counties. The company plans to focus on its more successful projects in northern Washington County, including Arbor Oaks, shown.

As regional homebuilders regroup in the wake of the housing crash, one of the nation’s largest builders thinks it has found a way into the Portland market.

Lennar Corp. said this week that it will build homes for the first time in Seattle, where it acquired a regional builder, and in Portland’s suburbs, where its hired market veteran Ryan Selby, a former D.R. Horton division president, to lead its operations.

The company bought about 200 lots in the Portland area, most of which were bank-owned. Another 91 came from Arbor Custom Homes, one of the metro area’s largest local homebuilders. Arbor, in turn, is retrenching and focusing on its most successful markets in North Bethany.

Lennar now owns lots in Happy Valley, Wilsonville, Tigard, Tualatin and Camas, and the company is also closing deals for lots in Lake Oswego and Milwaukie, Selby said.

The national company’s entrance is a shake-up for a Portland housing market that’s often been daunting for national builders.

Most of the biggest homebuilders are accustomed to working in large-scale, cheaper-to-build subdivisions. In Portland, lots ready for development come by the handful rather than the bucketful, and often with more stringent land-use and density requirements than other parts of the country.

“This is a tough market for a production national builder to come into,” said Dave Nielson, executive director for the metro Portland Home Builders Association. “You don’t really have the ability to aggregate large areas of land.”

Only four of the nation’s largest 100 homebuilders — one of which is Habitat for Humanity — have a strong presence in Portland, and their combined market share is only about 15 percent.

Yet Lennar has eyed the Portland market for the better part of a decade. Jon Jaffe, the company’s chief operating officer, said it had talked with local builders about an acquisition, but felt they were demanding too high a premium.

Portland is “a difficult market to enter when times are good,” Jaffe said. “Land is pretty difficult to acquire if you’re not already positioned in the marketplace.”

Times have changed. Most of Portland’s regional builders are in a holding pattern, or cutting back to wait out a housing recovery.

“These are the epitome of the guys without a chair when the music stopped,” said Patrick Krause, a Lake Oswego broker and developer. “They had too much product and not enough sales.”

Portland home prices have stayed more stable than the rest of the country. The S&P/Case-Shiller index reports Portland home prices have fallen 27 percent since the peak, compared with 31 percent for the full index of 20 major cities.

“It’s our view that somewhere near the bottom is the good place to enter a market,” Jaffe said. “We feel like things are starting to get better. We’re getting to that point, so we’ve looked at opportunities where there’s a historically good housing market.”

Meanwhile, Arbor said selling its lots to Lennar will allow the company to focus its efforts on its most successful communities in northern Washington County.

“These are underperforming projects that just didn’t make a lot of sense for us,” vice president and co-founder Wally Remmers said of the sold lots.

Arbor is also turning more of its attention toward townhouses and, even more so, apartments. The company wants a piece of the hot apartment market, which saw an average rent increase of 8 percent over the last year, according to the Metro Multifamily Housing Association.

Portland apartments have also attracted attention from institutional investors, and for the first time Arbor plans to build some of its apartments to sell.

Remmers said Arbor still owns land with room for about 2,000 houses and another 1,000 apartments.

Preparing lots for new construction has all but halted since the housing market crashed. But as builders begin to slowly ramp up housing starts, some builders have predicted a looming shortage in ready-to-build lots.

For Arbor, which is delivering just over 300 housing units this year, that supply would last years.

“It’s been a little tough to carry on the books these past few years,” Remmers said. Now, “we see that as a real key advantage.”

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Preparing lots for new construction has all but halted since the housing market crashed. But as builders begin to slowly ramp up housing starts, some builders have predicted a looming shortage in ready-to-build lots.