Stanley Martin, one of the largest homebuilders in the Washington metro area, announced a merger with Piedmont Realty and Construction earlier this week.
The merger comes as part of the Reston-based company’s overall growth plan to expand south toward Richmond and Raleigh-Durham.
Stanley Martin is one of the rare home construction companies that not only weathered the economic downturn but grew during it. The company did 463 sales in the Washington metro region last year and expects to do 630 sales and $300 million in revenue this year.
I spoke with Steven Alloy, president of Stanley Martin, by phone about the merger as well as the housing market in general. The following transcript of our conversation has been edited for length.
What does the merger mean for your company?
We look at it to continue our success. We wanted to grow into an adjacent market, and we looked at several and Charlottesville was very interesting to us. That market has a lot of similarities to what we do in Northern Virginia. So, for example, it has a lot of move-up housing. Stanley Martin is mostly a first move-up or second move-up builder, meaning we don’t do a lot of entry-level housing. And Charlottesville has a lot of the attributes of the markets where we’re most successful, and there’s a strong move up market there. . . . Drew Holzwarth [president of Piedmont Realty and Construction] and myself and my team, we all see the world very similarly, in terms of how a home building company should be successful, how we should treat customers, how we think about architecture and communities. We all hit it off from the first day.
The two companies will integrate but continue to conduct business under their own brand names. How will that work?
Some of the houses that we build here in Northern Virginia we are very soon going to be offering at their communities in Charlottesville, and some of the houses that they’re building in Charlottesville we’re going to be offering here in Northern Virginia. One of the things that’s really interesting is the Charlottesville market has a heavier orientation toward first floor master bedroom homes than the metro D.C. market. Drew and Piedmont have a lot of house designs that have first floor masters and so one thing that will happen relatively quickly is that Stanley Martin will now have some of those first floor masters that we’ll be able to offer to our customers in Northern Virginia.
How has the homebuilding market changed since the economic downturn?
Why we were successful during the downturn is because we recognized very early that the market had shifted from what we call a pre-built market where people order and then we start construction to a buy a house that’s finished or under construction market. … What our company did is we said we recognize what we need to do is have plenty of move-in ready houses, and so we went from being a 5 to 6 percent move-in ready builder to a 70 to 80 percent move-in ready builder and our sales exploded. We still believe the market is like that, particularly today in the Northern Virginia market, not necessarily region wide, but certainly in Northern Virginia. It’s the most severe housing shortage in my career. I’ve never observed anything like it.
Where do you see the new home construction market in the next three to five years?
If you talk to homebuilder CEOs in this region and you ask them, ‘What’s your biggest concern?’ All of us would say the availability of building lots. I think it would be unanimous. As we look forward, there is far more demand for single-family homes and townhomes than there are building lots to match that demand. This market continues to recover, we continue to produce jobs, but we’re not producing the lots anymore because many of the jurisdictions have scaled back on areas that you’re allowed to build houses in. … Nobody has a solution for it, and so what will happen in this region, particularly in the good markets, we’re going to see some pretty significant inflation of house prices. People that own houses today are going to have very good investments. People that buy houses today they’ll be more expensive tomorrow than they are today.
What we are seeing right now with the low inventory is prices rising fairly significantly fairly quickly and you have a supply-demand imbalance. Typically, the builders would be able to adjust, bring more homes to market. [But] there just aren’t that many places you can do that, certainly not in the close-in counties. We just opened a community in Oakton, Va., and we had 400 people on a list trying to buy a house from us. … When I look out three to five years, what do I see, I don’t see something that would address that. It’s not, ‘Oh yeah, there’s 35 projects in Fairfax County that will come online.’ Those 35 don’t exist.