But two south Florida real estate companies have turned the tables on that trend, seizing out-of-state business opportunities to become players in the national marketplace. Lennar Corp. capped a series of acquisitions of sizable building companies in California, Texas and Arizona with its recent acquisition of U.S. Home, one of its biggest competitors. That purchase made Lennar the No. 1 builder in the country, with operations in 13 states. On a smaller scale, Aventura-based Turnberry Associates has also succeeded in taking its high-end residential club concept to Las Vegas. Don Soffer, managing partner, and his son Jeffrey, vice president, are building Turnberry Place, a $600-million luxury condominium development just off the famed strip. "My father was one of the first guys to build luxury lifestyle condominium communities in Florida," says Jeffrey Soffer. "Now, we're doing the same thing in Las Vegas, carrying on that tradition."
Lennar Goes West
In the mid-1990s, Lennar sent a senior vice president to explore opportunities in the California homebuilding market. The Miami-based real estate company had been active in Arizona for 20 years and was looking to capture a niche in the nation's most populous state, as well as in Sun Belt markets such as Texas and Nevada.
In California, Lennar began buying up an inventory of buildable land and purchased local builder Bramalea in 1995, bringing in a new tier of managers with experience in that market. Following several other acquisitions, including a major 1997 merger with Pacific Greystone, parent of Greystone Homes, Lennar emerged as the second-largest builder in California.
"Today, California is our most significant operation in terms of profitability," says Stuart A. Miller, 42, president and chief executive officer. For Miller, one of the driving forces behind Lennar's out-of-state growth was a desire to diversify. "In real estate, if you hitch your wagon to a single market, you become vulnerable to volatility. Having more diverse streams of income lowers the risk profile."
While Florida has been a strong growth state for the homebuilding industry for many decades, "this isn't the easiest place to make money, and margins can be tight," Miller says.
Founded in 1954 by Leonard Miller, chairman of the board and Stuart's father, Lennar initially focused on building single-family homes in Dade County. But by the time Lennar went public in 1971 (NYSE-LEN), it was looking at markets such as Tampa and Phoenix and had moved into building townhomes, condos and adult communities.
Stuart Miller says moving outside its Florida base posed significant challenges for Lennar because buyers' preferences and residential designs vary from state to state. "One of the toughest ways to diversify is to spread geographically," he says. "Products, trends and attitudes are different from region to region. Homebuilding is a management-intensive business, and it's hard to go to a more decentralized structure."
Indeed, during the 1980s, Lennar tried to establish itself in several Midwest markets without much success. As recently as 1990, about 90% of Lennar's revenues still came from Florida, with the balance mostly from Arizona.
A decade later, however, Lennar generates only about 25% of its revenues from Florida projects. In 1999, Lennar's total revenues reached $3.1 billion, a 29% increase from 1998, and profit hit $173 million, a 20% growth.
Lennar's acquisition of U.S. Home in May -- generally shrugged off by Wall Street -- created the nation's largest homebuilder by revenue. It also gave Lennar access to markets in New Jersey, Minnesota and Washington, D.C., and strengthened its presence in the Sun Belt and California. "We chose a company that was compatible with our own culture," says Miller. "Whenever we complete an acquisition or launch a new division, a significant part of our time is spent weaving our culture into its operations to make it a new part of Lennar."
Why haven't more Florida companies followed Lennar's example and reached outward? Miller says one of the reasons is that the demographics of the affluent Florida market are just too attractive to outside companies, like the powerful regional banks that acquired the state's financial institutions in the 1980s.
Another factor is Florida's location on the southeastern tip of the country, which adds to the time and expense of transporting goods and services to other locations. "It's important for our executives to travel to California and Nevada, but the time to fly there from Florida is close to the maximum," Miller says. "That's not an insignificant issue."
While it might be more logical for Lennar to move its headquarters to a hub city like Dallas or Atlanta, Miller says a move from south Florida "is not on our agenda now. We have our roots here."
Having achieved its goal of geographic diversification in major homebuilding markets around the U.S., Lennar will continue to look for new acquisition opportunities.
Meanwhile ... on Wall Street
But the stock market has not been kind to Lennar this year. As of early June, Lennar's stock price was about $19 a share, about midway between its 52-week high of $25 (after the merger announcement in February) and low of $13.
Analysts have been concerned that Lennar's larger inventory of land following the U.S. Home acquisition could become a liability if new-home sales nationwide decline -- a possibility that's only been enhanced by increases in interest rates by the Federal Reserve Board.
In addition, Standard & Poor's lowered its rating on the company's corporate debt in April, calling its land holdings a challenge in a downturn. Miller views the S&P downgrade as a temporary situation and sees the company's large land inventory as an asset in the highly competitive homebuilding market. It's much easier to sell land in a down market than to buy cheap land when prices are rising, he says. "Land is our raw material and an integral part of what we're building," he says. "Land can be expensive or it can be cheap to buy, and sometimes, it's just not available at all."
Gambling On
In 1967, Don Soffer purchased 785 acres of watery scrubland off the Intracoastal Waterway in northern Dade County. Over the next decade, he created Turnberry Isle Resort & Club with two golf courses, marina and tennis facility, then developed Turnberry Isle, the largest single waterfront condominium project in south Florida.
As Turnberry Associates continued to build offices, retail, hotel and rental apartment projects, the community of Aventura grew into a recently incorporated town with one of the highest average household incomes in Florida.
Turnberry Associates manages a handful of shopping centers in Pennsylvania and West Virginia, but its primary focus was Florida until the Soffers decided to transport the high-end resort concept to Las Vegas. "We went to Las Vegas looking at shopping centers," says Jeffrey Soffer -- Don's son and the company vice president. "We saw the growth and the opportunity for a luxury lifestyle community based on the Turnberry formula."
What caught Don Soffer's eye was change in Las Vegas over the past decade. In addition to being one of the hottest housing markets in the country, Las Vegas has broadened its appeal as a resort destination. "Vegas never had first-class shopping or international dining," he says. "It has also become a second-home market for people who visit three or four times a year. There are many people who like the Vegas atmosphere but want the convenience and luxury of their own apartment rather than staying in a hotel."
After assembling a 15-acre parcel of land just off the Strip in 1997, Turnberry Associates launched a sales campaign for Turnberry Place, a luxury high-rise condominium with four, 38-story towers, each with 185 residences priced from $400,000 to more than $3 million. A key element is a 70,000-sq.-ft. private club with a spa, fitness center, lounge, dining rooms, tennis courts, business center, library and beauty salon.
And just this May, the company announced a second major acquisition in Vegas, the $45-million purchase of the El Rancho hotel and 21 acres of property on the Strip. The vacant hotel is to be demolished, and Jeffrey Soffer says the property could be developed as a casino, hotel or timeshare venture.
Overall sales to date total more than $190 million, according to Bruce Weiner, president of Turnberry Place. Construction on the first tower began last July with completion expected late in 2000. "Our sales are well in excess of even our most ambitious projections," says Weiner. "At this rate, we will sell out each building within a year."
Analyzing the Market
While Florida has plenty of experienced resort developers, most are looking at other parts of the state, the Caribbean or Latin America. Turnberry Associates' domestic approach is an exception. "It's easy to watch a job in your neighborhood," says Don Soffer. "It's a lot tougher out of state." Both the Soffers are pilots, allowing them to visit Las Vegas without relying on commercial air service.
One of the challenges of going to Las Vegas was working with union builders. But the biggest issue was correctly analyzing the market. "We say to ourselves, 'what would be the reason for people to move here?' And we have looked closely at the Las Vegas lifestyle to come up with the answers," Don Soffer says. He says Las Vegas is similar to south Florida in attracting empty-nesters and retirees who want to enjoy an upscale lifestyle and active social life. "People want to be part of a club, to join a group and to buy an apartment with their friends," he says. "That's a big part of our appeal."
But he warns that the Turnberry concept won't work everywhere -- and any future out-of-state projects would need to be studied to determine the level of demand. "We've been approached by people in other cities, but this is a major investment that has to make economic sense," he says. "You couldn't do a Turnberry Place in a Toledo or Wilkes-Barre. It needs to be in a place that is drawing new people who want to make new friends."