Canada’s largest builder of new houses has taken a big step into the high-rise segment of the home construction market.
Mattamy Homes Ltd., which has operations in Ontario, Alberta and in several U.S. states, has signed a deal to buy Monarch Corp., the Canadian division of U.S. home builder Taylor Morrison Home Corp. and one of Canada’s oldest real estate companies.
The $330-million purchase will add Monarch’s low-rise home-building operations in Southern Ontario, as well as its high-rise business in Toronto, to Mattamy‘s current portfolio.
In a memo to employees, Mattamy founder and chief executive officer Peter Gilgan said the acquisition will expand the company’s “geographic footprint (adding to our already significant presence in Ontario), and product diversification (entry into the high-rise market).”
Two of Mattamy’s senior executives – chief operating officer Brian Johnston and president of its Canadian operations Brad Carr – are former Monarch executives.
In an interview, Mr. Johnston said it is currently tough for builders to get hold of land in parts of Ontario. With this purchase, the company will hold tracts that have been approved for construction – or will soon be approved – in Whitby, Markham, Kleinberg, Caledon, Kitchener and Ottawa.
At the same time, “the high-rise [business] is a very attractive part of the transaction” because it is a new segment for Mattamy, Mr. Johnston said. High-rise construction, which includes anything over four storeys, is an area that the company has wanted to get into for some time. “We’ve looked at lands, but we never had a team,” he said. “Now instantaneously, we’ve got two buildings that are under construction, land for additional buildings, and an extremely able and experienced high-rise team.”
Mr. Johnston acknowledged that the price of high-rise condos have “flat-lined” in the past couple of years, but he thinks it is “well supplied” rather than overbuilt, so is “not in a danger zone.”
Taylor Morrison CEO Sheryl Palmer said on a conference call that her company decided to sell its Monarch division because it was seeing lower margins from the Canadian business, mainly a result of a “runup in land prices” in Ontario. It is redeploying the proceeds to its U.S. businesses.
Mattamy has also been making a push into the United States. This past summer, it bought $86-million (U.S.) worth of land in the Sarasota area of Florida, where it hopes to build 15,000 new homes. The company also has developments in Minneapolis, Charlotte, N.C., Phoenix and Tucson, Ariz., and Jacksonville and Orlando, Fla.
Mr. Johnston said expansion in the U.S. – and in Western Canada – is still central to the company’s strategy, but it jumped when it had the opportunity to buy Monarch and get into the high-rise business. “We felt this was an opportunity we wouldn’t see again.” He said there was no bidding war because Taylor Morrison “wanted to do the deal quickly.”
Mattamy’s acquisition of Monarch is set to close in the first quarter of 2015, but it needs the approval of the Competition Bureau before that can happen. That shouldn’t be an issue, Mr. Johnston said, because there are many other players in the home-building business “There is a lot of competition in all of our markets.”