Bankrolling Green Brick`s DFW Building Boom

NOVEMBER 6, 2015
DALLAS BUSINESS JOURNAL
Bankrolling Green Brick’s DFW building boom
DBJ EXCLUSIVE
BILLIONAIRE
HEDGE FUND
MANAGER
DAVID
EINHORN
HOW HIS
MONEY
AND HIS
INABILITY
TO RETIRE
VETERAN
DFW
DEVELOPER
JIM
BRICKMAN
are spreading Green
all over DFW’s real
estate market.
An interview with
the money men at
Green Brick Partners.
COVER STORY, 4
The Plano builder, led by veteran DFW developer
Jim Brickman, is backed by the deep pockets of
billionaire hedge fund manager David Einhorn.
BY CANDACE CARLISLE
[email protected]
214-706-7121, @DBJCandace
Jim Brickman settled into the plush
sofa sectional in his Highland Park
home, ready to talk about his most
personal piece of real estate.
With his Labradoodle Beau at
his side, the 63-year-old CEO and
director of Green Brick Partners
Inc. reminisced about how he
found the rare two-home lot four
years ago in the town known for
its high-end estates. His L-shaped
home opens up to his daughter’s
house next door — a mirror image
of his own.
He helped design the two homes
and the shared backyard, giving
the executive a place to play with
four of his grandchildren. Building
the luxury homes, naturally, was a
labor of love for Brickman.
“Homes are fun to build because
you can relate to them,” said Brickman, who spoke with the Dallas
Business Journal in his first interview since starting the foundation of the company seven years
ago. “Even if you are designing
a townhome, or someplace you
aren’t going to live in, you will
think about how you would live
in that space.”
That passion — coupled with
Brickman’s inability to retire —
drove him to form Dallas-based
JBGL Capital LP, a real estate investment firm, with the help of hedge
fund heavyweight David Einhorn.
Years later, the entity morphed
into Plano-based Green Brick
(Nasdaq: GRBK), which became
a publicly traded company a year
ago and has thrived since.
Green Brick raised $169.8 million in net proceeds from a secondary offering this year, which
enabled the company to repay a
$150 million loan and provide significant capital to help the firm’s
controlled-interest builders grow.
“We now have one of the most
unlevered balance sheets of any
public builder and the capital and
lot positions to execute our plan
for significant growth,” said Brick-
This article appeared in the Dallas Business Journal on November 6, 2015 on page 1, 4-6 and 8. It has been reprinted by the Dallas Business Journal
and further reproduction by any other party is strictly prohibited. Copyright ©2015 Dallas Business Journal, 2515 McKinney Avenue, Suite 100, Dallas TX 75201
NOVEMBER 6, 2015
DALLAS BUSINESS JOURNAL
In 2008, CEO Jim Brickman
(left) asked billionaire hedge
fund manager David Einhorn to
become a lead investor in what
would eventually become Green
Brick Partners. Brickman said
he wanted “one of the smartest
guys in the room,” on his team.
JAKE DEAN
man. The executive also plans to
develop the firm’s builder roster
by adding new firms or enhancing
current building operators, which
include CB JENI Homes, Normandy Homes, Southgate Homes and
Centre Living (led by Brickman’s
son, Trevor) in Dallas-Fort Worth
and The Providence Group in
Atlanta.
Green Brick also has a land
development component led by
Jed Dolson called Green Brick
Communities. It has about 5,000
home lots in various stages of
development in Class A submarkets, with about half of those lots
in Dallas-Fort Worth and half in
Atlanta.
Green Brick — whose name is
a play on Einhorn’s hedge fund
Greenlight Capital and Brickman’s last name — saw a 40 percent increase in construction
year-over-year. Brickman said he
expects that growth to continue
through the rest of the year, particularly in the fourth quarter.
Brickman attributes Green
Brick’s strong financials to hitting the ground at the right time
in growing real estate markets in
DFW and Atlanta and offering
builders something they desper-
GREEN BRICK’S PARTNERS
GREEN BRICK PARTNERS INC. (NASDAQ: GRBK) acquires and develops land
for a wide range of residential projects from townhomes to luxury homes in master-planned
communities. In all, Green Brick owns or controls upwards of 5,000 home sites or land zoned
for home lot development in DFW and Atlanta. “We have already bought up a lot of lots,”
said CEO Jim Brickman. “Unlike a lot of companies, we are doing pretty well in terms of lot
positions up until 2018.”
GREEN BRICK COMMUNITIES
(formerly JBGL Communities) is Green Brick’s land acquisition and home lot development
group affiliate. It owns a controlling interest in six homebuilders:
RR CB JENI HOMES
2nd largest townhome builder in DFW
RR NORMANDY HOMES
Plano-based builder specializes in homes from $400,000 to $600,000
RR SOUTHGATE HOMES LLC
Dallas-based luxury homebuilder specializes in homes ranging from $600,000 to $3 million
RR CENTRE LIVING HOMES
The Dallas-based homebuilder also builds amenity centers for Green Brick and other
developers
RR THE PROVIDENCE GROUP
One of Atlanta’s largest builders, it builds a variety of homes priced from the $300,000s to
more than $3 million
RR PROVIDENCE LUXURY HOMES
Luxury division of The Providence Group specializes in homes ranging from $800,000 to
over
$4 million in Atlanta
ately need: money.
“We provide the capital for
builders that they wouldn’t have
otherwise and, in Dallas, we provide the lot development side of
the business they don’t have the
expertise in and keep lots ahead
of them,” he said.
Not everyone is willing to take
that capital risk, such as financial
institutions and home-lot developers, still scorched by the last real
estate cycle.
Traditionally, the housing
This article appeared in the Dallas Business Journal on November 6, 2015 on page 1, 4-6 and 8. It has been reprinted by the Dallas Business Journal
and further reproduction by any other party is strictly prohibited. Copyright ©2015 Dallas Business Journal, 2515 McKinney Avenue, Suite 100, Dallas TX 75201
NOVEMBER 6, 2015
DALLAS BUSINESS JOURNAL
Chairman of the bored: Retirement didn’t suit Brickman at all
industry has had a low barrier to
entry, but that changed after the
last recession. Even as North Texas
enjoys steady job growth and new
residents continue to flood into
the region needing homes, it’s not
easy being a builder.
Lot developers have left the
industry; banks have also restricted lending for land development,
which requires a significant amount
of capital. With only the large builders able to compete in this evolving
market segment, the highly fragmented industry has continued to
consolidate.
“There needs to be more capital because the banks have lost so
much and they don’t want to take
the risk,” said Brickman. “If you
have a large private homebuilding company, you need tens of
millions of dollars — and private
builders just don’t have it.”
Brickman’s strategy
Long before Brickman became
the top executive at Green Brick,
he was a 115-pound wrestler at his
Illinois high school. Despite his
small stature, he quickly learned
that technique was just as important as strength.
Brickman left Illinois to attend
school at Southern Methodist University and quickly took to the
welcoming environment in Texas, where he also learned how to
make some successful bets on the
stock market.
After completing his MBA at
SMU, Brickman jumped into the
construction industry and quickly
found his stride in developing residential and commercial real estate.
In that time, Brickman survived
the savings and loan crisis in the
1980s, in part because of the relationships he built with his lenders. The experience helped shape
Brickman’s outlook on real estate.
As a result, he has become a more
cautious investor.
Over the decades, Brickman
built up his development career
until he retired in 2000. But three
months into his retirement, Brickman became bored.
He bought up some distressed
debt and made some other real
estate investments, but he wanted
to do more. By 2001, someone suggested he sit on the Dallas creditors committee, which is a group
of people that represents a company’s creditors in a bankruptcy
proceeding.
The pay was nominal — the
equivalent of a school teacher’s
salary — but it ended up being a
great experience.
“You never know where life is
going to take you and it ended up
being something better than I ever
would’ve expected at that point in
time,” he said.
The Einhorn effect
In the early 2000s, Brickman
began liquidating Amresco, which
has one of the largest Small Business Administration lending platforms in the nation. He was later
chairman of Amresco’s Liquidating Trust.
In the process, he found a white
paper written by billionaire investor Einhorn on the overvaluation of
Allied Capital because he thought
SBA lending platform BLX Capital,
which drove Allied’s earnings, was
Q&A WITH DAVID EINHORN & JIM BRICKMAN
Homebuilder’s CEO, chairman discuss M&A, future plans
It’s been a year since Green Brick Partners launched its initial public offering and the stock has performed well over the past year, up more than 34 percent.
CEO Jim Brickman and hedge fund manager David Einhorn — who is also the chairman of the board for Green Brick Partners — recently sat down with the
Dallas Business Journal at Green Brick’s office to answer questions about their partnership and what lies ahead for the Plano-based homebuilder:
The Green Brick Partners entity
was once an ethanol-producing
firm. How did it transition?
How much money do you
have earmarked for M&A
activity right now?
Why did you come back
to the Dallas real estate
community after retirement?
Einhorn: Green Brick Partners was never
in the energy industry. The publicly traded
shell was a biofuel company, which was
a business that did not succeed and the
assets were turned over to the lenders and
as a result, was a publicly traded shell with
a tax asset, which was ultimately merged
by buying Green Brick Partners and
became a public company a year ago.
Brickman: Because we are unleveraged,
we have the ability to do significant M&A
activity if we chose to do so.
Brickman: Really it was the opportunity
to work with David and his team at
Greenlight, which wasn’t in homebuilding.
I really enjoyed working with David and
I thought it was a great way to finish my
career.
What kind of real estate do you sell?
Brickman: Our average selling price is
$430,000 and that’s where the bell curve
of buyers is. We generally build more
upscale product in each price point, which
we call lifestyle product.
Einhorn: I think the strategy is flexible
and it’s a question of what opportunities
will come. I think the business started
as pretty much nothing just six years
ago. Jim and his team have built it into a
really substantial operation already with
just terrific positions in two markets and
if the opportunities exist to expand into
other markets the company would like
to do that. If it doesn’t materialize, and
we simply grow out our operations in the
markets we’re already in, I think that will be
very attractive as well.
Do you have any plans to buy
or purchase an equity stake
in any new builders?
Brickman: I think the best way to describe
that is we are going to deploy capital
wherever we think it’s most profitably
deployed and that’s one alternative we are
looking at right now.
What does the future hold
for Green Brick Partners?
Brickman: We have the opportunity to do
a lot more than we are doing right now
because of our balance sheet, but we are
prudently looking at all those alternatives.
Einhorn: We are seven years into this
investment and I think we’re just getting
going.
Green Brick has flown under
the radar for the past few years.
Has this hurt you in growing a
new company?
Brickman: Now that we’re a public
company, it’s our débutante party. But
those relationships have been there for
decades.
This article appeared in the Dallas Business Journal on November 6, 2015 on page 1, 4-6 and 8. It has been reprinted by the Dallas Business Journal
and further reproduction by any other party is strictly prohibited. Copyright ©2015 Dallas Business Journal, 2515 McKinney Avenue, Suite 100, Dallas TX 75201
DALLAS BUSINESS JOURNAL
35
NOVEMBER 6, 2015
77
Prosper
GREEN BRICK’S NOTABLE NORTH TEXAS DEVELOPMENTS
DENTON
A HERITAGE CREEKSIDE
What: $900 million, 156-acre
development
35
Little Elm
Corinth
Location: Near North Central Expressway
and George Bush Turnpike in Plano
Lewisville
Lake
Homes: 140
Highland
Village
B MONTGOMERY FARM IN ALLEN
What: The 500-acre master-planned
residential community in West Allen has
conservation-focused designs.
Flower
Mound
Location: Near Bethany Road and U.S. 75
in Allen
Homes: 150
Grapevine
Lake
C THE VILLAGE AT TWIN CREEKS
What: It is one of the largest masterplanned communities underway in North
Texas. The community includes a resortstyle pool, fitness center and clubhouse
with sports courts.
Location: Near Exchange Parkway and
N. Watters Road in Allen
Homes: More than 900
D CYPRESS MEADOWS
What: An 80-acre community in Allen
near shopping at Watters Creek and Twin
Creeks Golf Course.
Location: Near the intersection of
McDermott Drive and Custer Road
Homes: 280
E AUSTIN WATERS
What: The 78-acre community in
Carrollton featuring wide-open green
spaces with backyard views of a natural
creek.
Location: Near the intersection of Plano
Parkway and Parker Road in Carrollton
The
Colony
F
H
D
I
E
G
Lewisville
35
A
L
Parker
PLANO
Carrollton
Addison
Grapevine
635
Colleyville
F THE CANALS
AT GRAND PARK
B JAllen
C
75
Hebron
Coppell
Southlake
Frisco
McKinney
Richardson
K
Farmers
Branch
GARLAND
H STACY CROSSING
J
635
THE LANDINGS
What: An urban, mixed-use village that
at completion will bring more than 2,000
homes and apartments to Frisco.
Las
What:
The 102-acre mixed-use community
Colinas
sits in McKinney with townhomeUniversity
and
Park
single family homes.
What: The single-family home community
sits in West Allen near the Allen Outlet
30 Mall.
Location: Near the intersection of Cotton
Gin and Legacy Drive
Location: At the southeast corner of Alma
Road and Stacy Road
Homes: 229
Homes: About 100
Homes: 145 townhomes
G MUSTANG PARK
What: The residential community
straddles the Plano and Carrollton city
lines with amenities ranging from a resortstyle pool to hike-and-bike trails.
Location: Near the intersection of Plano
Parkway and Parker Road
Homes: 177 townhomes; 389 homes
Homes: 19
I
Location: 1913 Douglas Avenue
K BRICK ROW
What: The luxury townhome community
will surround an urban-like shopping village.
THE ESTATES OF
WILLOW CREST
What: The West Plano community has
architecturally enhanced home with a
broad mix of floor plans and designs to
give residents a low-maintenance lifestyle.
Location: Near Ohio Drive and McDermott
Road
Homes: 171 townhomes and 157 patio
homes
Location: 744 Brick Row, Richardson
Homes: 175 townhomes
L
LAKESIDE DFW
What: 150-acre mixed-use, urban-style
community on the shoreline of Lake
Grapevine in Flower Mound.
Location: 2300 Lakeside Parkway
Homes: 260
a fraud.
Brickman thought the white
paper was “right on,” and contacted David, later chatting with him
over the phone and then in person.
The duo quickly became friends
and spent inordinate amounts of
time conferring about the overvaluation of investment firms on
Wall Street.
After a highly public five-year
battle with Allied Capital that
included him short selling its stock,
Einhorn wrote “Fooling Some of
the People All of the Time,” in
which he famously called the private-equity firm a Ponzi scheme.
Allied eventually settled with the
SEC without admitting fault.
The activist investor also mentions Brickman, who shares similar values as Einhorn, in the book.
“Jim is tireless and has terrific
business ethics and terrific judgment and is able to suss out opportunities as they are and figure out
when ones need to be pursued,”
Einhorn told the Dallas Business
Journal.
In 2008, Brickman asked Einhorn to become a lead investor in
two JBGL funds, which was the
genesis for Green Brick. In part,
Brickman said he wanted “one of
the smartest guys in the room,” on
his team.
Einhorn, 46, is the chairman
of the board for Green Brick and
helped assemble the board, which
helped take the company public
in October 2014. Einhorn’s hedge
fund, Greenlight Capital, owns
about 49 percent of Green Brick
and has enjoyed the Plano company’s stock performance over the
past year: up nearly 34 percent.
The hot stock has cooled recently, mostly because the company
lowered its guidance for the year.
Green Brick said last week that it
will only turn a profit of $22 million to $24 million in 2015, instead
of the expected return of $29 million to $32 million. Additionally,
Green Brick announced that COO
John Jason Corley was no longer an
executive at the company.
This article appeared in the Dallas Business Journal on November 6, 2015 on page 1, 4-6 and 8. It has been reprinted by the Dallas Business Journal
and further reproduction by any other party is strictly prohibited. Copyright ©2015 Dallas Business Journal, 2515 McKinney Avenue, Suite 100, Dallas TX 75201
NOVEMBER 6, 2015
DALLAS BUSINESS JOURNAL
Einhorn dives into evolving housing industry with Brickman
Meanwhile, Einhorn’s hedge
fund, which has about $11 billion
in assets, is down more than 16
percent this year.
But Green Brick remains a
bright spot in his portfolio — and
it is a long-term play, with both
Einhorn and Brickman making a
bet together on an ever-changing
housing industry.
“David believes you don’t have
to be the toughest, or the most
ruthless guy to succeed, but you
have to stick to your knitting and
know what you are doing,” said
Brickman. “You have to be persistent and do things that are common sense things and that’s how
he approaches being our chairman
of the board. We think the same
way.”
For a small private builder, it
can be difficult to source $3 million to $5 million to start new
deals, said Ted Wilson, principal
of Dallas-based Residential Strategies Inc., which analyzes the residential real estate market in North
Texas.
That need has caused some
consolidation and partnerships
in North Texas. In 2013, The
Ryland Group of California has
acquired Carrollton-based LionsGate Homes. In the past few years,
Japan-based Sumitomo Forestry
America also acquired an equity stake in Addison-based Gehan
Homes, Southlake-based Bloomfield Homes and MainVue Homes.
“For several of the smaller builders, the capital requirements to
acquire lots and grow in this type
of an environment is difficult,”
Wilson said. “The amount of capital it takes to grow in the market
is stiff and you can’t find a lot of
legacy lots left from the last real
estate cycle.”
Locating a capital partner is
imperative for a builder, said Dolson, who leads Green Brick’s home
lot development division.
That was certainly the case for
CB JENI Homes, said Bruno Pasquinelli, president and founder
of the Plano-based homebuilding
company.
When Pasquinelli started his
company in 2009 he had two
employees and a line of credit for
about $2 million, which isn’t a lot
of money in the business.
A year later, he saw an opportunity at The Estates of Willow Crest
and was hopeful to land upwards
of $7 million to get homes underway in the Plano community, but
it was more difficult than Pasquinelli anticipated.
“I got up everyday and put on a
suit and tie and would tell my wife
I was trying to get kissed and taken to the prom,” said Pasquinelli.
“I met with a lot of people trying
to get money and ultimately met
Jim and we ended up doing a large
deal together.”
That was at the bottom of the
real estate cycle, Pasquinelli said.
“Jim kept telling me when the
market turns, the companies with
the capital will be able to take
advantage of the cycle and those
without it will get pushed out of
the food bowl,” he said. Pasquinelli later decided to join forces with
Brickman’s firm in 2012.
In the past six years, CB JENI has
grown from two employees working in a spec house to 75 employees with revenue exceeding $100
million.
In the last 30 days, Brickman
has met with 15 different investors
from New York to Chicago to Boston to Dallas. Each of them wants
to see the communities developed
by the firm’s building partners.
And it’s those premium neighborhoods that set Green Brick
apart, said Brickman.
“The land side of the business is
very relationship oriented and we
seek out sellers that are also relationship oriented and may have
additional phases where we can
bring value to their properties,”
he said.
In particular, Green Brick Partners closed on more than 17 acres
of land to develop 135 home sites at
Heritage Creekside, a high-profile
$900 million, 156-acre mixed-use
development near the intersection
of North Central Expressway and
the President George Bush Turnpike by State Farm Insurance’s
new regional hub in Richardson.
And this won’t be Green Brick’s
last deal to land in Dallas-Fort
Worth and Atlanta this year.
“We have a lot of deals we are
looking at right now and a big one
that’s going to close in December right here in Dallas,” he said.
“As opportunities avail themselves,
we’ll probably take advantage of
them.”
The deal is expected to be three
times the size of Green Brick’s play
in Heritage Creekside and will have
a build-out value of $150 million.
Green Brick, with a market cap
of around $413 million, has been
focused on organic growth. But
Brickman said he said he is also
exploring other markets.
“We are looking at other builders and benching them against
what those returns would be and
possibly generate versus growing organically. Right now, we are
playing all ends against the middle. We have a lot of excess capital and we are going to prudently
deploy it as we think best.”
This article appeared in the Dallas Business Journal on November 6, 2015 on page 1, 4-6 and 8. It has been reprinted by the Dallas Business Journal
and further reproduction by any other party is strictly prohibited. Copyright ©2015 Dallas Business Journal, 2515 McKinney Avenue, Suite 100, Dallas TX 75201