Success Strategy: Find A Reliable Financial Partner

The Keusder clan has been building homes in Sacramento and southern California since the early 1950s. The family enterprise began as Davies, Keusder & Brown, from which  evolved different companies under such names as Keusder Enterprises, G.J. Payne Company, and EHI Homes.

About seven or eight years ago, Wes Keusder, who represents his family’s third generation of home builders, launched the latest iteration, Keusder Homes, based in Costa Mesa, Calif. But despite his history—which included having helped build and develop more than 2,000 homes and condos, and investing in and managing more than 500 apartments—Keusder was forced to suspend operations when he couldn’t find a lender willing to provide construction financing.

Enter Sabal Financial Group, a Pasadena, Calif.-based private equity firm that in June 2012 started a builder lending division that provides capital to small and midsize builders for infill projects. Sabal, says Keusder, “got me back into the business,” to the point where his company expects to close between 20 and 25 homes this year, and between 30 and 40 in 2014.

The re-emergence of Keuster Homes coincided, perhaps fittingly, with Keusder being inducted into the California Building Industry Association’s Hall of Fame in 2012.

A Focus on Infill

Keusder Homes’ first project with Sabal, Madrona Homes in downtown Torrance Calif., was a redevelopment of a townhouse project. Keusder partnered with the landowners who put up cash to resdesign the project for a dozen single-family homes, ranging from 1,611 to 1,641 square feet. Sabal provided a $4 million non-recourse loan for construction, which was completed in October 2012. The last home sale closed in late September.

“The units sold well above their pro forma,” says Tom Farrell, who manages Sabal’s builder lending division. Keusder elaborates that the units’ pricing, from $599,000 to $660,000, represented a 7 to 8 percent premium over what he had anticipated. “We caught a pop in the housing market here.”

The success of Madrona Homes led to other joint ventures between Keusder and Sabal, including a 14-unit project on 4,000-square-foot lots in Vista, Calif., where the homes will be 1,776 to 2,170 square feet; and a nine-lot, 16,400-square-foot subdivision in Sacramento, where the homes will go for $365,000 to $450,000.

In September, the partners were closing on a property in Corona Del Mar, Calif., where Keusder Homes will tear down an existing house and build a two-unit condo. The 1,300-square-foot unit in the back will sell for $1 million; the 1,700-square-foot unit in the front will sell for $1.7 million.

Throughout his career, Keusder has favored joint ventures, which included family and friends, private investors, and landowners. He says his arrangement with Sabal “works perfectly for us,” because Sabal is providing up to 75 percent loan-to-value, which is better than the 60 percent LTV Keusder can get from banks. “So our construction money is cheaper.”

In addition, Keusder doesn’t have to collateralize these deals with personal guarantees, which humbled many an independent builder during the recession.

Build in Familiar Surroundings

Keusder and his business partner Bart Hornstein (whose background is in apartments and homebuilding, and who once worked for one of Keusder’s capital partners) are looking for other infill opportunities in Sacramento and the Inland Empire, as long as they’re under the public builders’ radar. “I can’t compete [for land] with the publics because their risk level is higher,” says Keusder

A good land deal for Keusder, he says, is one where “we have some design advantage,” a la the redevelopment in Torrance. Farrell says Sabal Financial likes that Keusder Homes target markets where Keusder worked before, and where “he knows the municipalities and the landowners.”

Keusder Homes

Headquarters: Costa Mesa, Calif.
2012 Closings: zero
Home Prices: Starting from $360,000
Markets Served: Sacramento; Los Angeles and Orange Counties, Calif.
Success Strategy: Infill on small tracts; a private equity partner.