No Pain, Not as Much Gain

Transcript

Dean Wehrli:                                                

Welcome to The New Home Insights Podcast by John Burns Real Estate Consulting. I’m your host, Dean Wehrli. Today we have Mike Forsum, the President and COO of Landsea Homes, a big and growing builder with a presence on both coasts and starting to push inland. Landsea is active in the West, a lot of parts in the West, but also in the Northeast in New York and Boston. And one of the things that is most interesting about your company, Mike, is that you build kind of everything, product wise. You do these mid-rises in Chelsea or something like that, or even high rises, and then these big, beautiful suburban homes in Phoenix or someplace like that. That’s not common to have that kind of book of business.                                 

Today we’re going to talk about a lot of things. It’s kind of a wide ranging day today. The housing market and where it’s heading, differences among key markets, differences in building these different housing types that we just mentioned, the challenges to building today, sustainability, which I know is a critical focus of yours, and also about going public. So we’re going to talk about SPACs. I’m really looking forward to that because I’ve known about their existence for, I don’t know, I’m going to say six weeks. So we’ll have a little primer on SPACs here in a little bit. So Mike, why don’t we start though? Tell us a little bit about yourself and Landsea, and then we’ll get to the questions.

Mike Forsum:                   

Thanks, Dean. Thank you so much for inviting me today. This is actually my very first podcast, so I think it’s a lot better than giving a speech or being on a panel. And thank you for giving me a broad range in which to meander because that’s usually what I do. But ultimately, don’t fear, I usually get back to the topic at hand or the subject, so I’ll get there ultimately.

So thank you again, as you introduced me, I am the COO and President of Landsea Homes. We are a newly minted publicly traded company that lists on the NASDAQ stock exchange. Our ticker symbol is L-S-E-A, LSEA. Super excited about that, and that new iteration of ourselves as we go forward. But prior to my time here at Landsea, which I’m about ready to celebrate my five year anniversary here, I came up through the home building business, started with KB Home. Back then it was known as Kaufman and Broad. In fact, that’s where I met my wife, who was helping us get on this webcast today, or this podcast today.

Dean Wehrli:                    

She’s your IT person.

Mike Forsum:                   

Right. Yeah. She’s been my favorite partner throughout my whole entire working life. So with that being said, from there I went to Ryland Homes with Chad Dryer when he moved over and became the CEO of that company, and there was a handful of us that went over to help him kind of redirect that company and stabilize it, and actually help it grow over a period of time. Then I had a very fortunate opportunity to run a bigger business, and that’s when I joined John Peshkin at Taylor Woodrow before it became Taylor Morrison. I was there for nine years and ran pretty much everything west of the Mississippi for the company, and then was part of the merged entity with Morrison working for Sheryl Palmer for roughly around a year, and she was terrific and I really enjoyed my time.

Unfortunately, we headed into a very difficult time in our industry. It was a great financial crisis, which was led by our business. And so I had an opportunity to go take a walk on the wild side, and I went over to private equity. And I started a platform with Barry Sternlicht, Mike Moser, with Starwood Land Ventures, which was a platform in which we were buying up distressed, really distressed master planned communities throughout the country at that time. And so that was a great educational experience, particularly where I was in my career at the time. And then to be with such a blue chip private equity firm like Starwood, we were front row and center on every bit of action that was going on at that time, and everything that was being offered, and the packages, and those kinds of things. So I really enjoyed it and had a great time. We got about 20,000 lots through that, and then did a little bit of some land banking with Colony Capital after that.

But the siren song of home building grabbed me and brought me back. And I had this opportunity to come back into an operational business, which is really my soul. That’s really what I’m about. And so I joined Landsea to help them kind of say, institutionalize processes and procedures, and to make us an investment grade company of which again, I think going full circle, as I said, we just recently went public.

Dean Wehrli:                    

Yeah. Yeah, it does sound like a home building was always tugging at you even when you were not with a home builder.

Mike Forsum:                   

That’s right.

Dean Wehrli:                    

I love that, Taylor Woodrow, Kaufman and Broad, I remember those days. That takes me back. Who was the guy? Who was the actor? Remember the actor who made those commercials? He was in Aliens, with Kaufman and Broad. You know what I’m talking about?

Mike Forsum:                   

Skerritt.

Dean Wehrli:                    

Yes.

Mike Forsum:                   

Yeah, something like that. Yeah, yeah.

Dean Wehrli:                    

Tom Skerritt, Tom Skerritt. I remember those Kaufman and Broad commercials at the end, okay. Oh, those were the days.

Mike Forsum:                   

Yeah.

Dean Wehrli:                    

So thank you for that. So yeah, and Landsea, we work with you guys at Landsea, great builder, always having really good product. You’re always building interesting product, not always the typical vanilla stuff, which I like. So let’s start with product, as a matter of fact.

Mike Forsum:                   

Sure.

Dean Wehrli:                    

You guys, as I kind of briefly teased up front, you guys are doing big, beautiful 3,500 square foot suburban homes, and you’re doing mid rises, high rises, and most everything in between. What is kind of the toughest product to build and execute well?

Mike Forsum:                   

Well, it’s a great question. At Landsea, we’ve been pretty fearless in terms of our approach in residential home building, as you said. We go very high up, and then we go very broad. So but for the most part, I would say that when we’re doing a high rise building, and say we’re in Manhattan, right now we’re on 14th and Sixth, we’re building an 18 story high rise there, residential. We have roughly 55 units that we’ll have, 55 condo units there. We’re on top of a New York subway. We have two subway entrances because we’re on a corner, so we got one on one side, and one on the other. And then on 14th street, that’s a major bus line that really actually comes out of Brooklyn. I forget what it is, the 17 train or something runs underneath it.

 So in New York City, it takes a lot of coordination with a lot of agencies to get it to the extent that you can start to build. And just you can think about everything from traffic control, to working with the next door buildings, and everything else around that. Interestingly though, you work with general contractors there that are very sophisticated, super strong. They know the city inside and out. And once you’ve dug out your sub cellar essentially, it’s pretty proforma as they go up. It’s erector set, essentially. So you’re just going from floor, to floor, to floor, to floor, and then you’re topping out. And then it’s pretty basic as you’re sort of building out the units within the building.

 So once you get through that first complicated stage, you’re off to the races. On the other hand, suburban build out may look a little bit simpler, but there’s a lot of complications around that. And I think there’s maybe a question coming later on in terms of what that really means. But there’s a lot of challenges that are outside of just the actual building of the structure that you don’t have to deal with in New York City. New York City, you have what they call an as-of-right zoning. And so as you get that as-of-right zoning, all you’re doing is really acquiring airspace above you. That’s really the real estate in New York City.

 So they basically let you go have at it. There are no real zoning restrictions outside of your setbacks on the street. You design the building the way you want to design it. It’s about attracting a certain clientele that you want. But as I say, in suburban development, particularly in California, specifically in the Bay Area, which I’ve been active in since 1988, I like to say that we are an industry that is a second to being regulated outside of the nuclear energy business. The home builders…

Dean Wehrli:                    

That kind of anticipates my next question, which was: What are the toughest markets that you, not product necessarily, but toughest markets, and you can define that however you want to, for you to build in?

Mike Forsum:                   

Well, again, as you said in the introduction, we have a broad range of products that we build in a broad range of regions and states. So we do have a unique perspective on that question because from New York City to San Francisco, to Glendale, Arizona, to Austin, Texas, and now into Florida and Orlando, they all are unique in their own respects. But when it comes down to really being the toughest place to actually do what we do for a living, without question, hands down, it’s in the San Francisco, Silicon Valley, Crescent Bay area. Now that always irks our New York office because they always want to believe, as all New Yorkers do, that they’re center of everything, and nothing can be harder than operating in New York, and I’ve said I will take New York City any day over Sunnyvale, California.

Dean Wehrli:                    

See, they’re going to hear this, and now try to toughen up the process.

Mike Forsum:                   

I guess so, right.

Dean Wehrli:                    

Yeah. There is that stereotype that everything is hard to do in New York. For such a cosmopolitan, international city, it’s famously parochial. But in the Bay Area, so there’s even more what, chefs in the kitchen kind of a thing, or just the regulations are so onerous?

Mike Forsum:                   

Yeah. Well, we have this horrible thing in our state called CEQA, which is the California Environmental Quality Control Act, and so if have any discretionary zoning changes, it’s up for grabs. I can actually be in our New York City office and sue a project in California if I felt like it wanted to go forward, and I would actually getting a hearing out of that. So from that standpoint, that has opened up a real can of worms, and to be able to understand that and move your way through that regulatory maze takes a pretty special skill. As I said, in Manhattan, if you have air rights, which is really the work that you have to go through to get it done, you really don’t have those other impediments to being able to go do what you want to do outside of the typical things of working with agencies and permitting and financing.

Dean Wehrli:                    

So we talk about the toughest. How about the easiest? You kind of maybe … The easiest both in terms of product and in terms of market. We always want to challenge your assumptions on here, so I would think you’re going to tell me that it’s Florida, or Texas, or Phoenix is the easiest market. Are we wrong?

Mike Forsum:                   

Well, Phoenix is changing. I started KB’s home building operation in 1992 in Phoenix. And I can tell you where that was to where it is today, it’s definitely evolved and become a little bit more California-ized in terms of its approach. I remember the first time that I actually walked in with a set of plans to the building department. I believe it was in Gilbert, Arizona, as a young division president, and as a startup guy, you’re doing everything anyhow. You’re a chief cook and bottle washer. And I remember walking in and handing over my plans to the plan checker, and he essentially said to me, “Well, what do you want me to do with these?” And I said, “Well, you’ve got to go through them. Don’t you?” And he goes, “I could. But why?”

Dean Wehrli:                    

I trust you.

Mike Forsum:                   

He goes, “You got an engineer. Right?” And I said, “Yes.” “Did he stamp it?” “Yes.” “Then the problems yours, not ours.”

Dean Wehrli:                    

Oh, my God. Good enough for me. Get a drink. I like that.

Mike Forsum:                   

But times have changed a little bit and they’ve gotten a little bit more rigorous in terms of how they look at it. But every market again has its uniqueness to it, and that’s what makes our business so special, is that it is really at the end of the day, a local business that should be run by local operators who really know the idiosyncrasies and nuances of what it takes to be successful in the business. So I would say, yeah, Texas and Florida is more accommodating in some respects for what we do. We’re not a pariah, so there’s a lot more joy when you’re going into the cities and talking about what you want to do. But they also have their own uniqueness as well, and you have to understand that too.

Dean Wehrli:                    

Yeah, that’s very true. Is it fair to say then in terms of product that it is kind of your simple detached single family home? You guys get pretty semi-custom, though, so that can get tricky too.

Mike Forsum:                   

Are you talking about for us, or in general in most markets?

Dean Wehrli:                    

For us, for you guys, yeah. Do you find that your detached single family is the easiest product to build?

Mike Forsum:                   

Well, it’s the easiest product probably to build because it’s pretty formulaic and systematic as you kind of get used to your 50 series, or your 60 series, or whatever you’re trying to bring out to the market and bring to the customers that you want to serve. But there are parts to that though that do make it a little bit harder. So even in an, I would say, 60 unit, 80 unit subdivision that you’re building, from grading on up, I mean those cases you could be moving tens of thousands of cubic yards of dirt. You can be putting in miles, literally miles of streets in something like that, curb, gutter, storms, sewer, water. With all of those things that you have to do, you’re literally bringing up from the ground up into the house to service that house, which can be complicated in and of itself. And you have to have the skillset to be able to do that.

 At Landsea, we do think of ourselves as having multifaceted skillsets within our organization to be able to … We’re not just strictly a finished lot buyer. We actually produce and create our own lots as often as we possibly can. And so we have to deal with that as well. So again, I always like to say this isn’t necessarily a complicated business, but it’s a hard business. And there’s a lot of perseverance and drive and things that you have to do to be able to be successful, even in the most simple of the home building subdivisions that we go after.

Dean Wehrli:                    

Now you guys, again, you’re in places like New York, like Boston, like all of these California markets. What drives your willingness to be in these markets that a lot of people perceive as troublesome, problematic to work in?

Mike Forsum:                  

I don’t know. People say we’re naive. I think I said earlier, we’re a bit fearless when it comes to our approach in where we want to build and what we want to build. I do believe though at the end of the day, these high barrier markets, high barrier to entry markets are great opportunities to provide housing solutions that are really not being provided for. But in those cases, and what really is needed is just a real intellectual capital within your organization because you have to be able to work your way through that regulatory maze and persevere, and to be able to have the ability to negotiate and to compromise, and to work through things, that you don’t necessarily are not faced with in other parts of the country.

 So with that, I think that it has a tendency to kind of deter the competition because again, the skillset is different. The predictability is a little bit more scary, and maybe for some, I’m just going to say larger publics that want that consistency and don’t want to feel like they’re not going to get that lots on time, and they’d rather be thinking about the volume. And for us, again, I cut my teeth at KB up in the Bay Area. I was the third, fourth employee that they brought up from LA. And so I know really nothing but these types of markets, and I really like them. I love infill. I like brownfield. I like challenges in these locations that allow us to separate ourselves from the competition, and again, providing some housing solutions that otherwise wouldn’t be available to people.

Dean Wehrli:                    

Yeah. It keeps it interesting. And it’s also not bad to be a pretty big fish in a kind of under-supplied pond that these places naturally are.

Mike Forsum:                   

Right.

Dean Wehrli:                    

Let’s switch gears a little bit and just talk more generally about the market. How has this hot market environment treated you, Landsea, specifically?

Mike Forsum:                   

Very timely. We’ve very grateful for it. So we’re riding the big wave with everybody else. As I said, I’ve been doing this for a long time, probably 33 years, 34 years now. And I’ve never quite seen a confluence of events that have conspired to really give us this secular tailwinds that are really propelling our industry the way that they are. And again, having seen the highs and lows, for us, I always say I’d rather be dealing with the problems of a hot market than dealing with the problems of a broken down market. So it’s an exciting time to be a home builder and we’re having a lot of fun.

Dean Wehrli:                    

Have you seen the urban, suburban divide that a lot of folks have been talking about now for a while? Has there been maybe less price lift in your urban communities relative to your suburban locations?

Mike Forsum:                   

I would say yes, but that’s narrowing. Interestingly in New York and New Jersey in our communities, they have really popped back. We were obviously concerned with what was happening in Manhattan. I was just in Manhattan last week, and I’ll tell you, every restaurant was full. People were walking up and down the sidewalks. There’s no masks any longer. The East Side Highway was jam packed at rush hour. You could barely ride your city bike down the Linear Park there without getting ran over by somebody. And we’re feeling it in the energy around our buildings and who is inquiring and looking for a home there.                           

Our New Jersey community over in Avora, Weehawken, it was actually did very well, I think in most part because there was sort of a flight off the island a little bit to get a little bit more room and space, and so we took advantage of that. I think for the most part, if you don’t have a super long elevator ride, that was really kind of the issue. It was kind of really getting on an elevator was really the … But our town home communities in Silicon Valley did well. We had a little bit of a flight coming out of San Francisco, but I think again it was just the density, and people sort of feeling like they just wanted a little bit more safety and space. And our town homes still gave them that individual identity. They could have their own unit, but still be approachable to work and have an affordable product.

Dean Wehrli:                    

Have you seen, again, the sort of classic, if that’s the right term, shift, you’re getting more of those remote workers from the inner core to your suburban products? Have you been–

Mike Forsum:                   

Yeah. Without a doubt, we’re seeing a lot of that. We see it in the Inland Empire. We’ve tried to provide a solution and we think we’re very successful with this, with our Live Flex, which is really taking that sort of what I always call that sort of obligatory den that you walk in, in any model, and you kind of look to your right and see it sitting there. And there’d be that obligatory sort of desk combo kind of thing. It was just kind of really: What was it? And I think now today, all of us in the industry are really working hard to rethinking that space and the utility of that space, and the use of it. It’s really becoming a multifunctional room that has to do so many different things, teach your children, do something like this, many things. Right?

 And that room is actually moving into different locations in the house. It used to be kind of right up front because we all have this archaic idea that if you were going to be working from home, you had to be looking out a window to see the FedEx man coming up, or answer the door. And today, it’s different. People are looking to go upstairs, to be more in the backyard. They want to be looking out in different viewpoints. So it’s been very interesting to see how we’re all trying to address that and respond to it.

Dean Wehrli:                    

Yeah. We actually had that on a prior podcast when you do surveys. Actually, folks would prefer to have that in the back of the house as opposed to the front of the house, where it has always been located. So let me put you on the spot, Mike. Is remote working a revolution or an evolution?

Mike Forsum:                   

Well, maybe it’s like it was gradually, then suddenly. Right? It had a trigger event that kind of put into that. I kind of look at it in that way. I think it was sort of moving in that direction, sort of at a glacial pace. But by virtue of this we just went through, it was kind of kick this thing over. And I probably didn’t answer that specifically, but I think that it is definitely here to stay.

Dean Wehrli:                    

Yeah. There’s a term in evolution, human evolution, called punctuated equilibrium, where there is kind of this steady flow, things are changing a little bit, then some event kicks that in and has this catalytic impact. And it seems like … I mean, so do you see the work from home having legs? Of course, some folks are going to be pulled back into the office. But do you see a big, big number staying remote and keeping the impact on the suburbs and the way we design homes being long lasting?

Mike Forsum:                   

Yeah. This is a long-term moment for our industry, which we have to think about and address. And we see it because we’re also employers. Right? We have an office and we have people. And we’re working through that as well. And I think that the way that the world will be going forward is there’s probably going to be two to three days a week in the office, and then two to three days somewhere in between, in which people are working remotely. And I think that’s an okay thing. I think we’ve found ourselves being comfortable with this idea that we have a workforce that doesn’t necessarily have to be butts in the seats constantly for us to sort of validate their work product, and that it’s okay to trust them in terms of what they’re doing at home. You give them more flexibility. I think it’s going to make for a better work environment all around.

Dean Wehrli:                    

Yeah. Has playing in some of these higher priced markets that you’re in, does that impact your profitability, either positive or negative? I mean, is it easier because of prices to be profitable, or maybe riskier in these higher priced markets and vice versa? Is that fair?

Mike Forsum:                   

Yeah, I think you’re … Again, I don’t know who’s going to listen to this podcast, and I don’t know if it’s some sort of dirty little secret that’s out there. But the truth of it is, in these high barriers to entry marketplaces, if you’re in the Bay Area, if you’re in some of these other locations, you may be getting less volume, but you certainly get your profit machine. You go out into these other markets, say it’s in Arizona, Texas, and you’ve got to be turning your volume, you’ve got to be turning your inventory over a couple times a year, maybe even more. So you’re going to be making less a house, but maybe if you’re more efficient and effective in the way that you scale up your business and run it, you can probably get there.

 But the Bay Area, if you look at the Bay Area to Phoenix, it’s probably a one to five ratio, one to four ratio, somewhere in there. Maybe one to six. So for every house I deliver in Orinda, California, I have to get six out of Buckeye. So it kind of tells you sort of how the business works. And it’s right, I think a lot of builders really drive toward scale. There’s many reasons for it. But you’re balancing that out throughout the country in terms of where your real profitable markets are and where your volume markets are.

Dean Wehrli:                    

And is the same kind of true for product as well? Incredibly, the price per square foot in a high rise is extraordinary. But you’re not doing it unless you’re getting luxury type prices.

Mike Forsum:                   

Yeah. I mean, it has to always make economic sense in terms of what you’re trying to do. It has to attract the right type of capital structure. But for us, we’re now public. We’re transparent in terms of where our margins have to be and where our returns are. So it always has to make logical sense in terms of what your thesis is and strategy as you are as a company, in terms of when you’re going and placing money. So at the end of the day, and I was talking to John Ho, our CEO, we often refer to ourselves as really just capital allocators in the positions that we’re in because we have local operators that are running their businesses. And they’re seeking capital from us to grow because that’s really what they want to do, so they have to be hitting certain return metrics, margin, profitability, gross, and net. And so that’s kind of how we look at the business.

Dean Wehrli:                    

Are there any markets you’re not in right now that you’re kind of champing at the bit, would love to be in, if you can tell me?

Mike Forsum:                   

Recently, we made our move into Florida and Texas. And I think that we have a lot of room to grow in those states in particular. We have a beachhead in Austin in Texas, and we’re in Orlando in Florida. But those are big volume states for our industry, and so we see ourselves kind of now pushing and expanding in those areas. But for new markets and looking and going forward for us, we’re pretty excited as a company because it’s still a pretty open slate in many respects. So we’re not having to go to kind of … It’s not, but the second ring out, if you will. In other words, if we’ve saturated Phoenix, we’re going to start peeking at Tucson. Or if we’re in Denver, we’re going to go down to Colorado Springs, we still can be looking up into Georgia, the Mid Atlantic, the Carolinas, those kinds of places. And so I guess for us, I would definitely see us moving up into sort of that South up North on the East Coast, as we kind of move through the next couple years as we watch the industry evolve for us.

Dean Wehrli:                    

That does make a lot of sense, Georgia, Carolinas. It’s nice, I guess. Right? To have some runway, given your footprint, yeah.

Mike Forsum:                   

Yeah.

Dean Wehrli:                    

Do you see the double digit appreciation though lasting much longer? This is your little crystal ball moment. I mean, is that … That can’t. That’s just not sustainable, if you think that’s going to kind of wind down over? You tell me, time wise.

Mike Forsum:                   

Yeah. We get these questions all the time from our investors, as I’m sure many of our other publicly traded peers that are listening in on this, so it’s no revelation. It reminds me a little bit of, even during our public equity days, we always used to get that question. What inning are we in? What inning are we in? And so I think in this case, right now, we’re feeling really good about where we are for this year. I’ve been saying, second half 2022, I think that’s anybody’s guess. Again, it’s more that’s where I can kind of see the rise. And I just think it’s going to be steady. And we’re already kind of tailing off a little bit in some places, which I don’t necessarily think is such a bad thing. And as you said, it’s unsustainable. And really, 2022, end of 2022, 2023, I think we’ll definitely be looking at our market a little bit differently than we are today.

Dean Wehrli:                    

I actually like the baseball analogy for one reason, because there’s no clock in baseball. So maybe you’re in the seventh or eighth inning, but you can bat around.

Mike Forsum:                   

Good point. I never even though of that before.

Dean Wehrli:                    

You can stay up to bat for quite a while.

Mike Forsum:                   

That’s right.

Dean Wehrli:                    

And right now, we’re staying up to bat. We’ve already batted around right now, and we’re coming back for the second time in the inning. So sustainability is a big deal for you guys. How do you define sustainability? And then how do you execute it when you’re building a home?

Mike Forsum:                   

Yeah. What we’re really pushing at our company is what we call the high performance home strategy, which is really a pillar that sustainability, home automation, and energy efficiency. And Dean, one of the things being an old guy in this business for a long time is that when we embarked on this, I gave a long winded speech to everybody within our company and said, “Look, I’ve been around this business long enough to know that these themes kind of come and go. And what we don’t want to do is just sort of nod towards this. We want to be fully committed. We don’t want to nibble on the edges. We want to really make this a belief of ours if we’re going to do it. If we don’t believe in it, let’s not do it. Let’s find something else that’s going to help us to differentiate ourselves.”

 However, we really do believe that this is something that is incredibly important in the world today, to our consumers, to our families, everybody else. It’s not something that we sort of take lightly. And we didn’t want to approach this lightly. So we really did a holistic look at this. We spent a lot of time. We looked at our competitors. We did a lot of research, and we really wanted to understand what was really the golden thread that could stitch all this together to really make a meaningful impact on our homes and really change the lives of people that were living our houses. And so we really, with our relationship with Apple, found that golden thread through its Apple Home Kit.

And we are exclusive with them, which allows all of these things to effectively be stitched together to give you all of the things that you would want to have in a modern home today, that we think are the things that are just going to become essential going forward. We also have our relationships with Reme-Halo, which is a home purification system, whole home purification system, which really addresses again a healthy living, a healthy life in terms of again, where we are with our HPH. It’s now our fourth leg of our … A three legged stool is now becoming a four legged stool as we start to kind of evolve into this thought process around this differentiator that we’re trying to kind of bring into our homes. But healthy living, healthy air, those are the kinds of things too now.

 And I think that the pandemic brought a lot of that to the fore, to be thinking about that as well. It’s not just about my thermostat. It’s not just about my lights going off by a voice activation, none of those things. But it’s a lot of it coming together. So for us, again, it was we’re going to really be committed to this. We’re really going to lean into it. We’re really going to make it a marketing strategy. But we really want to make it a part of our DNA. So when we think about land and how we’re going to buy it, we think about the communities in which we’re going to design. If we think about the homes that we’re going to build, always has to be with the idea of: How are we going to be pulling through our HPH, or high performance home strategy through all of that? Not just at the end, as kind of sort of lipstick on something at the very end, and I don’t think that would be a very good way that would be received well by the consumer.

Dean Wehrli:                    

Yeah. And we talked about authenticity and how the consumer can sniff out in-authenticity pretty easily, so it’s authentic with you guys.

Mike Forsum:                   

Yeah. I probably could’ve trimmed that whole thing down by just using the word authentic and genuine.

Dean Wehrli:                    

But that’s good to know because if it is authentic, if it is real and heartfelt, then it is naturally going to thread through the entire process. If it’s lip service, it’s going to get lost.

Mike Forsum:                   

Right.

Dean Wehrli:                    

So let’s end with a little primer on SPACs.

Mike Forsum:                   

Sure.

Dean Wehrli:                    

SPACs is this hot investment tool. I know they’ve been around for longer than people think, for years. But the acronym means Special Purpose Acquisition Company. They’re basically a publicly traded vehicle that you kind of, investors trust the person running it. And they’re going to go out, and usually in a two year span, they’re going to do some kind of merger and acquisition, effectively taking a private company to be a public company through that vehicle. And you guys went through that process, tell me if I’m wrong, with the LF Capital Acquisition Group?

Mike Forsum:                   

That’s right. Yep. Yep.

Dean Wehrli:                    

So just kind of, I don’t know, walk us through the process of what that was like.

Mike Forsum:                   

Yeah. Yeah. Again, I’ve been so blessed throughout my career to be in a position where these really interesting things happen for me, to be able to do these kinds of things. So actually, you could probably do a whole podcast on SPACs. And I don’t want to bore you with all the details around it. I will just only address it really around what it meant to us and why we did it. For us, we had been part of a Hong Kong stock exchange company called Landsea Green. And we had always been desirous to become fully independent here in the United States. And so it was always a part of a bigger global strategy by our founder, Martin Tian, in Shanghai.

So we had actually spent a lot of time, especially early on when I joined Landsea, looking at a way to tap into the capital markets. And we were doing it in different ways, but we had also looked at merging with existing home builder or home builders, possibly, and that was our way of getting into the public market. You can imagine there was all kinds of complexities around that, and I won’t bore you with that. But we had a couple walks around the park with a couple of builders that ended up not really going anywhere. And so it was by way of our advisor, Rothschild, that we got introduced to this concept about SPACs.

And so that’s really where it all started. And we thought, “Okay, well, this may be an easier, better way to get into the capital markets by way of becoming public through this, what they call a blank check company.” Normally, though, these blank check companies are out there for private companies that are looking for growth capital. And then the blank check companies are looking for these startups or de novo companies that they think to have a very high level of return in front of them, and that they can provide the capital and the management expertise because they come on the board, usually, in one fashion or another.

And so but ours was different. We were highly capitalized. We had a lot of liquidity. We are a revenue generating business. We’ll probably go over, I don’t even think I can tell you now that we’re public, see I break all the rules, so I have to be careful about that. From the standpoint of, we have a great asset base. We are again, a real company that has a real product and has customers. And we’re doing it every day. And so we were really just looking for a way to get public through sort of this back door with this group, LF Capital, who has turned out to be amazing partners, really, really super smart business men and women. They’re ex Bain and Company people. And so from that standpoint, we’re very fortunate. But it takes a long time to find them. You have to cull through a bunch of them. And then there’s a lot of interviewing and there’s a lot of back and forth. And so it’s a bit of a process.

And then what happens is you have to go through a de SPAC-ing process because the entity has already been formed, as you said, early. Then the merger comes, and then the initial investors then get to stay or leave through this de SPAC-ing process. And then you bring in new institutional investors into their go forward entity. We’ve actually gone through that entire process. So we have effectively what they call become de SPAC-ed, so I like to say … Well, I was asking the other day is: When is a SPAC not a SPAC? And I think we’re not a SPAC any longer. We’re a legitimate publicly traded company. However, we have SPAC origins, and so we probably have some legacy things that we’re still bringing along in terms of a couple more quarters of performance that we need to be driving through the business for everybody to get a look at, and those kinds of things, as we get to move forward. But it’s been exciting. It’s not for everybody, for sure. We were different too in the sense that nobody took any money off the table. Everybody rolled their investment into the new entity.

But it was really very, very exciting to go through. We did our road show, and I think nowadays, go back to technology and how things have changed, is I think we did over 110 Zoom calls over a three week period of time. It was incredibly abusive. So you really have to have the stomach for it if you want to go do it because we were doing eight to nine one hour presentations a day. Yeah, so it takes a lot of work still to get it done. It’s not for the faint of heart.

Dean Wehrli:                    

De SPAC-ing sounds painful. Did it hurt? Blink twice if you can tell me it was painful. Sounds …

Mike Forsum:                   

I’m still traumatized. I’m so traumatized by it that I wasn’t even able to get on this podcast because I was afraid, I was having PTSD or whatever that is.

Dean Wehrli:                    

PTSD. SPAC PTSD.

Mike Forsum:                   

Yeah. There you go.

Dean Wehrli:                    

Did you ever think about doing a traditional IPO?

Mike Forsum:                   

Yeah. But we were in a hurry. We wanted to become independent in the US, and that’s a lengthy process and expensive process. SPAC’s expensive too, but it was … We wanted to be able to get to a position whereby we could then also tap into the high yield publicly traded debt markets, and this is another way to get us there faster. We can do that as well.

Dean Wehrli:                    

Has your life now just completely changed from being in public versus private? Or do you feel pretty much the same, you’re still treating your company the same way?

Mike Forsum:                   

Well, I think we’re operating as we’ve always operated. And we will continue to do that. Having only worked for publicly traded home builders my entire working life, I mean, I have a pretty good understanding about what’s good about it and what’s not so good about it. And when we started down this journey of becoming public, there was lots of discussions, many of them led by me, about how we were going to go forward and operate, and the way that we’re going to respond to pressures of our business and the things that we believe are going to be our core values and beliefs. We were going to never sacrifice going forward. And so from that standpoint, it’s not new to me. Maybe to some in our organization, but for me, not really.

My daily duties though, by becoming public, yeah, it’s another layer on a big job. But I’ve got a great partner with John Ho, an outstanding individual to be side by side with. You couldn’t find a better person to go down this path with. He’s just such a man of high character, really wants to do the right thing with me. And we really care about everybody that’s in this organization and what we’re doing, and he’s right there with me every step of the way as we go forward with this.

Dean Wehrli:                    

Now let’s end on … I’m going to ask this because you’re a rule breaker and you don’t know not to answer it. But what’s up next for Landsea? Any major announcements you want to make on this, the preeminent housing market podcast in the world?

Mike Forsum:                   

I will only give you a little taste of it, but from a mergers and acquisitions standpoint, we have not finished, so be ready for some new news.

Dean Wehrli:                    

That’s a nice little tease. Thank you for that. I like that.

Mike Forsum:                   

There you go.

Dean Wehrli:                    

All right. You’ll probably make us take that out, but if you’re listening to this right now, then he didn’t. So thank you, Mike.

Mike Forsum:                   

You bet.

Dean Wehrli:                    

I really appreciate you coming on, man.

Mike Forsum:                   

It was a real honor. I really have known John a long time, and your outfit is outstanding. And you’re just such a great voice and a bright light in our business, so thank you for all that you guys are doing. You’re the best.

Dean Wehrli:                    

Thank you for that. Appreciate it.

Mike Forsum:                   

Okay.

Dean Wehrli:                    

Awesome. This has been The New Home Insights Podcast with Dean Wehrli. Until next time.