California-based homebuilder City Ventures has filed for an IPO. The company plans to list on the NYSE under the symbol “CTYV” and the lead underwriters include Deutsche Bank (DB) and Goldman Sachs (GS). The pricing terms were not disclosed.
Founded in 2009, City is a unique player in the homebuilding sector. The company essentially repositions underutilized real estate into residential housing — in coastal urban infill areas. The strategy is actually not easy to pull off as it requires working closely with local housing and governmental agencies to get the entitlements.
Yet City has the advantage of a strong management team. The CEO Mark Buckland and Chairman Craig Atkins have an average of 25 years with repositioning land. They also were smart to get the financial backing of private equity operators Imperial Capital Group and Ares Management.
For the most part, City targets land in areas that have attractive characteristics — such as in employment, infrastructure, transportation and schools — where land availability is constrained. What’s more, the company builds eco-friendly homes that range in prices from $250,000 to $2.5 million.
All in all, the strategy has panned out nicely. From 2011 to 2012, revenues soared from $45.2 million to $96.5 million while net income went from $4.5 million to $14.4 million.
But the IPO may still face headwinds. The main problem: With the rise in interest rates, it could get tougher to finance new home purchases. Already, this has impacted the performance of recent homebuilder IPOs. TRI Pointe Homes (TPH) has lost around 12% since hitting the market, while William Lyon Homes (WLH) is in the red almost 4%.
And this week, there appears to be weakness with the upcoming IPO of HD Supply, which is a play on the real estate market. According to Bloomberg, the company may price at $18 to $20, which is below the current range of $22 to $25.
Now this is not to imply that the City IPO will not get done. If anything, the deal will probably not hit the markets until the fall. But if interest continue to increase — and the volatility in the equities markets does not calm down — then it probably will not be easy to get investors excited about buying IPO.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.