William Lyon Homes

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William Lyon Homes

4490 Von Karmen Avenue
Newport Beach, California 92660
Telephone: (949) 833-3600
Fax: (949) 476-2178
Web site: http://www.lyonhomes.com

Public Company
Employees: 570
Sales: $613.30 million (2002)
Stock Exchanges: New York
Ticker Symbol: WLS
NAIC: 233220 Multifamily Housing Construction; 233210 Single Family Housing Construction; 233110 Land Subdivision and Land Development

William Lyon Homes designs, constructs, and markets homes in California, Arizona, and Nevada, ranking as one of the largest homebuilders, by volume, in the United States. The company generally builds three to five model homes for each product line. Sales are rarely the responsibility of independent brokers. Instead, the company maintains its own sales force, generally situating its sales offices adjacent to one of its housing developments. William Lyon Homes operates through five geographic divisions: southern California, San Diego, northern California, Arizona, and Nevada. The company derives approximately 75 percent of it business from its activities in California. The company's homes are usually sold before or during construction.


The business that became one of the largest homebuilders in the United States was founded by William Lyon, whose professional career comprised two occupations. Lyon grew up in Los Angeles, where his father was employed as a beverage wholesaler. During the 1940s, he, his brother, and his father worked together in a small construction business that provided housing for military personnel returning from World War II, but William Lyon had other dreams as a young adult. Lyon attended the University of Southern California and dropped out in 1946 when he was 23 years old, intent on becoming a commercial airline pilot. He joined the U.S. Air Force, became a pilot, and flew combat missions during the Korean War. After serving in the war, Lyon started his own residential construction firm in 1956, but remained active in the Air Force Reserve. Lyon's service in the Reserve went far beyond the part-time commitment of a typical Reserve soldier. In 1975, he was appointed Chief of the Air Force Reserve, a title he held during both the Ford and the Carter Administrations. Lyon retired in 1979 as a major general, earning a rank he clearly coveted. In company press releases and in documents filed with the Securities and Exchange Commission, Lyon was referred to as "General Lyon," a designation that befitted the stewardship of his eponymous homebuilding company.

Lyon succeeded in home construction by concentrating his efforts in the fastest-growing construction region in the United States during the second half of the 20th century. California, and southern California in particular, recorded explosive population growth during the formative decades of Lyon's business. The state had 13.6 million residents the year Lyon started his company. By 2000, there were nearly 35 million people in California. Lyon, especially during the later stages of California's population growth, focused on developing properties in largely undeveloped regions. He built communities of homes in what would become the suburban regions that embraced metropolitan areas, the "satellite" cities that cropped up inland of the state's major cities. Lyon specialized in master-planned communities that provided affordable housing primarily to first-time home buyers, creating a mass-produced product and marketing the homes primarily through his own sales force. "A Lyon community," wrote Forbes reporter Ralph King, Jr., in a February 5, 1990 article, "is a latter-day Levittown marketed with a Sam Walton flair. Like William Levitt, Lyon uses assembly-line techniques, but instead of unadorned cookie-cutter houses, he offers several fully decorated models to choose from. Like Walton, he undercuts competitors' prices and dresses his customer service people in distinctive blue uniforms."

Over time, a formulaic approach to developing a Lyon community was evident. Typically, undeveloped land acquired by the company surrounded a particular unifying feature such as a parkway, or a community center, or a lake. The homes were basic and compact, but several "extra" features were included, amenities such as dormer windows or nine-foot ceilings. The company was profitable largely because it was able to keep its costs to a minimum. One of the most effective ways of keeping costs down was limiting the time each project took to complete. Lyon acquired large tracts of land and developed the property as quickly as possible, usually selling the homes before construction was complete. By adhering to a strict time schedule, the company kept the costs of possessing empty land to a minimum.

By the end of the 1980s, Lyon presided over a substantial construction empire. His interests, which generated an estimated $1.5 billion in revenue in 1989, were divided among three companies: Presley Cos., recognized as one of California's oldest homebuilders; William Lyon Homes Inc.; and Lyon Communities. Although William Lyon Co. and Presley Cos. operated as separate companies, the two entities would later share the same future. The union of the two companies was precipitated by developments that occurred during the late 1980s and early 1990s.

Difficulties Surfacing in the Early 1990s

The Lyon empire stood strong as the 1980s ended. William Lyon sold more than 6,000 apartments and single-family homes in 1989, when the average price for one of his detached, single-family homes was $190,000, or nearly 20 percent below the resale value of the average California home. In total, Lyon had constructed roughly 55,000 apartments and houses during the previous 35 years. There was every expectation that the prodigious output would continue into the 1990s. His confidence high, Lyon aggressively acquired land during the last three years of the 1980s, accumulating what he referred to as his "gold bars in the bank," in a February 5, 1990 interview with Forbes. As he entered the 1990s, Lyon possessed enough raw land to last for an estimated eight years, controlling an inventory of 65,000 lots, which represented more than 10,000 acres. The amount of land Lyon held was uncharacteristically high, representing twice the amount normally retained for development. His "gold bars in the bank" reference reflected his confidence, however, indicative of his faith in the continued growth of California's housing market. Unfortunately for Lyon, economic forces worked against him, leading to a decade-long struggle to regain the stability and growth of the late 1980s.

The early 1990s were difficult years for businesses nationwide. An economic recession delivered a debilitative blow to industries of all types, the homebuilding industry included. In California, where the bulk of Lyon's interests were located, the pernicious economic conditions were particularly harsh. The state's housing market was slow to recover, hobbling Lyon's ability to withstand the downturn. In the May 7, 2002 issue of Investor's Business Daily, an analyst at Standard & Poor's explained the predicament: "They ran into difficulties because they had this long position in land that had been acquired in the late 1980s. It took longer for markets like California to recover. They couldn't buy (land) at the low end of the market because they didn't have any cash." The Lyon empire's strident growth slowed, its inventory of raw land weighing it down.

Repercussions from the economic slump of the early 1990s hit Lyon during the mid-1990s. Lyon gave up his controlling share of Presley in 1994, when he ceded control of the company to lenders. The transfer of control was part of a major restructuring program effected by the company. The restructuring effort included the sale of $190 million in junk bonds. Lyon's stake in the company, after lenders such as Foothill Capital Corp. were given control, was reduced to 15 percent. Lyon continued to serve as chairman of Presley. At William Lyon Homes, financial distress was evident. The company lost money in 1995, posted a negligible profit in 1996, and lost money again in 1997. Meanwhile, the restructuring effort at Presley had failed to improve the company's situation. By the summer of 1997, a $20 million payment on the company's loan agreements loomed. The company was losing moneyregistering an $89.9 million loss in 1997, for exampleand all of its assets were pledged as collateral for its bank loans. "They've been holding on for so long," a real estate consultant remarked in the August 27, 1997 issue of Knight Ridder/Tribune Business News, "it's just catching up with them."

By the late 1990s, Lyon was forced to consider more comprehensive measures to keep his construction holdings afloat. Presley, perhaps only because its status as a publicly traded concern required public disclosure of its financial health, appeared to be ailing more than William Lyon Homes. Presley held roughly $250 million in high-interest debt and $160 million in bond debt. Lyon responded to the situation by proposing a buyout plan in the summer of 1998. His plan involved purchasing Presley's outstanding stock through privately held William Lyon Homes. The details of the proposed buyout plan called for William Lyon Homes to borrow $17 million to buy all of Presley's 52 million shares for $.40 per share, well below the more than $.60 per share price at the time. Once the two companies merged, the combined entity would be responsible for repaying the loan Lyon used to acquire Presley. Lyon waited for his deal to be approved, with perhaps the greatest resistance coming from Presley shareholders, some of whom had purchased the company's stock for more than $17 per share five years earlier. One shareholder, a retired artist named Nick Trone, typified the negative reaction to Lyon's proposal in the July 5, 1998 issue of Knight Ridder/Tribune Business News. "How do I know as an investor that as chairman of the board he did what he could do to make Presley succeed," Trone said, "since he's the one who's now trying to buy it at a cheaper price?"

Company Perspectives:

Your home is where memories are made, where dreams are realized and where you feel most at ease. It makes a telling statement about what you value, where you've been and where you're headed. At William Lyon Homes, we keep these thoughts in mindfor your new home is also our reputation.

Lyon's $.40-per-share offer was rejected, but he persisted in his efforts to take control of Presley and merge it with William Lyon Homes. In January 1999, according to documents filed with the Securities and Exchange Commission, the two companies reached an agreement to merge, an agreement that called for Presley to acquire William Lyon Homes for $48 million. At the same time, Lyon promised to invest as much as $16 million in the beleaguered Presley, paying approximately $.62 per share. Lyon was expected to be chairman of the combination, which also was expected to use both the Presley and the William Lyon brand names. The merger was completed in November 1999.

Recovery in the 21st Century

The merged companies, operating under the name William Lyon Homes, rebounded in 1999 and entered the 21st century exhibiting renewed vigor. The troubles of the 1990s seemed to be behind the company, as growth returned. In 2001, William Lyon Homes generated $468 million in revenues, a 12 percent increase from the previous year's total. More impressively, the company's earnings were up during the year as well, increasing 20 percent. In 2002, the company's revenues experienced another substantial surge, jumping to $613 million. When the company's unconsolidated joint ventures were included in its sales volume, revenues reached nearly $1 billion, a total produced by delivering more than 2,500 homes. At this juncture in the company's development, it was offering homes for between $110,000 to slightly more than $1 million, with the average William Lyon Homes residence selling for $379,200.

As the company prepared to conclude its first half-century of business, it represented one of the most venerable names in California's residential construction market. In an exceptionally capricious industry, William Lyon Homes' travails during the 1990s were an expected part of competing in the residential construction business. As it moved forward, the historical cyclicality of the business promised to present itself again, but the company could take confidence in its ability to withstand the recession of the early 1990s and all the vicissitudes of its nearly 50 years in business.

Key Dates:

William Lyon founds his own residential construction firm.
Lyon completes three-year spree of aggressive land acquisition.
An affiliated company, Presley Cos., converts to pubic ownership.
William Lyon gives up his controlling stake in Presley Cos.
Presley Cos. and William Lyon Homes merge.

Principal Subsidiaries

William Lyon Homes, Inc.; Presley Homes; California Equity Funding, Inc.; PH Institutional Ventures; Duxford Interiors; PH VenturesSan Jose; Presley CMR, Inc.; HSP Inc.; Duxford Financial, Inc.; The Presley Companies; Presley Southwest, Inc.; William Lyon Southwest, Inc.; Mountain Gate Ventures, Inc.; PHLP Ventures; PHRielly Ventures; Duxford Title Reinsurance Co.; Sycamore CC, Inc.

Principal Operating Divisions

Southern California; Northern California; San Diego; Arizona; Nevada.

Principal Competitors

KB Home; Lennar Corporation; M.D.C. Holdings, Inc.

Further Reading

Barron, Kelly, "Cash-Starved Southland Builders Are Going Public," Los Angeles Business Journal, August 26, 1991, p. 33.

, "Orange County, Calif., Home Builder Negotiates with Bondholders," Knight Ridder/Tribune Business News, August 27, 1997.

King, Ralph, Jr., " 'Rats or People?,' " Forbes, February 5, 1990, p. 88.

LePage, Andrew, "Chairman Offers to Buy Ailing California Homebuilder," Knight Ridder/Tribune Business News, July 5, 1998.

Linecker, Adelia Cellini, "William Lyon Homes Newport Beach, California Strong Demand in West Helps Builder Rally from Mid-'90s Woes," Investor's Business Daily, May 7, 2002, p. A09.

Mouchard, Andre, "California-Based Home Builders to Merge," Knight Ridder/Tribune Business News, January 4, 1999.

Jeffrey L. Covell

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