Welcome to Taylor Morrison's first ever Investor Day. We have waited a lot of years to do this, and we are so delighted to have all of you here today. Before I get started, though, I do need to remind everyone that our presentation today is subject to any forward-looking statements and GAAP guidance. That will all be posted in the presentation within the next 24 hours. I won't bother to read it to you, but I wanted to remind everyone that this presentation is subject to those measures, so here we are at beautiful Azario Esplanade at Lakewood Ranch here in Sarasota, Florida. Could not be more delighted to have all of you here. We just grand opened this culinary center toward the end of December, so I think we're on week 10 or 11, so we are so happy to host everyone here.
Our amenities are what make Esplanade so unique. It's what makes our residents, our customers really want to come and seek out this experience because hopefully what you've seen today is this facilitated lifestyle experience quite unique, and I just couldn't be more proud. I am so appreciative of all of our attendees here in person. I know we have a lot of analysts that are very familiar with the story and investors that have covered us for a long, long time, and thank you for staying on this journey with us. I also know we have some folks that are newer to the story, and I appreciate the interest you're taking in trying to understand what Taylor Morrison is all about. We have many of our senior leadership team here with us today. I think most of you have met them last night.
We have also members of our Sarasota team, and we have members of our National Esplanade Experience team as well. I think everyone probably saw the release this morning when we updated our long-term targets. Today, what we really wanted to do, and it was very purposeful that we released this this morning, is to share the how and the why behind our results and where we believe we're going. You all, I'm sure, heard our earnings, oh, I guess just over three weeks ago now, where we discussed our quarterly results. So the intent today is not to do that. We're not going to put a bunch of numbers in front of you, but we really wanted to make sure that you understood the strategies that have driven the company's results and the transformation that we've been on for so many years.
In addition to our leadership team today, I want to give a special call out. We have our Lead Director, Pete Lane. Pete joined our board in 2012, right, and became my Lead Director in 2017. So he's been on this journey with us for a long, long time. I am so appreciative of you and so grateful, even with your travel problems, that you were able to be here. And I just thank you for your leadership. I'm also very honored that we have Ali Wolf, the esteemed Ali Wolf, economist from Zonda. She flew in from California for us. Thank you so much, Ali. I just believe that her insight, perspective is always so very helpful. And I think she'll be able to. There's a lot of noise in our environment today.
So hopefully she'll be able to bring some clarity for us and hopefully also help understand why Taylor Morrison is doing some of the things we're doing. You know, I thank you all for being here. And I have to tell you, we learn so much from all of you and appreciate the journey we've been on for the last many, many years. We take this journey with you very seriously. We want to make sure we're giving you the information you need. We want to make sure we're doing it in such a transparent way and that you really do understand Taylor Morrison. Today, what I have in front of you is the agenda. We're going to cover a lot. I won't go through item by item. You'll see. Since we're going to cover a lot, we're not going to really plan on any formal break.
I would just invite you to come and go as you need. The restrooms are at the front by where you came in. I think most of you are familiar with the Taylor Morrison story and many of the topics we're going to talk about today. We have put together a video to kick us off today, which I think appropriately gives perspective of the journey, but more importantly, where we are today. You know, I've been asked a number of times today, last night, why did we decide to do, in this environment, why did we decide to do our first Investor Day? And honestly, I know that this isn't a practice that's prevalent amongst home builders. I'm confident that's because the cyclicality of our industry probably makes it very difficult to give long-term targets. But Taylor Morrison has transformed itself over a number of years.
Honestly, we believed it was absolutely critical. There's no better way to tell the story than demonstrate the story. I believe that our future performance is, for you to understand our future performance and our expectations, you really had to hear directly from us what differentiates Taylor Morrison because I believe that we have been underappreciated in the market for a long, long time. I'll tell you, as the CEO, that's really difficult to stand up here and say, but I do. We'll talk more about it in a while. I am hopeful that you all walk away with the confidence of what really differentiates Taylor Morrison and why we were able to put out some targets this morning that we did that I've already gotten some questions on. We'll be happy to address those. I want the bar to be high.
I think by the end of today, you'll understand why. For those of you that have followed our journey, I wanted to give some retrospective on how we arrived at where we are today to kind of level set what our journey's been. You know, when we went public in 2013, we were barely a top 20 builder. We were doing. Pete and I were just actually talking about this. I think you said when you joined the board, we were barely $1 billion. We were private. That's when you joined, we were still private for a year. We were barely $1 billion and just a few couple thousand closings. We started this very long journey. I think we were primarily probably a second move-up and a luxury builder. We had very little affordable product in our portfolio.
Our average price was probably back then about just under $500,000, and we were fairly concentrated in the Southeast. We also back then had a Canadian high-rise business, which some of you will remember, which we divested the year after we went public. Our margins back then were probably around the industry average because we took advantage of the market in our land strategy, which we'll talk a lot more about. That strategy hasn't changed in the last 15 years, but even with that, our growth was lagging the peer group, and I think it was lagging the peer group because of the scale that we didn't have, so let's take a look. Let's run the video.
Taylor Morrison builds communities, and we do it with a very skilled and passionate set of employees who want to make a difference in the world. Taylor Morrison's done eight M&A deals, about $2.3 billion. But more importantly, it's spent over $15 billion in land and land development. M&A's been a platform for the company, but organic growth has supercharged the company to what it is today.
We have the strength of a diverse product offering to enable many consumers to buy homes from rental and Yardly all the way through Esplanade and our resort lifestyle communities.
Yardly's existing build-to-rent platform really does plant the seeds of future Taylor Morrison home ownership.
Taylor Morrison Home Funding helps our customer through the whole entire process and tailors the right financing for them. 89% of our customers use TMHF for their financing because we're a one-stop shop, and in addition to that, we also offer TM insurance as well as Inspired Title Services.
2024 was a great year for Taylor Morrison. We had wins throughout the business, all of these metrics exceeding our expectations coming into the year.
Taylor Morrison is always innovating. We've optimized the contract process, which will invest over 40,000 hours back into our sales teams to sell homes and enhance the customer experience.
Taylor Morrison's reservation system allows consumers to completely design, build, and price out their future home entirely online.
Trust is a cornerstone of the home buying journey. Being America's most trusted home builder for 10 years in a row, it instills confidence in our buyers.
Over the last several years, Taylor Morrison has been fortunate enough to receive several esteemed awards.
Taylor Morrison has been recognized as employer of choice in 15 of our 21 markets, and this gives us an edge in attracting top talent.
Taylor Morrison stands out because we build in desirable locations with appealing amenities.
One of the ways we like to deliver an exceptional homeowner experience is we get together and deliver team walks. We all walk it together, multiple sets of eyes. That way, nothing is overlooked.
You know, for us to be part of a project like this, I think it's at the core of who we are. Everybody talks about our people, our culture. It is a team and a community that wants to give back to others.
It's been a tremendous opportunity for us to build homes on the Banner campus for patients that have the need to be close to the hospital. Most recently, we culminated this relationship with building a wellness center for these patients and their families.
Taylor Morrison has had an exclusive relationship with the National Wildlife Federation for the past six years. Since then, we have certified 9,000 acres of open space and over 100 monarch butterfly gardens.
What I hope to achieve in 2025 is another year of strong financial performance, driven, of course, by our disciplined capital allocation strategy and returning capital back to our shareholders.
You know, as I look ahead, it is building on the platform of scale that we've already developed. And that is deeper concentration into our existing markets and also expanding to other geographic markets and market segments that are opportunistic for us.
Land investment is so critical because who we are going to be in three to four years is a function of the important decisions we're making today. Fortunately, we've amassed over 86,000 lots to feed our future.
Buyer trends are critical to our success, understanding the product needs, the innovation, and what's going to drive us to success.
20,000 closings by 2028, an evolving consumer that feeds our diversified portfolio, financial results leading the industry. It's a great time to be at Taylor Morrison.
Awesome. Well, I was so proud of the team for putting this together. I think it talks a little bit about our journey, but more importantly, about where we are today. So I thought, you know, it made sense to start by showing you a slide. It's a portion of a slide that I put together for the board back in 2014. And it was right at the beginning of our public journey. And it was really intended to be the roadmap of where we needed to get to and demonstrated our multiple or our desire to really begin expanding the depth of the markets we were in and the width of our portfolio. And we had just come out the other side of what I would have called the worst housing downturn we've probably either ever experienced.
The board wanted to be ensured that TM was on the path with a platform of scale that could really be optimized as the markets recovered. To do that, we wanted them to see, you know, what it is we really want, what we thought we really could accomplish, and to get the, you know, increase our scale and the diversity into our portfolio and make sure we had the operational agility to do that. I think everyone here is probably familiar with the seven acquisitions we did from literally the year of the IPO through today in 2024. There was a couple phases to our strategy. You know, the first was the near-term really planning on good organic growth and maybe some small tuck-in builders in our core markets.
Then from there, on the mid to long term, for us, it was about expanding to regional M&A, making sure once again we had the operational capacity to continue to execute on that. Then lastly, once all of that muscle was developed, was, you know, moving on to something a little bit more transformational. I look back at this slide now, and I'm like, I'm so proud of what the team accomplished because honestly, to think that we laid it out and then executed it on that way is just truly a credit to the team. This is what it looked like 10 years ago when we put that slide out. We were in nine divisions, and we were in five states. We were just starting to really think about small market M&A. When we went public, this was us.
The dots were small, representing the size of our businesses, and obviously, our overall footprint had a lot of holes in it. You fast forward to today and through this aggressive growth that we laid out on that strategy slide, the business has had a 15% CAGR, moved us to the ranks of the, you know, one of the largest builders in the country. We entered eight new markets. We expanded, like I said, our depth in each of the market, our width of the map. We broadened our product portfolio because back then we really didn't have a big entry-level presence. But certainly, with the two public acquisitions, that changed, and I know too well that M&A is never easy. And I think there was a lot of concern on our M&A journey and how skeptical the street was on, can we really create value through these acquisitions?
But very similar to what you experienced, hopefully, in the last 12, 18 hours on understanding that when we do something, we do it right, we put forward a strategy, we have a playbook. That was how we had to approach these acquisitions. So I'll be honest, the first one we did in Dallas back in 2013, Darling Homes, a fabulous company, that was hard. It was really hard to execute. Their business was very different than ours. It was highly custom. And we knew that if we were ever going to do that again, we had to take lessons learned and really learn how to execute. But the scale that it brought to us within Texas, we knew the strategy was right. It was about execution.
The breadth that we were able to achieve over the portfolio with these seven acquisitions and the add of eight states has allowed us, has put the company in the position it's in today. Honestly, I am not certain we could have done that organically. If I look across every facet of the business, we're clearly stronger. We're more resilient because of the transformation of our scale and the operational capabilities that we gained and certainly our balance sheet. Even though this company, in my opinion, has been transformed over the last 10 years in a fairly meaningful way, and I think our team would tell you that we have learned how to be very nimble, how to be very flexible on whatever the market brings us, there are many things that have stayed constant.
I can confidently tell you with my 20 years, almost 20 years as CEO in the organization, we have taken a long-term view on the way we approach the business. That's what I really wanted to demonstrate here on what we're not going to just do what's right. I think we'll show you a couple examples of that, what's right in the moment, but really what's right next year, five years, and 10 years from now. I think the proof is right here. If you look at where the business was from 2015 to 2024, we've doubled our closings. We've doubled our lots under, you know, owned and controlled. Our earnings grew by five times. But our market cap just has not kept up and, in my view, has not made sense with this transformation at all.
I get asked often, "Why do you think your valuation lags the peer group?" I struggle with the answer. If I were to go back many years and the blurriness that we created through our acquisitions, I actually do understand because there was a lot of noise on our P&L for a number of years. I'm actually not talking about the moment of time today because I understand there's been a lot of noise from a macro level, politically, interest rates, so I can understand, you know, where the markets are today. Over these last two, three years, as we completed our M&A journey, I'll be quite honest, I haven't been able to. I asked myself, okay, what's our debt profile? We're sitting at 20% net debt. That doesn't seem unreasonable. You guys tell me, please, if you feel any different. I think about our acquisitions.
I do think that created some noise, a lot of noise, certainly in kind of this show us that you can really do it. I was hopeful that after the second or third, there was a little bit more confidence into what we were able to execute. I look at our controlled lot position today. We're almost 60%. We're not the highest controlled. We're going to talk a lot more about that because of controlling the right lots, not just having a target number that just says at all costs. It's about how we go about it. So once again, I think I'm hopeful that when everyone leaves here today, there's a different appreciation on how Taylor Morrison has really differentiated themselves. This slide is really intended to show you the progress in smaller bites.
As you look at the growth in our revenue and the resulting impact of our margin and our returns, I can promise you this only happens when you look at each of those towers. This only happens with just a razor focus from our teams on all aspects of the business. You're going to hear lots today about our land approach, our capital allocation process from Erik. You're going to hear a lot about our balance sheet from Curt. But these results are only possible with the tremendous talent and commitment that our team provides. You know, when I look at our deep bench of leadership, I thought I'd share a stat with you that, when I look at this chart, allows us to happen, and it was just a coincidence over the holidays.
We were having a leadership team dinner, and we went around the table and said, you know, what was everyone's tenure at Taylor Morrison? But if I look at our, just my direct reports, our leadership team and our division presidents around the country, we have 350 years at Taylor Morrison. And to me, that was just a stunning stat. But that history just brings a different level of commitment and consistency and passion to everything we do. So I think everyone probably recalls our last many quarters. We have talked a lot about the consistency of our margin. I think this slide really helps validate that messaging and hopefully details the impact of the purchase accounting that you see in those first couple of years, which were, you know, our big acquisition years, that 2018 to 2020. We acquired both AV Homes and Lyon.
But I really like is the right side of this slide where you compare our growth to our peer set. Hopefully, this helps demonstrate the structural impact of the business, especially given the unique environment that we've all been in. So today, what you're going to hear from the team is what we believe truly distinguishes us from our peers. And in no way is this intended to be a knock on our peers. We have so much respect for all of the builders across the business, across the industry, but we do want everyone to walk away understanding why we're different.
I don't think there's anything on here we probably haven't talked about before, but it's worth going into a little bit more detail, the first being diversification, which we have on multiple dimensions from our consumer groups, our affordable product, our entry level, our professional first-time buyers, our first and second move-up, all the way to our resort lifestyle. Having these offerings across this broad range allows us to deliver price points from $300,000 to well over $1 million, as you heard today. In fact, if you look at that house across the fairway from that guy who's about to chip on to the green and that gray house, that house had a $750,000 lot premium on it, not purchase price, lot premium. I guess, Tony, it's probably in the $1.5 million-$1.67 million would be the final purchase price.
We have lot premiums in here. We have standard lots that have nothing. We have probably corners that have $10,000-$15,000. We have lake views. We have golf course views. And we have those kinds of views that give you both. But this consumer requires a different kind of product and a different level of attention to meet their needs. And as you've seen, hopefully today, the level of personalization that we give this consumer would be very different than what we do for our first-time buyers. Also, from a diversification standpoint, we've talked a lot about our to-be-built and spec home strategy, where the majority of our entry-level buyers, the majority, not all, are buying spec homes. The majority of our move-up and resort lifestyle buyers, obviously, you would expect are buying to-be-built because they really want to personalize. And I think somebody asked the question this morning.
A community like this, we would expect in our Esplanades are probably about 80% to-be-built and 20% specs. I think this diversified approach expands our growth opportunities, allows us to do things that we otherwise would not have been able to do. Clearly, it strengthens our margin profile when you think about a $750,000 lot premium or, honestly, an average price that's somewhere probably close to $1 million in here. But more than anything, it just protects the business on the eventual cyclicality that we know our industry always feels because the reality is not all consumers feel it usually at the same time. And we have certainly seen that in this environment. The second is our customer centricity, and, you know, everyone says this is soft and squishy. It's not at Taylor Morrison. It's a critical part of our business strategy.
Being able to deliver an experience that nobody else finds important is key to who we are. And this is both our internal and our external customer. And it shows up across our entire business. We introduced something a few years ago that's called Love the Customer. I know that sounds very unusual in the home building industry, but it truly is how our builders in the field differentiate their customer experience. And lastly, our courage to be different. And I hope by the time you leave here today, you're going to understand in just how many ways we really mean that. It's a profound conviction around our strategy, probably first and foremost. It's not just about having courage, but honestly, it's about intentional strategy on what we do and having the courage to do it different than everyone else.
It allows us to think different than our peers do and ultimately deliver a very different experience and performance, but sharing our diversification, I think, with a much higher visual impact, I thought this would be helpful, so first, you look at our consumer in the upper left, well-balanced, and although today we see tremendous struggles with the first-time buyer, we can help mitigate that with location, and once again, even though you're going to see some margin numbers that say they're not performing similar to the other consumer groups, they're an important part of the portfolio. We have generally called our first-time buyers our professional first-time buyers. You'll see some mortgage numbers where they are a little bit more financially secure than what I would call a true entry-level buyer, and like I said, it's a very important part of our overall long-term portfolio.
When you look at the first move-up and the resort, or rather probably the resort lifestyle and the second move-up buyer, I think there's some blur in those numbers. When you look at the resort lifestyle, that is particularly specifically the Esplanade brand. When you look at the second move-up, that could be some of our other lifestyle communities that aren't branded Esplanade before we nationalize the brand. And certainly, based on the price point, we will see a lot of that 55-plus audience. When you look at the to-be-built and spec, I have a great deal of confidence that we will always keep a very balanced portfolio targeted to the consumer we serve. I get the question a lot, well, what will you be next year? It's always going to depend on the mix of communities that we have out to the marketplace. And we love the spec business.
It's wonderful from a production standpoint. We have customers that come in and need a house next month. Certainly, those first-time buyers are coming out of an apartment. But on our move-up and our resort lifestyle, we allow these customers to emotionally connect to their lot, to their house, and the way they design it. Geographically, you can see pretty consistent. But as we've mentioned, I think in the last couple of quarters on our calls, we will likely see the West coming down in the future years to something closer to 30% as we continue to optimize our returns across the portfolio. And then lastly, as price point, I actually find the extremes most interesting. We have a very robust under $400,000. We're not a $199. I don't think we have much under $300,000, if anything. We do have some townhomes, probably just under $300,000.
But then you can also see we have a good sized piece of the business that's over seven. And once again, this is based ASP. You know, when I look at that, we have a few markets that would actually enjoy all of those price points. Phoenix would probably be a good example of that. And then if I take that diversification to another level, let's look at the impact on the margin. Certainly, you can see that 2021, 2022 time period during the COVID, what I call the COVID time period, we suffered. We suffered. And we, you know, were a primarily, as we are today, to-be-built business. And when you don't get the benefit of raising prices every week over a year and your costs are going up, it had an impact on our margin.
We did not go back to our customers that were under contract and increase their purchase price. That's not the company that we are. But I've been doing this nearly 40 years, and it is the only flash of time that I can ever recall that we did not get a real premium for somebody engaging with their lot, selecting their floor plan. So there it is, obviously 2021, 2022, pretty tough. But beyond that, I think you can see quite a difference. And then if we look geographically, once again, no surprise, the east is where we enjoy the highest margins. It's where the biggest part of our Esplanade footprint is today. And it has our longest land bank. Now, that's actually an interesting contradiction, right? Because generally, where you have the longest land bank, you would have the lowest returns and sometimes the lowest margin.
That's actually not the case for us. We'll talk more about, and you heard a little bit on the bus today on how we structure these deals where we actually get the benefit on both, and then if I go to segment, once again, no surprise here, but this really comes down to understanding your consumer, structuring the deal the way that it's going to make the most sense. No surprise on the first-time. And, you know, there's nothing that says a first-time house should deliver the lowest margin. Today, this is absolutely just a product of our environment. We've talked for a number of quarters that we are just spending more money on mortgage incentives for our first-time buyers. Those are spec homes. They're generally coming in 30 to 60 days before closing. We're doing forward commitments. It's the most expensive incentive we offer.
You know, I've talked a little bit about this over the last few quarters, and I have to tell you, it's just stunning to me that this change in demographics and ethnicity has not gotten more attention over these last few years because in my entire career, I have never seen stats that are so statistically meaningful that have changed the way these have. So if I think about the last 25, 30 years, probably up until five, six years ago, if I was at Taylor Morrison or at another brand I don't recall the names of, our business was probably somewhere between 65%-75% Caucasian. That was this business, day in, day out. Didn't matter if it was first time. Didn't matter if it was resort lifestyle, back then called active adult. Today, I mean, look at this.
And if I had gone back to 2020 or 2019, it'd even be more meaningful. Our Caucasian business has been flipped on the head. It's 34%. Surprising. What's even more surprising is when you look at our Asian Indian business, it's gone from 23% to 40%. That's stunning. Our Latino business was at 5% three years ago. Today, it's three times higher. It's 16%. What's even more stunning is what's expected to happen to that business by the turn of the next decade. It's supposed to be over half our business. That's at least what we see in the research. So does this matter? I mean, it's like, why is nobody talking about it? It affects every single part of our business.
It's where we buy land, how we buy land, the way we design the land, the design of the communities, the product we build, the way we talk to our customers, the way we market them, the training of our people, our salespeople, our construction people. It impacts every part of our business, and if we wait until it happens, we don't have a chance because the whole concept of build it and they will come, that just doesn't work anymore. It's about understanding your consumer. Our product offering has continued to evolve. The way we market to our team members has continued to evolve. Really, the only place that I would say we haven't seen a holistic shift like this is within our Esplanade communities. That is the only segment of our business that I would say is still probably 60% Caucasian. It's changing.
I would tell you two years ago, it was 85%, and as we see the evolution coming through, it will ultimately hit our Esplanade. I think about the way this impacts our team, our sales teams. I'll give you a couple of examples. You know, in our Asian Indian business, primarily Indian, when our sales team members are selling, we are selling to the male in the family. When we think about our Latino customers, and I would say Brian in Orlando, we're about 80% Latino. Brian runs our Orlando business. We're actually selling to the female. So the decision maker changes, so if you don't know that, if you don't know what the rooms in the house are for, if it's multi-generational, you're just building it, maybe you'll sell it, but there will be a real cost to doing that. So that was diversity. This is generations.
I think what's most notable here is if you go back six or seven years, if you look at that Gen Z column, you could have put millennials on top of that. They looked exactly like our Gen Zs do today. It's so interesting because if I go back six, seven years, people were like, "Millennials don't want a house. They're not going to buy a house." Well, 50% of the millennials we're selling today are buying their second house. Their balance sheet was a little, was struggled a little more. Look at them today. They're almost in line with our overall consumers. So the Gen Zs, if we don't take the time to understand what's important to this consumer, and it's a much more diverse consumer, not just by age, but by ethnicity, then we won't get there.
I think the other thing that really stands out, and when Tawn comes up, she'll share with you specifically the baby boomers are missing here. You'll see them on Tawn's, on the Esplanade buyer. But I think that really what stands out and has been one of the tremendous advantages for Taylor Morrison is just the overall financial quality of our consumers across the portfolio. So lastly, our courage is our courage to be different. I say that with a great deal of humility, but I do strongly believe it's part of the DNA of our organization to chart our own path, even though it's very different from what the industry has always done, and it hits us in so many ways. It's the courage to step out into the land market.
You know, I've always found it fascinating that the appetite of builders tends to follow the last 90 days of sales. There's like a 94% correlation. Well, the land we're buying today has nothing to do with what's happening with interest rates today and what the market's delivering today. So it's about how we buy land, when we buy land. Our area presidents, when we get them up here on the panel, they'll talk about our to-be-built and spec strategy. It would have been really easy to go to a 90%, 80% spec business during COVID. But you can't turn these businesses on a dime. Courage of our loan officers to go out there and not just spread our incentives with peanut butter to really insulate the incentives to the individual customer's needs. The courage on technology.
I can't wait for you all to see what Stephanie is going to show you on our virtual program. I mean, I know Stephanie's been pushing a boulder uphill for years now that nobody's going to buy a house online. Gosh, nobody's going to buy a house on their phone. The numbers we're going to share with you today are staggering. And once again, I think the thing that's so important here, it's not just the courage, but it's the intentionality to go after it and do something that the industry is not doing. And once again, it allows us to deliver, I think, a different experience. So last year, we shared several long-term goals for on our operational metrics that we believed helped provide a roadmap for all of you.
As we discussed on our recent earnings calls, each of these goals in 2024 and 2025 is setting us up or everything we set out in 2024, we accomplished. And what we're doing for 2025, we think we've set ourselves up in the same way. You'll hear today all the behind-the-scenes work that gives us the confidence in hitting this 20,000 goal. I've already in the crowd today been asked, "Why would you guys do that? 20,000 units. That's a big number in today's environment." Once again, today's market has nothing to do with where we're going to be in 2028. We are setting the business up. And you're going to hear from Erik how we are from a land standpoint in being able to accomplish this. You know, if the country enters into a big recession, you guys, we'll come back and talk to you.
But the business is absolutely positioned to do this 20,000 units in 2028. And we could not be more excited to be able to share with you the potential of what this organization can do. That's about a 12% CAGR from now till then, a little higher than what we've done, but not really very different. It's not a straight line by any stretch of the imagination. There will be bumps along the way. But we have a great deal of confidence on how we're going to get there. You know, I expect that the first question I might get in the Q&A is, "Well, how are you going to do it?" I think I've already been asked, "Are you going to buy your way there? Are you going to just give away houses?" I hope you know that's not what Taylor Morrison does.
Are you going to buy a bunch of companies? Well, honestly, and I think I've been very clear on all of our earnings calls, we've done a great deal of M&A to position us where we are today. But this plan has been built organically. The plan that we have presented to our board actually over a year ago, about 20,000 units in 2028, was built organically. And do I think it's going to play out exactly like we presented it? Probably not. Do we get to see every deal that's out there? We do. Is the bar high for us because we know what good acquisitions look like and we know what they don't look like? It's really high. So will there be M&A if it meets the financial hurdles? It fits in the strategy. It's a long-term play.
All the things that need to come together, we'd consider it. But the plan has been built organically. We know there will be opportunities. We're seeing those opportunities today. My expectation is if we do those, they would generally be small tuck-ins like what you saw us do in Indy. But specifically to make this happen, we have to invest about $12 billion between now and 2028. Like I said, Erik will go through the specifics of our lot supply. But I want you to have the confidence that we have 90% of the land needed between now and 2028 already controlled. Most of it obviously takes us through 2027. We still have some work to do for 2028, but I have the confidence we'll get there.
We have a lot of communities to open, more than 600 communities over the next three years to get open to deliver on that 20,000. Obviously, we'll be closing out a number of communities as well. But you will see meaningful community count movement to make this happen. And hopefully you understand that there's not one strategy that's going to get us there. In fact, this has been years and years in the making. I'll direct you back to that 2014 board slide. About every five years, we give them one of those five-year slides. But I wanted to at least share with you what the organization is most focused on: land investment, capital allocation with an eye on the highest return on equity opportunities. Continuing to understand the consumer, being able to deliver on their needs, maybe even before they know what they want. Continuing to grow paces.
I've been asked a couple of times today, "What's going to happen to your paces?" Obviously, the company that was 2.3 or 2.5 a few years ago, those days are gone. We're a very different company. We're going to continue to invest in communities like this that will give us those meaningful paces and protect our margin at the same time. A critical path to this journey is the expansion of Esplanade. That's really why we wanted to have you all here today. We expect to double the Esplanade deliveries over the next few years. Having said that, I'm not saying we're going to double the percentage. As the company grows, the number of deliveries will double. I don't have on this list, and I should have, the customer experience second to none because we can't do it without it.
Once again, you've seen most of these. We introduced the 20,000 closings today. We also tightened our expected controlled lot percentage from 60%- 65% to at least 65%. We introduced an SG&A goal with a target of a mid- to high-8% range, which is more than 100 basis points improvement over the next three years from where we are today, so let me wrap up because I have gone a couple of minutes over, so I will go quick. I am delighted, even though I know it's controversial, I am delighted to share our 20,000 unit goal and aligning the business with our customer needs and just assuring all of you that our communities and product will continue to perform during these kinds of market moves that we're seeing today.
I know how shocked everyone was when they saw the 18.5 pace in a community like this. You heard lots today about our strategy to enhance sales pace, starting with our underwriting to optimize each every community. We say no community left behind, particularly in our larger master plans, SG&A. That's just a focus of the entire organization. It's not in one place. It's in every place. It's our virtual tools. It's reducing brokers. It's our bots. You know, we haven't talked much about that. We have 169 bots that are on our payroll. They work 24 hours a day. They don't ask for salary increases. They don't ask for vacation time. They're amazing. You're going to hear about our contract centralization. So it's every piece of the business. I'm kind of ahead of myself. Gross margin.
It's really the culmination of all the things we've been talking about and certainly our finance tools, which Tawn will talk to you more about and how that strategy really does set us apart. So it's not one thing. Hopefully you're getting the feeling as certainly as we look at return on equity. It's just the overall transformation of the business and the priority each of these strategies have in enhancing our returns. So sorry, I talked really fast. We have a lot of material to cover today, but now I have the absolute pleasure to introduce the lady who probably doesn't need an introduction, Ali Wolf. All yours.
Thank you very much.
There you go.
Thank you. Thanks, Sheryl, and hello, everyone. I am delighted to be here to go through the state of the housing market. As mentioned, I am Ali Wolf, the Chief Economist with Zonda.
If you're not overly familiar with Zonda, we are a housing data and consultancy firm. We track the entire building lifecycle from raw land all the way up to the closing out of new home communities. Within my role at Zonda, I lead our economics department, which includes all of our published research reports. We have a report called National Outlook. That's the basis of today's presentation. This looks at trends across the country. We're also tracking what's happening in master plans in the build-to-rent world as well as building products. Now, for my presentation today, I have 20 minutes to get through five sections. Now, I intentionally picked these sections because these are some of the topics that come up the most as we're going across the country talking to builders, developers, or investors.
We're going to start by looking at supply trends from both the new and the resale lens. From there, we'll talk about sales and discuss incentives, what we're seeing. We'll dive into buyer differences. You heard a bit from Sheryl. We look at it from a more macro point of view. What are we seeing across the country? We'll very quickly talk about policy changes, and then we'll go through our forecasts and final thoughts, so where I want to start the presentation is with the topic that comes up consistently, which is the fact that the resale market or just overall inventory in the market is different than what we've been used to in the past. When you look at active listings, we just got new data that shows we're up 30% compared to where we were last year.
The listing backdrop, of course, looks different to what we've been used to over the past four years. If you look at this data nationally, we know that listings are still down 23% compared to 2019. But if you look at the top markets across the country, we have 30% of the top markets today that have higher levels of inventory compared to 2019. You have 70% of the markets that are still below what we consider to be a more normal market. But we think that looking at just listings is going to be a little bit misleading because you have to ask, "Well, how are these listings being absorbed by sales?" So put a different way, what are we seeing with months of supply? Now, as you recall, generally four to six months will be considered balanced.
And for the past five years, almost everywhere across the country, we've been talking about a seller's market. We do still have a few areas across the country that are pretty dominant seller's markets today. You can see this along the West Coast, the Midwest, and the Northeast. In a lot of these markets, we're looking at months of supply coming in between one, two, in some cases three. We do have a lot more markets today that have fallen into balanced territory. These will be some of the higher growth, higher production markets across the Sunbelt. And then sitting here in Florida, there are some markets that if you just look at overall supply, we are seeing a return back to buyer's markets. So that includes parts of South Florida. I was just in Jacksonville yesterday.
You're seeing a bit of an exception in Jacksonville, in Tampa, or in somewhere like Orlando, so there's no way to deny that the supply backdrop has shifted, even though we have a lot of people that have locked in a low rate, but this is just looking at part of the story. We have also been fielding a lot of questions about what is happening with new home supply, so I'll show you our chart in a second, but one thing I want to tell you is any data that we're showing on the new home side is from an actual database. It will not be survey-based. We have NewHomeSource.com. We own that so we can see all of the communities across the country, as well as we track over 15,000 communities.
When we look at what is happening with quick move-in supply, so you heard Sheryl say spec, we often use QMI, use them interchangeably. Think about this as being a home that someone can move into within 90 days. We have had an interesting history with spec supply just over the past handful of years. If you go back to 2022, we saw a rapid rise in quick move-in supply, and when this was happening, we would say it was almost exclusively related to demand. The fact that we know as interest rates went up and there was heightened uncertainty, consumers were pulling back from the market, and there was a direct response.
Since then, though, we've seen a shift in the market where a lot of builders have said, "Actually, consumers are showing us a preference towards these quick move-in homes, especially because the resale market has been tight." So there was a strategy shift that resulted in really this new normal of what spec building looked like. The calls that we're getting about now, and I just talked to a reporter with Bloomberg yesterday, is the fact that you are seeing a little bit of an increase in quick move-ins. From our database, this is not an overly alarming or concerning number. In some markets, you do see more of a straight line up. We have flagged there's some markets that make us a little bit more nervous about how much supply is available. But what's important is also time of year.
When we see quick move-in inventory rise as we're in the spring selling season, we're much less concerned about if you're seeing inventory rise as you go towards the end of the year. But quick move-in supply is only part of the way that we like to look at new home supply because that's giving you that standing inventory, homes that are available right now. But you also want to get a sense of what's happening with community count. Community count, as we define it, is anywhere where there are five or more units for sale. We have seen a 6% rise in community count compared to last year. Nationally, we're still down almost 20%. There's only a few markets that you can point to where there are more new home communities that are actively selling today versus 2019, but they're not huge production markets.
You can see Tucson is above right now, Myrtle Beach. There are a couple of markets here in Florida, though. You heard Sheryl talk about the plans to increase community count, and that's part of the growth. We're hearing that consistently, in particular from larger builders, that they are trying to get their community count levels to look more normalized, look something similar to where we were going into the pandemic. But this discussion on supply and the reason we're fielding the question really comes down to if there's been a change in supply, how has this played into sales? And so we just released our latest sales numbers for January of this year. I want you to find the purple dot. That's what we've seen to start 2025. So we see that we're down year over year.
I will reference this again later when I talk about our housing starts forecast. We are above where we were in 2023. We're notably above where we were in 2019. If you were to ask me to describe the market in one word, I would say fine. There's not many builders that we're talking to that are overly enthusiastic about the market. There's not many builders we're talking about that feel like this market is really particularly tough or that they're concerned about where it goes. But we like to look at sales from a different lens. That's just looking at overall activity. But how do sales volumes look when you adjust it for supply and you adjust it for seasonality? We answer that via what is known as our Zonda Market Ranking, our ZMR. I will show you the ZMR throughout today's presentation.
But one thing I want you to know is on the new home side, all of last year, the ZMR nationally came in as slightly overperforming. The new home market was slightly overperforming compared to its history when you adjust for key factors. What we've seen to start this year is the market has been downgraded to average. And you can see the distribution, the breakout by metro. We basically have a third of top markets that are overperforming today, a third that are coming in as average, and a third that are underperforming. In the next section, we'll talk about how this varies by different buyer types. But before I move on from this, I need to acknowledge that this has nothing to do with our opinion. This is actual data. And when we created the ZMR, it was before incentives were really prevalent in the market.
We are not making any kind of adjustments to this based on what it takes to sell a home. So as we talk to some of our clients, they'll say, "Hey, it's taking longer time to get someone to go through with a conversion. It's taking more handholding. And of course, it's taking higher use of incentives." Now, Sheryl talked about the split between different product types. We can look at incentive usage by saying, "All right, how many projects that have to-be-built homes, TBB, are offering incentives?" Right now, that's 56%. How many projects with quick move-ins, those within 90-day homes, are incentives available? That's about 75%. Now, this does vary across the country. The darker the purple, the higher the incentive usage.
I don't think anyone will be surprised to find that as you look at places like Florida, you do have a higher share. Again, in Jacksonville yesterday, we calculate that over 95% of all projects are at least offering some kind of incentive to sell a home. If we track this out, though, and we say, "Okay, from our opinion, how are we viewing incentives in terms of what kind of headwinds do these cause?" Well, we would say there's two things. One, incentives are absolutely important in filtering people from the resale market to the new home market. Incentives are important for helping people feel like they're getting a deal. In some cases, it helps with the monthly housing cost. But what we also know is 18 months ago when incentives were offered, this was this urgency pool. People were saying, "Wow, this is a short-time deal.
I want to buy a house now." Because they are more widespread, because they are more prevalent, we're not seeing that drive towards urgency to the same extent that we've seen in the past. Besides that, though, we know incentives are expensive. So what we track are the incentives that are publicly available, meaning there's a lot of incentives that builders will offer that we can't capture because it's going to be more of that pocket incentive. So we know that we will underrepresent what the actual incentive value is. But nationally, what we're finding is that incentives average 4% of local home prices. That does vary in some areas. We've seen that upwards of 10%. When you track this out, though, incentives will have two main purposes.
One will be desirability, that idea of, "Should I buy new or resale?" Well, if I buy new, maybe I can get the dream kitchen. Maybe this really helps me feel good about my purchase. But incentives are also really important when it comes to affordability. I don't think anyone in this room needs to talk or really needs information on what has happened with affordability over the past handful of years. When you look at the payment-to-income ratio, we've seen how much this has gone up so quickly as interest rates have gone up, putting us at the highest level we've seen at least dating back to the 1990s. Put a different way, we know that the income-based buyers, those that are buying off of their paycheck, are finding that it's much more difficult to navigate the market today, which to me then leads to a discussion on buyers.
Because you heard this from Sheryl, you'll hear this really with most builders: is that it's really going to depend on what kind of buyer are we talking about if we're trying to go through the state of the market. So I'm going to break out our ZMR by the entry-level market, the move-up market, and the high-end. The way you should think about this is the entry level will be the bottom third price point in any given market. Move-up will be the middle third. High-end will be the top third. We adjust this per area. So no surprise, when we look at LA's entry-level price point, it is very different than Orlando's. So that is included in our calculation. If you compare this out to what we saw nationally, you're going to find a lot more of those red dots.
In fact, 50% of the top markets today are having an entry-level market that is coming in as underperforming compared to history. And my key thing here is if you're thinking about someone that is buying off of income, that is not getting help from the Bank of Mom and Dad, and Sheryl had a sign about the gifts on your slide about how the Bank of Mom and Dad is helpful for some buyers, incentives can only help so much. And there are some consumers that are saying, "It's just really pushing my budget for me to be able to buy a home." And you see this matched in different data sets. This comes from the National Association of Realtors, and it's looking at what kind of buyers are active in a market in any given time.
You can see that over the past really 30 years, you had repeat buyers and first-time buyers that were fairly neck and neck. It did start to split off in 2016, but you saw it really start to widen as we saw interest rates go up. Put a different way, we find that repeat buyers are at the highest share of market activity dating back 35 years, entry-level coming in at the lowest. When we compare this to our data from the new home side, you will find now 40% of the top markets in the move-up category are overperforming.
This is sometimes where people pause and they say, "Well, the move-up market, that's where you have someone that has a low interest rate and you're asking them to reset their interest rate and they're not going to move." This is where that power of incentives and the advantage in the new home market stands out. You have someone that has a 3% interest rate and you say, "Okay, you're going to have to reset that 3%, buy a resale home, and you're going to have to reset it to 6.7%." That becomes a lot harder of a sell than if you say, "Hey, if you buy with me as a builder, we can reset that interest rate from 3% to 5%." It's still going to be a stretch.
It's still going to probably take other forms of wealth, but it does at least help normalize out the market. Let's move on to the third category. What is happening with high-end? Now, notice how this map looks very different. Now there are way more green dots. 60% of the top markets today are overperforming, and it's not just that we're finding those green dots, it's that you're finding there the dark green, which is significantly overperforming. Very much a concentration in parts of the Midwest, the Northeast, but also along some markets in the Sunbelt. For us, as we track this out, this comes to the power of wealth.
And again, this is something that doesn't need to be said, but if you think about those people that have already owned their homes or already had investments and what has happened to those asset values, this has made this buyer group much less sensitive to what has happened with home prices and what has happened with interest rates. Now, for us, what we're always doing is trying to track, "Okay, what could make us wrong? What do we think could shift that could impact this?" And for us, we're just watching some of the more recent volatility, some of the more recent uncertainty. When you have high-end buyers, they're typically more discretionary versus needs-based.
And so if the stock market gets a little bit uneasy or if they just feel uncertain about where the economy is going, that to me is the risk that even if the wealth remains there, some of these buyers may just say, "Hey, let me just wait and pause." Let's move on to our fourth category. So four of five, I'm going to go through this very quickly. Just looking at policy changes, I'm going to start by telling you how builders have told us they're interpreting the changes, and then I'll give some actual data behind that as well. So the first thing that we've done, and notice that it says potential of tariffs.
We did survey this a few weeks ago, so this is not up to date as of this week, but we said to builders, "How worried or not are you about the potential of tariffs?" And you can see that it's almost an equal mix of builders saying that we're not worried at all or we're very worried. The highest share at 70% say we're at least slightly worried. The comments that builders said to us is our suppliers are watching this closely. We're worried about cost increases, or as we saw last time, this will create supply disruptions and cost increases at least in the short run. For our team, we think it's helpful to hear how builders are interpreting the market, but we also want to do our own research. We have a gentleman in-house, his name is Todd Tomilak.
He has gone through every single building material and looked at what has happened during different points of tariffs. Todd has assumed, and the gray bar is just a baseline inflation rate. So he says, "Okay, I think that building materials will just increase based on the economy just going through itself." But then there's two extra categories. We have the tariff incremental direct cost and then the knock-on effect. So if Todd says all the tariffs that get proposed and at this point have been implemented hold and we don't see them pull back, what he's anticipating is a 6%-14% increase in the cost to build homes based on just the building materials.
So he would put us at a slightly worried to very worried depending on the input and depending on how much of this gets absorbed by the company versus how much gets passed on to consumers. The other key thing I wanted to talk about were deportations. So again, we said to builders, "How worried or not are you about the potential of mass deportations?" This is where you saw more of a split. The responses came in as 50/50. So 50% saying worried, 50% saying not worried at all. Our interpretation of this is that it will probably come down to location. Now, some of the builders that said not worried at all said, "Hey, this is probably just overblown. This is just rhetoric.
It's not actually going to impact our business." But I think some of it also comes down to where are the homes being built and what builders are we talking to? Because if we're thinking about California, Arizona, Texas, Florida, we're going to be watching any kind of changes to immigration policy a lot closer than where we would be watching somewhere across the Pacific Northwest, really lots of the northern part of the country, including the Midwest. Now, as we step back and we think about everything that is shifting in the market and everything that is changing, I will say one thing that I pride ourselves on at Zonda is that we try not to be too reactionary.
Meaning if we put out a forecast, we've thought through that forecast, we feel pretty confident in that forecast, and we will only change it once we feel like there have been a lot of factors that have shifted. I'm saying that because I do think our forecast right now is too high. So we had put out our forecast calling for 2.5% growth in single-family housing starts. Our logic for why we were calling for growth came down to two things. Part of it was the increase in community count that most of the builders that really matter in terms of volume were saying they're planning to increase more communities than closing them out throughout this year. The second big thing is we needed to turn to land and lot supply. What is happening in terms of how many lots are available for builders to build on?
We track out lots at different stages of development. So we can say, "Okay, there's equipment on site. There's roadwork. This lot has now turned into a vacant developed lot, one that can go vertical tomorrow." The vacant developed lot supply that we capture has now come in at the highest point that we've seen since the start of the pandemic, and as we look at different measures of land and lot supply, these figures are looking a lot healthier than what they have. Now, this is supply versus land cost, which is a whole different discussion, but in general, that was the kind of key thesis behind what we were seeing. The reason I think we could be too strong, that 2.5% growth could be overstating the market, partly comes down to what I said earlier.
When you look at new home sales down on a year-over-year basis, we're just saying, "Okay, well, maybe you're not going to have as much aggressive new housing start activity." Combined with the fact that as we talked about spec building, they typically come with that higher incentive usage. So we're saying, "All right, well, maybe builders, if they're not seeing that grade of sales and they're having to incentivize all these homes, are not going to be as aggressive on their new spec construction." Combined with what we're calling challenges in top markets. We're obviously keeping a close eye on places like Texas and Florida, where collectively they represent 40% of the housing starts across the top 25 markets. So if there is any kind of notable downshift in terms of housing starts activity, that can have a more outsized impact on overall housing starts.
Ultimately, and I don't even want to call this consensus. When you look at other forecasters out there and you say, "Okay, what are people saying about where the market's going?" We're seeing a range of -5 to +5, which is really telling you there is not consensus. There are so many people that are just weighing that risk of what's going to ultimately prevail. Is it the consumer demand and demographics, or is it some of the affordability challenges and uncertainty? For us, as we step back and we say, "Okay, what should we watch? What are we really thinking could move the needle one way or another throughout 2025?" The first thing we're paying attention to is the new administration. Pro growth, less regulation. We're here for it. We love it.
We want to see removing a lot of the red tape in particular that takes it particularly long to get new homes built. With that being said, when you look at some of the policies, tariffs, immigration, interest rates, all of these disproportionately negatively impact our industry. We're tracking our costs. We don't see much relief on the cost side, still just high incentives, land, labor, materials, and the idea that it's not just more expensive to build a home, but we're finding there's an increasing cost to buy and hold, and the hold, I think, is a part of the housing market that's not discussed too much, and I think the increasing cost to hold an existing home is why we've seen a bit of a shift in overall resale supply. In some markets, you cannot make a blanket statement about the U.S. housing market right now.
It absolutely depends on where, what price point, what kind of competition, even more granular, what is happening within a given submarket. But there's certainly some parts of the country today where there is rising resale supply, there is rising new home supply, there's rising build-to-rent supply, there's rising multifamily supply, and we're just trying to figure out how that demand and supply imbalance or not starts to settle out. Ultimately, though, if we think about our forecasts at 2.5%, we thought we were being quite reasonable. The reason we're not more enthusiastic about the market, though, really does just come down to what is happening with affordability for certain buyers and what's happening with consumer confidence for others. So with that, we have seven minutes. So we can take any questions. Thank you so much.
Yeah, let's take some questions from anyone .
Hey, Ali. So when you look at the change in. Oh, thanks. Hey. Hi, Ali. When you look at the change in inventories and the shift to more finished spec or later stage spec, sales-wise, are you seeing consumers sop up that spec at a rapid pace? Are they moving that direction as the builders thought they might? Or are we starting to see that slide back now to buying a house, either a pre-build or halfway up, let's say?
This is a huge cop-out. But what I would say is when we look at it by market, it is very clear that in some markets, the higher specs are getting absorbed by consumers and the incentives are working and they're very effective. Like I mentioned earlier, though, there are some markets that when you look at specs and you look at how much recently there's been an increase, where yes, builders have intentionally been doing more spec homes, but it's not been over the past three months where you would see just such a dramatic increase. There are some areas. I would see somewhere like Denver, where there are a lot of incentives, there's a lot of price cuts, but that's not translating into a high level of sales. So it does break down to what market. I think the increased competition from the resale market, in particular in the Sunbelt, makes it just more of a kind of wrangling to get the consumers to want to purchase those homes. But there's a lot of reasons why new home makes more sense than resale today.
Thanks.
Thanks, Ali. So not to lead the witness, but in terms of, as you mentioned, pulling back on spec starts, what do you think builders are kind of waiting to see? And maybe we'll get your perspective on this too, Sheryl, but is it just kind of the spring selling season, how the demand shapes out? What are some of the catalysts that might actually cause builders to say, "You know what? We got too much inventory. It's time to pull back"?
Yep. I think it goes back to Carl's question. So part of it is, are the incentives working? Is the product moving? What is happening with the spring selling season? What we've heard from builders is, and I posted this online, bumpy is what we keep hearing.
Is that one week great, and we've had some clients say, "Hey, last week was the best we've seen in years," and then be like, "Wait, never mind. This week's been pretty bad. And this week's been pretty good and bad." And so I think that bumpiness and inconsistency see, if that holds for too long, that it's going to just start to impact consumer, sorry, builder confidence. So how aggressive do you want to continue to be on housing starts if you're not positive that if you build those homes, you can sell those homes? So to me, I think that's the biggest thing. In some markets, though, so for example, in Washington, D.C., we're watching that market with some of the job cuts. It has very, very low resale supply.
But what we're telling our clients is you need to be watching any kind of dramatic change in resale supply, any kind of dramatic uptick in days on market. That's where it becomes a little bit more dicey, and you're not going to want to be as aggressive if you see even incremental shifts in your competition. But I think, Sheryl, we were going to come to you if there's anything else that you would say from your point of view with specs. What would you need to see to be like, "Hey, we really need to be pulling back on spec starts"?
I also think it's very consumer-specific because on the first-time buyer, if you put a lot of inventory in one community, there's no way to compete but price.
If you have a lot in the local submarket and you're just kind of more inventories pushing price down, not a good strategy, right? So I agree with Ali completely that this really comes down to the spring selling season. We all want inventory at different levels, but if you're starting to build up completed inventory, which we are seeing in some markets with some builders, you're going to see them pull back. We have two more minutes. Anybody else? We got one more.
Just a question with respect to the effectiveness of incentives. The real question we're getting is why are they becoming less effective? Is it just because they've been out there for two years? So to your point, an urgency dynamic, we've exhausted the pool, or to your risk factor, are you seeing or hearing evidence that it actually is cracks in the consumer at this point?
Yeah. So let me take that cracks in the consumer point. So I'm sure all of you have seen the same things. There's just been some increasingly alarming stats on consumer debt levels, on default levels, on just spending that's still getting held up, but it's getting held up by putting more money on credit cards and things like that. So I think for certain buyers, and if you look at the entry level, I think that is starting to play into it.
I did a lunch recently with a bunch of loan officers, and they were talking about families pooling money, and they were like, "Oh yeah, we're seeing more and more families helping their children buy a home." And I was like, "Okay, so they're trying to get them to 20%." And everyone in the room laughed, and they're like, "No, they're not trying to get them to 20%. They're trying to get them to 3% or 4%." So to me, that crack in consumer is certainly going to be a reason why incentives are not as effective at certain price points. If you think about the other buyers, to me, it goes back to just, are you needs-based or discretionary?
If you're discretionary and you see that every builder on the block is offering an incentive and maybe some price cuts, there's been a bit of a, "Shouldn't I just wait because will things get better?" So I think that that's the urgency aspect that will impact consumers that are not getting particularly stretched by affordability. All right. Thank you. Thanks, everyone. All right. With that, I would like to bring up Erik Heuser, Chief Operating Officer with Taylor Morrison.
Thanks for being here, Ali. I know it was a little bit of planes, trains, and automobiles to get here, so thank you so much for joining us. So if we are going to talk about growth, it only makes sense to take a step backward and really talk about strategy and land positioning. So that's where I will start off.
We'll talk a little bit about the consumer, and then I'll polish off with talking about Yardly for a couple of minutes. But I will start with our process because I think it's important in the way we think about land and the intentional alignment between our annual strategic plan. It's a time where every division comes together and presents how they're feeling about the market and where they want to be, who they want to be, how we're going to compete, who the competitors are, price point, product, consumer. And the important point here is, I think maybe a differentiator is that we have dedicated market intelligence people in every market, and their job is really to challenge the divisions, to challenge us in terms of what's the right direction going forward, and to think in a very strategic way.
So that happens every year, and it's really the starting point for us from a corporate standpoint to suggest what we're looking to accomplish over a three, five-year horizon and what each of those divisions can contribute. With regard to that second point, I would say we work really hard to identify a role for every division. So not everybody can grow at the same rate or should grow at the same rate every year. And so it's not a peanut butter approach. We absolutely look for the opportunities in the market, the strength of that division, the product and consumer availability in that market. So we really do look to optimize the portfolio based on whatever that division can provide the aggregate.
With regard to the aggregate, we add that all up, and we look at what that would produce from a five-year plan horizon for the organization and ensure it's the right answer. There is a little bit of iteration in terms of understanding what can we do a little bit better, how can we optimize the organization a little bit better. To Sheryl's point, are there some dollars we should shift a little bit over time to ensure that we're getting to our targeted five-year plan that ultimately optimizes the return of the organization? From an alignment standpoint, if all of those things line up, the investment committee process is relatively easy and aligned. I've been helping chair the investment committee for 20 years, and I can tell you that we've talked about this for many years in terms of making sure that there's alignment.
The other thing that we do is we make sure that we follow that project from day one, meaning underwriting all the way through the time, kind of an after-action report, if you will, a postmortem. What did we get right? What should we learn? How should we make a circular reference and a feedback loop relative to the next community? So again, those all things are aligned, and I thought it was important to start with that. We are very focused on returns. The ultimate right answer for a project, a division, and the company is returns. And we think that strategically that comes by way of quality locations.
We've learned over time that on par, we will do better in our communities through tougher times, through insulation of good locations, and we also think in better times that we will have a disproportionate benefit for having core locations and being positioned in submarkets. And I'll come back to submarkets in a minute. Sheryl touched on the diverse consumer segmentation, so I won't touch on there. I will talk about self-development and capital-efficient tools. So we've got these three circles to the right. And really, as we think about land, when we first said that we were making a relatively aggressive pivot to self-developing, more raw land, I think a lot of people's ears perked up because there was a concern that our balance sheet was going to get a lot heavier. And the reason we pivoted to more raw land was, number one, need.
A lot of the master plan developers actually started selling less finished lots. A lot of the smaller builders needed finished lots, so the competition went up significantly. It was actually in our DNA. Go back to 20+ years since I've been here, land development has always been in our DNA. And so it made sense that we were able to pivot to that. With that comes the ability to control your own destiny a bit more. I think we've publicly said that we have an expectation average of averages for about 3% more on margin when we self-develop our land. And we do believe that we're, again, able to serve the consumer in a better way when we are controlling our destiny in terms of phases of development and positioning within community. But there's always a large but and caveat with that.
We do focus on deal structure, and I will come back to a little bit more detail here in the next slide in terms of how are we making sure that that land comes into the business in an efficient way, and ultimately, how can we marry it with the right financing tool. So that's a pretty complex process that really optimizes every land parcel that comes into the organization. So as I mentioned, we've kind of had an evolution over time. We've had our lots owned and controlled move from 51,000 to 86,000. That's an increase of 68% from 2018 to 2024, so pretty significant. The total years of supply moving from 5.9 to 6.6 years is up 12%, so not as much because of the math.
And then the owned years of supply has actually gone down from 4.4 years to 2.8 years because of the tools that we've been employing. So the owned years is actually down 36%. Controlled share corresponds to that, moving from 26%-57%. Self-developed approved projects, again, as we just talked about, the pivot to self-development and now from 58% to 85%. And correspondingly, we're buying less finished lots. Now, two things that have happened as a result of that, or three things that have happened as a result of that pivot, is that we've got our communities are bigger. So on par, we've got 50% greater scale in our communities as underwritten as we look forward. And that has evolved into our ability to increase the pace in our communities. It provides greater runway and legs, again, greater control.
And we've seen our absorption pace expectations increase by 44%, and correspondingly, again, an increase in our return expectations for those projects, all because of that. So, control lot percentage here is just a visual representation of our moving over time and achieving a 57% as we closed out the fourth quarter. As Sheryl mentioned, we've been guiding to 60%-65%. Because of the success we've achieved, we've got confidence that we expect that to be north of 65%. And we'll talk about some of the tools now. So, we took a look at the end of 2024 to say how are the lots controlled. Only 25% of our controlled land is expected to come into the business by purchasing those lots with cash, cash out the door.
We use 22% joint ventures, 10% seller financing, and I'll define all of this on the next slide, 27% land banking, and 16% option takedown. So a lot of arrows in the quiver to achieve our percent control, lighter balance sheet, increasing our returns. So let's talk about the tools real briefly, and I won't dive too deep in this, but thought it made sense to help define these a little bit and look for the trade-offs that make sense to us. So when it comes to the financing tools we deploy, there's seller financing. So quite simply, buying a parcel of land and asking the seller to hold on to all of it or a piece of it for some period of time, and we simply pay them an interest rate for that. And that's usually done by a note. We take title, we give a note back.
These are all representative examples. They're illustrations. These are not our future or past, but they're just a deal example. In this particular example, we've got a gross margin degradation of 0.9% and a lift in IRR of 2.8%. That's a rough trade-off of three times in terms of those two metrics that we look for that trade-off. In the upper right, we've got a bulk land takedown. This is simply taking the land over time. This happens to be a three-phase takedown. In this particular trade, we've got a 0.3% degradation in gross margin for a pickup of 3% IRR, a 10X in that circumstance. Land banking.
I think everybody's getting a pretty good handle on land banking, but essentially, we're identifying a piece of land, a land banker buying it on our behalf, us contracting for land banking, giving them a deposit, financing the development over time. In this circumstance, a 15% deposit and a 10% interest, which generally speaking, we've been able to beat in many circumstances. But in this example, gross margin degradation of 1.7% for a positive trade of 8.3% in IRR, so a positive trade-off of 4.8x . Joint ventures. We do, as you saw on the prior slide a couple slides ago, we use joint ventures extensively with builder partners that are like-minded. We create a joint venture, purchase the land within the joint venture, develop it over there, pull the lots into each of the corresponding builders just in time.
This works really well because there's typically a very low degradation in gross margin, IRR of 2.2 and 0.6 gross margin hit. A 3.7X trade-off there. I would tell you if we were to isolate just the home building benefit of this, the IRR is very, very high. This is just looking at the joint venture. There's another benefit to the home builder just because you're buying truly just-in-time lots. Lastly, briefly, seller profit participation. If we can convince, just like here in Lakewood Ranch, the seller to take a lot of the benefit and the value that we're creating in community on the back end, then we actually have a benefit on both sides because we're actually paying less than we would otherwise on the front end, and it defers the price. We've got a lift in both gross margin and IRR.
So if we can, let's pivot to site selections, core locations. We look at this from a few different lenses. Number one, we asked our internal market intelligence experts with an objective eye, what are the percentage of core locations that we have across the business? They've suggested 86% of our sites are in what you would define as core, defined by school locations, proximity to employment, services, and everything else. And so 86%. There are also some external experts in the space that score us and others in terms of core location, and I think we've historically scored relatively well. And lastly, we ask our consumers, "Do you like where you live? Is it a core location?" And it's usually a pretty high number as well, and wanted to give you some examples. It's not 100%, and part of that is strategic.
With Charlotte, you'll see all of our sites are within what's been defined as the core. Houston, not as much. I would go back to our strategic decision three to four years ago to suggest we want to scale further in the business. We've got the right product. We've got the right execution. Let's reach outside our comfort zone and expand a bit. You'll see that is not 100%, and that's very intentional and okay for the portfolio. Phoenix, by and large, and I'll come back to Phoenix in a minute. Most of our sites are within the core. Here in Sarasota, you'll see that largely in the core as well.
Just a brief side note, since we are in Florida, since we do know that we had a few hurricanes through here, we did engage with our market intelligence and leaders here in terms of what was the kind of physical exposure to the hurricanes last year. And we held up very well. I think it's fair to say that we had some fences fall down and maybe some landscaping, but we held up very well here. So I do think the physical positioning with regard to our sites in Florida, as well as the mindful water mitigation and the superior product relative to resales, I think has made a real difference relative to new versus resale in Sarasota. So as we dive into Phoenix a little bit deeper, we've got kind of our concentration and what we've defined as the core.
Builder A, who's another builder, just a different strategy, right? Not wrong, right, or indifferent, but simply reaching outside the core very intentionally for tertiary markets and most likely a more entry-level buyer. And you'll see everybody has a little bit of a different strategy here. So all to say, as we think about our strategy, we're very mindful of this in terms of our competitive positioning. Okay. With regard to that positioning, let's talk about resales a little bit. And we've shared a bit of this over time in our earnings calls, but we want to look at it from an MSA perspective. How is our MSA concentration compared to the overall country average, but how are our submarkets?
So we've got very large MSAs, and I think we've shared some examples in Naples where we play and where we don't play, and the resale conditions are better where we play. And in this left chart, we basically have asked where the resale conditions measured by months of supply in the places that we operate versus the places that we don't operate, what does it look like? And you'll see, by and large, where we've chosen to play is experiencing lower resale pressure. The one that is different is Orlando.
Again, I would go back to a strategic intent, given the scale of that business, their ability to serve what we've defined as a home-at-last buyer, strategically reached out a little bit into where the resales are a little bit deeper, and they're competing well, but you'll see it as a little bit different relative to a submarket penetration standpoint. On the right, again, we've shared with you over time. I think we shared it in third quarter and fourth quarter. The analysis was really, if I'm going to put a consumer lens on, if I'm a consumer and I'm considering a Taylor Morrison home within community X, let's consider all the resales around it that would be a potential competitive offering.
Then we carved out things that were older than 10 years, things that were not of a similar square footage, not of a similar price point or product. And we've got community on here, but we really didn't consider the amenity. And really, how did it pare back the relative competition? And I think in third quarter, it was 19% of the assets we tested. So 19% of the resale homes within the competitive market area of that asset of ours would be, we think, objectively considered by a consumer to be competitive in an option. And fourth quarter actually went down just a little bit to 17%. We stress-tested a couple of Esplanades where we sit today, and it was only 9.5%. So again, only 9.5% of the homes we think would be competitively defined as an alternative for a consumer.
We are continually engaging with our customers, and hopefully, you see that as a bit of a differentiator for us. With the strength of the market intelligence folks in market and our ability to get surveys out quick, this is a survey that we just thought it would be interesting. Let's ping our shoppers last week, and we basically asked community design. We're going to Esplanade. Tell us, across the country, is a community as important, less important, or about the same as your home, and you'll see, by and large, it's at 77% as important, 9% actually even more important, so community development actually matters to us. Are you considering resales? 41% actually said, "No, I'm buying new and that's it.
I'm going to consider you and any other offerings out there, but all new." The next one, we asked, "If you know about the trust award, which we take a lot of pride in, and I want to work for an organization that's trustworthy, if you knew about it, was it important?" 82% of our shoppers said it was either important or extremely important, being aware of that and us having won that award. Then we asked about the barriers to home buying. I think this goes back to some of the qualification stats that Sheryl shared in terms of the shoppers that come in our door generally being pretty well qualified. 61% of our shoppers said there's no barriers to financing or paying all cash. So again, just interesting stats that we wanted to share with you that we just pinged last week.
I will close with just a few comments on Yardly. I want to talk about what it is, a little bit about the why, and a little bit about what you can expect in the future. So Yardly is a rental community. They are low-maintenance bungalow homes, average square footage. I think you heard Cammie mention this this morning. Call it 750 sq ft- 1,100 sq ft, relatively modest in size. All have backyards, though. So these are rental homes that live like homes with backyards, with amenities, and with kind of dog parks and certain amenities. We're active in nine markets. We're in four states. We've got 40 communities owned and controlled, 13 of those within joint ventures. On the balance sheet today, the aggregate is $375 million. $88 million of that is within the joint ventures.
So we're going to come back to the joint ventures in a minute, but $88 million for 13 projects that are leasing, developing, evolving over time, which I think is about $6.7 million. So it just speaks to the efficiency of the financing vehicles. The rest of them are the wholly owned, which I think is about $13 million per asset. 11 communities currently leasing. Last week, in those 11 communities, we leased 70 homes. So the velocity of this business has actually pretty quickly as we think about building. These are the same floor plans one after another. Our goals are 15 plus or minus home building and lease rate, and so per month. And we've got nine communities under development. And I think by way of our scaling, I think Zonda has shared that we are the number one national developer in this space.
We think that's actually good as we think about the timeline. We've experienced the cap rate change, but at the same time, actually, it's kind of weeded out a lot of what otherwise would be competition. We're chewing through the multifamily supply without seeing a ton of new developments. And so as we think about the back end, and you'll see in a minute, as we want to deliver the most of these in 2027, 2028, and 2029 and beyond, we think the timing is actually pretty good. Here's a slide on the why. Why are we doing this? I would start with a backdrop of there's a housing shortage. This is housing. I would start with affordability challenges.
We've decided not to make the hard pivot to serving pure entry-level, but this is a way that we can serve affordability challenges through rental and ultimately incubate future Taylor Morrison homeowners. We actually do believe it's a superior multifamily living experience. A lot of our customers are coming right across the street from an existing garden-style apartment because it is better. I would also say this is what we do every day. We're not doing anything different. We go find land, we entitle it, we develop it, we build homes. We rent the homes. That's the only difference. Construction is extremely efficient. We actually will be looking for ways that we can kind of learn from that business and employ it in places that we can. And the core business, which also comes to any building science kind of test kitchen opportunities.
We’re also able to leverage the TMHC back office, so accounting, purchasing, all of those HR, those things. It’s a completely different opportunity. These are all people that we would not be talking to otherwise. As you think about just strategic growth opportunity, these are not homebuyers. These are people that will rent. It’s doing what we do on an everyday basis to really expand the profitability of the business by a completely different consumer group, incremental profit generation. I would say we suggest it will be accretive over time. It’s a sustainable platform. We do look forward to being able to stand alone over time. There’s 80 dedicated Yardly employees that are expert in that field. It is a little bit different. It’s very similar to what we do, but there are nuances that are different.
And so as we think about looking forward, we do underwrite to gross margin and IRRs that are very similar to the core home building business. We do look for ongoing pursuit of construction and leasing efficiencies. As we started the first one, we obviously learned things. And so we will only get better at this business model. We are navigating the near-term interest rate environment and managing the existing pipeline in a very mindful way with good stewardship, I would say. And we are very intent. We've got a number of conversations on the next financing vehicle because we really do think that's critical in terms of the balance sheet exposure to the organization. We want it to be as light as possible while achieving all those benefits that I just mentioned.
So as you think about over time, we suggested in 2025, we expect to sell five to seven of these. This is all highly dependent on market conditions. But the next year, you'll see maybe about double that in the next year. And then when you get to 2028, you'll see plus or minus 20. And that will be kind of the 15-20 is the expected cadence over time in those markets that we exist in. The average unit size, just to give you a rough idea to start framing revenue expectations, kind of 210-240 units. Today's environment, as you think about NOI calc, cap rate expectations are pretty modest, $290,000 in terms of the way we're framing it. I would tell you that the record achieved in Phoenix was $460,000 per unit pre-cap rate change. So we do think that's a pretty modest expectation.
In the way that our joint ventures are framed, and this might evolve a little bit over time, but 20% is our post-leverage equity position. So 40% ownership, leverage at 50%-ish, 20% equity exposure. And then we also are able to afford the scalability of the business because we're achieving a management fee through the joint venture. So we'll continue to be able to kind of afford the growth of the business through that. So hopefully, that gives you enough to be dangerous with regard to Yardly. Thank you very much. And we're going to turn it over to Sheryl to talk about some other strategic focal points.
With our area presidents.
With the area presidents, yes.
Thank you. Thank you, Eric. Appreciate that. Hi, guys. Maybe we'll start. I know you've met everybody, but not everybody on the webcast. So maybe I'd ask you very quickly, Steve, start, and let's introduce each other.
Good afternoon. My name is Steve Kempton. I've been with Taylor Morrison 17 and a half years in this industry, about 36 years. I'm in charge of the Florida area. I'm an area president in charge of the Florida and Georgia area, and also the leadership liaison with the Esplanade Resort Experience team.
Thank you.
My name's Charlie Enochs. I'm the new guy. I've only been here for 17 years, and I've been in the industry well over 30. I won't say how much over 30, but well over 30. And I'm in the central area, which is a little bit wonky. And our defined area covers the Carolinas, Texas, and Nevada.
And apparently, I'm the young old guy. So I'm Dar Ahrens. I'm the area president for the West at Taylor Morrison. I'm going on my 19th year here in the company. Started as a division president in Northern California. And I currently oversee the West plus National Construction.
Yes. And National Purchasing. Purchasing. And Esplanade. So we like to divide and conquer, right? So Steve, I know we've spent a good day with the folks in the room. So some of this might be a little bit redundant, but maybe you could start, kick us off by sharing the magic behind the Esplanade brand, maybe the journey that got us here.
Absolutely. And I would be remiss if I didn't thank everybody in the room for making the effort. I hope it was a benefit to you, and you really got to feel the experience. But with that, for the folks that are virtual, I'll try to explain some of our journey.
So it was about 2012, a mile from here, we started our first Esplanade. It was a local community run by a local division. Over the next eight years, we were fortunate enough to open another 11 Esplanades in Florida: Orlando, Naples, Tampa, Fort Myers, Sarasota, and Naples. Each one of those provided us an opportunity to learn how to get better the experience. We centered the Esplanades around a curated life experience supported by concierge service. What we found, though, in those eight years was we were growing with each one in a minor amount. So in 2020, we became a nationalized brand, and I was fortunate enough to be able to convince Cammie Longenecker to join that group and run that group on a day-to-day basis. And that Esplanade Resort Experience team kicked off exponential growth in our concierge services.
So the curated lifestyle is the key to an Esplanade. We now are in California, North Carolina, Georgia, Florida. We've had 12 communities that have started and ended. We have 12 communities currently selling. We have another eight to 12 communities that will open up in the next four years, of which about half of those will open up in the next two years, and the other half will open up in 2027 and 2028, with the highlight being Las Vegas, Summerlin. We've got a big Esplanade coming to Las Vegas. We're also looking at Texas. We're looking at South Carolina. We continue to plant the flag in the states that we are currently in as well. So what is the Esplanade difference? How would you define it?
First of all, it's a curated lifestyle, but you couldn't have that curated lifestyle consistently and to a resort level without the Esplanade Resort Experience team. They make the difference on a day-to-day basis. If we were ever going to be successful expanding geographically at the pace we wanted to and thought we were capable of at the level of a resort experience, as you've heard and experienced today, we needed that team, and that team, Cammie was able to attract high-profile hospitality-based individuals to come on to support our homebuilder mindset and be able to offset and actually fill in those blind spots that we might have had of thinking saving the dollar today might not really help us in the long run.
So yeah, it's kind of like the dumb tax, but we couldn't afford a dumb tax in building a community like this the first time in every market.
But I would say it was innovative and courageous in a way that just to echo what you started the meeting with in that we invested big SG&A early on five years ago without knowing what it would lead to. I mean, without having to ask for it.
It was a vision.
It was a vision.
But there's a long way to go.
Yeah. It was exciting.
But it shows up in the numbers, so.
Well, the thesis was there, okay? So our consumer segment was pretty large at the time. But if you look at it right now, our consumer segment is going to grow by 14 million households or 25% in the next 10 years.
Number one, that feels good, right? That feels like opportunity for the next 10 years. Number two, if you look at their net worth, it represents 70% of the net worth of the entire United States of America. And so that feels even a lot better. Similar to what Ali was saying and you and Erik in terms of they're a discretionary buyer. They're buying right now. Tony had the best year, best month ever here in Sarasota. A lot of that was in his Esplanade community. So pretty exciting.
Yeah, big time. So Charlie, you've done some resort lifestyle before we nationalized the Esplanade brand. What's the difference?
It's really a lot of what Steve mentioned. It's consistency. And before the brand was nationalized, we relied heavily on the capability of the local teams. And we had some hits, and sometimes we had some misses.
But as you mentioned, Sheryl, in a community of this size and scale, you'd rather have a lot more hits than misses. And so with the hard work that Steve and Cammy and the team put into a playbook, it just made it a lot easier to have that consistency of execution.
Yeah, that makes sense. And certainly, the financial results make it worthwhile, right?
Yeah, they really do. I know we talked about this this morning, but it's worth reiterating. Just the difference between a traditional business is what you see here. The 3X on the options is you ask yourself, why? Well, a lot of these buyers are downsizing. Our average home for the last three years in any Esplanade is right around 2,200 sq ft. So that buyer is downsizing, and that buyer wants what they want.
If you've heard the term jewel box, which it just simply means they want to adorn the house with every option they can: a lot of outdoor living, pools, bathrooms, kit chens. So that really juices up our business.
Yeah, for them, big isn't better. It's the quality of what they've.
It's the quality, and we offer it, and we distinguish that. Where a lot of builders have gone away from the curated design studios, we've embraced it for this buyer profile and said, let's double down and make sure we make events at our design studios. From an option lot premium standpoint, if you've had a chance to be at a traditional community and an Esplanade community, we really go out of our way to create community neighborhood feel, either from the landscaping or even a back-to-back lot.
Our back-to-back lots in an Esplanade, we didn't get out and walk them, but they have a wall. Their landscape, the entire yard is landscape. So how do you sell that in a different place? Well, some folks are afraid of alligators in Florida. That's a protected dog-friendly lot, right? And so that's worth $22,000 for your dog-friendly lot. So everything is how you position it. And then just as you said, some of the views are just totally spectacular. So we do get a 4X compared to the traditional. A jump over to the broker participation. Why is it so low? I like to think of Esplanade buyers as young snowbirds. I'm a young snowbird. But that's a term used from Phoenix to Florida, and birds of a feather flock together. We get a lot of buyers that will. I thought you weren't going to say that.
I am going to say it. It might be a millennial thing. I shouldn't say, I don't know. But anyway, we get full cul-de-sacs that are from the same neighborhood up in Cleveland or Chicago, and so they don't get a broker. They use their best friend, come and eat at our culinary, have a drink, and have one of the signature bourbon cocktails, and then they buy. It does take a little while, and so why land banks? Why that big benefit in land banks? I think Erik really hit on it, and it's worth doubling down on. We do such a good job across the country of setting up the land banks at the very beginning of this to allow us to have a project that takes two years of entitlement, another year to develop, seven years to sell out.
You're 10 years in, you get the benefit of appreciation through that entire thing, but you still have the return on the backside. So you get the margin that kicks in to help your land bases, as well as that appreciation over a long time, and still have the return that.
Some of our strongest returns in the country. Some of our strongest. Would it be fair, Steve, and then we'll go to the next, but when we underwrite, we always kind of say, wow, we're pushing it. But like you said, that seven, eight years of appreciation, we always do better than we expect.
We really do. I mean, there are some bumps in the road. We have found that we don't want to be over that decade mark with any community. It's just too risky. But if we're in that total entitlement to finish of seven to 10 years, it's really panned out over the years for us.
Very well. Yeah. To that point, we just closed out our very last home in Solovita. And to Steve's point, we would not do that. We bought that through the AV acquisition. That community had been around for more than 30 years. We closed that out, I think, last week, our very last house. Yes. Brian. Thank you. Yeah, yeah. 6,000 units. 6,000 units, a little bigger than we would generally take on. Okay. Dar, we've spent a fair amount of time, not just today, but in history, talking about M&A. And what does M&A mean to Taylor Morrison and why it was part of our strategy?
I think you know it's been very difficult for the street to embrace on can we really successfully integrate these companies. Let's talk about a market like Phoenix, where they haven't had one, but they've had two big public M&As. Maybe talk us through how has that really worked?
Yeah. I think we've talked a lot over the years, just more holistically, about the impacts of M&A on the organization. But we thought for this exercise, it might be nice to put a spotlight on one specific division, just so you can kind of learn kind of the tangible benefits that we see in a single market. And Sheryl, you mentioned we did two public M&As that impacted the West. So the first one, AV, in 2018, only touched the Phoenix market.
And then the William Lyon Homes acquisition in 2020 added scale again to Phoenix, but it also added scale to Southern California, the Bay Area. And we picked up some new markets in the West, in Portland and Seattle. I'll start with some of the obstacles since you threw that out there. I'll own the fact that no deal is truly 100% perfect. That goes for a 50-lot land deal that we buy, and it goes for a builder that we purchase. What I can say with confidence is after having eight of these under our belt, we certainly get better with repetition as with anything. And so we've gravitated today where we started in the early days, the M&A or the acquisitions were really spearheaded by the local team. So if we had a TM team in the market, they were responsible for the M&A.
If we didn't have a local team, then the nearest adjacent market was responsible for the M&A. I'm very thankful that the gentleman next to me went before me, and I got some of the latter two with the public M&A. But I think some of those early experiences helped surface a lot of the inconsistencies that we had in our own Taylor Morrison business. And you saw a lot of work happen over the years on simplification, standardization, centralization. And those were really born from the early experiences that we had. And it's made us get better to where we are today. We have a project management office that oversees our M&A efforts. And it's a very systematic, programmatic approach to the acquisitions. And we've done some other things in the business that I know we've talked about over the years to really simplify.
Probably the biggest one is our product and option optimization. So when we acquired William Lyon Homes as a company, I'll use that example first, we had about 3,500 unique floor plans that we deployed throughout the country. And I won't tell you exactly how many options, but it was in the tens of thousands for our options. We've taken those through the optimization process. There's a lot of hard work that goes into that from all of our team members. I am proud to say that as a company today, we're down to about 850 unique floor plans that we deploy across the markets, either in a single division or regionally. And then our option optimization journey has been kind of twofold. We started off with we didn't even have national specs. We had division specs or maybe regional specs for those tens of thousands of options.
We first started with national specifications that we did across the company, and then really born from that was our curated Canvas packages that we talk a lot about now, and I think we'll speak a little bit later, but the culmination of all of those efforts are we have less than 6,300 options in the company today. And you just think about the work that our teams were having to do to integrate 3,500 plans, tens of thousands of options, all of the variability that goes with that. We've been able to really streamline that. And it's improved our cost structure. It's improved greatly our cycle times. And it's made it much less taxing on our team. If I isolate that just to Phoenix, post-William Lyon Homes, we had about 370 active floor plans. Today, we're down to 100 optimized plans. And we had about 7,500 options.
Today, we're down to just under 900 active options in the market. I'll get to some of the benefits, the good stuff. The easiest one is scale. Not a surprise. After each acquisition, we saw kind of an immediate improvement or increase in our closings in the 12 months following, anywhere from 20%-35%. Not a surprise. If you go out a couple of years, we saw our scale maintain about 50% of our volume in the market in Phoenix came through the AV Homes and William Lyon Homes assets. Probably also not a surprise. I think the best one and most notable for me is that if I look as recently as last year, so we're now four to six years out from acquisitions, it still makes up about 40% of our closing volume in the market.
It provides real long-term staying power and scale in an MSA through acquisition.
Dar, just spend one more second on that, because I think that's such a critical point. Whenever we do a deal, the big question is, what was the premium to book, right? You think about four, five, six years and what's happened to land costs versus we bought these companies at somewhere between 1.1 and 1.2 book. How have they performed?
Well, I'll get to the margin improvement in a minute. Yeah. The financials will come last. The greatest stuff comes at the end. I mean, it clearly has a profound impact on our financial performance. So I'll cut to the chase on that one. I mean, our margins today are up over 300 basis poins from where we were pre-acquisition. There's a lot of things that go into that.
Some of it is the vintage of the book, for sure, but not all of it. A good portion of it does come through the scale that we have in the business. So we picked up a couple of other unique things. We talk about product and consumer diversification. Our Phoenix market, legacy TM, was really predominantly a first move-up, second move-up market for us. We historically paid cash for most of our land in that market. Through the AV and William Lyon acquisitions, we were able to acquire entry-level and actually active lifestyle communities. Although we have that in other places like here in Esplanade, where we're sitting today, we didn't have much of that in the portfolio in Phoenix. 80% of the acquired assets and product were at entry-level and the active lifestyle community level.
They were, I'm sorry, 80% were below our average sales price in legacy TM projects. So it really did help us expand our footprint in the marketplace. When we look at the scale and some of the other benefits, probably the one I'm most proud of is we've improved our option margin through the optimization process by over 500 basis points from pre-acquisition. We improved our vendor rebates through scale locally in the market and then improved trade partner relationships at a national level by over 73% pre-acquisition or pre-M&A. I know those are interesting stats, so I'll boil it down to you. If I look at what that did to our margins last year in 2024, those two buckets combined improved our gross margin by over 130 basis points in the market. Then there were some other ancillary benefits too.
I mean, we improved our controlled lot supply. Again, we were predominantly owned lots. AV was 100% owned. William Lyon came with a pretty significant land bank and off-balance sheet financing book of business. And so we saw an instant surge of about 27% to our controlled lots. And today, we ended 2024 closer to that 50% mark on our way to the 65% that Eric talked about.
Yeah. So you also mentioned one of the things you were most proud of was the option revenue option margin. I think that's a great segue. Let me start with you on Canvas. I think the group knows we introduced Canvas a few years ago, but how has it really changed your business?
It's profoundly impactful on our business. And we deploy Canvas in every single one of my divisions. We deploy it in every single community.
We'll start with 100% of any spec home that started receives a Canvas package. But I also have divisions in the West that are 100% Canvas. Like in Portland, for instance, every single home that we build up there goes through the Canvas process. Every division has projects that are 100% Canvas. It works incredibly well. Honestly, it's very scalable. It works at all price points. I start in the low 300s and go all the way up to the high $2 million price point range. We deploy Canvas in every single one of those communities. We do it through specs, but we also just have it as standard offerings in your to-be-built. As well. Yeah.
Would that be the same here, Steve, with the Esplanade brand?
It serves its purpose here. We don't have the condominiums in this particular Esplanade, but we have condominiums in a lot of different Esplanades. We do have an attached villa here, and so we see the benefit of a to-be-built sale going to the design studio, but you can't start half of an attached villa. So you have to go use a Canvas package. We've done the research. We don't see a tremendous degradation in the margin between one half and the other because we've had all of the knowledge with our Canvas program and experience to go ahead and start that spec, if you will, as a Canvas spec. And then with the multifamily buildings, we'll start selling them, but basically, there's just not a lot of reason to have a lot of choice in those condominiums. So we do those all Canvas. And that helps our production. And it helps our production. So there's definitely it fits into the Esplanade portfolio.
In a different way. And Charlie, I would say Canvas was born in Texas. So let me go to you now and talk about what was the origin of Canvas and how does it play a role today? And then we'll talk a little bit more about the Texas market.
Sure. So Canvas really started as a result of our customer focus and experience. We got a lot of feedback, particularly in our first-time and first-move-up community, saying our process, while they loved our homes, was a little bit too lengthy, a little bit complicated going through the design center, and frankly, a little bit too expensive.
And so we took a lot of time, and I give Amy Rino, who's our Chief Customer Officer, who was the division president in Houston at the time, a lot of credit that she really did focus on those things that were the most important to the customer. Everybody says that, but she really did the research to understand what that meant when it came to Canvas. And so we've learned a lot over the years and getting better and better at focusing that on the customer. We're on version 4.0, as we call it now. And the bottom line is, obviously, it gives us a lot of leverage with the trades when we're buying the same products over and over again. So we've been able to increase our margins even with that buyer.
So even though it kind of started as an affordability thing, it's allowed us to actually make more money off of that particular buyer side.
Well, and I think that's key importance, right? We have different levels of Canvas that can start at $15,000-$20,000 for a whole house all the way up to a couple hundred thousand dollars. So it's highly curated, right?
Correct.
But let's shift, if we can, Charlie, to the Texas market. So we have spent a fair amount of time over the last two, three years because it took that long to talk about the shift that we did in Texas going from low-paced, lots of communities to where we are today. Do you want to?
Sure. Yeah. So if I go back to a little bit further than even two to three years, 2018, because this has taken a minute.
This pivot has not happened overnight, but we were really a finished lot builder across Texas. About 77% of our closings came out of finished lots and master plan communities. And we liked that because it allowed us historically to have a light balance sheet. We're buying lots just in time, but a couple of things happened. One, those master plan communities got incredibly competitive. If you look across Texas, there are a whole lot of smaller local and regional builders that live solely off of finished lots. That's what they live off of. They don't do any self-development. So what we started seeing is in not even a master plan community of this size, but just any master plan, we'd see 30-40 builders in that master plan, sometimes six or seven on one single lot size.
So while the overall community might be doing well, the builders might only be achieving a pace of a half a month, 0.7, 0.8. And so if I translate that to our business at the time, our average across the market in 2018 was 1.6 sales per month. Ouch. Right. So it made everything a little bit more inefficient. Our builders had to carry a whole lot more communities. They were spending a lot of hours in the day just driving from community to community instead of showing up to one place. Instead of looking at the quality of our product and the efficiency of our product, they were just trying to keep the doors open. So we started this pivot really towards going upstream and buying partially entitled land, entitling it ourselves, developing it ourselves. And it took a minute.
But where we are today is just night and day, where about 82% of our lots now are self-developed. And it's done so many things for us. The single most important thing is it's just really simplified our business. At the peak in 2018, we had 1,400 of those floor plans that Dar talked about just in Texas in three markets. And that was driven because every single developer wanted their spin on the product. So we couldn't build the same 50-wide house in one community that we were half a mile away in a different community. And that created a tremendous amount of inefficiency. Today, we have 139 floor plans. We actually have almost 50% fewer outlets than we did then, doing 57% higher revenues and 37% more closings. So more out of less.
As that obviously translates just to the business results, 800 basis points increase in margin, 3x in EBIT. It's been a game changer for us. I think the most important thing for us is it's really set us up to grow. It's very hard. We had 120 communities across Texas in those three markets in 2018. We have the ability to grow our number of outlets in Texas without having that complexity that we did just a short time ago.
It really dismisses the myth that our industry has looked so long at community count growth, where we reduced community count, increased our sales, increased our profits. That should be the formula. Maybe this is just a great example of the difference between a master plan and what we've been able to do. If you'd spend a minute on the optimization. Sure.
I know we're running on time, but two quick examples here. The ones on the left, those products are the exact same size. They're built for the same buyer group. That's actually built for an ethnic buyer group. The difference is the top was built for a master plan community. That house has over 30 different window sizes. Some of them go down to 12 inches within 12 inches of the floor. That sounds like no big deal to the room, but that means every single one of those windows has to have tempered glass. So when you look at the different impacts and costs, we can build the house below it, which is a really nice-looking house, actually meets the same buyer group for about $30,000 less in direct costs.
We were actually able to start with that house, again, because it's more of an ethnic build, with the Vastu principles and Feng Shui principles in play from day one. Those have spice kitchens. That second house has vaulted spaces and all the gathering areas. There's things that really we took the money and focused on the customer as opposed to the master plan developer. The one on the right, I get it. It's kind of boring. They both look exactly the same. That's the intent. They're an entry-level home that we built. The one on the left that says prior was for a master plan community. The one on the right is our current one that we can build in a self-developed community.
The crazy thing is, as close as those look, so we can build the one on the right for about $17,000 less or 11% cheaper. And a lot of it's just the things that, again, a buyer doesn't care about. It's how the patio is situated, how the porch is situated. We were actually able to take the two biggest buyer objections in the prior house, which was the size of the kitchen and the island and the size of the primary, and increase them. The house on the right, the new house is bigger, significantly bigger, about 8% larger, but still, again, $17,000 cheaper to build.
So a house they like, custom less. Wow. That's right. Pretty good combination. So Dar, we have two minutes left. And I think it'd be remiss if we didn't talk about this whole concept of centralization. And there's so many areas.
But let's focus on one. We alluded to it in the video with Amy talked about contract centralization. I think we do something nobody else does. Will you spend a minute and explain it?
Yeah. And she probably had the drop the mic moment in the video, right? I mean, giving back 40,000 man-hours to our sales team so that they can focus on, frankly, what we need them to do most, which is sell our homes. But there's a lot of other ancillary benefits too. I think I wouldn't necessarily, I'm saying this kind of holistically, but I wouldn't want a superintendent selling my homes or finance selling my homes or a salesperson building our homes. I want people that have the best expertise and are detail-oriented for our contracts can deliver a very consistent process that's error-free.
And there's tremendous benefit to us and to the consumer to do that outside of giving our sales teams back the 40,000 hours. I mean, you look at just even onboarding team members. We do that now with, I think, 11 team members across the company to do all of our contracts. We can onboard people the same way, train them the same way. Anytime we have a change to push through, we're pushing it through to 11 individuals versus hundreds and hundreds of salespeople that aren't necessarily contract experts.
So specifically, what we're doing is our salespeople are doing a 30-second worksheet online, which is then going to a centralized contract department. And that contract is coming back to them in a full folder that they can present, right? Correct. And so instead of, what, 500 people doing contracts and 11 people. We have 11.
They get to sell a lot more houses.
They get them within an hour.
Within an hour. Yeah. With that, we'll pick up 20 seconds. Thank you so much, you guys. Really appreciate it. I have 100 more questions. I'm sure the group does, but we'll have a chance at the very end of the day. Thank you. Thank you. Thank you. Now I would also have the great honor to introduce Tawn Kelley. I think the industry knows Tawn quite well, but she is our very, very secret weapon. Thank you, Tawn. There you go. Thank you.
Thank you. We build homes too. We just use finance to do it. Truly good afternoon. It's a pleasure to be up here today and introduce myself. It's been an amazing 30-year journey.
I started as a loan officer with a company that was Morrison Homes' preferred lender back then. And here we are today, 30 years later. And the ethos of the company has always stayed the same. We use finance to sell homes. And today, it's never been probably more meaningful. What has been so amazing is so much has changed through these cycles. And yet the one thing that does remain is the importance of using finance in a way that helps that family be able to see that vision and turn a house into a home. And our sales tools have done exactly that. And it is with that ethos I started a company in 2001. And it was Mortgage Funding Direct Ventures and partnered with home builders like Taylor Morrison. And we created that original Morrison Financial Services. And fast forward to 2009, it was time to sell.
Taylor Morrison acquired Mortgage Funding Direct Ventures. From there, here we are as a Taylor Morrison Home Funding. We went from Florida as a mortgage broker all the way through California to be who we are today. The dedication of using finance as a sales tool is something that is so important, not just for our customer, but also our builder. When I think about Taylor Morrison Home Funding and Inspired Title Services, Mortgage Funding Direct Ventures, it's all about making sure that that family has the security of knowing that when they make that buying decision, it's a home that they can afford and enjoy for their family for years to come. Selling homes and using our tools is really all about leading our customers to their new front door.
It's those suite of businesses that have expanded and have met the evolving needs as our builder has evolved in order to be able to do all the things that we do that really enhance not only what's happening in the field, but also what's happening in the operations so that we can help make sure that the customer is able to close on time when the house is ready with the same experience that we would expect right from the hello. With that, appreciating that we earn our business through 450 dedicated professional team members and making sure that we have the right product, competitive product, we have been able to deliver just really strong numbers.
When you look at the profit with over $330 million total pre-tax earnings over the last several years and where the mortgage industry, and I look at the MBA, averages about $1,140 per home per unit. And we, over the last four years, have been about $6,800 per unit. And in 2024, we actually earned over $8,700 per loan. That kind of outperformance means that everything is working. And it's that integrated approach to using finance to sell homes that makes things so powerful. By embracing the strategic automation, using it wisely, but prioritizing the customer experience with our personal touch, we have efficiently scaled our business. And we place risk management and compliance at the forefront of everything that we do.
So between that and our industry-leading safeguards and our consumer protection with all of the data that we hold to our balance sheet and the strength of that, and really importantly, our capital markets, the strategy that we deploy consistently and making sure that we have the ability to be able to be competitive, but then produce the results that we have has been really, really rewarding. We really are the one-stop shop. From the time that that customer comes in and looks at one of our beautiful communities like this, we have that warm handoff with our Taylor Morrison salesperson. And it allows us to pre-qualify over 95% of the customers before they make the buying decision, which is really key because we can structure their way they want to purchase and what they want to purchase based on really understanding the needs of their financial situation.
And when you look at the success we've had from 2020 to 2024, an average success rate which is captured, but we think of it as success rate in the 82% range. And again, 2024, we achieved an 89% success rate. So we have been able to really capture the customer because of the service and the competitive programs that we provide. So it takes it all in when you understand the value of the hello, keeping the customer with you throughout the entire construction journey, the closing with Inspired Title Services. And then we also have our Taylor Morrison insurance. One of the things that we started in 2010, when the world was a very different place, we created a department called Able, Ready, Own, ARO.
And it was an opportunity for us to help customers who were coming into our beautiful communities, but they weren't giving any buying signals. They were scared to death of what had happened to their credit in the downturn. And we welcomed them and gave them an opportunity to understand what it means to optimize and look at your credit and not be afraid of it because there are things that you can do to improve your score. And we did exactly that. And we thought it was just going to be a temporary thing to get over the hump of the downturn. And here we are. And we're using it more than ever. And what is so wonderful is that it doesn't matter whether it's our first-time home buyer or our higher-level purchasers. Everyone wants the highest credit score. And we've been able to work with our customers.
It's free. It's complimentary. We'll work with them for as long as it takes. But when there are issues on their credit that need to be disputed or there are ways that they can structure their revolving debt, we can improve scores from 30 points to as high as over 130 points. And when you think about how much your credit report, your credit score, your credit profile impacts not just your best interest rate, but the qualification, how much money you put down, what your insurance premiums are going to be, it's really meaningful. So we just continue to do it because as long as people have that competitive edge of wanting the best score, they're going to do their best to do that. And we can help them.
One of the other critical ways that we are really able to help our customers, like I said, we have Taylor Morrison Insurance. And Taylor Morrison Insurance is an agency. And what has been so wonderful is that the opportunity to be able to provide accessible, available, strong, quality insurance in a market that we know is anything but normal when it comes to insurance. The headlines are so scary. And yet we understand new construction has a different story. And it's really important that when we work with our carriers, which are in partnership with Westwood Insurance, and we've had that relationship in some way or form for over 20 years, that the carriers understand the value of new construction, the difference of a home that is built to today's codes, not the average home in Florida at 40 years old, right?
And so if we can do that and be able to provide discounts because we understand what's going into the home, how the community was built, and the way that Taylor Morrison is so thoughtful about where they decide to buy their land, we're able to help that customer be able to get the kind of insurance that's going to keep them and sustain and protect them. So it has been a really wonderful part of our business. We actually earned in 2024 59% capture in our TMIS. So really good.
And when I think about the opportunity that we have, depending on whether it's through Taylor Morrison Insurance and the quoting platform that we have that allows our customers to be able to efficiently get online whenever it's convenient for them, the system has all of the communities, all the floor plans that Taylor Morrison builds, and they can get that quote at their convenience and compare it. That's what makes it so meaningful as a service. And so having that and local carriers, we hope that as the states, especially California, that story is still yet to be written. We have to see how things go. They had made some great strides before the fires. And they had come up with some good ideas and carriers were starting to come back. We know it's a little bit different. They're now back to the drawing board.
We hope that we can see some changes, so rate adequacy and things that will allow the carriers to feel comfortable to come back in. But until then, Taylor Morrison Insurance has plenty of carriers. And we have the fair plan when we need to. And in the state of Florida, it's interesting. Between Florida and California, that's the big ones that get the most headlines. But interesting, Florida, from an insurance perspective, has actually improved. So even in spite of all the recent hurricanes and the impact of the weather, we've actually seen premiums stabilize and actually improve in many of our markets. And in Esplanade, especially, the premiums have gone down over the last two years. So it truly is important when you're talking about insurance to know what properties in the areas. It's not state-specific.
It's actually local, and what that home is and that buyer's situation is that will really determine the insurance. When I also look at the opportunity to be able to provide the services that we do, it's really about the incentives, whether the incentive is that we're there for the customer from the hello through the process to appreciating all the varied programs that we have that really meet the needs of today's unique consumer. You've heard today all of the diversification of our consumer, and it's really important to have not only the products, but the experience and the understanding of what is their best path forward to guide them, and when you do that, you can make it a true tactical advantage for both the builder and our buyer.
One way we do that is through seller contributions and closing costs, whether it is cash out of pocket so that the consumer can put that money towards extra equity in their home, or maybe they can pay off some obligations so that that back ratio is even more comfortable for them than it would otherwise be if they had purchased a resale. There's all kinds of ways that we can tool the incentives that are closing cost incentives. Then we also know that we have different stages of construction. We have very extended lock programs.
And those extended lock programs allow that customer the security to lock in at the rate that they believe is right for them at the time, but with the flexibility that if the interest rates do improve before their home is complete, then we have a float-down option and they're protected on that side as well. So helping them and also helping our builder create certainty to know when that house is ready, that customer still qualifies and is willing to close, that's a really important benefit. And when I also think about, and we all know, since interest rates have risen and they have stayed higher than any of us have wanted for longer, the incentives towards discount points to discount the rate have been extremely impactful. And we also know how impactful the forward commitments have been.
So when I look at our temporary buy-downs, which is a really interesting program because for those of you who understand how those work and they're on conventional loans and FHA loans, the stepping into that payment is really helpful for families, whether they're just maybe their first-time home and they're getting used to making that mortgage payment from a rental, or maybe the spouse hasn't gone back to work from having a child and needs to ease into. A temporary buy-down gives that customer the security and the stability of a fixed rate, but allows us, the builder, to pay some of the interest during the temporary period of the buy-down to ease that customer into their home. And they qualify at that fixed rate. So you're not putting them in harm's way by helping them with those lower payments those first couple of years.
You're giving them a phenomenal fix. And that has been a really great program. We don't do too many, but we do it when we need to. And that's been about 13% of Taylor Morrison's customers last year got the benefit of a temporary buy-down. And then we know that if it is a first-time home buyer community, maybe rolling back interest rates and providing the permanent interest rate buy-down over the life of the loan using discount points could make the difference of qualification or that buying decision that they'll buy today because Taylor Morrison rolled back their interest rate to where they were closer to where they were. That has been very, very beneficial. And you all know how builders have been using forward commitments. We do it.
I am so proud of the way we do it because we do it with a very focused purpose on why we're buying the money, how we're buying the money, and the frequency that we're buying those funds. It really has allowed us to respond to all the different varied customers that we have across the country. We recently tooled our Buy-Build program to Buy-Build Flex. This is a program that just recently launched. It's getting fantastic traction. But it's giving us the opportunity to be able to help buyers regardless of whether they're buying a completed home or one of our homes under construction or one that is yet to be built with the flexibility that we can give them a secured fixed rate. They can lock at their decision when it's time for them.
And we give them a 1% lower than the Mortgage News Daily's interest rate that is posted on the app every day. So it gives that certainty that they know what the value is that Taylor Morrison is providing them. It's not just limited to specs. It's open to different occupancy of our buyers, whether it's an investor, a second home, owner-occupied, and like I said, the term. So we're pretty, pretty excited. And when you appreciate it from the builder view and from our margin perspective, the benefit is those costs are significantly less than the really deep buy-downs of forward commitments that are interest rate specific. And yet we know we need to have rates to be able to use for an advertising tool.
But if we can use the combination of and again, be able to pinpoint what is our customer's need, we're able to benefit the builder and the customer equally. And that has been an interesting stat. In 2024, 36% of Taylor Morrison's customers had a forward commitment or a Buy-Build program. So I think it's quite a bit less than what I think some of the other builders have had to have to get their homes for customers. And then I think just when you really appreciate the Esplanade customer, which is where we are and such an amazing success story, nearly half of them pay cash, just like I think Steve said. And they're a very well-heeled, excellent, excellent credit profile customer. But when they do get financed, you can see how strong their metrics are.
We are very fortunate because we still have a very strong capture success rate with Esplanade. The opportunity for us to be able to help them goes beyond just mortgage because it's title and insurance and all of that. I hope all of this information has been helpful. I hope that it gives you some insight on how we are able to help Taylor Morrison sell homes. With that, let me introduce our Chief Marketing Officer, Stephanie McCarty.
Hi. No worries. I'll try not to fall. Okay. Hi. Good afternoon. It's a beautiful day in Sarasota. I mean, who's unhappy about being here right now? As Tom said, thank you, Tom. I'm Stephanie McCarty. I'm the Chief Marketing Officer at Taylor Morrison. On June 1st, we'll mark 10 years. Yay me, a whole decade.
So I'm here to talk to you briefly about our digital transformation and the journey we've been on the last few years. So digital transformation can mean a few different things depending on the sector you're in. But for the purposes of today's conversation, we'll talk about digital transformation on the front end of our business and how we're approaching new customer acquisition. But why? Why would we put in the effort and the investment to do this? For decades, our industry has had one model to sell homes. And that is in person, in a model with a sales associate somewhere between 10:00 A.M. and 5:00 A.M. or 5:00 P.M. And that model worked for a really long time for a lot of consumers until we have the next wave of generations coming in saying, "That doesn't really work for me. I want to do it on my phone.
I want access to all the information on my time schedule and when it's convenient for me." And so we really leaned into this. When you think about the advent of the internet, right now, all of a sudden, we're putting pretty pictures of our product out there. And we're saying from the 400s. Not a whole lot of detail. There's critical information being left out of that advertisement. And now with iPhones, social media, all generations are thinking about their purchasing across all products and services much different than they ever have. And I don't think that turns off when it comes to their home shopping experience. When they're discovering new home construction, the brands, the locations that they're looking in, they want to be able to do it. And they want to be in control of that process. So we're really proud to be leading the way.
Because we were new to it, we didn't have a lot of inspiration within the sector to look towards. So we'll talk about in a minute where we turn to for inspiration. But let's take a quick peek at the timeline. What has the last three years looked like? In 2019, we sat down in a boardroom with some of our TM executives and talked through what that roadmap would look like. We didn't know in less than a year we would be in COVID times. But we're lucky that we started thinking about it when we did, and we had a website that was established to allow some of these digital products to be implemented on our website and actually be really successful.
We started with our online appointment self-schedule tool, which might not sound super innovative, but I'm sure that many of you in the room have scheduled an oil change online or a hair appointment or a nail appointment or something else without a middleman. And so especially in COVID, this was really the only way that we could interact with our consumers. And we saw really great success early on. We actually had a couple of division presidents once COVID was over. It was like, "Okay, we can turn that off, right?" We're like, "No, this is how consumers are telling us they want to engage." And we're seeing thousands of appointments being scheduled monthly. Self-service by a consumer. We instituted self-guided tours on our completed inventory in 2020. And this allowed consumers to tour a completed inventory home at a time that was maybe more convenient for them.
We offered that from 7:00 A.M. up to 7:00 P.M. And then in July of 2020, we allowed consumers to reserve a quick move-in home or a spec online. And with the great success of that, just a few short months later, we allowed consumers to reserve lots. So let's take a lot off the market. And you can go forward with the to-be-built purchase. In March of 2021, in 10 communities, we launched what I'm going to demo here shortly, which is our to-be-built reservation system, which allows a consumer to go through the process of selecting a lot, selecting a floor plan. If it's a Canvas community, visualizing that Canvas package come to life, picking their exterior, putting it in their shopping cart, and with a small deposit of $100, reserve that combination. So we're really excited. When we first launched, we had around a 16% conversion.
Today, we're experiencing a 56% conversion. So these are really serious qualified buyers. So I mentioned we were early adopters, not a lot of inspiration within the sector to turn to. So we looked to a few others for key learnings and successes, namely hospitality and automotive. I'm going to guess, without asking for a show of hands, that many of you are very comfortable using your cell phone to book a reservation at a hotel or a short-term housing rental with Airbnb. I think most consumers are very adept at doing that. And I think because you could do that, DoorDash, Uber Eats have instant gratification of getting almost anything that you want through your phone. Again, paves a lot of way and interest to explore that in new home construction.
The automotive industry, I think, has done it the best in terms of reinventing how they position themselves to consumers. Saturn might have been the first automaker that started being more transparent with their pricing online in the late '90s. But today, I think most consumers, anyone bought a Tesla in the room? Wow, it's really surprising, actually. Carvana? Anyone put the big coin in the vending machine and have their car come down to them? I know Charlie has. But maybe not representative in this room, there are a lot of consumers who've gone through that purchase with great delight. We're also seeing now Hyundai was the first automaker to sell homes on Amazon in 2024. Would I say homes? We're selling homes, not on Amazon. Yeah, selling cars on Amazon. Excuse me. I don't know how that's going yet. We're waiting to hear.
There was a Wall Street Journal article where the CFO was quoted saying that they expect that to allow them to sell 30% more cars annually. I did some digging on Reddit, and there's a lot of customers who are delighted by it. I think there's no haggling. It's cheaper, and they've completely usurped the need for the traditional car dealer experience and all the add-ons that come with that. So anyone want to see it? Let's take a peek. We're going to buy a home right here in Azario. So this is on our website. Has anyone played around with this on our website? Well, I know you have. Okay. This site map probably looks really familiar. When we were in the sales gallery, this was the site map that was displayed in the topo table, and that Aqua Range is right behind us.
That's this lake right here. And this, you'll see, has six steps. We've taken a really complex process and boiled it down to six steps that most consumers are actually completing online in less than nine minutes. And I told Sheryl before I got on stage, in the time that we've been in this room, we've had seven completed reservations happening while we're in here. That's less than two hours. Okay, well, we're going to build our home. Today, we're going to start with selecting our lot. As the buyer, where I am in the community is really important to me. We're going to look around. And as you'll see on these lots, it'll tell me how many floor plans can be built on that lot.
What's different than an automaker who can just build as many as they want down an assembly line is in home building, we have things called monotony rules. And if you buy a house on a specific lot, it now dictates what houses and floor plans can be built on the adjacent lots. So we're going to go through. We're going to find killer lot with a great view. Sheryl said there was one out here that had a $750,000 lot premium. Let's see if we can beat that. This one looks pretty good. So this one's Lot 6067. It has a $606,000 lot premium. That's this big corner lot over here. I'm going to get my directions right. I think that's right over here.
And so you'll see as I start to build my dream home, the bottom price is going to adjust as I continue to add to it. So that gives us an initial purchase price without a floor plan of $606,000. But let's move into the floor plans. On this lot, probably dependent on what's already been built next to it, it's giving me three options. Who toured the Palazzo? It was the last model. Okay, beautiful. We all got the benefit of seeing it. So here's where you're going to see the consumers can zoom in and out and really get an understanding of how this floor plan lives. But we had the pleasure of actually touring these models for those who are doing this online.
I'll tell you in a later slide, 53% of our consumers who are reserving these homes are doing so before they go into the community. So here we have some 3D models. Look familiar. We just walked through this gorgeous model setup. All the spa stuff is not up here, but looks pretty familiar. And so this allows a consumer to really navigate through the home without being in person. So since we all saw it, I won't take you into every room in the 3D tour. But now you can see kind of what a consumer would experience online. So from here, that added the $788,000 base plan floor. So now I've got around a $1.4 million home before any structural options or interior selections. So let's go into structural options.
And again, because we are reinventing ourselves, like Cammie said, when we move into an Esplanade, we're going to go all out, and we're not going to cut any corners. And here you'll see all the options and the prices. So we're going to throw some parties. We're going to have a covered extended lanai. I want an optional bay window so I can do all my reading by the window and my lake view. Let's throw in the optional gourmet kitchen. And as you can see, the floor plan, if you toggle on and off some of these structural options, you're seeing a change in the floor plan. You're also seeing that initial price at the bottom changing as well. So that looks good. Maybe an optional study. Turn that flex room, put a nice French door on it, get some privacy. $1.4. Let's see.
Because it's not. Oh, great. Another point, this is one of our highest lead generators on the website as well. And we did a lot of research on this on when to ask for the consumer's information. And after the third step, you're now pretty emotionally invested in what you're packaging up and what you're creating. So I am going to give them all my real information and go make sure I'm not a robot. Bridges. Do I have all the bridges? This didn't happen yesterday, Marcus. Okay. Now I fully expect to get a call from an online sales manager very soon about this beautiful home that I'm building. So now we're at the final step, which is our exteriors. And you'll see there are some that come standard at no additional price. We've got some coastal exteriors, three different options.
I really like the look of these window treatments. Let's see the Mediterranean options. I think I'm going to go for this coastal exterior sea. So now I'm at $1.46. And throughout this entire process, there's a shopping cart up in the right-hand corner, which you can click on, and it fully itemizes where you're at with your home purchase. So talk about complete pricing transparency. Our consumers are now armed with information that most of the time they don't feel like they can get when they work with a new home construction provider or builder. So this looks pretty good. I'm going to continue moving forward. Just under $1.5. And again, this is before I go to the design studio and pick out all my interior selections and finishes. Who wants to give me their credit card? It's only $100 today.
I thought I heard several of you say you wanted to purchase this home, so I will wait or in this community. Anyone have a friend's credit card? Okay. Well, in all seriousness, this is the last step, and we ask for a $100 hold. We get all of their customer details, credit card information, but we ask some really key important questions at the very end. So we want to know right away, before we move forward with the final purchase, is if they're working with a realtor; they need to tell us at this point because this is considered their first point of contact with us, and if they're working with a realtor, we need to know upfront. We like to know if they've been to the community or not. If they have, are they working with a sales associate?
We do find that a lot of sales agents are using it as a closing tool, right? If they're really trying to get someone excited about a lot, hey, don't let anyone come in and take that away from you. Let's go ahead and reserve it for $100, and you have 48 hours to move forward, and then how did you find it? We find today that almost 70% of people are finding it organically on the website as they're doing their exploration and their research. So once that's all, they have to check the terms, $100 holds, and they can reserve now. So because this community didn't offer Canvas on that lot, I did want to quickly go over to a home that I was already building over at Sky Ranch.
This is where the consumer would get the option to see how the Canvas packages come to life. This specific home is only offering the Classic package, but it looks like there's five different types of packages that, as a consumer, I can now navigate and see how those materials and finishes come to life within that kitchen. If you're really into the dark floors, nice and moody countertops, let's see the backsplash. You can pick out what Canvas package really speaks to you. Oh, kind of into the Overture. I already bought my home right over there, so we'll let this one go. We always ask for feedback. We have thousands and thousands of consumers who are going through this process. In the spirit of constant improvement, we asked them how it was. What did you like about it?
What did you not like about it, and this was a real-life quote from an individual who purchased their home using this experience in late 2024. It felt like I was buying a home from Amazon. I think that's why I got ahead of myself. We're not there yet. Who knows? I can't predict the future, but it wouldn't surprise me if we got there. It was super simple and fun. I had a home that had everything that I wanted. I was able to put it in my shopping cart and check out, so we're really excited about the progress that we've made today and how far we've come, and under four years in 2024, 18% of our sales originated through this experience. In the video, if you heard, I said there was over 5,000 completed reservations done in 2024 with a 52% conversion rate.
Through that lead collection process, we collected over 23,000 leads. So those that don't convert, right, we call these our partial reservations. So this is a lead that we've now captured who at some point in the process aborted. Maybe it was they didn't have all their information. They needed to speak to their partner. They weren't sure on what floor plan would really meet all their needs. And so they at some point abandoned after giving us their information. Which I'm not really upset about because we still convert at about 14%, which is 400 basis points higher than our conversion rate in 2023. But what's really exciting about this and what's new to, I think, the home building world is now we can nurture that consumer with way more data about what they were looking at than had they not entered this experience.
It might sound really big brother, but I now know what lots they were looking at, what floor plans maybe they were flipping through, what structural options they were toggling on and off. If they went back and forth in the system, you can really see now where they were debating. And so when I reach out to them, I can be very specific in that outreach, which tends to nurture a consumer along into that purchase decision much, much faster. I talk about this a lot. It's like one of my favorite hobbies is putting boots or shoes of some kind into my shopping cart at Nordstrom and then just leaving them there to see how Nordstrom is going to convince me that I'm going to look amazing in those shoes and I need to buy them right now. They're pretty successful most of the time.
So we're working on that because personalization, I think, is key for marketing today. So why does all this matter? Let me leave you with this. I have learned a great deal from Curt, our CFO, on how to turn these marketing wins into true financial successes. And so we're seeing great financial wins with this tool. On average, the homes we sell, the to-be-built homes that we sell through this system versus a regular sales process typically sells on average $50,000 more from an ASP perspective. The cancellation rate is lower. They move to contract really quickly. So they're very emotionally connected to this home and excited. So on average, about three weeks. And the realtor participation through this is 600 basis points lower than a to-be-built sales process. So put simply, we make more money when we sell homes through this experience.
We're really excited to watch this continue to flourish and iterate. I think what we've learned from the retail side, Walmart doesn't have a less superior inventory management system than Amazon, but Amazon has tapped into that consumer psychology of instant gratification. So we're learning how to gamify the system and allow people to know, hey, that's a really popular floor plan. We've sold four of those floor plans in this community and help people to move through the system a little bit faster. But we're not going to stop there. I think innovation is at the core of who we are at Taylor Morrison, and we really want to meet consumers where they are. There's a lot of talk today about generative AI.
And so we are exploring how do we leverage that in a way that's really smart, that helps our consumers seamlessly discover a home or community that meets their needs with ease and gives them a little of that instant gratification. A lot of builders today will send an email with 100 available homes. I don't know about you, but I'm not sifting through 100 homes to find the one that's perfect for me. So we have a brief one-minute video that we will tee up that shows you a little bit of what this experience might look like. So as a way to continue to reduce that external commission and co-broke, we want to interact with our consumers as if that first initial conversation was happening with a realtor. What are those conversations? What are those obstacles or pain points? What's really important to that consumer?
If we can nail that down and surface up communities and homes that meet those needs while also integrating our other digital products that convert really high, like scheduling an appointment to talk to someone or reserving a lot or a quick move-in home that meets those needs, we're integrating all those products into one seamless experience that's not using a human, and it's not using your traditional chatbots like you might see on the Best Buy website. So we're really excited about this and continue to push this forward and get it into market hopefully soon. And with that, I would like to introduce my favorite colleague to arm wrestle with about return on marketing investment, our Chief Financial Officer, Curt VanHyfte. I'll let you go on first.
How are we doing? We're on the home stretch. I can see you're smiling, right, with anticipation. All right.
Yeah, we're going to kind of run through a couple of things today. The main part of this will be about our capital allocation priorities. But before I do that, I want to touch a little bit about just kind of the balance sheet. And similar to what you heard today in other facets of the business, our balance sheet today is in a much different position, a much stronger position. And if I just take you on the journey a little bit, if you look back into 2018, on the left, I should say on the left chart on the screen, if you go back to 2018 and 2020, you can see that our leverage peaked at around roughly 40%. And that was when we leaned in from an M&A perspective. Since then, we've been really focused on cash generation and optimizing our land investment.
And as a result of that, we've been able to pay down a significant amount of our senior notes, over $1 billion, and also increase our controlled lots. And as a part of that, that has kind of resulted in our 20% net leverage ratio there in 2024. And as we look forward now, looking and seeing that our next senior notes are not due until 2027, we have all sorts of financial flexibility, which will then allow us to allocate our capital in the most efficient manner. A little bit on margin. A lot of discussion today on margin. I want to cover two points. First, on the light blue shaded areas, our capitalized interest, the amount of capitalized interest that has been running through our margin is decreasing over time. You can see it peaked. It was at 2.7% back in 2015 through the 2017 time period.
And as a result of paying off a lot of the senior notes, what ran through our margins in 2024 was 1.5%. And we continue to expect to see leverage in that as the company grows over the next few years, approaching approximately 1%. Then the other point I'd like to make is just on home margins overall. And as Sheryl and the area presidents have alluded to, the margins today are much better than they were a year ago. And a lot of their discussion was on some of the things that have changed. And I would categorize those topics into three main areas. One is our diversified strategy. Two was the scale benefit as a result of the acquisitions, and then our focus on operations.
And so the combination of, I guess, those four items gives us comfort and confidence in our low- to mid-20% margin target, which is what we have established out there for the foreseeable future. Capital allocation priorities. First and foremost, we're going to continue to be stewards of the balance sheet, maintaining strong liquidity and overall healthy balance sheet strength. And from there, we're going to continue to focus on three main areas. First and foremost is prudent liability management, with the fact that we don't have senior notes due until 2027. Again, we have financial flexibility there. Second thing is efficiently investing in the business. Erik talked a lot about the various tools that we have available to us to fund our land acquisition and our development. And three, we're going to continue to return capital to our shareholders through our share repurchase program.
Okay, that's all well and good. So if you think about what it is we've done the last three years, which is on the right-hand side of the chart, we've generated right around $2.1 billion of operating cash flow during the last three years. That's after investing nearly $6 billion in total land acquisition and development. With that free cash flow of $2.1 billion, we paid off roughly about $1.1 billion of senior notes and bought back in excess of $850 million in share repurchases. What's that mean going forward? Now I'd like to transition into what our targets are for 2025 and beyond and kind of three or four main categories here. When we think about our home building land investment, our target for 2025 is $2.6 billion, consistent with what we said on our last earnings call.
From the time period of 2026 to 2028, we're targeting around $9 billion, with the ultimate amount being dependent, of course, on the financing tools that we use to kind of purchase all the different assets that we're looking at. And I would like to reiterate a point that I think both Sheryl and Erik made relative to our investment strategy is that we spent a lot of time over the last several months working with our teams and analyzing how to optimize our land investment to maximize our returns. And as a result of that work, we are reallocating some of that capital from our West segment to our higher returning East and Central segments. Switching now to share repurchases. 2025, we're targeting $300 million-$350 million in share repurchases.
From the time period of 2026 to 2028, we're targeting over nine, not over nine, over $1 billion in share repurchases. We continue to lean in from a share repurchase standpoint as a result of our share repurchase and its valuation today. And we think it's a good opportunity. And then on a go forward basis, we've also looked at dividends. We look at dividends once a year. We review it with our board. And as of today, we're going to continue kind of with our stance of not implementing a dividend at this point in time. We believe our share price is very attractive, and we also love the benefit that we get from buying shares back and its impact on our earnings per share. Net leverage, our home building net debt to capitalization ratio. 2025, we're targeting a net leverage ratio in the 15%-20% range.
I would say by the end of 2028, we're targeting a net leverage ratio in the range of 10%-15%. Of course, that's based on our expected cash flow that we're going to generate over that time period, along with the assumption that we're going to pay down our 2027 senior notes. Last but not least, return on equity. 2025, we're targeting a mid-teens kind of level from a return on equity perspective. Then by the end of 2028, we're targeting a high teens kind of range from a returns perspective, supported by the fact of our continued focus on optimizing our land spend and our operations and returning capital back to our shareholders. The journey, the shareholder return journey. I think as you've heard today, hopefully we're very focused on driving shareholder return and improving our returns overall in the business.
And there's a lot of things that go in it from our perspective. But I would say first and foremost for us, it starts with our diversified strategy. And then from there, it comes down to how it is we execute against that strategy through optimal and efficient land investment and driving operational performance, both of which lead to us generating enhanced cash flow generation and, of course, returning capital back to our shareholders or improving returns. That's the flow. This is our journey, and we're going to keep living up to this. We believe it's the right thing to do for our shareholders and to drive a much more meaningful business on a go forward basis. That's the wrap. And so with that, let's cue the video.
We have a video that we're going to show from the Extreme Makeover: Home Edition, and I got it right, that shows the experience of what we did as a company relative to that phenomenal, I guess, opportunity that we had. So, and then from there, we're going to transition while that video is running. We're going to bring up our senior leaders for a Q&A and get ready for Q&A. So leaders come up this way. And then for this will be unobstructed to see the video over here. You'll probably still be able to see it over here. But let's go ahead and cue the video. And guys, come on up for a Q&A.
I want to introduce Sheryl Palmer. She's the CEO of Taylor Morrison, the best home building company in the world.
You have always given back to your community. Now's the time for your community to give back to you. By the end of this week, you will be in an incredible new home, and it's going to be a place where you can have a fresh beginning with endless possibilities.
Your family has protected and defended our country and our community, and in recognition of that, Taylor Morrison wants to give back to you and build an environment in which you can thrive.
I just have to tell you, Taylor Morrison could not be more honored to build the home of your dreams, and here we are. You're each going to get your own room.
Taylor Morrison is both a home builder as well as a community builder. Community service and giving back, I think it's within the DNA of our organization.
It's truly an honor for Taylor Morrison to build what we hope is your new happiest place on earth. And being good residents within our community is so important. Within our company and within our industry, Taylor Morrison is really known as the home builder with the heart.
At any time there's a call to action to help somebody, our team at Taylor Morrison steps up and they want to be part of something special.
Your family has done so much for Houston. You've done so much for this community. We're giving them a new life. We're giving them a new start.
I'd love to introduce you to the people who actually built this house, our incredible partners at Taylor Morrison. Thank you. Thank you. Thank you. Thank you.
And it's just been one of the best experiences of my life.
We actually have our internal mantra, and that's Love the Customer.
Would you like the keys to your new home? We got one.
Do you want to go inside your new home? I'd like to give you the keys.
No, you don't.
Your keys to your brand new home.
It is incredibly rewarding for every person who's walked into that home or walked on this job site.
Everyone here at Taylor Morrison is involved because you are literally building people's dreams. That's your new house.
Oh my God. It can't be real. It's real. Thank you so much for helping me and my children to soar. Thank you.
So, an amazing experience we had. Not my favorite video, crying as much as I did, but it's hard to explain what it was delivering that to families. And I would say two things. It was for our organization.
It was just a once-in-a-lifetime opportunity for the teams that got to participate, and a couple of people asked me last night, all of those houses we built were donated by our trade partners, so the cost of that was really the donation of those five lots that we built and maybe some food to feed the trades because we really did build those houses in 94 hours, 94 straight hours, so it was quite the experience, so thank you for all being with us again. We are really, for everyone on the phone, please go ahead and log in any questions you may have as those are coming in, and before I open it up to the audience, Pete, I really wanted to start with you, and then I'll go to the questions that we've so far received.
But as I said at the beginning, you've been on our board and been part of this journey as long as I can almost remember. Thank goodness. But I just wanted you to share with the group the board's perspective of what this has been like and where you think we are on the journey.
Yeah. So I joined the board in 2012. We were private. I think, as Sheryl has said, we built about 2,000 homes that year, did about $1 billion in revenue. And what was really apparent, and at that point, we were owned by private equity investors. We went public in 2013. What's been apparent to the board all along is a few things. First of all, this is an industry that's driven by scale. Scale is really important. It's important at the local level, and it's increasingly important at the national level.
Secondly, this is a long wavelength industry. So the decisions that the company will make in 2025 will impact the business through 2035, so this isn't like a building widgets in a plant business. This is a long-term strategic business, and thirdly, we believe that in an industry where scale is important, market share, therefore, is really important, and you have to grow at least at the rate of the market, so the vision that we had is being the number 20 builder as we were in 2012 was unacceptable and that we needed to get ourselves on a journey where we could compete with the larger builders with returns that were attractive and industry-leading and with a management team that, frankly, punched way above the weight of the size of the company that we were.
Watching that journey unfold over the past dozen years, partnering with Sheryl and the team here has been, for me, A, really exciting, but number two, really fulfilling. It's been a tremendous team to work with. I'm a huge believer in the other things I've done in business that you have to really earn the right to grow. It's all well and good just sitting back and saying, "We aspire to be a bigger company. We want to grow." You have to earn the right to do that. You earn the right to do that being A, being a great team with a great culture, but B, being able to deliver operationally. You can look at any metric of this company over the past decade, and it's significantly better than it was in 2012.
Whether that be operational metrics like cycle time, you heard a lot about complexity reduction. The front-end stuff on marketing that Stephanie has led is truly industry-leading, we believe. So it's been an exciting journey, but what's more exciting for me is what's going to unfold over the next decade. I think that we have truly earned the right to grow. I think that the aspirational target that we've set out here of 20,000 homes in 2028 is very achievable, and you'll see that we delever over that time. I can't think of another business that's going to invest this amount of capital and generate cash and delever and buy back stock over the same time period. So it's been an honor and a privilege, and I'm really excited for the next decade.
Now you know why I've been so blessed, right? Thank you.
It's been an honor on our part too. So we'll go back and forth between the questions that are coming in and the group here, but I'd love to start with anything in the room.
Yeah, thank you so much. Buck Horne with Raymond James. First of all, I want to start by saying thank you for all this, what you put on today. It's truly very impressive, and congrats on all the progress so far. And I wholeheartedly agree. I think you have earned the right to grow and hopefully the right to get a re-rating on your multiple as well. Thank you. We agree with that. With that being said, I want to go back to the comment about the capital reallocation away from the West, put some more into the East, into the Central.
What is it you're seeing, maybe more structurally about the West in terms of where the ROE opportunities are maybe degrading, or are there any particular markets that you're seeing that structural challenge popping up?
That's a fair question. Dar, do you want to start?
Sure. I think maybe Curt and I can probably take it. I think it's twofold. I mean, the entitlement environment in the West, it just takes a lot longer to bring lots online. And I think you couple that with an incredibly expensive land basis in our West Coast markets. It just makes it more challenging, I think, to get the returns that we're seeing. And we're not commensurate necessarily with what we see in other parts of our organization in Central and East. And so it's not a dislike of the West. I love the West. That's my area.
But I think it's just trying to reallocate our portfolio and get a better financial result.
Optimize.
Yeah.
And I would just maybe, Buck, you see our segmented kind of financial information every quarter. The margins in the West just aren't as good. It's not like they're hateful, but they're just not as good as what we see in the Central and the East. And for true optimizers of our portfolio and trying to generate the best returns for the company, it kind of was the encouragement we needed to reallocate some of that investment to those areas. And the fact of the matter is the West is an ultra-competitive kind of footprint as well. And so for a magnitude of all those reasons kind of combined is kind of went into that as we studied it over the last several months.
Or years.
Yeah.
And maybe, Erik, you want to talk about kind of the market optimization tools that we've used?
Yeah. So we want to make sure when we, as I suggested, as we think about strategy and we roll it up into the five-year plan, as that rolls up, the first answer is not the right answer. So I think it's a little bit of gut, it's a little bit of land information, but also, can we produce a better outcome for the overall organization by tweaking a little bit of the allocation in terms of the way it goes out and the way it comes in? And the answer is moving a few of those dollars from the West to the East.
And Curt, I believe that even with this reallocation, when we look at the West by 2028, we still have the largest balance sheet in the West.
Still a meaningful presence. It's a moderate shift, but nonetheless, it's a shift to a segment. But it's a shift. It's still probably the biggest kind of footprint overall when you compare the three segments.
Perfect. Thank you. So one of the questions that came in was the 20,000 guide implies significant community count growth. What are the new communities? Where are the new communities being built? And what would the inventory mix look like? Generally, I would say that when we look at the range of our portfolio and the consumer cohorts, it's not moving meaningfully. So as we look out to 2026, 2027, 2028, and even though the numbers, as I suggested with Esplanade, might be a little larger as a percentage of the overall business, I think on the margin, it will be relatively consistent because what's coming through the investment committee today, Erik, is relatively consistent. Is that fair?
Accurate.
Okay. Yeah. Mike.
Hi. Good afternoon. Thanks for all the great information and the tour today was fantastic. So appreciated all that.
Thank you.
I wanted to circle back on kind of thinking about comments that were made earlier about scale. I don't know if this is part of the contemplated shift, maybe. Again, it's a modest tweaking. It appears you'd still be around 30% in the West, but kind of taking that down a little bit. One of the first slides you put up was the dots of the degrees of magnitude, the closings concentrations. There were a couple of small dots there, Pacific Northwest and Indianapolis, I believe. Given the comments around scale, given the comments around allocating capital to the best performing areas, why are those dots still there?
Could they still be there in a year or two if you really want to kind of further double down on scale and your best market, so to speak?
Yeah, that's a fair question. I think we're going to break it apart for you, Mike, and let's look at the small dots. So Charlie, maybe let's start with Indie.
Sure. So we just went into the Indianapolis market around the middle of last year, and we see that as a huge opportunity. It's such an affordable market. The builder that we purchased, Pyatt Builders, really operates in what we call the smile market, the lower part, the southern part of the city. The concentration of wealth and where the majority of the builders exist is in what we call the 10 to 2.
It's a huge opportunity for us to invest in that Indy market, and it's a strong market to begin with. So we actually see that bubble growing and growing in a fashion that's asset-light. It's a very affordable market, so we can get a lot of scale there without a tremendous amount of investment.
Yeah. So just like you saw in some of those other markets from years before where that dot should get much bigger. And then another one that's obviously quite. I can't see you. There you are, Steve. Quite meaningful is when we talk about Jacksonville. And then, Dar, after that, let's go to the Pac Northwest.
Yeah. It's really a lot about the diversification that we've been talking about all day with Esplanade. We have an Esplanade under construction in Jacksonville right now that'll have a golf course, the culinary center, the entire experience.
We have another Esplanade under contract in another location, maybe 30 mi south. So Jacksonville has been really our entry or home at last and our team builder. That can get you so far, but it's very difficult. So we expect that bubble to grow immensely over the next five years because of introducing some diversification in the consumer segment.
Perfect.
Yeah. And I think there were a few small dots in the West. Bay Area was small, and so was Seattle and Portland. I think there's two components to it. One is you have to look at the ASPs in those markets too. So although the units might be small, the dollars that they contribute. Our ASPs are significantly higher in a lot of those markets. And so it can be the equivalent of two to three times kind of the closing volume that you see in the market.
But we are looking at expanding in those markets. And I think similar to what Charlie said, like in the Portland market, we had just operated in kind of core Portland and the south part of town. We've moved into Vancouver, which is actually South Washington on the other side of the river. And we're looking to expand in Seattle as well. And then Bay Area, again, has been historically very core. We've moved a little bit into the Central Valley, still maintaining our core presence there as well. But we have the growth in the plan, maybe not as extreme as we're seeing in Central and East, but we still have the growth.
And I think it's true, Dar, that Portland, albeit small in absolute, holds a significant market share for that market. As we think about relative market share in our markets, we want to be relevant everywhere, actually a top player there.
Yeah. And then like a Seattle, if you do 300 units, you're top three. So not a bust market.
I think you raise a great question. And just to reassure you, the market map that you see is not static. And if I look over the past decade, we've exited two markets. We exited Canada, which is a pretty big business for us, and we exited Chicago. And so the market map is not static. We constantly look at it.
Yeah. And to Pete's point, it's not something we love to do. It's hard. But entering and exiting is a very big strategic decision for us. Eric, there's a couple of questions here on Yardly with respect to how large the rental pool is today within our 11 communities. And maybe at the same time, when we look at our capital investment today, how we expect that to continue to move in the coming years.
Yeah. So I think the first one, the rental pool, I think we mentioned we're leasing 11, so call it 200. So you could call it a population of about 2,000 units. And then incremental capital, it might not be easy to answer, but it depends. This business needs capital vehicles to help it grow. And so we will look for it to be as efficient as that first round, as I mentioned, those 13 assets in the joint venture for $88 million. So something similar to that.
We're having some creative conversations around actually feeding that with more of a land bank. So it's the same conversations we think about the core business in terms of percent control, lightening of balance sheet, return focus. And so we'll look for that to look as similar to that. So I hate to give you an absolute number of what that looks like. And then the question was, how have we done on the sales to date? We don't give absolute dollars in terms of performance per asset. I can tell you the first three that we sold averaged to that 20% that we've been talking about. And so that's how we're doing.
Yeah. But the reality is most of our expense is not on the land side, right?
Actually, a relatively small percentage of the absolute revenue in terms of kind of land residual revenue. As residual.
Yeah. Yeah. Right. Coming that way.
Yeah. Hey, Matt Bouley, Barclays. Thanks, everyone, for the last 24 hours. Great event. I wanted to ask about the margins, the gross margins, the low- to mid-20s guide. I guess sort of a two-parter, actually. What can you control to kind of make that more of a mid-20s rather than a low-20s? Simple question. The other question I wanted to touch on was, I think you had the slide earlier where your to-be-built margins, was it 700 basis points higher than the spec? Yep. That's a fair bit larger, I would say, as a gap relative to some of your peers. So I'm wondering if there's kind of an opportunity to perhaps close that gap to some extent, or if there's something kind of more structural around why that difference is so big for you guys. Thank you.
Do you want to start?
Yeah, I can start. First, on the gap between, I guess, the spec and to-be-built, keep in mind that when you think of our diversified strategy and you think about where we're at today and some of the numbers that we've been throwing around about the elasticity and some of the option kind of revenue and the premiums, that does create a pretty significant kind of gap potentially between to-be-builts overall in the portfolio relative to some of the specs that we're selling that aren't necessarily in Esplanade. So I would chalk that up to that. Is there opportunity to bridge that gap? There always is, right? What can we do to be smarter about colorizing houses? Where can we use finance as a sales tool more effectively? I'm never happy with just kind of settling. But Matt, you're right. There's always opportunity.
And that's something we're focused on each and every day. And then.
Yeah, go ahead. Can I just add one thing to that? Sorry. You know, Matt, the thing that I hate to keep doubling down on this, but it just happens to be the facts, is that 700 basis points is a point in time, right? If I look at the long-term average, I would say it's probably closer to 4,500, which is probably right in today that first-time buyer is taking more incentives. And the majority of our specs are the first-time buyer. And generally, they're being sold just in time, forward commitments. They're not getting the benefit of the Buy-Build Flex you heard about, which is significantly less. So it's just rates move. That's the other thing. That one's not in our control, but it will change that gap.
And then maybe piggybacking on your first question about what can we do to what's in our control, we have somebody that focuses on our optimization of our floor plans. And what are we, Dar? We're about 30%-40% optimized over the. About halfway there. Yeah. And so we have runway still yet to do. Dar's got a quote that says, "Every time you paint the Golden Gate Bridge, once you finish, you have to go back and start again because that's how long it takes." And I liken this process. This is an example of one of those processes too, where once we optimize the floor plans, once we get through that, we'll then change the floor plans or the market will change. There'll be a market dynamic that we have to go address. And then we'll have to be on that journey again.
So it's a continuo us kind of process improvement that we can do that we control that's in one of the tools that we have available to us. Yeah. Yeah.
H i, Alex Barron, Housing Research Center. I was wondering how many markets you guys are a top three or a top five builder. And then secondly, is there something that stands out about those markets, either in margins, returns? What difference does it make to be a top five builder versus not?
We're top five in eight of the markets. We're top 10 in the next six, and then we're not top 10 in the balance of them. And I think Dar shared kind of the benefits as we believe they exist in terms of getting scale on market and the benefits of market share. And so I would say we've got runway in every market.
And so we've got the flexibilities we think about, penetration of further growth in market. And then we've got a number of other markets that might be interesting to explore. But hopefully that frames kind of where we sit today.
Yeah. And that also goes to another question we got on the webcast was, what's going to happen? Are we going to continue to grow in our markets or are we going to add new markets? I think Erik's point is spot on here that we have room to run in almost every one of our markets, if not every one of them. So that's where we're going to find. And that's why we do believe that even with our 12% CAGR, that opportunity sits in front of us.
And if I can add, Tony had mentioned on our tour today, this market has bounced back from one, two, or three in terms of market share. And it's one of the top quartile leaders in the clubhouse in terms of financial metrics. So there is a direct benefit to being in that top five.
Yeah. I guess that was my main question was, do you guys see a significant savings in the cost from subs or in the procurement costs or in land costs or in something to scale that's very significant?
I mean, I think you see it in all categories. If you're a significant player in a market, I think it starts with the land. I think you're going to have better land opportunities, more of them, and be more discerning on which ones we want to take. I think it absolutely impacts.
We've seen the impacts to our cost structure on the direct cost side of things. I think it helps on the cycle time. Again, you have trade partner attention, right? If you're a meaningful part of their business, you get preferential treatment. And so I think that it's critically important to us to get that scale.
You know, I recall at a board meeting before we acquired William Lyon Homes, we actually showed the board a comparable of our business and their business because we were about three times the size by market. And we were about 3,400 basis points higher. So that was a sample of a few markets, but it gives you an idea of what that scale. And then obviously, one of those markets was Phoenix. And then we've seen what's happened since then.
Thanks. Carl Reichardt, BTIG. Nice to see everybody. I have two. One for Erik. Just you had shown a slide where you talked about the percentage of customers who had looked at resale. I think you said it was 59% of that survey you did. I'm curious if you've done that before, has that number changed a lot over time, or is that just a point in time where you did that survey?
That particular stat happened to be last week, so it was a point in time. We found actually that it's been floating around that 50% that not interested. We've shared other stats that we've been looking at in terms of why we ask why. Part of it is just the fact that sometimes when folks go down the resale path, the number one reason they're falling out of contract is because they learn after the home inspection there's other stuff, right?
It might need a new roof and things like that. So it's been a learning evolution.
Okay. I appreciate that. And then for the starboard side of the or por t, you guys. And this is blunt. And the real question is, how do you get paid? And I think what I'm really trying to get at is, has there been a change in the KPIs that you might get compensated on that would be more tied to returns or effective return on invested capital, or is it really just a function of growth and margin? Because I think there are a lot of builders that do different things in terms of how they charge divisions capital. And so I'm just curious how you guys think about that. What critical metrics are you looking at?
And then has that changed over time as the company has moved to more of a focus on returns?
Yes. Yes. Yeah. Yes to everything you said.
Yes, you get paid? Oh.
Yeah. No, go ahead. You can start.
Charlie looks the most interested in answering this.
Yeah. Absolutely, it's changed, Carl. I mean, it has evolved. And we are absolutely. We've gotten to be way more focused on the return side of the business over the past five or six years. And it is a key component. It's the most substantial component of our comp package. And the interesting thing is we've been pushing that down to not just the folks on the stage, but all levels of the organization as well, trying to make it simple enough so they understand. Sometimes if you start talking about IRR, the average superintendent's eyes will glaze over.
But it's really trying to make that meaningful in terms of what that means. If you improve your cycle times, that's going to improve IRR, and that has a direct impact on the bottom line. So yes. But it's both. It's improving returns and growth. So it's not one or the other. But the most important part of it is it's segmented into short-term goals, incentives, and long-term because the person that's buying the land now is not going to see the benefit of that for a couple of years. So the package recognizes that, and it's diversified.
Yeah. I think two key points there that are worth repeating, Carl. One is that it's not just this group. We don't have one set of goals at the leadership level and make it harder. Everyone's a natural roll-up. So everyone is focused on the exact same thing.
I'm not talking about salespeople or superintendents, but I'm talking about all of our managers and leaders across the organization. And it used to be just part for many, many years of our long-term goals. And now it's both short and long. Okay. A couple more questions here around confidence on being able to grow at this 12% cadence in a kind of flat market. How do you gain share? An ybody want to grab that?
I would say I think having a diversified strategy and having the ability to play in different ways within markets is a great starting point. So we've got the ability to use, again, multiple arrows in the quiver to achieve that growth. We do know that some of the smaller builders are struggling in some markets. So I think there's a natural evolution of the market that will play in.
As Sheryl teased, there will be selective M&A opportunities that we will have the opportunity to look at, not committing one way or another. But that could come into play within that entire horizon. Then we shared in terms of market concentration. There are some places collectively we would say if I was to go back a number of years ago I would say 95% of our portfolio was core located. And now it's 85%. And so as that kind of gravitates it provides the operators more opportunity given expertise and product and positioning and consumer information that we can play in different places.
And Erik, this one was teed up just for you around land. When might those deals not be good? You can read it out loud for the group.
Yeah. We got five examples of land deals. When might those deals not be good?
Why would you ever bulk purchase any land? We try not to. We try not to bulk purchase any land. So that's a good question. That's an easy answer. We start with something on everything. But the part of the question that's really good is that there are good surgical tools for good reasons. There are some deals that do not work for land banking. Either they're too long or that gross margin for IRR trade is not positive. Joint ventures require relatively large deals. It requires setting up a separate entity and some horsepower and some back-office support for it. So can't go through the details on why they work and why they don't work in every circumstance, but it is an optimization exercise.
Every asset, right? And then we have one more here around our confidence in our long-term gross margin outlook when large builders are fighting on price and using gross margin as shock absorbers. That's the question, not my words. So before I grab that, who wa nts to grab that one? Curt, do you?
Yeah, I can take a stab at it. I think it comes down to we talked a lot today about our diversified strategy, move-up, resort lifestyles, and of course, our entry level. And then also Erik talked a lot today about core locations. And you guys saw it in the footprints in the presentation about our core footprint relative to some of our other peers or our competitors.
So I think a combination of our strategy and that maybe we're serving segments differently and/or just different segments, along with where it is we kind of identify where it is we want to set up our shop or our stores, also provides us a differentiation from our peers.
Yeah. And I would add one thing to that, Curt, that hopefully if we have been able to get across anything today, it's how we're able to execute. And we try very hard not to put ourselves in a position that we're only competing on price because nobody wins there. Maybe the customer, but certainly the builders don't because we are just pushing. We're seeing who can push it down the furthest to get the deal.
But this, when you can offer something that nobody else is offering, and that comes through the sales team understanding how to sell and what their differences are, you can position yourself with a product that's different in a location that's different. That's actually selling from a position of strength. Not that we get to do that in all 350 of our communities, but certainly that's what we look to. And that does allow us to compete on a pricing and a margin very, very different. Anybody else want to tou]ch that? Ellen. Okay. Mike.
All right. Sorry. Mike Dahl, RBC. Just to follow up on the growth and margin point. So strong growth, expand margins, buy back stock, higher ROE, very clearly value-creating, right? And you've done a good job articulating how you're different, what you think you're going to do to get there.
The question clearly from investors is understanding today's market might not be 2027, 2028's market. If the market doesn't present in a better way, how do you prioritize? Do you prioritize margin, returns, buybacks? I mean, people want to know if push comes to shove, what you're going to do, or will you just target that growth at all costs? Not at all costs.
Yeah. If we had to come back to you, Mike, and say, from a macro standpoint, the country has changed, there's some massive event, we'd come back to you, you'll always see a start with returns. Always.
And I think the best example for that, Sheryl, is how you responded in the first three months of COVID. Yeah. I've never seen such a rapid pivot to maintaining margin through cost reduction. Yeah.
So I can give you confidence from the board level that we believe this is a management team that can really pivot quickly as the cycle turns. And that was probably the most grave example.
We stopped all SPACs, I mean, that day. So it was not just about pushing volume. It was about, one, being able to move through what we have, understand the situation first. And thank God we did. And we had, by the way, I'm sure all of you remember, had just acquired William Lyon Homes. So it was a very unique time. And I consider today with great confidence and so glad we did that deal even despite COVID.
Mike, we-I'm sorry. No, please. We didn't go through all the sausage-making of underwriting.
But I can tell you every deal, we have a pretty complex matrix that goes through price and pace opportunity for that particular asset. And what's the secret sauce for optimizing the return for that asset? Sometimes it's margin. It's go a little slower. And sometimes it's pace, push through as fast as possible. And that, when it gets out in the field, it needs to be massaged day by day in terms of what's the right way to optimize that. But I can tell you it starts with underwriting. We know what the secret sauce is day one.
Yeah. And knowing our consumer. Yeah. Also helps optimize. It looks like this one's for you, and then we'll go to Ellen. Charlie.
Yeah. So the question was about Texas margins. And basically, we're at 82% self-developed. Why wouldn't we be at 100%?
The honest answer is, and I should have said this earlier, we like finished lots. Everybody likes finished lots. They're light on the balance sheet. Everybody would want to do them. I think the difference in our approach versus, say, six or seven years ago is we go in saying, "This is what we can build in your community. This is the type of house. It's optimized," as we showed on some of the slides. If you like it, great. We're not going to change the way we do business just for your community. And so that's kind of found its way into that kind of 15%-18% range. I would expect it to drop a little bit more over time, but we'll always take advantage of a finished lot opportunity when it's out there. We love them like everybody else does.
We just find it's too costly to d
o it more often than not, and we're competing at a different level because it's the only way some builders can acquire. That's right. I want to be very respectful of time, so Ellen, let's wrap up with you.
I'll try to be quick here. You're fine. With Zelman, I'll echo everybody's appreciation for all the hard work and effort that went into hosting us these past two days. Obviously, you showcased Esplanade here. We heard a lot of focus on the move-up price point, and I think we've heard from you and other builders that right now, move-up is clearly a stronger segment of the market versus entry level. We don't have to go back too far when entry level was all the rage among the builders and certainly investors as well.
And we do have an administration that's very focused on bringing down the long end of the curve one way or another. And so while the higher-for-longer thesis was definitely one that we heard a lot about, it's not inconceivable to see a much lower mortgage rate at some point over the next three, four years, over your 2028 targets. So as you look at your mix of business, recognizing that move-up was kind of the emphasis of this particular meeting here, is there a scenario where you would double down on entry level, or do you kind of just really see yourself as a diversified builder that is sticking to roughly the current mix of business with maybe a bit more of an emphasis on growth at the move-up price points?
Yeah. So if the takeaway is that the emphasis on the business is overall move-up, I probably failed in the way I communicated that earlier because it's not. It's truly, truly a very balanced portfolio because entry level was the rage. Specs were the rage. We had to - that lasted a year. The diversity of our portfolio, we believe, is a very long-term strategic kind of business model that makes a lot of sense. And there are some pivots on the margin as far as how much and two or three, but not these wholesale changes. There's a time you make a wholesale change. The world's changed. And so it doesn't do any good. So I don't think you'll see us move away from a balanced diversified portfolio. Could we go to 35? Absolutely.
Why I like the balanced portfolio, Ellen, and probably don't see us doubling down, and I do think, and Tom, please will comment on the view on rates, what her crystal ball is, is things have still gotten more expensive, and the consumer outside the interest rate is only one piece of it. We are finding today, I think the stat that was just stunning to me was the average first-time buyer is spending 10% of their gross income on taxes and insurance. That's before a mortgage payment, and that's their gross income. So that consumer, it's not going to heal overnight, and we're not prepared to predict when it's all going to be easier.
My crystal ball is a little bit foggy, so I won't go there.
But what I will say, I will say is when you appreciate that, depending on which market, Indiana is very different than Florida and Texas with their insurance and in California. When PITI is in the range of 17%- 40% of that PITI payment, the pressures of affordability are going to continue regardless of rate because I think we have shown as home builders that we have the ability to roll back, but we can't roll back taxes and insurance and things like that. So it's really that appreciation. That's the guardrail a bit. And then we just have to find the right way to elevate the customer, which is why ARO has become so important.
Because when you can improve someone's credit score 30, 40 points, not through magic, but through using our tools to be able to help educate in the optimization tools through the credit agencies, that could make a difference of a $30,000 difference in a price point that that customer can qualify for, and so getting them the cheapest rate, the cheapest mortgage insurance premium, the cheapest way to be able to get into their home is really meaningful, and that's going to continue to allow us to get more buyers.
Yes. We're happy to stay around and answer any questions anybody has. We want to, like I said, respect. I know people have flights. I can't tell you how much we appreciate you spending these last 24 hours with us. We have wanted to showcase an Esplanade to give everyone a true appreciation of what we do.
So yes, we did spend a lot of time because it's different than the average community that you see at a market today. So thank you again.