IPO Launch: Harbor Custom Development Proposes $15 Million IPO Terms


Harbor Custom Development (HCDI) intends to raise $15 million from the sale of ordinary shares, per an amended registration statement.

The company is a residential property developer in the greater Seattle metropolitan area.

HCDI is offering shares at a potential bargain price, but I’m not sold on the firm’s financials and near-term prospects, so my opinion is NEUTRAL.


Gig Harbor, Washington-based Harbor was founded to develop and build homes in the greater Seattle region.

Management is led by founder and President Mr. Sterling Griffin, who was previously Vice President of Marketing at the James S. Griffin Co.

Below is a brief overview video of the firm's Battle Point Drive development:

Source: Kelvin Hughes

The firm's stock is 91.7% owned by the founder and total investment has been approximately $800,000.

The company is focused on building properties in the Bremerton area and south to Tacoma.

HCDI handles all aspects of residential property development, from land purchase through entitlements, building, marketing and ongoing management.

As of the end of 2019, the company had a backlog of $14.85 million worth of residential development properties.

According to a 2019 market research report by Sammamish Mortgage, the median home price in the state of Washington is forecast to rise 4.6% by data firm Zillow.

This represents a forecast Low interest rates and a drop in the number of homes on the market were expected to produce rising price conditions.

However, the outbreak of the Covid-19 coronavirus is likely to put significant downward pressure on market conditions despite easy money conditions as the number of entry level buyers drops due to large job losses.

If the pandemic wanes during the hotter summer months, the overall economy could bounce back, however the speed at which a potential rebound occurs will be a large unknown.

Harbor’s recent financial results can be summarized as follows:

  • A sharp increase in topline revenue
  • Uneven gross profit and reduced gross margin
  • Uneven net income
  • Uneven and negative cash flow from operations

Below are relevant financial metrics derived from the firm’s registration statement:

Source: Company S-1/A Filing

As of March 31, 2020, Harbor had $501,400 in cash and $35.9 million in total liabilities.

Free cash flow during the twelve months ended March 31, 2020, was a negative ($5.9 million).

HCDI intends to sell 2.1 million shares of common stock at a midpoint price of $7.00 per share for gross proceeds of approximately $15.0 million, not including the sale of customary underwriter options.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $69.5 million.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 37.41%.

Per the firm’s most recent regulatory filing, the firm plans to use the net proceeds for land acquisition and development, debt reduction, and working capital.

Management’s presentation of the company roadshow is not available.

The sole listed underwriter of the IPO is ThinkEquity.


HCDI is seeking public investment for its working capital needs.

The firm’s financials are peculiar in that they show a company in the selling phase of several projects yet the firm barely shows a gross profit.

Operating losses are worsening as is cash used in operations even though home sales continue.

The market opportunity for home development in the greater Puget Sound area would seem to be strong in times of normal economic activity.

But, we aren’t in those times, with the effects of the Covid19 pandemic, job losses and the negative effects on the region’s large employer, Boeing.

Perhaps that is why management’s plans are to expand geographically to other regions, including Portland and Denver.

ThinkEquity is the sole underwriter and there is no data on IPOs led by the firm over the last 12-month period.

As a comparable-based valuation, HCDI is asking IPO investors to pay an EV/Revenue multiple of 1.9x versus the public comparable average of 5.37x, so in this regard, the IPO is priced reasonably.

So, while the IPO may be bargain-priced, I’m not enthusiastic about the firm’s financial results and near-term prospects in a region significantly affected by current economic headwinds.

My opinion on the IPO is NEUTRAL.


Expected IPO Pricing Date: To be announced.

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)