Last month, I attended NAHB’s midyear meeting in Miami and had the pleasure of sitting in on a presentation by Daniel Swift, president and CEO of Des Moines-based architecture group BSB Design.
2013 Builder of the Year: David Weekley Homes
A strong culture and a tight team-alignment around “doing the right thing” has been the glue that enables David Weekley Homes to consistently demonstrate being a private home builder and being a large builder with a national reach are not mutually exclusive.
Photos: Reeves & Kang/DBPhotoAgency
Despite the fact that David Weekley Homes has been around since 1976, and its founder was recognized by this magazine as Builder of the Year in 1990, the narrative of today’s David Weekley Homes does not begin 37 or even 23 years ago. Like most home building companies that experienced the highs and lows of the last decade and survived, this story begins in 2007 and 2008, when housing collapsed.
David Weekley Homes: Then and NowFounded: 1976Headquarters: Houston, TexasWebsite: www.davidweekleyhomes.com1990Revenue: $223.8 millionClosings: 1,469No. of employees: 54Markets served: 32013Revenue: $1.1 billion (estimated)Closings: 2,950 (estimated)No. of employees: 1,047Markets served: 17
Hear David Weekley discuss the challenges and benefits of being a private builder in Part I of our video series. In Part II, Weekley shares what being selected as Professional Builder's 2013 Builder of the Year will mean for his company.
The circumstances were so unprecedented, so perilous, that hundreds of builders simply hung it up. Others, like Weekley, which chose to make some very tough choices with no guarantee of a positive outcome, were truly tested. Our 2013 Builder of the Year passed the test and learned in the process that its systems and processes and, perhaps most importantly, its company culture, are built for the long haul.
Land option rich and risk poorDavid Weekley’s land strategy is the result of a philosophy he credits to his mentor, co-founder, and older brother, Dick. The elder Weekley was a real estate broker during his early career, and he wrestled with a conflict of interest between representing his customers and his home building company.“How could he go represent to his customers that he was bringing them the best piece when we are buying land as well?” David Weekley says. “That’s how we got on to not buying land.”Instead, the Weekleys bought land on a rolling lot-option basis. They contracted with sellers for a set number of lots at a fixed price. Over time, the company exercised those land options. Consequently, the risk for David Weekley Homes is the cost of the option. The builder avoided getting hit by land devaluation or getting stuck with a huge inventory of lots waiting for demand. That strategy helped Weekley survive the bust during the 1980s when oil prices collapsed and petroleum production in the Texas oil patch plummeted.The company also benefited during the Great Recession. While other builders were stuck with land and unable to pull out of markets, David Weekley Homes redeployed assets by quickly closing communities. In Florida alone, the builder was able to rapidly reduce 50 percent of its assets in that state. The approach stays true to one of Weekley’s favorite sayings: Never bet the business.“It’s always ensuring that you’re looking for a back door because we are in a cyclical business, [and] it will remain a cyclical business,” Weekley says. “As you’re doing business, always structure land deals [and] all kinds of things in a way where you’re not betting the company.”Now that land values are climbing, Weekley is content with letting his development partners profit from land appreciation. He wants to grow by building homes, and 60 percent of the company’s business comes from being active in master-planned communities. Besides brand and reputation, the land strategy also helps maintain relationships with lot developers who invite David Weekley Homes to build in their communities.
(L to R): Mike Humphrey, VP operations; Robert Hefner, VP human resources/people; David Weekley, chairman; Bob Rohde, VP research and design; John Johnson, president/CEO; Heather Humphrey, CFO; Natalie Harris Brown, VP marketing; Bill Justus, VP supply chain
(L to R): Tom Wadley, divison president; Craig Jones, VP design/information services; Chis Weekley, division president; David Hale, VP land development; Sonya Mills, VP digital media; Gene Swang, division president; John Burchfield, legal counsel
Taking the long view
David Weekley Homes’ long reach requires eight area presidents. Seated, left to right: Jim Rado, Rick Moore, Ladd Fargo, and Walter Watson; standing: Randy Braden, Jon Calbert, Ken McDonald, and Steve Ebensberger.
Public debt for a private companyPublicly traded companies raise capital by issuing stock while privately held companies depend primarily on their bank lines.Yet those borders aren’t set in stone for privates that have the scale to raise money through a 144A-for-life bond offering. After seeing a handful of private companies raise money through public debt with no coupon (zero-coupon bonds where bondholders are paid in the form of capital appreciation rather than by interest payments), David Weekley and Chief Financial Officer Heather Humphrey took a deeper look into the high-yield bond market.“As we really started to investigate it, we thought it foolish not to opportunistically take advantage of a high-yield market if we could get 10-year money at a really good coupon (interest) because that would effectively be equity to us,” Humphrey says.Weekley Homes has a long-standing practice of not taking on huge debt. The company already had lines of credit with at least seven banks. The terms included two-to-three year windows and provided the builder with access to credit in case another downturn occurred. But an offering under 144A, which refers to Securities Act Rule 144A, provided longer-term cash at a fixed interest rate. A 144A issuer has reporting requirements, but those financials are available only to investors who are qualified to buy and subsequently seen only by the bondholders. This option is attractive for a company that wants to raise more capital without having to sell an ownership stake in the public market.After securing a B2 rating from Moody’s, Weekley Homes in the first quarter sold to approximately 80 investors $200 million of senior unsecured debt due in 2023 at 6 percent interest. Those terms are among the cheapest issued this year to a home builder for long-term senior unsecured debt. Weekley used about $165 million to pay off bank lines.“You have the benefit of having that long-term money without the day-to-day pressures from meeting expectations for quarterly returns,” Humphrey says. “Our investors want us to perform consistently; they don’t care if we grow because we can cover what we need to cover. (The senior unsecured notes) don’t add the kind of pressure that the public (companies) have on their earnings every quarter.”
Designs that stand the test of timeWhen a real estate ad in Houston, San Antonio, or Orlando, Fla., mentions that a house for sale is a “David Weekley,” that’s validation for Bob Rohde. “People don’t say that about other builders,” says Rohde, vice president of research and design for David Weekley Homes.The David Weekley house is arguably a brand, which is rare in the home building industry. The name not only connotes quality construction but a certain look of casual elegance with layouts that homebuyers and Realtors recognize. The builder’s LifeDesign approach, for example, focuses on the circulation of how inhabitants move from formal to informal areas of the house. A key component of that circulation is the open kitchen, which during Weekley’s early years connected to three rooms (breakfast nook, formal dining, and family room, for example) and today can include as many as five spaces.The Weekley design team wrestles with staying fresh, judging which levels of contemporary and modern design customers are comfortable with while creating homes that can stand the test of time. Juggling these objectives calls for baby steps rather than swinging ahead of the curve to chase the latest fad. The typical Weekley approach is to take the best of a design that was working yesterday, and meld a portion of it into the new plan.“I don’t try new things just to try new things,” Rohde says. “We look at who the buyer is, and we try to design what we think they want today. Most folks are really comfortable in yesterday’s world, with what they’ve seen before. I’m not at all comfortable with that. I’m trying to see where we should go.”Of course, there are changes. Fireplaces, once standard in a Texas upscale home, are optional. The super shower has replaced the master bathtub. Interior proportions are going more horizontal than vertical and clear glass is gaining ground on divided-light windows.The design department numbers 60 people in the Houston office. Unlike other home builders who might have in-house designers report to a division president or someone in the field, Rohde reports to corporate executives. That way the design team is able to step back, look at what is happening in all 17 geographic markets, and create styles that can be taken to all of them.The department is divided between the research and development (R&D) and the design services teams. R&D does the front-end work when builders need to match product with their lots and price point. The designers pull house designs—Weekley currently has 120 new plans categorized by lot size—and cull the selections further by square footage and other variables identified through market analysis as fitting in with the dynamics of that particular community.After the builders and designers finalize selections to offer customers, the design services team takes over the duty of handling plan changes. Their ability to customize is the reason why David Weekley says he thinks of his production home building company as the largest custom home builder in the country.In October, the builder acquired and brought in designers and architects from Preston Wood & Associates. The Houston firm previously provided plans in Houston, Tampa, Fla., and elsewhere for David Weekley Home’s Central Living, a product for high-density urban communities. These newest members of the team will focus on providing Central Living homes to more markets where people want to live near where they work.
The (ROC)k of a housing recovery
Small cross-functional groups of team members still get together to brainstorm and work on company issues.
On the supply sideSupply chain management for builders typically devolves into hammering vendors until they reduce prices. But doing something about quality and service is deemed untouchable because how can an outsider change the culture of someone else’s company?Bill Justus, vice president of supply chain services for David Weekley Homes, would like to introduce you to his three-legged stool theory about managing suppliers. Price, service, and quality all have to work in balance, so one leg can’t be shorter or longer than the others.“What you pay for an item can be very important in the overall equation, but you can be pennywise and pound foolish,” Justus says. “You can go to the lowest cost provider, but they may give you other service or supply issues; then while you might be saving pennies on the actual acquisition of that item, you’re spending dollars on the cost of managing the issues with that supplier.”Justus joined the builder in 2002, and the former logistics manager from Dal-Tile brought with him the manufacturing sector’s mindset for process and measuring improvement. Ten years ago, his team launched the National Trading Partners Survey. The quarterly survey is given to more than 600 company employees who have an informed opinion about their suppliers—senior and division executives, program managers, purchasing team members, sales people, quality coaches, builders, and people working in the warranty and accounts payable departments.After answering a series of questions, they ultimately rate the supplier on a numeric scale that corresponds with a letter grade. If the rating is below a certain level, the team member must include written comments explaining the rating. The results are provided quarterly and annually to each supplier along with the detailed comments, the name and job title of the reviewer(s), and information on how to contact them. The supplier is expected to contact the Weekley team member and then submit a report telling Weekley Homes about planned corrective action and a due date for implementing the changes. The supply chain services team then follows up to see if the plan has been executed.This year, Weekley Homes presented the Partners of Choice “A,A” Award to 14 suppliers of building products and services who achieved top notch grades for both service and quality, and “A” awards to eight vendors who attained ratings for excellence in either category.“Partnering is an overused word, and there are companies that for change on a nickel would dump what they would call a partner,” Justus says. “We want to walk the walk in the partnering proposition with our suppliers. We’ll work with any company that is serious about improving their relationship with us in order to help them do better.”
Weekley introduced Green Rooms in its sales centers and models to give shoppers a look at what’s behind their homes’ walls.
Energy efficiency: guaranteedThe push for energy-efficient homes seems now to have been around forever; but in the early 2000s, momentum was just starting to build and David Weekley Homes was not yet on the bandwagon. The company’s interest began in earnest through an encounter with building science pioneer Joe Lstiburek at a local HBA meeting in 2002. In his inimitable way, Lstiburek lambasted the attendees for lax building processes. Far from being put off, Weekley’s Vice President of Operations Mike Humphrey and senior quality trainer Mike Funk sought out Lstiburek after the session and talked with him at length about how they could improve the company’s homes. Their desire to learn impressed Lstiburek, who told them, “You’re the kind of builder we’re looking to team up with.”A partnership formed, and Lstiburek jumped in with both feet, meeting with the company’s senior management, engineers, and in-house designers to get buy-in from the whole team. The first push was to change the way Weekley built wall assemblies, with the goal of achieving a tighter house with less chance of water intrusion and introducing fresh air to its homes through a whole-house ventilation system.Rolling out these changes was easier said than done, since Weekley closed more than 3,500 homes in 2003. But once accomplished, Lstiburek gave the company its next assignment: advanced framing.Incorporating advanced framing into its building program was, in Humphrey’s words, “really hard.” But it was clear that the benefits outweighed the difficulties. As Lstiburek says in his Building Science Insights web discussions, “[Advanced framing] is cheaper because it uses 5-to-10-percent less lumber, and it is faster because it uses 30-percent fewer pieces. It saves energy because it provides a 60-percent deeper cavity (which allows 60-percent more cavity insulation) and because it reduces the framing factor from 25 percent to 15 percent.”Humphrey says the new building system and its attendant benefits gave the company the impetus to continue moving forward with greater energy efficiency in its homes. In 2007, again with Lstiburek’s help, Weekley began work on its EnergySaver program with a focus on its new homes’ HERS scores, which are determined by third party testing, and the heating and cooling guarantees in Masco’s Environments for Living (EFL) program.The EnergySaver program allowed Weekley to compete more forcefully, especially with resales. (Currently, HERS scores for the company are in the 50s; other new homes average in the 70s; and existing homes measure in the 100s.) The program was a boon for the company’s salespeople and Realtors, offering another way to differentiate Weekley’s homes. To make it easier to show prospective buyers exactly what they were getting behind the walls, the company built Green Rooms in both its sales centers and community models.These rooms not only put the technology on display for educational purposes, but also gave home shoppers the opportunity to compare Weekley homes’ energy usage directly with their own. And compare they do: Weekley buyers love to send in copies of their new utility bills, pointing out the sizable differences from bills they previously received. “Masco’s EFL commitment was that only one-half of 1 percent of the homes would not meet performance—and they have lived up to that,” Humphrey says.Weekley’s commitment to energy efficiency and healthy homes continues with ongoing improvements warranted by the latest research. And although some of the new systems were hard to implement, Weekley seems pleased with the results. “All in all, the benefits of these programs have been great,” Humphrey says. “The response from our customers is that we’ve reduced our overall energy consumption, provided savings for our buyers, and allowed all of us to be good stewards of our community.”
Founder and chairman David Weekley attends to daily duties in his office at Weekley Homes’ Houston headquarters.