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.
Movers and Shakers
Fast-growing, innovative companies can be found even in markets that really suck.
Fast-growing, innovative companies can be found even in markets that really suck
We'd have to go book-length to cover all the movers and shakers in this year's Giant 400. Of course, just as many builders are falling by double digits in the rankings as are shooting up the charts. But pain is not as much fun as performance, so here are some of the fast companies making news by going places. And two of them are doing it in the most challenging of places: Florida and California.
|Neal Communities Chairman Pat Neal|
Bradenton, Fla., builder Pat Neal is a shaker now that son John, 32, recently decided to enter the building business with dad. With that infusion of talent in place, Neal, a third-generation builder and developer, is taking more risks. He turned innovative and a little edgy in 2006 by swimming against the stream of convention concerning what to do when your market goes to hell in a hand basket.
Rather than pull in his line, Neal built more model homes than ever and instituted an ambitious spec-building program to the tune of a $51 million investment. “We call it our 'custom ready' program,” he says, “and it's been surprisingly successful. We set the inventory home ratio for every community as part of our 'smooth flow' production system. Every time we sell a spec home, we start another. We keep four or five going in each community, in various stages of construction, at all times.”
|Neal Communities’ Belmont III model at Lakewood Ranch Country Club in Bradenton, Fla., has 4,052 square feet of air-conditioned space and sells for $1 million.|
Neal says he “floats above” public builder price points in the Sarasota/Bradenton market but delivers more value — faster — than the pure custom builders. He added five new model centers during 2006.
He admits his jump of 35 spots in our rankings — from 242 to 207 — came from the huge price appreciation in the Southwest Florida market early in 2006. His closings actually declined 13.4 percent to 226, while revenues went up 26.4 percent to $123.4 million. But he kept selling when many didn't. Neal has sold 28 homes so far in 2007 — 60 percent of them specs.
Markets under stress produce extreme volatility, and we see that in the big moves, both up and down, in this year’s Giant 400. Most radical changes take place in the lower two revenue groups. Closer to the top, even huge moves in revenue don’t result in such position changes.
Sure, the Texas markets were hot in 2006, but does that explain a move of 130 positions on the Giants list? Austin-based Main Street Homes raised its closings 110.9 percent last year and revenues 121.3 percent, from $56.95 million in 2005 to $126.05 million in 2006.
It was a geographic invasion of the San Antonio market that did it.
“We were having so much trouble getting subdivisions entitled in Austin that we decided to try San Antonio. We started with one subdivision in '04 and '05,” explains Main Street principal Steve Bartholomew. “Escondido Creek was so successful we made a decision to expand in late '05. We had one month where we closed 29 homes in that one subdivision. We bought a subdivision from Pulte, then opened another that hit the market in mid-2006. We ended up closing 418 homes in San Antonio last year, 221 of them in Escondido.”
Now Main Street has nine communities in San Antonio. Main Street's homes average 1,500 square feet and $130,000 in price. Bartholomew doesn't fear the subprime fallout. “We don't even use adjustable rate mortgages,” he says. “We're seeing some tightening on FHA and conventional loan qualifying, but we haven't seen a big impact yet.”
Irvine, Calif.-based MBK Homes is an Orange County move-up builder and now a newly-minted member of the Rich and Famous. Even in 2006, MBK managed to grow closings 7.7 percent to 392 units and revenues 21.7 percent to $211.6 million. And cracking the $200 million barrier makes the firm a new member of our Rich and Famous grouping. We look for MBK, the residential real-estate arm of one of Japan's largest corporations — Mitsui & Co. — to become even more famous in years to come.
Led by President Stefan Markowitz, MBK has a simple strategy: acquire 'A' locations in Orange County and the western edge of the Inland Empire and put the right product on those sites to reach targeted first- and second move-up buyers. A single-family builder in the past, MBK is now moving into attached product at densities up to 22 units per acre. “We won't do high-rise, at least not yet,” Markowitz says. “But we are moving into elevatored mid-rise buildings of up to five stories. Our locations were a big part of our ability to maintain volume in 2006. The market worked against us, but we were still able to get some sales because our sites were so strong.”
Markowitz opened a division in Sacramento a year and a half ago, just in time to scarf up some distressed land as that market tanked. Now he's looking for opportunities to do the same thing in Arizona, Nevada and maybe Texas. His focus is always on matching the right product to the best locations.
Quiet but profitable, Tom Krobot's Roswell, Ga.-based Ashton Woods Homes threatens to move into the Masters of the Universe. When it arrives, look for this shaker to make some noise. Ashton Woods is a subsidiary of Toronto-based Great Gulf Group, a major Canadian builder and developer with the capital to fund an expansion. The move-up builder already has operations in Orlando, Fla.; Tampa, Fla.; Dallas; Houston; Phoenix; Colorado Springs, Colo.; and most recently, Denver.
Ashton Woods grew closings 28.1 percent last year, to 2,471 units, while revenues shot up 40.6 percent to $704.55 million. The billion-dollar club is almost within reach. “We're a specialist in first and second move-up homes in major markets,” Krobot says. “We're after 'A+' infill locations where we can develop uniquely designed product, which we are now evolving toward higher density housing forms. We have design centers in every city where we build. We are not custom, but we have a tremendous number of options to allow customers to put their own signature on their home.”
Ashton Woods is also into energy-efficiency. A national subscriber to Environments for Living, all of Ashton Woods' homes are Energy Star-rated. Krobot won't build specs unless forced to. “Our buyers are willing to pay for what they want,” he says. You don't get your dream home by buying a spec.”
He's looking at Charlotte, N.C., Raleigh, N.C., Minneapolis and Chicago. If he finds a way to add two of those markets, he'll be a Master of the Universe very soon.