Anatomy of a winner

How do you make money in the home building business? Monte Hewett says it's not rocket science, but you ought to follow a few key principles to stay profitable as you grow:

"I'm an infill builder. I don't develop land. I don't build in master-planned communities where we'd have to compete with the big national builders. I look for locations close to the Interstate, the mall and a lot of offices.

"We've developed a network of relationships with small developers. They bring us deals because we're willing to design upscale homes to fit a specific site," Hewett says. "If we like the location, and the lot price allows us to hit a house price that will work, we can develop a product line that enhances the attributes of the site. We fit into the niche between the big builders who won't do that, and the small builders who can't."

Hewett reached 178 closings in 2004, and $80 million in revenue, by following that strategy.

Shown here is the best-selling plan at one of Hewett's 15 projects — four of which are inside Atlanta's I-285 perimeter, while most of the remainder are just outside it. In this case, the community is Oak Hills, in close-in, northwest suburban Smyrna, Ga., where Hewett and one other builder are splitting 65 lots. The plan is the 3428 square-foot, $500,000 Wyndham model, which opened in mid-June last year. It demonstrates how Hewett fits product to location.Opportunities

The close-in suburb of Smyrna was overlooked as Atlanta grew mostly straight north. But now, this town (more west than north) is a hot commodity because it's a relatively short commute from downtown. "There are a lot of people working downtown who are now looking to buy in Smyrna," says Monte Hewett Homes marketing director Dina Gundersen. "It has great roads and infrastructure. It's now perceived as fairly prestigious.

"This deal was brought to us by a developer, Mark Shaw, who knew we were looking for something in the area. He was looking for a builder to do the type of product we specialize in: upscale homes that fit the historical architectural context. In this case, Smyrna has a lot of old Craftsman houses."

The Wyndham model is not Craftsman, but it fits comfortably into that architectural milieu. "People like something a little different, but not a lot," Hewett says. "They like the multiple siding materials on the Wyndham. The combination of stone and cedar shake shingles is a little softer than the brick you see so much in most areas around Atlanta. And it really fits Smyrna."

Obstacles

In Atlanta's highly competitive housing market, a house plan needs more than street presence to be a winner. It has to deliver value on the inside, in lifestyle features, finishes and the way the floor plan works. With a high serviced lot cost of $96,000, Oak Hills houses have to deliver that clout in less square footage. Similarly priced homes further out in the market are also likely to have a larger yard. Buyers may like the location, but they don't plan to sacrifice the lifestyle of their families. They want to have their cake and eat it too. The Wyndham delivers.

The floor plan shows an angled "keeping room" niche, with a fireplace, in the kitchen. That's the space that has home shoppers reaching for their checkbooks. "If you go to somebody's house for a party, it always seems that everybody ends up in the kitchen," says Hewett. "So we decided to enhance the kitchen with that keeping room and fireplace."

Taken in conjunction with the living and dining rooms, and the vaulted family room (ceiling height: 20 feet) adjacent to the kitchen, this house has a lot of entertaining space. And yet, even though the family room is open to the kitchen, it's separate enough from it to operate independently. "This is a lot more formal space than a lot of plans you see today," Hewett says, "where family room and kitchen are integrated into one big space."

Now notice what happens above the keeping room. On the second floor, that niche in the plan allows a sitting area in the master bedroom, with another fireplace that uses the same flue. "That combination is where this house really delivers value," says Oak Hills sales agent Nancy Aroneck. "Every house Monte builds has at least one fireplace as standard. We couldn't sell a house without a fireplace in Atlanta. But this plan has three fireplaces, all standard."

Hewett can do it because of the efficiency gained by stacking the master sitting area above the keeping room.

Product choices add clout

Hewett director of operations Aaron Sibly carefully balances the price/value equation for every product, material and finish selection in the house. "It all has to fit together," he says. "Ideally, we'd like everything in there to contribute more in perceived value than it actually costs us to build. In the case of the fireplaces, those are manufactured fireplaces by Heat & Glo. In the family room and master, they are wood-burning. The keeping room fireplace is a gas direct-vent."

The long standard features list includes such items as granite countertops, recessed lighting and many upgraded finish details. "Those things come from consumers," Sibly says. "They care most about what they can see and touch. When a high percentage of buyers choose an option, we start to think about making it a standard feature.

"But for most of the components that consumers don't see — like floor systems and roof decking — they rely on us to get it right on their behalf. We use Advantech flooring, which is a 3/4-inch OSB product that's water-resistant. We thought we'd never specify OSB for sub-floor decking, but they guaranteed us it wouldn't warp or swell. We cut a piece and threw it in a bucket of water for a month. It passed the test!"

Sibly is using engineered wood products rather than standard lumber for studs and headers. "The floor system is the 'silent floor' by Trus-Joist," he says.

The two-story Wyndham uses 2 × 4 walls in some areas, but 2 × 6 in others. "Anywhere the building envelope (living area) touches the attic, the walls are 2 × 6," he says. "So the two-story areas on the back of the house, and the vaulted family room and foyer, where the ceiling height is 20 feet, are all 2 × 6 walls."

Sibly says consumers are now getting smarter about behind-the-walls issues, especially those that relate to energy consumption. "That's why we were one of the first builders in Atlanta to adopt the EarthCraft House certification program."

The EarthCraft House certification program is a voluntary green building program developed by the Atlanta HBA in conjunction with the U.S. Department of Energy's Building America program. To be certified, houses must accumulate points on a scoring worksheet that leads to a specified minimum performance level. Every home is required to pass a final inspection by an EarthCraft House inspector, who normally does a blower door test to measure whole-house air infiltration and a duct blaster test to measure duct leakage.

"There are different ways to get to the energy and air quality level EarthCraft requires," Hewett says. "In our case, we've been able to meet it with our standard windows and doors (from local Atlanta manufacturer Robert Bowden, Inc.), but we had to go to blown cellulose insulation, which is much denser than fiberglass batts. The product is Cocoon. It's manufactured by Green Fiber, and we get it from several different contractors. We also had to upgrade duct sealing."

The cabinets in the Wyndham model are a product of Option Cabinets, out of Canada, Sibly says, but Hewett is no longer using them. "It's a great line — beautiful colors — but we had trouble getting them through the distributor here. So we've gone to Cardell and Merrillat cabinets in our latest projects."

Floors in the model are hardwood, which Sibly tells us he gets from several local producers, or tile, which comes from either Atlanta Tile or Florida Tile. Interior paint is by Dura. "We had some trouble with Sherwin Williams on touch-ups," Sibly reports, "so we switched to Dura, which has great colors and a builder-grade touch-up paint that covers a lot better."

On the exterior, Sibly reports the products on the front elevation are Centurion cultured stone and natural cedar shake shingles. "The roof is CertainTeed Horizon dimensional shingles. The rear elevation of the home has fiber-cement lap siding by Cemplank," Sibly says.

"Fiber-cement siding has been an absolutely revolutionary product here in Atlanta. It allows us to match the architectural styles built before World War II without worrying about the maintenance issues associated with wood siding in a hot, humid climate," Sibly says. "Many insurance companies will now quote you the same home insurance rate for a fiber-cement sided house as for brick."

Hewett uses all Whirlpool appliances, a selection made primarily on price. "But our customers want the stainless steel look and Whirlpool has the best. It's a cosmetic issue and a price issue."

Windows are all wood, with PVC sills, by Robert Bowden, Inc., a local Atlanta manufacturer. "We've looked at getting into premium wood windows, which we offer as an option, but the market here is not concerned about it," Sibly reports. "We've had two buyers in the past year upgrade to Andersen or Marvin."

The front door is a six-panel fiberglass door from Robert Bowden: "It's called Sierra Pacific," Sibly says.

Warranty issues dictated a change in exterior corner boards, Sibly reports, from spruce wood to a PVC product manufactured by Miratech. "It won't rot and it looks better," he says.

Hewett has made one interesting product specification decision recently that doesn't yet show in any model home: "Our next community will show models with wide-plank distressed pine floors. That's a product that we think is really coming on in Atlanta. We're already getting customers asking about it. It's softer, so it's better to walk on, and you don't have to worry about them getting dinged — because they are already distressed. One more mark does nothing but enhance the look. Monte put them in his own house," Hewett says with a laugh.

Outcome

Hewett has sold 27 homes at Oak Hills in less than a year. The Wyndham leads the hit parade with nine sales. Monte Hewett Homes builds the Wyndham model for $78 a square foot in hard costs (materials and labor only).