Ashton Woods Homes' Krobot Plots Growth Through Downturn

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Ashton Woods Homes' CEO Tom Krobot never embraced the flamboyant styles of management that pushed some home builders to dizzying rates of growth in the go-go 2000s. But his conservative approach — especially staying within three years of the market on land buys — has Ashton Woods climbing the Giant 400 rankings and positioned to take advantage of a market recovery — whenever it comes.

August 01, 2007


Tom Krobot, CEO, Ashton Woods Homes

It's funny how flashy, fast-growth styles of management fell out of favor when the housing slump hit. Those high-production concepts don't work so well when sales stop. Suddenly, a steady hand, conservative financing and a slower pace of customer service-focused, organic growth are back in style. That makes Ashton Woods Homes CEO Tom Krobot a late-blooming trendsetter.

Krobot, 60, never embraced the go-go styles of the Roaring 2000s, perhaps because he answers to a conservatively managed private parent company: Great Gulf Group, headquartered in Toronto. More likely, his straight-line, by-the-book approach is the reason Great Gulf principals Elly and Norman Reisman recruited Krobot more than a decade ago (from The Ryland Group) to run their U.S. home building operations based in Atlanta.

"We were building about 500 homes a year then in Atlanta, Dallas and Houston," Krobot now recalls. "Great Gulf is a huge company, a power in Canada. They build everything from single-family homes to high-rise condos, office buildings and shopping centers.

"Great Gulf has a lot of liquidity, and they've been willing to invest in our growth. But we're not public even though we did a public debt offering two years ago ($125 million in bonds), so we can't match growth curves with the national builders. They do 40,000 units a year; we do 2,500. But the Reismans are hands-off with us. And we know our niche."

Check Professional Builder's past Giant 400 rankings and you'll find Roswell, Ga.-based Ashton Woods ranked No. 114 in 1997, with 604 homes closed for $103.6 million in 1996 revenue. A decade later, Krobot has the firm at No. 43 (up 16 spots in the last year), on 2006 revenues of $704.6 million from 2,471 closings. Ashton Woods opened operations during that decade in Orlando and Tampa, Fla.; Phoenix; and Denver and Colorado Springs, Colo. — all start-ups, without benefit of an acquisition. And Ashton Woods has an unsecured credit line of $400 million with a consortium of U.S. banks, to fund future growth.

Of course, its growth rate pales in comparison to what public builders like Pulte Homes and D.R. Horton accomplished in the same time frame, but right now Ashton Woods looks healthier than the publics, well-positioned for a housing turnaround — whenever it comes.

Krobot's Success Formula

The firm specializes in first and second move-up homes in big housing markets on infill sites close to jobs, shopping and transportation corridors. As Ashton Woods' average sale price creeps toward $300,000, Krobot is now employing a product diversification strategy, moving into higher-density housing such as townhouses and even four-story condo buildings with elevators to keep home prices within reach of targeted buyers, even on the high-priced A+ sites Ashton Woods seeks.

"That's the right product for those locations," Krobot says. "We have to stay in the price band of our buyers and still deliver locations that drive fast absorptions."

Another Krobot strategy aims to increase the pace of sales even further while reducing the risk that Ashton Woods will miss the mark with its product. The firm employs nationally known architects to design developments that fit the land and the market niche precisely. "We pay a premium for those A+ locations," Krobot says, "so we want to maximize our return on that investment. We have our own architectural department to do working drawings, but we want unique designs, so we buy site-specific concept architecture from the top talents in the industry.

"We give the architects a very thorough market study and buyer profile done for every location. We do a macro supply/demand analysis of the market in every city. Then we overlay the buyer profile against the specific attributes of the site. You can't ask an architect to design without all that research in place. Our product development process is very detailed.

"In most cases, we do our own development work," Krobot says, "which allows us to design whole neighborhoods rather than just individual houses."

While many of the largest production builders are cutting back on customization to tighten their costs, Ashton Woods is expanding that capability. "We have design centers in our five largest markets, and that's part of our strategy everywhere. We design floor plans with a lot of flexibility and offer a tremendous number of pre-priced options to allow customers to put their own signature on their home.

"We don't build specs. If you buy a spec home, it's new — but you still didn't get exactly what you want. Our buyers are willing to pay us a premium to get what they want. You don't get your dream home by buying a spec."

Emphasis on Energy

Ashton Woods sells the performance attributes of its homes as well as design esthetics, balancing healthy-house features with energy efficiency that helps pay for the extra cost of tight construction, extra insulation, mechanical ventilation, pressure balancing and interior moisture management.

"We're the only builder that nationally subscribes to Masco Contractor Services' Environments For Living program," Krobot says. All of the company's homes are Energy Star-rated silver and many are gold. One of five homes is blower-door tested by EFL.

"In Florida, many builders use a single-glazed window. All our Florida windows are vinyl, double-glazed with Low-E glass. It's an expensive window, but we can save a customer a lot of money on utility bills. That's how we sell houses against competitors and against existing homes. Our homes carry a unique value, combining great location, stellar design and high-quality engineering," Krobot claims. "That's our selling proposition."

Slump Stratagems

Krobot's conservative management methods had Ashton Woods ready for the housing slowdown before it hit. He's especially adamant about never getting long on land. "There's only one company out there that reports publicly that has a lower supply of land than I do, and that's MDC [Holdings]," Krobot asserts. "Our policy is to stay at, or inside, a three-year supply. That's where we stand now even with the reduced pace of absorptions in our markets.

"We never speculated on land. We could see bubbles developing in the hot markets, like Phoenix and Florida, and began adjusting our land inventories a year and a half ago.

"I don't have a crystal ball, but our projections are that many of our markets won't get much better before the middle of next year," Krobot admits, adding the company has laid off 15 percent of its workforce. "Every city is a little different. Our goal is to keep our core people, so we can take advantage of the turnaround when it happens. We were out in front of most of our competitors heading into the downturn; we want to be in the same position coming out."

Krobot says Ashton Woods' sales are off 30 percent, like those of most competitors, but he plans to keep growing. The company just opened its first community in Denver. "We have really great land positions there because everybody else is dying."

He says Ashton Woods is already in buy mode in some markets and doesn't rule out buying companies as well as land.

"There are a lot of cities we'd like to be in, like Charlotte, Raleigh, Minneapolis and Chicago. We've added four cities over the last four years. All of those were greenfields, but only because the potential acquisitions we looked at were overvalued. Goodwill isn't just a book entry to us; it's real money. But we'd do an acquisition at the right price. If a builder is tired of signing notes personally, he could sell a portion of his business to us and become our partner. The big challenge of entering a new market is finding the right person to run it."

CLOSINGS:
Type SFD, SFA, Condo flats
Units 2,471
MARKET SEGMENTS:
First and second move-ups; pricing centered on $300,000
PARENT:
Great Gulf Group, a Canadian real-estate giant headquartered in Toronto with residential, commercial and retail operations throughout North America
REVENUE:
Housing $704.6 million
OPERATIONS:
Arizona, Colorado, Florida, Georgia, Texas
STRATEGY
Infill, A+ locations; architecture by nationally-famous design firms; energy-efficient, healthy-house performance; conservative, old-school growth that minimizes risk.
Source: Professional Builder Giant 400 Report, May 2007

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