POWERPOINT PRESENTATIONS TEND TO HAVE a numbing sameness to them. But Jerry Starkey was intrigued by this one. It was a detailed overview of Spectrum Communities being given to Starkey and other executives of WCI Communities by Spectrum's president, Mitchell Hochberg. When the lights came back on, Jerry Starkey, WCI's president, turned to Hochberg.
“You guys are either very good at what you do,” Starkey told him, “or else you're good salesmen and you've studied WCI and how we do things.”
There were, Hochberg says now, “uncanny similarities” between the two builders.
Those similarities—and the advantages each company could bring to the other—led to Florida-based WCI's purchase of Spectrum in May. The purchase price was not disclosed. But the deal did involve cash, and Hochberg and his management team became WCI stockholders. Spectrum was renamed WCI Spectrum Communities LLC, a subsidiary of WCI Communities, with Hochberg as president.
It was a surprise move for the New York-based Spectrum, a developer of residential lifestyle communities in New York, New Jersey, and Connecticut. It was only in May of 2003 that Hochberg bought his company back from Swedish construction giant Skanska AB. But WCI's offer was too good to pass up.
“I wouldn't have entertained the notion of selling the company to anyone except WCI,” Hochberg says in a telephone interview from his office in Valhalla, N.Y. Adds Starkey, patched in from WCI headquarters in Bonita Springs, Fla., “Mitch's team is now poised to expand WCI throughout the Northeast.”
Rising High Despite the companies' differences in size—WCI completed more than 2,000 homes in Florida last year; Spectrum built 359—it is the similarities that Starkey and Hochberg are accentuating.
Both specialize in upscale, lifestyle communities with all the amenities. Both sell homes above their market's price points: The average price for a WCI home in 2003 was $661,000; Spectrum's average price was $508,000.
WCI and Spectrum share the same clientele, many of whom are older than 55. Spectrum's customers are WCI's Florida snowbirds; 26 percent of WCI homeowners come from New York, New Jersey, and Connecticut—Spectrum country. And both companies want very badly to build mid- and high-rises in the Northeast.
Spectrum clearly extends WCI's reach. “We have been doing high-rises on the shores of New York and New Jersey,” Starkey says. “It's exciting that we now have a management team to do communities in that area.”
That area is expanding. WCI Spectrum is looking to move into Philadelphia, Boston, and their suburbs, Hochberg says. It's an expansion Hochberg wouldn't have done on his own without WCI's expertise in high-rise development.
And the opportunity for cross-marketing is mouth watering. “We have a lot of recognition in Mitch's market,” Starkey says. Starkey also says he hopes to further solidify brand recognition among home buyers, some of whom may live in a Spectrum community and may be encouraged to buy a second home or retirement home built by WCI in Florida. To further the strategy, the two companies are combining databases.
If Spectrum gives WCI access to territory and customers, WCI gives Spectrum easier access to capital.
After Hochberg bought Spectrum back from Skanska, his thoughts turned to suburban infill and tower construction. “Although we could have put the capital together, a lot of sellers were reluctant,” he says. “WCI has the capital to do it. There are two large transactions we're negotiating for. Without WCI, we wouldn't even be at the table.”
In addition to benefiting from economies of scale in purchasing materials, Spectrum could see gains from WCI's service arms—its 30-office Prudential Florida WCI Realty division, its mortgage and title businesses, and its amenities division, which operates many of the clubhouses, golf courses, restaurants, and marinas within WCI's 30 communities.
Glimpse Into The Future It wasn't supposed to have turned out this way. Hochberg, who founded Spectrum in 1985, sold his company to Skanska in 1996. But by 2002, the Swedes had changed their strategy and decided to unload their New York subsidiary. Hochberg, who had retained control of his company as well as his top executives, negotiated to buy Spectrum back. In May of 2003, Spectrum was in Hochberg's private hands again.
In an interview with BIG BUILDER magazine in February, Hochberg said he had no interest in selling again.
“We were settling in, developing a 5- to 7-year plan,” he says now. But between the interview and the time it was published, the plan had changed radically. WCI had come courting.
“We went public a little over two years ago,” Starkey says. “Our plan was to move beyond Florida in a measured and disciplined manner.”
In pursuing that strategy, WCI kept a database of private builders with at least $100 million in revenue. Spectrum, with reported revenue of $187 million and profits of $9.5 million in 2003, began to attract the Florida company's interest.
WCI made its initial contact by letter in late November. Apparently it didn't make enough of an impression.
“We didn't get a call back,” Starkey says.
But WCI was determined and followed up the letter by phone. “Eventually Mitch returned our call,” Starkey says, laughing.
An initial two-day meeting included a tour of Spectrum's communities and that revelatory PowerPoint presentation. For Hochberg, looking at WCI “was like looking in a mirror and fast-forwarding 10 years to where we wanted to be.”
“There was definitely the healthy negotiations one would expect in a transaction of this sort,” says Tony Avila, managing director of JMP Securities, which represented Spectrum in the talks. “Both sides handled everything quite honorably and fairly. Both sides are going to benefit from this marriage.”
Starkey says he expects the purchase to stimulate faster growth. “We're targeting a 15 to 20 percent growth rate on revenue and income as a whole. In the Northeast, we can exceed a 20 percent annualized growth.”
Starkey says he believes that Spectrum's personnel had been suffering from excess capacity. “Mitch has a management team that could double the volume it has had in the past couple years,” says Starkey. The deal flow has already increased—“larger tracts that would provide hundreds and low thousands of houses instead of the low hundreds,” he says.
WCI and Spectrum are clearly enjoying a honeymoon. Even the shadow of higher interest rates doesn't faze Starkey and Hochberg. After all, in the Northeast demand is always higher than supply. That's not to mention one other similarity both companies discovered in one another: In 2003, 40 percent of each company's customers paid for their purchases in cash.