Any Any business that adheres to the level of discipline that guides The Dragas Cos. must have an interesting history. Maybe there’s a long-past corporate failure that produced a resolution for increased attention to detail or an owner’s career in the military that translated into an equally tight-run corporate ship. For the Virginia Beach, Va.–based builder, it’s a family history of wartime deprivation and years of scraping to get by. Founder George Dragas, the son of Greek immigrants, was a young boy when his mother took her children to Greece to visit relatives. While they were there, World War II broke out. The family barely survived the Nazi occupation. Upon returning to the U.S., George learned that his father had died in an accident at work, leaving his mother to work as a seamstress in a factory to raise four children.
“They faced that kind of do-or-die situation,” says George’s daughter Helen Dragas, who cut her teeth in the business at 13 conducting customer service interviews. She now serves as the company’s president and CEO. “It’s that gut level, ‘anything can happen’ mindset.” It instilled in George—and now Helen—extraordinary prudence in an industry in which major decisions often are made without solid data to support them. “My father worked hard to build the company,” Dragas says. “He didn’t want to put himself at risk of losing it.”
Risk aversion may seem like a contradiction for a builder, but it’s part of an ultra-conservative financial philosophy that has guided The Dragas Cos. since it opened in 1968. It has virtually no debt—generally, less than 10 percent of equity. The company experienced a 686 percent increase in revenue between 2001 and 2007. In addition, Dragas produced the highest number of closings in its 40-year history in 2007; both closings and revenue were more than double that of the 2004 peak market year.
America’s Best Builder judge Vernon McKown, president of Norman, Okla.–based Ideal Homes and a 2007 America’s Best Builder winner, is clearly awestruck by the company’s fiscal and operational chops.
“Their company embodies a well-run machine,” McKown says. “Every piece complements the other. It all culminates in the final results. … Here, I find a new hero in Virginia Beach.”
Having minimal debt gives the company flexibility that most home builders only dream of achieving. It means the builder isn’t hampered by the operating constraints imposed by lenders, such as restrictions on starts or the reappraisal of land.
“It does allow us to survive the really tough cycles this industry goes through unfailingly over time,” Dragas says. “We may not have the highest return on equity, but we will be here to have returns through thick and thin. There’s a personal side to it as well. I think we have always slept better at night having a pretty clean balance sheet.”
It also allows Dragas to seize opportunities and to react quickly to market changes. She remembers one parcel—a five-acre bayfront tract that had been listed for more than $4 million—that the company bought at a foreclosure auction for $1 million.
“There was only one other bidder there, and he was not in a cash position to go higher,” Dragas says. “We built a beautiful condominium community that was coming out of the ground just as the market turned.”
HEADS FOR HARD FACTS
In addition, the company has maintained an unwavering commitment to several key operational practices, including extensive market research, strict land acquisition guidelines, and community involvement.
For decades, Dragas has used the services of well-established consultants to stay on top—and ahead—of national trends in markets, products, and best practices. Acting on the information that’s gathered, however, “often requires a level of discipline that can be excruciatingly difficult to exercise,” the company wrote in its America’s Best Builder entry package. “We make decisions based on hard facts, not market frenzy, speculation, or gut instinct. As a result, we rarely make mistakes in land acquisition, rezoning requests, or product design, construction, and marketing.”
That research has kept it squarely focused on building moderately priced homes for first-time buyers, a market that is less subject to the volatile swings in real estate and is constantly replenished as a new generation comes of age. The result: Dragas consistently leads its market in the number of homes sold. In 2006, in Virginia Beach, it sold 40 percent more homes than its next closest competitor. In 2007, that was up to 54 percent.
With ready access to cash to snap up the lots that so many builders are anxious to unload, The Dragas Cos.’ disciplined approach to land buying is invaluable. Dragas says she stays in the geographic areas the company knows best as it relates to customers, economics, local politics, zoning viability, and the nuances of the housing market. It focuses on highly desirable infill sites in terms of population and job growth—“all the demographic factors,” she says—and high visibility. Historically, more than 20 percent of its sales traffic has come from people driving past its sites. Another benefit is that Dragas can leverage existing infrastructure instead of draining cash reserves or borrowing to improve raw land.
When the market was hot, it was a tough policy to follow, Dragas admits, even though it kept the company from buying over-priced land.
“When we were in the middle of the building frenzy, competitors were gobbling it up at unheard-of prices,” she says. “You question yourself. ‘What do they know that I don’t know? Am I being too restrictive? Where am I missing this?’”
Ultimately, though, it kept the company from getting stuck with parcels that other builders bought at inflated prices—and now can’t sell at any price.
“We looked like idiots in the boom times when everyone was rocking and rolling,” Dragas says. “We may look like geniuses now.”
A SEAMLESS PROCESS
Joyce Witt, senior vice president of administration and condominium property management, says that from the company’s early days, it has strived to keep its critical processes in-house, from land acquisition and development through warranty service. “Even when ... there were three people, we did our own land, our own permits, our sales, we even did our own mortgages,” she says. “We all operated out of one room. We didn’t take vacations or lunch breaks, but we got it done. Now, with over 60 employees, we’re doing the same thing, but in a much more technical way.”
Besides contributing to the bottom line, it’s also helped Dragas differentiate from its competition. “We’re the only company that provides the entire experience for our customers,” says COO John “Buck” Buckley. The policy also offers yet another measure of control for strategic planning.
“We’re the ones acquiring the land and doing the entitlements,” Buckley says. “We’re not subject to the whims of other companies we’re working with. As Helen sets her sights five years down the road, it allows us to do that unencumbered by the agendas other builders have to work with.”
Having minimal debt and healthy retained earnings gave The Dragas Cos. the ability to do something very few builders have done lately. Not only has it not cut its marketing budget, it actually increased it by 20 percent and added a staff member to focus its efforts. Marketing director Donna Ponti works closely with Sally Horvath, vice president of internal operations, who oversees the sales department.
“We know that every sale will be more difficult to get now,” Dragas says. “We want to keep our presence high in a down market.”
The company leveraged its 40th anniversary in 2008 to redesign its logo and bring consistency to the look of its marketing materials. Ponti also used the anniversary as a launching point to expand Dragas’ advertising from strictly print into other media. “While we do have a plan of attack, we adjust to whatever feedback we’re getting from our agents,” Ponti says. “That’s another advantage of vertical integration.”
CONTROLLING ITS DESTINY
Community involvement is a strong component of The Dragas Cos.’ corporate culture; the company participates through both charitable contributions and local activism. It takes “very proactive efforts to favorably influence local market conditions,” the company wrote in its entry, with longstanding membership in business organizations that impact employment, public policy, and the region’s economy.
The company also is very active politically, and members of Dragas’ management team serve on local and state boards for transportation, higher education, and economic development. A prime example is the effort to retain the Naval Air Station at Oceana in Virginia Beach, the city’s largest employer, when it was placed on the potential closure list by Base Realignment and Closure. A Dragas executive led a group of business leaders and citizens who lobbied for base retention, and he worked with local and state officials to help develop a strategy to defend the base from closure. Ultimately, the base stayed open.
Looking ahead, Dragas says that in 2009, the company will work to capitalize on its strengths. “I expect we’ll be able to maintain or increase our market share,” she says. “I think it will continue to be a challenging environment for the industry as a whole, but I think we’re well positioned to come out of it in good shape.”
Specifically, she says that for the first time, the company is considering buying existing multifamily apartments to rehab and reposition as condominiums.
“I see opportunity there,” she says. “I think some pension funds or REITs will come under pressure. Doing something like that may help us drive a little further down in terms of the prices we can offer in workforce housing.”
The Dragas Cos.
President and CEO: Helen E. Dragas
CFO: Robert C. Makin
COO: John Buckley III
Vice President of Design: Sue Plaster
Company Focus: Affordable homes for first-time buyers, in high-visibility locations
Year Founded: 1968
Web site: www.dragas.com
Notable: The company has been successful through good markets and bad by closely adhering to extremely conservative fiscal policies, as well as maintaining its focus on first-time buyers.
Learn more about markets featured in this article:
Virginia Beach, VA.