Startup builders know they’ve arrived when the big guys in their markets begin to imitate them. When it happened to Surrey Homes, it was a sure sign that “we’re now part of the conversation in Orlando,” says owner and CEO Jay Lewis, who launched his company in the first quarter of 2009.
One of Surrey’s four active communities is Belle Vista, a gated enclave near Orlando, Fla.’s airport. Eighteen months before Surrey got there, David Weekley Homes was selling houses from a $462,000 base model that featured another $215,000 in options. Lewis contends many buyers couldn’t afford Weekley’s souped-up model, whereas Surrey’s model at Belle Vista, priced at $460,000, offered most of those options, plus other features such as concrete tile roofing, as standard. Weekley subsequently came out with a revised list of standard features, and this summer was building a new model that Lewis says is similar to Surrey’s. (Indeed, in June, Weekley’s website promoted its homes at Belle Vista, its first green community, which were priced from $363,990 to $435,990, with a lengthy list of standard features.)
Lewis, who worked for M/I Homes and NVR, recognizes that housing “is a copycat business.” But he also believes Surrey Homes has more than one ace up its sleeve and is confident enough to project that Surrey will close 50 homes this year, nearly double the 27 it settled in 2010. “And, we’ve already broken the seal and have become profitable.”
WHAT BARRIERS TO ENTRY?
Builder heard pretty much the same thing during interviews with executives at six companies that started up during the recession. They’ve been able to take customers from more-established builders—in some cases with relative ease—because they are responding quicker to market conditions, are unencumbered by debt and bad assets, and are offering something new and different.
“Despite what was going on in the economy, our investors saw us as a game-changing play,” says Shilpa Sankaran, cofounder and vice president of marketing for Zeta Communities, a modular builder based in San Francisco whose chairman is Serious Energy’s founder Marc Porat. At the outset, Zeta—which stands for Zero Energy Technology and Architecture—raised $10 million in investment capital, and last October opened a 91,000-square-foot manufacturing plant in Sacramento, Calif. Through late June, it had built 18 housing units, and that month announced the groundbreaking for a 22-unit net-zero–energy community called Tierra del Sol in Stockton, Calif., which Zeta is supplying. Sankaran projects that over the next 12 months, Zeta will produce modules for between 100 and 150 homes.
The GreenPointe Homes division of GreenPointe Holdings in Jacksonville, Fla.—formed in June 2010—closed its fourth home on June 15, 2011 and has a full schedule ahead of it, says president David Smith. With Mattamy Homes, GreenPointe is building 153 houses at Cedar Bay in North Jacksonville, ranging from 1,600 to 2,700 square feet and $140,000 to the low $200,000s. Its 358-acre Amelia Walk in Fernandino Beach, Fla., part of which GreenPointe acquired from Woodland Homes, has 749 homesites planned. And the first 120 homes are going up at Southern Hills, a 1,000-homesite country club community in Brooksville, Fla., which GreenPointe bought from Crescent Resources.
Citizens Homes is one of the few startups that has ventured into multiple markets—in Citizens’ case, Charlotte, Raleigh, and Wilmington, N.C.; Hilton Head and Myrtle Beach, S.C.; and Nashville, Tenn. Citizens is unusual, too, in that it’s targeting three buyer groups: first-time, move-up, and active adult. Its president, Scott Thorson, says his Charlotte-based company should close “a couple hundred” homes in 2011 and expects to be closing 1,000 per year within five years.
Thorson considers 2011 to be his company’s actual first year of operations, even though Citizens formed in the summer of 2009. “It took a lot longer than we anticipated to get deals done and our models financed,” he explains. Success came quicker for a few other startups, however. Saint Aubyn Homes in Colorado Springs, Colo., launched in June 2010 and by the end of that year ranked second in El Paso County in sales, with 161 closings that generated $30 million-plus in revenue; and first in permits, with 200-plus starts. Owner Jared Saint Aubyn attributes his company’s quick start to his market being “a bit insulated” from the recession. This year he’s shooting for 170 closings and more than $40 million in sales.