Premium Pressure Builders confront increased insurance costs yet again.

Make no mistake: Builders are worried about insurance. Concerns about the cost, availability, and deductibles for liability coverage ranked as three of the top five problems for builders, according to the NAHB's 2003 "Critical Issues" survey.

But liability insurance isn't the only problem. In Florida, workers' comp has become incredibly expensive and elusive after a major insurer left that market this year. "Smaller guys are working without insurance or they're going out of business," says Bill Slavich, president of the Florida HBA.

Medical insurance costs have also risen for all employers, including builders. At Stillbrooke Homes, health care premiums have jumped 40 percent on average for the past three years. "What we're not spending in interest, we're spending on insurance," says Scott Henry, president of the Albuquerque, N.M.-based builder, which has also asked employees to contribute more for their coverage.

With the insurance crunch expected to continue into 2004, builders are doing whatever they can to control their premiums and risk. Syncon Homes of Northern California, for example, this year made quality its absolute priority, changing practices and products to the tune of $5,000-plus per house. Donnie Hanly, Syncon's vice president, says the company wasn't sure if buyers would respond, but it decided to make the investment. It redid its scopes of work, began using mold-resistant drywall, improved window flashings, and added a solid shear of oriented strand board around the house.

The moves have allowed Syncon to renew its insurance as well as capture new customers more than willing to pay for the enhanced features--including one who had just purchased a home from another builder but was struck by Syncon's quality. "[The homeowner has] lived in that house for three months, and he's selling it and buying one of ours," Hanly says.

Sandstorm Quartz is the bionic stone that gives granite a run for its money.

Quartz surfacing is the "it" product of the moment. No material is hotter. The engineered stone contains about 93 percent quartz compared to 50 percent for granite. The result is a surface that is durable, non-porous, and stain and heat resistant. The high quartz content also means the surface is maintenance free and does not require sealing. It also comes in more colors than granite. This year quartz went mainstream: It is now available at Lowe's and The Home Depot. Manufacturers also increased their color and design options.

Made from 93 percent quartz, Silestone surfacing is stain resistant, durable, and non-porous.
Courtesy Silestone Made from 93 percent quartz, Silestone surfacing is stain resistant, durable, and non-porous.

Cambria in Le Sueur, Minn., upped its number to 30 colors, and Caesarstone, an Israeli product distributed by Los Angeles-based U.S. Quartz Products, jumped to 36 colors. Wilmington, Del.-based DuPont Zodiaq now comes in 25 colors, and the company also offers Mixa-Sink, an integrated sink with a stainless steel bottom. Stafford, Texas-based Cosentino, which offers 43 colors, introduced Insink. Designed for Silestone, the stainless steel sink sits flush with the counter.

Upping the style ante even further, Seieffe Corp., an Italian manufacturer with U.S. headquarters in Houston, says its Okite is the only quartz surfacing offered in translucent colors. The red, yellow, orange, and green colors glow when spotlighted.

We Asked ...
Standing Out
Builders say that, after price, the most important differentiating factor for their buyers is:
The community 45%
Flexible floor
Amenities 10%
Curb appeal 2%
Other including
quality and individuality
Source: BUILDER Survey

Tablet Tests Frustrated with the small size and poor coverage of handhelds, builders look to the Tablet PC as technology that supers will use in the field.

Builders have high hopes for the Tablet PC as technology their superintendents and salespeople will actually use. Tablet PCs are smaller than laptops but, with their 10-inch screens, are large enough to comfortably view standard business applications. The devices also offer a handwriting feature that lets builders use a stylus to take notes, make annotations, and draw floor layouts.

Toward the end of 2003, stories about builders using and testing Tablet PCs were starting to surface. Palmetto Traditional Homes in Columbia, S.C., plans to roll out the devices to 50 superintendents in eight cities. The builder wants to run its back-end business and custom web applications on the devices.

Another builder taking the plunge is Donny Brook Homes in Marietta, Ga. The builder has two of its supers using Tablet PCs to run BuildTopia's construction management system. The company tried pocket PCs but says the screens were too small to view calendars, selections sheets, and contracts.

Donny Brook also pays $80 a month for PCS Connection Cards from Sprint. The cards slide into an expansion slot on the Tablet PC and deliver wireless access to the Internet and the company's corporate network. The Tablet PCs cost Donny Brook about $2,200 each.

East Meets West A dynamic San Diego infill project gives new life to the traditional row house form.

Rowhomes on F hits all the right buttons. Each of the 17, three-story units, which sold for between $360,000 and $575,000, measures just over 16 feet wide, so the project makes the most of its extremely tight, downtown San Diego site. Because there's a 3-inch airspace between each unit they're considered detached, meaning no homeowner fees and other condo dynamics. And the tilt-up concrete construction proved to be not only an efficient structural solution but it also reduced construction time, diminishes sound transmission between homes, and keeps out water. It also helped the project garner an Energy Star rating, coming in at 42 percent more efficient than required by government standards.

Lusardi Construction based in San Marcos, Calif., built the dynamic project, which had to be done in phases to accommodate a crane needed to lift the 37-foot-tall concrete panels. But Rowhomes on F isn't just a gray block of concrete. Strong jolts of deep color--red, purple, olive, and ochre--were used to punctuate the natural concrete, which was left exposed on exterior and interior walls.

"We took a really traditional East Coast model, the row house, and transplanted it to Southern California," says San Diego-born architect Kevin deFreitas, who designed the project. "By using concrete, there's no maintenance, no termites, you don't need to paint them, and they don't burn."

Tall Order Even single-family homes are going vertical.

A three-story format helped maximize per-acre density and allowed for attached garages at Classic Communities' Augusta Ranch in Mesa, Ariz.
Marc Boisclair A three-story format helped maximize per-acre density and allowed for attached garages at Classic Communities' Augusta Ranch in Mesa, Ariz.

Sometimes, the only way to go is up. In the pursuit of higher density, more and more builders are putting up three- and four-story, single-family units. Third-story bonus rooms are a popular option, but even master bedrooms are starting to show up on top.

That's one way Classic Communities was able to maximize space at Augusta Ranch in Mesa, Ariz. "Having a master bedroom on the third floor might not necessarily be everyone's first choice, but going up answers certain questions," says Reed Porter, president of Trend Homes, which partnered with Classic Communities at Augusta Ranch. Their 22-foot-wide homes came in at a tight 12 units per acre. "The trade-off is that people are getting a better location and a better price, and I think that's what's driving the purchases."

Good design also made the Augusta Ranch houses popular. "Price is king in that part of Arizona," says architect Dave Maldonado, a principal with KTGY Group, which executed the designs for Augusta (which won a grand award for best affordable project at the 2003 Gold Nugget Awards). "But the architecture was also unique. People were coming by just to look at the architecture because it was something that reminded them of where they grew up back East."

Strategic Thinking Builders purchased companies of all sizes in 2003.

Consolidation Chatter

Builders talk back: In September, NAHB economists surveyed builders about their experience with industry consolidation and their reaction to those trends. Here's a sampling of what the NAHB found: 74 percent say a company's land inventory is "important to very important" in mergers and acquisitions.
72 percent say the size of the market is "important to very important" in mergers and acquisitions.
64 percent say the profitability of the builder is "important to very important" in mergers and acquisitions.
82 percent plan to grow in their existing markets.
44 percent plan to expand in new markets.
5 percent plan to be acquired by another company.
3 percent plan to merge with another company.

Think strategy, not volume. That was the tactic of choice for acquisitive builders this year as they snapped up companies delivering anywhere from 200 to nearly 2,000 homes. Among the chosen were Colony Homes in Atlanta (purchased by KB Home), Albuquerque, N.M.-based Sivage-Thomas Homes (bought by Pulte), and Brighton Homes in Houston (acquired by Hovnanian Enterprises).

Even private companies joined the mergers and acquisitions (M&A) fray, as The Drees Co. bought Ausherman Homes in Frederick, Md., on the outskirts of Washington.

Why did builders buy these companies and not others? Strategic value: the home builder M&A trend of 2003. "I would characterize this year's activity as smaller deals targeted toward growing geographically or deepening market presence," says Tony Avila, managing director at JMP Securities in San Francisco, who has worked on many of this year's deals, including Sivage-Thomas, Brighton, and others.

As builders search for strategic value, though, they must go beyond the top major metro markets into smaller, yet vibrant cities like Jacksonville, Fla., or Houston. "If you're growing your company, you need to be in that sort of market," says Avila. Builders obviously agree. Toll Brothers, M.D.C. Holdings, Mattamy Homes, and Standard Pacific Corp. all entered Jacksonville through acquisitions this year.

Although they have been frequent, the deals in 2003 have been smaller, particularly in comparison to 2002's public-to-public biggies, such as the $637 million merger between Beazer Homes and Crossmann Communities and the $1.6 billion merger of D.R. Horton and Schuler Homes. But there was one notable exception. In July, Lennar said it had joined with former affiliate LNR Property to purchase Newhall Land and Farming Co., a 120-year-old Southern California developer, for $990 million in cash, making it the largest acquisition announced this year

Big Deals

Biggest Deal: Lennar's $990 million joint venture with LNR Property to purchase Newhall Land and Farming Co.

Most Creative Deal: Madison, Wis.-based builders Don Simon Homes and Midland Builders' plan to merge and create Veridian Homes, Wisconsin's largest green builder.

Hottest M&A Market: Jacksonville, Fla., where three public builders and one private builder did acquisitions this year.

Turnkey Luxury Hilltop at Encinitas Ranch delivers production models with custom touches.

It's all about lifestyle at Hilltop at Encinitas Ranch, a high-end master planned community in North San Diego County, Calif. Nine floor plans and a number of different elevations from builder Hovnanian Enterprises gave buyers the versatility most often found with custom homes.

"Buyers in the Rancho Santa Fe market area were looking for more of a high-end, production home that offers all the amenities without going through the process of building," says architect Greg Bucilla whose firm, Bucilla Brooklyn Architecture in Irvine, Calif., executed the Hilltop designs. "They're homes for people who were tired of doing a custom home and wanted a turnkey operation."

The million-dollar homes, which range in size from 3,100 square feet to 5,200 square feet, offered the kind of courtyard luxury that's holding fast as a hot trend in Southern California. The Spanish Botanica Residence 4 featured lots of bells and whistles, but there were two elements that really said it. "Everyone wanted this plan," says Bucilla. "They loved the East Coast-style formal stair in front and the informal stair out back."

Part I

Part III

Part IV

Learn more about markets featured in this article: Los Angeles, CA.