Bo Knez, president of Perry Township, Ohio–based B.R. Knez Construction, is fighting a stalled market in Northeast Ohio by diversifying as well. After operating as a custom home builder for more than 10 years, Knez joined a Builder 20 group and ramped up production, hitting 44 closings and $13 million in revenue last year. He considers himself a semi-custom builder now, with products ranging from $150,000 to more than $500,000.
The goal for this year is to increase closings slightly, to about 50, and to reach further into what he calls “the neglected market,” buyers looking for homes priced less than $200,000. For the time being, geographic expansion isn't in his plans. “It's tempting to leave, but we don't experience booms and busts here. We're content with where we're at. We don't have aspirations of doing 3,000 homes a year,” Knez says.
Many of Knez's colleagues on the Fast Track in boom markets can remember tough times, too. That's why Buena Vista Custom Homes' Pollock says he options finished lots rather than developing them himself, and he keeps as much cash as possible. “It gives me the flexibility to change with the market,” he says. “In Oregon, there has never been a market like this. It's a little too easy for us to think it's always going to be this way, that there's some sort of genius angle we've discovered that previous builders had not. We're just tremendously lucky.”
ZIPPING AHEADFor the first time, we separate and compare the Fast Track members by size.
TIME FLIESMid-sized and large builders solidly increased their rate of revenue growth in 2004, but across all three groups of builders, closings growth was more volatile.
The smallest builders on our Fast Track fell off the pace a bit in 2004, as their rates of growth for both revenue and closings dropped. The 26 builders who closed fewer than 100 homes last year still managed to more than double their production between 2002 and 2004, though.
Improved financing has been key to growth for some. Boca Raton, Fla.–based Sterling Communities has bankrolled six projects with the help of Hearthstone, a national institutional investment firm that provides capital to home builders. One such project allowed Sterling to buy an estate on the Intercoastal Waterway in West Palm Beach, Fla., which it carved into 19 high-end homes, strengthening the company's position as a luxury builder. The company closed 88 homes last year for $44 million in revenue, but president and owner Paul Asfahl says the concentration on the upper end of the market will increase his average price this year from $498,000 to $768,000.
Jeffrey Homes' group of private investors has grown along with the company, which increased its closings in Southern California from 33 in 2002 to 126 last year. About 50 investors—up from an original group of six a decade ago—provide the capital for big land buys, says Doyle Barker, the company's president.
Paul Hyde Homes, the smallest builder to jump onto the Fast Track this year, with just five closings in 2004, has designs on growing larger through a method usually reserved for much larger companies. “I'm trying to buy another local small builder in the area, which would triple the size of my operation,” says owner Paul Hyde, who's based in Kenner, La., just outside New Orleans.
The Fast Track's largest builders continued their industry dominance in 2004, increasing both their rate of revenue and closings growth. And though local builders often decry national builders' entry into their markets as one of the reasons land has become so expensive and scarce, some readily acknowledge that the big builders help their business.
Lexington, S.C.–based Essex Homes SE shares its market with several national builders, including KB Home, Centex Corp., Beazer Homes USA, and D.R. Horton, but president and owner Karl Haslinger isn't complaining. He's adopted some of the big builders' operating practices. “I made it my business to study their business. I got the information on how they operated any way I could. I hired their people as superintendents and incorporated their subcontractors,” he says. The homework seems to be paying off: Essex Homes SE ranked fifth in the market last year with 200 closings, and in April, Haslinger hired his sales manager from D.R. Horton, who's helping the company grow toward 300 closings this year.
Victorville, Calif.–based American Housing Group takes studying the nationals to a new level. Vice president and CFO Todd Tatum says the company makes a conscious effort to locate its model-home complexes near KB Home, with the knowledge that many buyers will look at KB and likely check out his homes, too. “We haven't had a problem getting them in the door. Then we have to sell ourselves, our company, and our history,” Tatum says. “We think nationals in the market are great for us.”