Click here to see the 2007 Builder 100 list.
Credit: Jonatahan Barkat
This year’s Builder 100 is not a celebration of who built the most homes. That would be folly in a year where builders practiced scorched earth sales tactics to move homes simply to generate enough cash to keep their doors open. Instead, we examine the builders who lived through 2007 and stand facing a grim 2008. What lessons can they impart? What are they changing about the way they do business?
After the dust settles and the downturn that began in 2005 finally shifts into an upswing, the largest builders will have gained market share. But it’s not evident yet, as many companies saw massive declines in closings, revenue, and assets over the last 12 months during the economic tumult.
Once the shaking stops, many companies, large and small, will be in shambles. But the public builders will have the financial backing, thanks to partners on Wall Street, to start building as soon as there’s a call for more homes. And that is what will turn the tide for them. Smaller builders, on average, will either close their doors or not have access to funds quickly enough to start building in advance of an upturning market, unless they were among the few who managed to squirrel away cash and available debt.
Yes, 2007 was a disaster, with credit tightening like a noose, skyrocketing foreclosure levels, a dying market for mortgage-backed securities, plummeting home prices, and the devaluation of the dollar. It is no wonder that Centex CEO Tim Eller, when told he was being interviewed for the Builder 100, quipped, “Are there 100 builders left?”
Thankfully, most builders are still standing, but virtually all of them are hurting. In reaction to market forces, many companies hacked and slashed their personnel in quick-fix overhead cost-cutting moves.
For Bloomfield Hills, Mich.–based Pulte Homes, the problem of employee and company morale is being met head-on. Having cut over 55 percent of its full-time workforce from its peak size, Pulte has dispatched its CEO, Richard Dugas, to meet with every division. Dugas held the town hall–style meetings in each of his first four years as CEO, but this year marks the first time he is meeting with groups as small as 10 to 20 employees, he says.
“The workforce doesn’t see you hiding behind your desk, and you can speak to their questions, and most of them are questions that I can answer very directly,” he says. “It’s been effective to get the therapeutic effect of people being able to express their minds and get their questions answered from the horse’s mouth, so to speak.”
Downturns are old hat for Hovnanian Enterprises, which was founded in 1959, says Ara Hovnanian, CEO and son of founder Kevork. The company is following a strategy of selling inventory at often drastically reduced prices, generating cash, renegotiating land deals, and trying to reduce loan balances, Hovnanian says.