A little more than a year ago, Mitchell Hochberg was like a man standing at the open hatch of an airborne plane. Skanska AB, the Swedish construction giant that owned and once saw promise in Hochberg's Spectrum Communities, was heading in new strategic directions: If Skanska wasn't destined to be No. 1 in a country where it had operations, it didn't want to be a player at all. In the sizzling and rapidly consolidating American home building industry, Spectrum Skanska barely registered in the top 100. The Spectrum division would have to go.
So Hochberg--who founded Spectrum in 1985 and was building high-end residential and lifestyle communities in the New York, New Jersey, and Connecticut suburbs circling New York's Westchester County when he sold the company to Skanska AB in 1996--suddenly was needing to leap.
But the 51-year-old developer and builder with characteristic moxie moved quickly, mounting a buyout offer. When the dust had settled, Hochberg succeeded in executing a soft landing, taking his top executives with him. In May 2003, he bought Spectrum back from Skanska, and Hochberg--now president and CEO--and his operation safely touched down in, of all places, Valhalla--not Viking heaven, but the Westchester County hamlet where Hochberg has had his headquarters for almost 20 years.
"We had built the company with Skanska's capital and we took it back significantly larger," Hochberg says. Spectrum grew from $30 million in sales in 1996 to $180 million on 375 homes in 2003, according to Gabe Pasquale, the company's vice president and chief marketing officer.
The reported $20 million buyback proved to be a genial conclusion to Hochberg's experience with foreign owners, as well as Skanska's foray into U.S. home building. Hochberg contributed his own money--"more than I wanted to," he says--to the purchase. Skanska financed the balance, agreeing to take the purchase paper. Spectrum officials say they are bound by a confidentiality agreement not to discuss details of the deal.
"We have some purchase money debt on the balance sheet, but no outside debt as a result of the acquisition," Hochberg says.
Moreover, at a time when many mid-size builders must increasingly weigh the competitive merits of selling their companies to secure long-term expansion capital, Hochberg and the newly independent Spectrum Communities appear to be thriving in the game of high-end community building in the elbow-to-elbow environment around New York City--a niche company among giants such as Toll Brothers and Hovnanian Enterprises.
Don't mind the airport
BelleFair is a 140-acre multigenerational development built with the principles of new urbanism in mind. There's a village green, a 25,000-square-foot meeting house, a shuttle to NYC commuter trains, a day-care center, and a gourmet market where you can buy fresh muffins. While the neo-urban concept is becoming cliche; in other parts of the country, in Westchester County there hadn't been this much focus on street life and human interaction since the advent of television and air conditioning.
You can almost forget that the Westchester County Airport is next door.
This twist is typical Hochberg. The land originally was zoned for corporate or commercial use. "It's in a highly acclaimed school district. It's 30 minutes from Manhattan," he says. "We knew the community was against the expansion of the airport and against commercial expansion."
Hochberg convinced the planning board of Rye Brook, the village where the property was located, to change the zoning. Spectrum spent $30,000 on each home to mitigate the sound of the air traffic. The community plan was loaded with hometown amenities, a Hochberg signature. "We thought that if you could give them that, they would overlook the airport," he says.
And they have. When BelleFair opened in 1998, buyers happily paid in the high $300,000s for a single-family detached home, despite the sonic intrusions. In built-to-capacity Westchester County there is nothing else available at that price point. The 249 residences sold out in 18 months. The homes are reselling for more than $1 million, Pasquale says.
"From a difficult site they were able to create a community," says Neal Weinstein, of Goldfarb & Fleece, the law firm that handles Spectrum's acquisitions, joint ventures, and financing.
One other aspect of the BelleFair story illustrates Spectrum's business strategy: No one else was interested in the property.
"That's a frequent formula we use, and in most of the communities we build in, we have no competition," Hochberg says.
As a medium-sized company without layers of executives, Spectrum can be nimble when land comes on the market. "We can make a decision in 24 hours," Hochberg says.
Spectrum's executives--including Andrew Stark, senior vice president; Rodney Montag, vice president for acquisitions; and Kevin McManus, vice president for development--handle the details of the company's acquisitions, master planning municipal approvals, home design, marketing, and sales. While that's not unusual in a company of its size, Spectrum's VPs learned the business by working at the large builders, says Pasquale, who spent a dozen years at Hovnanian Enterprises. "We took the efficiencies we learned to Spectrum. That helps us in the control of time and quality. And that has an impact on the bottom line," said Pasquale.
With access to Skanska's deep pockets, Hochberg had ready capital in 1999 to buy for $8.1 million the 46-acre Long Island estate once owned by Marcus Lowe, one of the founders of Metro-Goldwyn-Meyer studios. Spectrum Skanska turned the property, on the island's north shore, into Legend Yacht and Beach Club, a gated community with its own marina and 47 homes that sold for $1 million to $2 million each. The jewel in the crown, though, was the 10,000-square foot, single-family Villa del Mar estate. Reconstructed from the ruins of the old estate's stable and servants' quarters, it sold last year for $3.5 million.
That was then. While Spectrum still has access to a variety of sources for capital, without Skanska, Spectrum can't match the low margins that the large publicly owned builders can sustain, Hochberg says. "If there's something up for auction, we're never a player," he says. Adds Pasquale: "We're not willing to take the greater risk that the national players would on potentially over-paying for land."
A typical Spectrum project is 250 to 400 homes and requires $75 million to $150 million in capital, Hochberg says. That makes Spectrum a large player in that part of New York, where land is scarce and most companies build in the tens of homes, New York building sources say. But it's not hard for Hochberg to line up the cash, Tony Avila says. "Mitchell's got a lot of great capital sources available to him. It isn't difficult at all."
Hochberg says he works with a single, passive equity partner on each project. "We put up money head to head with them," he says, and Spectrum "always" has majority ownership.
Those partners include financial institutions, real estate funds, and a real estate investor who, Hochberg says, all have "substantial assets." The partner typically receives 25 percent to 50 percent of the profits, "depending on the structure of the deal and how well I've negotiated. We guarantee the debt. It allows us to further leverage the equity we have."
"He's a good risk," says Lawrence Stewart, vice president of Union State Bank, in Tarrytown, N.Y. "He's a private developer with a long history of successful development. Nobody does it quicker or in a more organized manner."
Stewart's relationship with Hochberg predates Spectrum's Skanska period and continues to the developer's latest projects. Stewart describes Union State as Spectrum's lead bank, providing Hochberg financing for land acquisition, development, and building. "We also provide him a working capital line of credit: liquidity financing," he says.
From the beginning, Hochberg was building at the high end.
"The high price of land, added to the high cost of lifestyle in the area--almost by definition your product will be high end," he says.
Hochberg has spent his life inside the Spectrum radius. He grew up across Long Island Sound from Westchester, in Nassau County. His father was a CPA who did a little real estate developing on the side.
To his own CPA degree, Mitchell Hochberg added a law degree from Columbia University School of Law, where he was a Fiske Stone Scholar. He began as a real estate attorney and later was vice president of tax and non-traditional investments at Paine Webber Mitchell Hutchins.
But it was while a senior vice president for the real estate development firm VMS Realty that Hochberg began to long for hands-on involvement in a company of his own making.
Spectrum was his handiwork--a company that built upscale production homes, positioned between mass developers and Westchester custom builders for whom a $1 million home was practically proletarian.
"As we began to build a market niche, it began to be difficult from an equity perspective," Hochberg says. So in the mid-90s, Spectrum went looking for an infusion of equity.
Skanska seemed an unlikely prospect. Hochberg wasn't looking to give up control of Spectrum's operations, and at his first meeting with the Skanska people, he was told the Swedes were not passive investors.
Then serendipity began to intervene. It turned out that the CEO of Skanska USA lived 10 minutes from Hochberg's office. "So we had lunch," Hochberg says.
That began the thaw. "We're not going to eat you up," he remembers the Skanska people telling him. "We're buying management, not assets."
So when Skanska did buy Spectrum in 1996, Hochberg became president of the new Spectrum Skanska real estate subsidiary, bringing with him his executives, infrastructure, and systems. "Skanska never imposed anything on us. We gave them an annual business plan and went over it once a quarter. We still come up with an annual business plan and review it once a quarter."
And when Spectrum and Skanska parted ways, Hochberg had the infrastructure and people in place to carry on. Yes, he is putting a lot more of his own money into projects than he used to. He jokes that it affects his wife more than him. "From time to time, she signs guarantees," he says.
Things are going well in Valhalla.
From central New Jersey, where the 126 acre Encore Monroe is home to 394 single-family homes for adults age 55 and older, heading north to Long Island and Connecticut, and on to western Massachusetts, site of the 67 home Cranwell Resort and Golf Club, Spectrum's operating radius around its Westchester County hub is expanding. That expansion is part of the reason Spectrum late in 2003 became a client of Dan Klores Communications, a New York City-based national advertising agency, according to chief marketing officer Pasquale.
"We're moving out of that stronghold in Westchester. We're a strong brand and Dan Klores will use its national expertise to get the name out there," says Pasquale.
Spectrum's products are expanding as well. Two years ago, Spectrum entered the active-adult market under the Encore brand name. Encore Monroe was the first community. Encore Atlantic Shores will offer 240 homes on 78 Long Island acres. And Encore Lake Grove, a 228-home gated community on Long Island, valued at more than $100 million, is expected to open in early 2004, according to Pasquale.
The creation of Encore illustrates Hochberg's twin interests in development and marketing. "He wanted to come up with a new brand, a new identity, and not just give it a new name," Pasquale says. "That was something that Mitchell was passionate about."
While Hochberg is upbeat about the continuing availability of land--"I've been building in Westchester for 25 years and everybody said 20 years ago we were running out of land"--the consensus is that large parcels are harder to find. "You have to be creative to find land," says Tony Avila, of JMP Securities. "Mitch is very good at it."
One of Hochberg's solutions is to think vertical. Spectrum has an eye on suburban infill. A high-end four-story condominium building is on the drawing board. And Hochberg envisions additional "three-to-seven-story buildings with amenities, service, and the design of the apartments more like a single-family home."
Hochberg is clearly at home in Valhalla. And after what he says was six years of "an extraordinary partnership" with Skanska, he's not about to sell ... again.
On the other hand, he's been in the business 25 years already. "I'm also 51," he says, as if giving the passage of time its due. "But I'm a young and hungry 51."
Learn more about markets featured in this article: New York, NY.