Brothers Mark and Scott McMillin are co-chairmen and co-CEOs of San Diego-based Corky McMillin Cos., founded by their late father Corky in 1960. The company develops land and builds homes throughout California–it also has a division in San Antonio. The company grew by leaps and bounds in the past six years, closing 1,586 homes in 2006.

Elder brother Mark and his wife C'Ann have three children; Scott and his wife Susan have two children. The two also head up the off-road McMillin Racing Team–also started by Corky in the 1970s–which is now a key team-building activity and part of the corporate culture. Mark's and Scott's own sons, Daniel and Andy, have been drawn into the sport. In July, the co-CEOs spoke with Big Builder senior editor Lisa Jackson about home building's and car racing's bumpier rides.

BB: You've been through cycles before, obviously. What do you make of the current environment?

SM: Scary with the amount of inventory that appears to be popping up.

BB: Obviously, the drivers are different than they have typically been with the economic backdrop still being relatively strong; although it sounds like that's slipping more every day. In the last six years alone, you've grown substantially, organically, as well as through acquisitions. But, when you look at this environment and you look at coming out, do you see it as an opportunistic time for your company?

SM: Well, I don't know where to begin to start answering your question. You know what? We believe that the Sunbelt will continue to have population growth and job growth. We're just going through a cycle that has to balance out between supply and demand. I think, particularly in California, it will continue to be harder and harder to build. I mean, there will continue to be more environmental and community restrictions and conditions. So, I think real estate is basic and real estate is local.

All real estate is local. And so, you know, as long as you're buying in good locations in the communities and developments that you're doing, that gives you the better position to-you know, to survive the adjustments in the market.

BB: Well, when you really look at how our industry works, companies are a direct reflection of their land decisions. It seems to really come down to that.

MM: You got it. Nobody is a good home builder unless they've bought the land right.

BB: What I'm hearing is that people are not seeing land prices fall much.

MM: The land prices are falling on stuff we haven't bought yet, but the problem is, if we bought five or six hundred lots we're pregnant at the price we paid.

BB: Are you saying that in you are in your markets they're starting to fall?

SM: In the restrained areas like San Diego, it's not falling very quickly. But if you go like to Imperial Valley or the Bakersfield market, you know, the farmers-because it's all farming land that we're entitling I think the price per acre has come down significantly in the last 12 months.

MM: And then, there's-and there are some willing to sell and some not.

SM: There are a lot of people walking away from large options. I've heard of one that was $4 million. [The builder] walked on a section of land, which would be 640 acres-they walked away from $4 million on option money that they had up.

SM: Cost will always follow price appreciation and cost will follow price depreciation. So we're just in that cycle and costs are falling slower than what the prices are. So it's heading in that direction. And depending on each respective market and landowners, some are falling more than others. You know-another way to answer your question is: Would you go out and buy another 400 lots today in a market that's continuing to have price depreciation? And you can't.

SM: So therefore, you're saying prices aren't falling fast enough. So it's a chicken-and-egg thing.

BB: Once there is some stabilization out there, is your vision to continue to grow into additional new markets?

MM: Yes.

SM: You know what? We've always been opportunistic on that. So it's based on the opportunities and our organization. You know, we're committed to our organization; we're committed to the markets that we're in, and that's our first priority. And then, as those re-stabilize and the volume comes back for our scale and scope and the liquidity and profitability, then we'll continue to be opportunistic and go to those markets where people bring opportunities to us.

BB: It's an interesting arrangement that you have, being co-CEOs. But then, add in the fact that you're brothers ? there must be rewards to that, and then, challenges that come with it, too.

SM: Well, we're brothers first, and so we've always worked together. We've been doing it for 25 years, so we actually don't know anything different.

MM: And there's enough work to go around.

SM: Plus, we have different interests in the business. I think if you would have looked back ten years ago when we were younger-in our thirties. When you're growing and you're more aggressive, you know, you have stronger opinions about strengths and weaknesses. But now, as we've grown, actually, the [individual] weaknesses are the other one's strengths and vice versa. We've learned to rely on those on each other. So you know what? I wouldn't want to be here alone. That's how I look at it.

BB: You came up through the business in very different channels. Was that a strategic decision or was it just a reflection of where your individual interests fell?

MM: It was based on personal interests. I've been much more of a hands-on operational in home building, and Scott tends to do more of the financing and enjoys the paperwork more.

BB: So, you work together and you have your synergies on the professional side. And then, you go out in your personal life and you compete against each other on the racing circuit.

MM: Yeah, we are competing against each other, but we have three or four racecars on the same team, we're also competing against the other hundred or two hundred competitors at the race. Scott's son just won a big race in November; my son just won a race in March. And that's a win for the whole team.

BB: So you don't necessarily look at it as an individual sport. You look at it more as a team sport?

SM: You know what? We were racing together before we were working together, and there's really that platform that provided us a lot of our skills and personalities, and taught us how to work together. We had to practice together; we had to plan the race together; we had to rely on the same support during a race. But yet, we were competing and racing in the same class and trying to win overall in the race against each other. But there is not a time when we don't help each other out. We're on the radio as we're racing. And one guy might be ahead of the other one. We've always been like that, helping each other. That's really been the training ground for us working here together at work.

BB: I was going to ask you how those experiences work together-if it affects the way you look at your business decisions. It sounds to me like, at the end of the day, you've just developed like an enormous trust factor with each other and you know somebody's always got your back. That's kind of what I hear you saying.

SM: Yep, that's what it is.

BB: When it comes to land acquisition in today's environment, what are the big issues keeping you awake at night?

SM: It's two things: First, it's capital. What's the capital environment? The [capital] market's changes and goals and objectives and how do they change. The other one is the continued increase of conditions and restrictions. Whether it's [at the level of] environmental, governmental, or community; when you're buying land two and three and five and six and seven years in advance, you don't know what additional costs or unfunded mandates are going to be given to that land and to your investments.

BB: How do you develop that forward vision to determine the next great place where everybody's going to want to live? What's the key driver?

MM: I don't think we're looking for any completely new markets. We're trying to see where the growth is going to go into areas. We're not trying to reinvent the wheel. We tend to follow.

SM: Yeah. We're not pioneers.

MM: We've never been the Del Webbs-50 miles from Vegas and building a community that, you know, may or may not work for retirement. They have one in the middle of nowhere. It's out by where we race. But that's all affordability-driven.

BB: Right.

MM: I want to talk about Scott's comment on equity ? on a tough part of land acquisition. I've got two spins on that. One is our ability to attract equity. The other thing, a fear that we have is: I have a fear of being a competitor against crazy equity. I think when we see what's happened in two of the markets we've been at with some Wall Street money, it appears now that they spent money just frivolously and they drove everything up.

BB: So they screwed it up for everybody else?

MM: Well, they took a swing at it. In Bakersfield and in Imperial Valley, there's a particular Wall Street-type investment that just absolutely was tying up everything. That's what I'm going to call the crazy equity. Somebody tells these guys-and I hate to pick on the 28-year-olds-but they have to place $400 million and [they have] to do it in three Fridays, you know? I hear there's more money than there are good deals. And boy, that's not at all good news.

BB: I know you are coming up on the second anniversary of the death of your father in September. How is he still present, in your life and your business today?

MM: Well, we've got his picture in every room and we think about him every day. We even turn around every now and then when we're in some of our executive meetings and ask, "Well, what would he have done?"

SM: There are three ingredients to a successful company-people, people, and people. And my dad, here 45 years and our senior manager-he created a culture here and that's his legacy. The legacy is the culture of our integrity, of our trust, of investors, lenders, and customers and company principles. Leadership changes, style changes, but culture doesn't change. And, you know, we're still operating here under the same culture.

BB: And as far as responsibilities, I mean, you pretty much split those cleanly down the middle? And then obviously, at certain points, you come together to make bigger decisions?

MM: We do, at our executive committee meeting here. But then Scott and I are very, very good about never second-guessing a decision one or the other of us makes. My dad never did that either. And, you know, we screwed up a number of times like any human being, and he would just say, you know, "Hey, that's water under the bridge. Let's go with it. Let's don't put a spotlight on it."

It's hard for Scott and I to give all of our senior managers enough time with both of us together. That's the hardest thing. Sometimes together-but mainly separate-we cover all the bases. You know, that's the benefit of having two of us.

Plus, you know, if somebody calls and, says they've got a park opening or something, "Hey, can Mark or Scott make it?" Chances are, one of the two of us can.

BB: How many times have people said they'd like to have a clone? And, you know, in some ways, you get that.

MM: We do. That's a good analogy.