About three years ago, D.R. Horton was looking around for satellite locations to add to its housing repertoire. From its offices in booming San Antonio, the largest builder in the country looked south toward the Texas border and found an unexpected surprise.
It didn't take the company long to realize there was an untapped market, and that market was Laredo—once a sleepy border town two-and-a-half hours from San Antonio. It was growing fast in the wake of the Sept. 11 terrorist attacks, as more and more border personnel were hired and assigned to the region.
“One thing that truly drives our business is job growth,” says D.R. Horton president Don Tomnitz. “If people have a job, they can buy a home.”
Tomnitz sent his division president, Brian Rome, from San Antonio to scout out the location and discovered it was a market that could handle at least 300 new houses, priced from $140,000 to $250,000 for the first-time buyer. “We got some pretty good guidance on it. In a lot of border markets, there is a lot of opportunity,” Rome said. “We went after the correct market and have been very successful.”
THE PLAYBOOK In many ways, Laredo is how Horton works. The company's intelligence tentacles reach peripherally outward from its entrenched operations, followed shortly by its relationship-driven land acquisition team. Next time you look, Horton's moving dirt and turning inventory in its low-cost, high-volume way. Others may wipe-board the same plays, but nobody executes on this type of market colonization strategy so seamlessly as Horton.
And Laredo is not the only place Horton is expanding. Its footprint covers 26 states, and 77 markets. That's a good enough reason to call itself “America's Builder,” the biggest by unit volume in the nation, with nervy, self-avowed goal of doubling the number of houses it delivers in the United States to 100,000 by 2010.
Will its silver-bullet formula apply as the headwinds gain velocity in new housing? Horton is betting on the strategy that delivered so well in the last decade will continue to carry it to new heights. It includes high volume, using land already in its stable, focusing on markets that are growing, and shifting resources from those that are not and heading into submarkets, like Laredo, to meet customer demands.
BIG IFS Still, analysts say Horton is playing with fire and that what helped drive the company to become the No. 1 public builder in the U.S. may not work for the next cycle. Barbara Allen, housing analyst with Avondale Partners in Phoenix, believes that Horton faces challenges it has never before confronted. Most of its plans to grow its businesses, she says, are familiar tactics used by big builders everywhere. The volatility of an unknown market, she says, may trip up Horton and every other big builder. One problem, she says, is that Horton has a 6.2-year land supply. Nearly half the land is owned outright by Horton and the rest is under option. “If there is a weakening of land prices,” Allen says, “you do have some risk because you would be able to buy land cheaper than what you paid for it.”
Tomnitz, however, says the inventory for land is not that big. The company has a two-year supply that it owns and options on the remaining four-year supply.