Experienced, privately owned builder weathers recession with even higher profits.
401+ units; Village Homes of Colorado; Littleton, Colo.
Village Homes of Colorado is holding its own during the "Tech Wreck"--Denver's latest recession. In 2001, closings, anticipated at 600, will likely be 535. Likewise, the company expected revenues of $190 million versus what will likely be $172 million. The surprise? Profits! Expected to be around 8.7 percent, they will instead be around 10 percent. Lessons learned in 2000 shortened cycle times while improving customer satisfaction ratings. And higher profits are proof positive of a company maxim that "profitability is not dependent on housing cycles but, rather, operating efficiencies." "We recognized 2000 [with its 804 closings] as a peak year," says Cheryl Schuette, senior vice president of home building.
"It's such a different market than the '80s," says Village CEO John Osborn, comparing the current recession to the past. "In the '80s it was too easy for anyone to get zoning and platted lots. It was an environment of excesses. Now we are dealing with a scarce commodity. You have to have more land in various entitlement stages than you used to," Village president and COO Donn Eley adds.
John Osborn (front), CEO; Donn D. Eley, president and COO; Cheryl Schuette, senior vice president of home building
Photo: Chris Shinn
Osborn, Eley, and Schuette, all partners, are the triumvirate who operate Village Homes. The firm's major challenge is similar to that of builders in many parts of the country--the length it takes to receive entitlements. What used to take a year and a half now takes two to three years. "We used to celebrate zoning a parcel, now we celebrate receiving a new building permit," Eley says.
Osborn cites anti-growth sentiment as a factor in the entitlement lag time, but he also expresses concern about municipal planning staff workloads. "These staffs have bigger workloads and less experience," he says. "There are simply more standards with which to comply, and experienced planners have moved to private industry."
Land acquisition and community development strategies are important in planning for the future of Village Homes, the partners agree. Their strategy includes acquisition, design, entitlement, and development of medium-sized, mixed-use communities.
Maintenance of a three- to five-year land supply is a goal to keep sales moving on a smooth trajectory. The company conducts extensive market research and pricing pro formas to determine market price and potential absorption rates before buying land.
Village uses equity with only modest debt to finance land purchases to keep its risk profile low. "The strategy" note the partners, "is to be very profitable [because of operating efficiencies] and to retain those earnings in the business."
"We price our product to the next level to reflect the value that we offer. We are perceived as 'being a cut above.' Our customer is the experienced buyer," Eley says.
The company builds 36 traditional, single-family plans ranging from 1,441 to 3,437 square feet and priced from $217,000 to $434,000. Village also builds "Village LifeScapes," a mix of attached and detached maintenance-free, "lifestyle housing alternatives" ranging in size from 1,100 to 2,595 square feet and selling from $214,000 to $354,500. Taken together, the average 2000 selling price of a Village Homes house was $280,000 compared to a Denver metro average selling price of $265,000, clearly a noticeable premium over the competition. LifeScapes, an award-winning, age-targeted rather than age-qualified product accounted for 33 percent of revenues and 36 percent of sales. The company has also gone after the burgeoning urban infill market
And in all these product lines, the company has embraced sustainability, going 100 percent "Built Green," a popular path in environmentally sensitive Denver. Village Homes continues to explore innovative building materials, like engineered lumber, and uses independent third-party inspections to ensure everything really measures up to green and energy-efficient standards.
"We have the advantage of being private," Osborn says. "We knew in the middle of 2000 that 2001 was going to be slower. We will exceed our profitability projections because we ran the business better this year. We controlled costs, were efficient."
"Years ago we went through the process and explored public vs. private building," Osborn says. "We decided we wanted to control our own destiny. We want to be a multi-generational builder. There will always be a role for the private builder." Private builders can often react more quickly, be more creative, be more aggressive, and have better local connections.
For 2002, Village is taking a cautious approach and making conservative estimates, expecting somewhere in the range of 550 closings. The company is re-costing products with its trade partners. It's trimming excess people and perks. "Selective pruning," Eley calls the changes. Staff has been reduced to 240 from 270. Many of the company's trade partners weathered the '80s recession with Village Homes and know the company is good at managing in what it calls "the change culture."
"We are focusing on our core principles and best practices, getting back to basics with a strong balance sheet," Eley says. "We anticipated the change in the cycle; it's not as if we were surprised," Schuette reiterates. And Osborn adds, "Denver still has a 2 percent to maybe 3 percent job growth. The city is positioned to take advantage of the war we are in. There will be renewed interest in technology and in defense spending."
Following technology layoffs and world events, a few buyers have cancelled and some have postponed buying. "Buyers are on the sidelines, not out of the market," Schuette says. One of Village's strategies is to keep in touch with cancelled buyers. Often circumstance, not lack of desire, chased them away. Another strategy is to build on its customers' "93 percent willingness-to-refer rating." Such customer loyalty through referrals generates more than a quarter of Village Homes' sales.
Product variety is another facet of customers' willingness to refer. Village prides itself on selling communities with a mix of housing styles, building no more than 50 to 80 units of the same product within its communities. Often, buyers will sell an early Village home to buy another newer Village home in another phase or another community. Similarly, generations of the same family will buy in the same community.
Schuette calls the Village approach to marketing events its "soft infrastructure." These consist of community building events such as a Halloween parade or a Fourth of July cookout. These are not big splashy events but, rather, targeted ones.
The company also has what it refers to as Village MarketPlace, a one-stop shopping opportunity for active home buyers, combining the Village Homes design center, its TECHTouch Showroom, its Signature Mortgage Co., MarketPlace Professionals Real Estate Services, and MarketPlace Monitoring Services. The design center is a cornucopia of choices for outfitting the home. TECHTouch includes home office, entertainment, and security technology options and is the showroom where buyers can check out home theater options. The monitoring service offers security and life-saving device monitoring. Signature Mortgage is a private loan brokerage firm, open only to Village Homes buyers. The real estate service company helps buyers sell their existing homes as well as understand the new Village Homes buying process.
Lock on labor
Like other builders in a tight labor market, Village has had to address employee retention. One solution has been the creation of Village University, an in-house corporate college. The company built a training facility and created a curriculum of computer skill classes. It hired its own in-house instructor so classes can be offered often and at times that work with employees' schedules. Village U has expanded to offer a very thorough orientation training as well as certification training in sales and construction skills, and other courses.
And to help all employees communicate better, Village U has language classes: English for Spanish speakers and Spanish for English speakers.
Whether it's protecting and growing people resources, charging ahead with innovative products or services, or implementing new technology, Village Homes constantly strives to be an industry leader--adding value every step of the way. "Value will sell houses," Eley says. "By maintaining value we become the better choice."
Winning Vanguard Practices
Be prepared for a downturn is one of Village Homes' mantras and is what kept it healthy during a tough year. Village Homes also:
- Takes raw land through the entitlement and development processes to minimize finished lot costs.
- Analyzes plan variances and makes the analysis a component of the superintendents' quarterly bonus program.
- Plans once-a-month barbecue lunches at each Village Homes construction site to help tradespeople network and find solutions to common problems as well as to provide a forum for the corporate safety director to deliver "tailgate" safety training updates.
- Awards trade partners at a semi-formal dinner for several hundred people with awards like "Craftsman of the Year" and "Foreman of the Year," giving a tangible impetus to quality.
- Offers in-house courses at its Village University in both English and Spanish.
- Stays in touch with buyers who cancelled their sales, since the cancellation may have been due to a circumstance that will change for the better down the road.
- Offers "soft infrastructure," including appealing community events like Halloween pumpkin parade.
- Markets its branded structured wiring package, Village TECHTouch, to bump up sales.
- Allows vendors to view accounts, bid files, and preview upcoming bids through a password-protected Web site called Trade Connection.
Village Homes of Colorado
John Osborn, CEO
Children: Matthew, Mark, Kate
Hobbies: golf, skiing, cycling
Donn D. Eley, president and COO
Child: DeAnn, Grandchild: Kendall Nicole
Hobbies: Biking, snow skiing, golf, scuba diving, reading
Cheryl Schuette, senior vice president home building
Children: Micah, Mariah, and Michaela
Hobbies: spending time with family
Peter Benson, president northern division
Mike Rabon, CFO
Gary Ryan, senior vice president community development