A year ago, M.D.C. Holding's founder and CEO Larry Mizel might have been labeled an anachronism as he stood up in front of a room full of investors and said, “M.D.C. is a pure home builder. … We don't do much of anything but single-family, detached, and a few townhomes.”
All the talk 12 months ago was of diversification and doubling in five years. Urban towers, exotic land-deal partnerships, newly sexy geographies; it was all about expanding out of the suburban, single-family, detached box. If you didn't have a product everywhere for everyone then you were subject to ridicule for leaving wads of money on the table.
Still, Mizel's punch list of what his company is not comes across as a litany of strategic conservatism among bolder, more acquisitive visions. “No joint ventures, no off-balance-sheet financing, no special performance contracts, no goodwill, no condos, no mid-rise, no high-rise, no speculative land. Really, really boring,” he told the group gathered for a mid-September Credit Suisse-Hanley Wood sponsored event. M.D.C. doesn't even forecast earnings “so that means we don't have to change it every month.”
It's the kind of old-fashioned business philosophy that would have had expansion and diversification-obsessed investors and fellow builders smiling indulgently last year as the folksy Mizel pitched the merits of M.D.C.'s healthy debt-free balance sheet, and quipped, “The secret to success is don't go broke.”
Credit Suisse rewarded M.D.C. for its disciplined approach to land acquisition and its chunky balance sheet by upgrading the stock from “neutral” to “out-perform,” saying it will be in the position to “opportunistically replenish its land supply at lower prices, while its peers concentrate on shedding their balance sheets.”
“I think that's the only nice thing she [Credit Suisse analyst Ivy Zelman] has ever said about me,” says Mizel, who seems to be enjoying his status as the poster boy for the now in vogue corporate fundamentalism.
Within two weeks of Mizel's mid-September speech, he had an imitator. Before delivering the continued bad news of slowing sales and cancellations at Lennar Corp.'s quarterly conference call, president and CEO Stuart Miller flaunted the virtues of Lennar's balance sheet and repeated Mizel's folksy Will Rodgers-like wisdom: “Some of the best and brightest in the industry have noted that the best way to succeed in a home building downturn is to survive and not go broke, and we agree with that notion.”
It seems fat, boring balance sheets, an M.D.C. staple for years, have become the must-have, public builder fashion accessory for the fall of '06. And they have been doing whatever they can to get the same look. Drop land, lay off employees, get out of anything complicated, risky, or with far-off returns.
HIT 'EM WHERE THEY AIN'T Such retrenchment by the publics has James Bagley, president and COO of Orlando, Fla.–based private builder Park Square Homes, rubbing his hands together at the prospect of the opportunity to expand into the void. “Well capitalized privates are saying, ‘Hit 'em where they ain't,'” he says.
Learn more about markets featured in this article: Orlando, FL.