List compiled by Loretta Williams
Runners call it "hitting the wall." Somewhere near the last six miles of the 26.2-mile marathon, a runner's body begins to rebel. Muscles that have powered their way through the past 20 miles start to slow. A heart that's been working overtime for hours wants, at the very least, a 15-minute walk break. And a mind that's been plotting race strategies and repeating personal cheers for miles 1 through 20 suddenly feels fuzzy, tired, and desperate for fuel--orange juice, a banana, even one of those chewy energy bars. No wonder the uphill climb at mile 21 of the Boston Marathon is known as "Heartbreak Hill."
The builders we chose to highlight this year in our annual Fast Track list of fast-growing builders know that type of pain. Some are public, some are private, but what these eight companies all have in common is endurance. For five years, they've been on the Fast Track, pushing themselves to build more homes, open more communities, enter more markets. And, like marathoners in Boston and elsewhere, these builders all have hit walls of their own--a lack of geographic diversity, a reluctance to share control, competition from bigger and more well-capitalized companies.
But these companies aren't sprinters, with spring-coiled steps that last for three miles at the most. They are marathoners, and they have stayed in the race thanks to a mix of tactics: a production builder mentality, a commitment to innovation and training, a devotion to meeting every lifestyle expectation a buyer could imagine, and more. Speed counts for these five-year Fast Track builders, but strategy is what wins the long race as they break through the wall to the finish line.
Michael Brodsky is a man who believes in making a plan. "Nothing intentional happens without proper planning," says Brodsky, owner and chairman of The Hamlet Cos. So each year, he sits down with his 60-plus employees and prepares for the year to come, discussing the mission, vision, and values for Hamlet, a Salt Lake City home builder that also maintains land development, mortgage, and wetlands mitigation banking operations.
The topics sound soft, but not at Hamlet, a Fast Track veteran that closed 287 homes for $43 million in revenue last year for a compound annual growth rate of 17.8 percent. This builder's employees and leaders take those annual conversations about the company's mission and transform them, like carbon into diamonds, into an annual business plan, with goals and action plans for each department and every employee.
Specifics matter: Hamlet, like many performance-oriented builders, sets targets for seemingly everything. Building a home should take 63 days; employee satisfaction should hit 95 percent; customer satisfaction should reach 98 percent. Once the goals are set, Hamlet tracks its progress closely. "The plan doesn't get dusty," says Brodsky. "It gets reviewed regularly."
As a result, those goals get met. Hamlet builds a home in 62 days, frequently has zero-defect closings, sees production variances of less than 1 percent against the budget, and reports customer satisfaction ratings that have hovered between 97 percent and 98 percent for the past six years.
Such metrics aren't the result of a static business, either. "In Salt Lake, the level of sophistication among builders has changed dramatically," says Brodsky, who competes against strong local builders and, intermittently, the publics. "Ten years ago, when we started, it was unusual for a builder to have a fully merchandised model. It was unusual for a builder to have set hours of operation ... today, that's changed."
So has Brodsky, who recently made a decision difficult for many company founders: giving up some control in exchange for growth. After years of handling Hamlet's land acquisition and development, Brodsky realized his reluctance to share those responsibilities with others was limiting Hamlet's growth and hired a land acquisition manager. "Land is our lifeblood," he says. "Without an adequate supply, everything else goes away."
The Opportunists: Standard Pacific Corp., Irvine, Calif.
Here's Stephen Scarborough's one-word elevator pitch for his company: opportunistic. "We have a flexible business plan," says Scarborough, CEO of Standard Pacific, which closed 6,265 homes for $2 billion in revenue last year to generate a 20.2 percent three-year compound annual growth rate. "We focus on the marketplace." Whether the chance at hand is land or operations, the Irvine, Calif.-based public builder has been willing to set aside its preconceptions and seize the moment, a quality that's put it on Builder's Fast Track since 1999.
That happened last year, when the company went in search of geographic diversity. Standard Pacific wasn't specifically looking at Florida--until it met the management at Westfield Homes, a top Tampa builder with a Carolina division. Impressed by Westfield's operations and integrity, Standard Pacific bought the builder, realizing both top-line growth and diversification. "Thirty-six percent of our revenues now come from markets entered since 1998," Scarborough says.
The company has diversified its product lines as well. Long known as a Southern California move-up and luxury builder, Standard Pacific has been writing a new story, expanding into urban infill, first-time buyer, and other more affordable product lines as it develops new markets through internal startups and acquisitions. Despite the lower price points, Standard Pacific has maintained an emphasis on good design, one of its hallmarks. "Lower price doesn't mean lower quality, and a focus on design doesn't mean higher prices," Scarborough says.
Part of the product mix expansion is a result of necessity. "For us to be successful in markets going forward, it's going to require the company to be flexible, because there is such a constraint on land availability," Scarborough warns. "You can't rely on the land being available to fulfill your business plan."
Given its expanded base of operations, Standard Pacific may soon test that flexibility in new markets; Scarborough says he's watching for opportunities in places such as Las Vegas, Tucson, Ariz., Atlanta, and suburban Philadelphia and Washington. "We want to be in large markets where there is long-term potential," he says. "We're a real believer in taking the long-term view."
Demographic Watchers: Toll Brothers, Huntingdon Valley, Pa.
At Toll Brothers, expanding into vacation homes and active adult product is just following the wave. "I don't believe there is necessarily an ideal product mix," says Zvi Barzilay, president of the luxury public builder. "We're patterning ourselves around demographics, and the growth of the population keeps changing."
Of course, it's an affluent demographic Toll seeks, pursuing households that make at least $100,000 annually. This year, Toll's average selling price has hovered around $540,000.
It's a path that has worked for Toll, propelling it from its 1998 results of 3,099 closings and $1.2 billion on BUILDER's first Fast Track list to 4,430 closings and $2.3 billion last year. Toll has continued to grow its business in the last two years as well, even as the economy has struggled and the luxury market has softened; the builder lands on this year's list with a 13.3 percent compound annual growth rate.
Now Toll wants to apply those national growth skills locally, boosting its market share from the 4 percent to 10 percent it's typically garnered in its established markets. "Our market share is very small," says Barzilay. "We have tremendous growth opportunities in those markets." One way it hopes to do that is through expanding its product offerings. Washington, Toll's largest market in terms of closings (1,040 in 2002), provides a model. "In D.C., we build homes from $200,000 to $1.5 million, attached, detached, move-up, empty-nester, active adult, golf course homes," says Kira McCarron, vice president of marketing. "It's a good microcosm for our full product line."
Accomplishing this growth will require land, something of which Toll has no shortage. With 45,000 lots (the majority of them owned), the builder has almost a 10-year land supply, by some calculations--a statistic that causes some friction on Wall Street. Barzilay shrugs it off. "We want to have land available to us when we're ready, and to do that, you have to take some inventory," he says. "We've recognized that land can be a major constraint on our growth, so we have made the decision to acquire land. Land is the raw material of our business."
Town Builders: The Villages of Lake-Sumter, The Villages, Fla.
Builders and developers often talk about "creating communities," but few have capitalized on that concept like H. Gary Morse. As developer and builder of The Villages in central Florida, Morse has established a retirement "hometown" that houses more than 35,000 residents and covers three counties.
But size isn't what has caused the Fast Track growth at The Villages, which closed 2,260 homes and generated $463 million last year, for an 18 percent compound annual growth rate during the past three years. Attention to every detail of lifestyle has.
"Lifestyle, as much or more than 'location,' is the key to a happy retirement," says Morse, whose community takes the typical active adult amenities and kicks them up about 10 notches. Village residents can stroll through their own downtown (a second is under development); read a truly local paper, The Villages Daily Sun; play golf at one of four championship courses; watch their own cable channel (VNN--Villages News Network); network with their own chamber of commerce; and even go to the hospital, all without leaving the boundaries of this 20,000- acre community.
The philosophy obviously works. The Villages welcomes 6,000 new residents a year and boasts a 50 percent referral rate. "Residents recommending their retirement hometown to their family and friends is the core of our outreach," Morse says. "Our residents are our best salespeople."
There may soon be even more of them. The Villages recently received approval to build 32,000 more homes--a significant step toward its eventual goal of 100,000 residents by 2014.
The only obstacle to The Villages' continued growth? "Government," says Morse. "Excessive and inefficient regulation is an expensive, continuing challenge. For a country built by free enterprise, we sure make it tough on ourselves."
Forward Thinkers: Neumann Homes, Warrenville, Ill.
At Neumann Homes, there's no shortage of big, hairy, audacious goals. By 2020, the Warrenville, Ill.-based company wants to be the top home builder in the world, with the technology, operations, employees, and customer enthusiasm to match. "We have a central vision of where the company is going," says president Ken Neumann, who has a distinctly private builder-based philosophy. "Shareholder value is not a vision."
Bold, yes, but it's that type of thinking that has kept Neumann Homes on the Fast Track for five years running. Five years ago, the company built roughly 500 homes a year, offered three product lines, and catered to entry-level, family buyers. Today, the builder closes more than 1,200 homes, sells a dozen different products to all types of buyers, and operates as seven divisions in three states (Illinois, Wisconsin, and Colorado), with new markets (possibly Texas, Arizona, and Michigan) to come.
Size and geographic scope isn't all that's broadened at Neumann Homes since its early years. "Then, we were focused on building homes and surviving," Neumann says. "Today we're focused on building great leaders."
It's a necessary stage in the fast-growing builder's evolution. It's also one in which Neumann Homes has invested heavily, forming Neumann University three years ago. The company requires each team member to take 60 hours of training annually, spending an average of $4,000 per employee.
The company also has concentrated on technology, seeing it as a critical tool in its quest for sustained growth and operational excellence. "We've spent $20 million since 1996 on information systems," says Neumann, who expects to roll out yet another upgrade later this year. What's involved in this new version? An "open infrastructure" that will allow team members to benchmark their performance against their colleagues in multiple areas: conversion, cancellation, and referral rates; cycle time, trade relations, safety scores, and more. "It's not a top-down system," Neumann says. "It's about people measuring themselves."
Volume Seekers: Astoria Homes, Las Vegas
Sometimes self-awareness is the best strategy for success. "We knew we wanted to be a volume builder," says Tom McCormick, president of Astoria Homes. "When we started, we hired people who had been to where we wanted to go."
But no one could have predicted just where this Las Vegas builder would end up going. "We thought we'd be a much smaller company, doing 200 to 300 homes a year," McCormick says. "As we learned what we're good at, we realized our fit was not in the niche builder mentality. Being a production builder is what we're good at."
And produce it does, maintaining a spot on the Fast Track list since its 1999 inception. That year, it was off like a rocket, turning in a 700 percent compound annual growth rate between 1996 and 1998. Five years later, that trajectory has slowed, as one would expect of a more mature company, but the builder still turns in a more than respectable 25.1 percent growth rate for the past three years, closing 568 homes in 2002 for $122 million in revenue.
McCormick credits his staff for that stretch of sustained growth. Given their previous experiences working for higher-volume builders, they knew what the fast-tracking Astoria would require as closings increased, and they planned appropriately, establishing a computer system that could handle its growth. "We had everything in place before we needed it," he says.
The company didn't escape all the pressures that come with growth. Closings and revenues did dip in 2002 after refining a new small-lot product caused delays. "Because sales were moving so quickly, we didn't have the opportunity to analyze what was working, and more importantly, what wasn't working in the high-density neighborhoods we were developing," McCormick says. "As a result, we had to backtrack on new neighborhoods in the planning stages. If we want to keep getting these types of neighborhoods approved, we need to be able to show local public officials that they are working."
One challenge that Astoria hasn't faced: access to capital, often thought to be the insurmountable challenge for the growing private builder. "Local banks have become aggressive about lending us money because they're not able to loan to the publics, at least not on the local level," McCormick says.
Relationship Cultivators: Sotherby Homes, Plano, Texas
As the son of a developer and the president of a home building company, Peter Shaddock Jr. knows how challenging establishing new business relationships can be. "It's hard to get that first dance," he says. But he also knows it's critical if he wants to maintain the momentum at his fast-growing Plano, Texas-based company. With 188 closings and $56 million in revenue in 2002, the company registered a 32.2 percent compound annual growth rate on this year's Fast Track list.
It's not always easy. "You sometimes have to be willing to step up and take a larger land commitment than you would like," he says, but it's worth the stretch. "You just have to have the opportunity to build with somebody, and then you can prove yourself."
But no worries--Sotherby has found plenty of dance partners. The move-up builder has cooperated with companies such as Grand Homes, Highland Homes, and Hovnanian-owned Goodman Homes on different communities in the Dallas/Fort Worth area, a strategy it likes. "We get away from the competitive pressures with the custom builders," says Shaddock, whose homes run from the $180s to the $500s.
The company has sidestepped the competition in other ways too. Thanks to Shaddock's family ties, Sotherby has established close relationships with the development community. "We get first looks at the best opportunities," Shaddock says. The company also moves quickly to address new-buyer needs, drawing on internal and third-party research to identify trends, and then developing new product offerings in as little as three weeks if needed. Such strategies have kept Sotherby on the Fast Track even while facing the public builder powerhouses. "They chase land with more money," he admits. "At the same time, they're not as agile, so we can beat them."
Learn more about markets featured in this article: Boston, MA.