WHEN FORMER CUSTOM BUILDER Ed Burgan wanted to become a condominium developer, he did something unheard of a few years ago: He bought a franchise. The franchise was Columbus, Ohio–based builder Epmark, which has been in business since 1995. And the company has ambitious growth plans.
Growth By Design Epmark franchisees such as Burgan enjoy the buying clout of a national company, for which they pay a fee of $2,000 per completed unit. The fees can add up. Burgan's Anderson, S.C., Gibeon Development Group started 188 units in the last two years, for a total of $376,000 paid to Epmark. But he says that discounted materials and other benefits more than cover the cost.
Franchisees build a cookie-cutter product in a formulaic way. The product is a patented “pinwheel” four-plex condominium design, that consists of two pairs of back-to-back, single-story units separated by two-car garages. Epmark offers four different floor plans; franchisees cannot deviate from them. Customers can only choose from simple upgrades: better flooring, cabinets, counters, and appliances. The price of the homes begin around $160,000.
The company seems to have done what other companies have tried and failed to do: gain a permanent foothold in the home building business. Its 74 franchisees have already built nearly 15,000 homes in 22 states, earning Epmark the number 43 spot on the BUILDER 100 list.
While Epmark sounds like a typical entry-level developer, it claims that its design is unique, combining the cost efficiencies of a townhome with the privacy of a detached house. For instance, when you look at the front door of one unit, you don't see the front door of the other—or the four garages.
The target is the growing active adult market. (Most Epmark buyers are over 55.) The company plans to add 30 new franchisees this year and to be building in 40 states by the end of 2006. “Our goal is to build homes across the nation,” says Tom Rothrauff, Epmark's general manager.
No Experience Necessary It will do so with a diverse roster of franchisees, only half of whom have home building backgrounds. One nonbuilder is Paul Scarmazzi of Hawthorne Partners in Pittsburgh, a former commercial lender.
Scarmazzi's lack of building experience wasn't a problem. His first project, a 72-unit development in Moon Township, near Pittsburgh International Airport, went smoothly, and he began preselling his second project last October. “It's already sold out, and we don't have anything built yet,” he says.
He describes his success with a touch of amusement. “When I first heard the concept of copyrighting plans and franchising condos, I thought it was crazy,” Scarmazzi recalls. But now he sees franchising as a natural response to consolidation in home building. “If you fast-forward five years, the top 20 builders will control the majority of housing starts. If you look a bit further into the future, you will probably see some vertical integration in terms of the supply chain.” Think Wal-Mart.
To help franchisees compete, Epmark not only offers big-company buying power, it also gives them a set of management procedures that leave little to chance. Its Home Building Development System tells franchisees how to manage operations, sales and marketing, and construction. It teaches them how to interview potential hires, how to manage faxes, and how to hold preconstruction meetings. On the marketing side, Epmark supplies templates for brochures, point-of-sale displays, Web sites, and radio and TV ads.
Even experienced builders laud the training. Larry Lindstrom of Leisure Builders in Salt Lake City used to build 12 to 15 custom homes per year. He wanted to get into condo development but worried about his lack of experience. “I was comfortable with financing and building but not with running a sales organization. I had no experience dealing with a homeowners association.” Lindstrom says that Epmark filled the gaps in his knowledge and that he now builds 12 Epmark units with less effort than he used to build one custom home. “I do more volume with less effort now, and I get a better margin.”
Networking Power As the only franchisee in the western part of the United States, Lindstrom doesn't benefit much from Epmark's buying power, except for accounts with national companies such as GE and Merillat. “In my market, I get about a $1,000 benefit,” he says.
Now that he's an experienced developer, why doesn't he cut the cord and save the franchise fee? His answer is that Epmark franchisees routinely share information and experience, a benefit that is invaluable. Because franchisees have protected territories, they don't compete with one another, and it's in everyone's interest for everyone else to succeed.
Burgan also cites networking as a benefit. He recently got three plumbing quotes: $5,000, $4,700, and $4,500. Then another franchisee told him how to do the plumbing for $3,500. Burgan passed the information to his plumber and asked for a reduced price. “That saved $1,000 per unit.”
Burgan swears he will never go back to building the old way, and it's not just because of cost savings. “I don't negotiate price anymore. If you want a condo, it costs what it costs,” he says. “It's sort of like becoming a Pulte overnight. The way this is structured, you build a business rather than building houses.”
Charles Wardell is a freelance writer based in Vineyard Haven, Mass.