In 2007, at the beginning of this housing recession I was conducting survival seminars and often said the recession would yield once-in-a-lifetime opportunities for builders that reacted early in the cycle and made hard decisions.
Grand Homes, under the leadership of Steve Brooks, not only made the hard decisions (and is now celebrating 96 consecutive quarters of profitability) but positioned itself to take advantage of unique opportunities as the market recovers. Steve had survived the housing recession of the late 1980s in the oil patch states. Three of the lessons he learned then were to maintain strong financials with plenty of cash, achieve very low debt-to-equity, and work with multiple financial institutions. Having a strong financial position allowed Grand Homes the flexibility to react to the changing market early.
In 2006, Grand Homes was flying high with three divisions in the Dallas market selling more than 1,000 homes a year. The company got soft and complacent and bloated with staff as the management systems were taxed by the volume of sales. These were the same issues most builders experienced after 15 years of an expanding market.
At our Benchmark Builders group meetings, Steve was forewarned about the severity of the housing recession. In 2006, he had his whole upper management team attend our “Survival” seminar since none of them had ever experienced a housing recession. The recession hit Dallas very hard in 2008 with housing starts declining from 50,000 to 15,000 units annually. Half of the builders either failed or left the market. From August to December, Grand Homes only sold two homes and both contracts were cancelled. Its sales dropped to only 328 homes that year.
As the housing recession gripped Dallas, Steve took immediate action for a complete corporate makeover. “We had to remake our company,” he says. It substantially reduced housing prices to stimulate sales and cash flow. And it implemented cost-cutting decisions by consolidating three divisions into one centralized operation, reducing staff from 330 to 214 in 2010. Currently, the company has 129 full-time employees. To emphasize the importance of cost reduction, Steve suspended his own salary for 18 months.
At the peak of the market, Grand Homes suffered from poor customer satisfaction due to stressed processes and systems. To improve customer experience, Steve looked to Southwest Airlines for guidance to change its culture to an employee- and customer-centric organization. The company adopted a “People Matter” philosophy to treat employees, customers, and trade contractors with respect and dignity.
Grand’s home designs, floor plans, and merchandising were adequate in the strong market but had become dated. By 2009, the company had completely redesigned its products, and reengineered and resized them for cost-effectiveness. Energy efficiency, of little concern during the boom, became a major component of the redesign, and Grand’s homes now outperformed its competitors.
Open floor plans made the smaller homes live bigger, while stressing the “living triangle” of the kitchen, family room, and eating area. The living and dining rooms were reduced and every plan incorporated a flex space, which Steve called “Life Spaces” and which can be configured for 18 different uses. The company also remerchandised with lighter and more vibrant color schemes. The new homes have sold extremely well. This year, the company will sell 500 to 600 homes.
As soon as the market turned, Steve directed his son, Beau Brooks, to restructure all of Grand’s land contracts. Beau also began looking for “A” land positions in each of Grand’s submarkets. Grand was the only buyer in the market to acquire land from builders leaving the market or scaling back, as well as distressed properties from builders, developers, and financial institutions.
With quick, decisive action, Grand Homes has been able to survive a 70 percent drop in housing activity, maintain its profitability, and position itself to take advantage of some once-in-a-lifetime opportunities available as the market recovers.
Learn more about markets featured in this article: Dallas, TX.