After more than a year of lobbying colleagues, refining strategies, and enduring legal scrutiny, CEOs and the public affairs chiefs for 13 big public builders had reason to celebrate January 20.
Assembled in a plush meeting room in Las Vegas' Bellagio Hotel, not far from the pandemonium of 100,000 conventioneers in town for the International Builders' Show, the consortium signed off on a final draft of bylaws and voted to formally incorporate the Public Home Builders Council of America. Its mission: To join forces for a common cause—helping Main Street, as well as Wall Street, better appreciate the stability and strength of the large public builders apart from the broader housing industry.
Adding to the group's sense of accomplishment was a modest but symbolic first victory that very day. It took the form of a newspaper story appearing on page two of the morning's The Wall Street Journal.
Breaking from the newspaper's reputation for lumping the fate of big builders with the fortunes of home builders in general, a report on a new NAHB forecast for fewer home starts in 2004 took unusual pains to highlight Toll Brothers' extended backlog and Centex's latest rise in new home orders. Even the story's headline, “Builders See Solid New-Home Year,” was more upbeat than big builders have come to expect from the paper.
The story didn't run entirely by happenstance. In the days leading up to the builder show, Fleishman Hillard, the public relations firm hired by the PHBCA, went on the offensive. Anticipating the trade show would generate plenty of housing news, Fleishman operatives contacted reporters working for a host of news organizations, including Fortune, Business Week, and The Wall Street Journal, offering one-on-one interviews with the nation's top home building chiefs.
When Fleishman's Michele Vana, a former journalist, learned The Wall Street Journal was preparing to run a story on the new housing forecast that Tuesday morning, she quickly arranged for phone interviews with Toll Brothers' CEO Bob Toll and Centex Corp. president and COO Tim Eller. The builder executives were ready and armed with information for the reporters.
Reaching Out “It was proactive, not reactive,” notes Richard Anderson, the senior vice president at Fleishman Hillard who heads the entire PHBCA effort. Instead of waiting for the media to call, he explains, and then having busy CEOs play phone tag between meetings with reporters on deadline, the PHBCA would reach out to the media with specific data before the show opened. “It's a demonstration of what the PHBCA can do as a unified group, with a specific agenda and an execution capability of all 13 companies,” Anderson says.
Whether the PHBCA's efforts can truly turn the tide of perception remains to be seen. Anderson, a seasoned specialist in marketing communications strategies, is pragmatic. It takes time, compelling information, and a collective voice, he maintains. Consequently, the PHBCA is moving methodically to build momentum.
The organization decided to “soft launch” at the IBS, without even a formal announcement of its launch, or news that D.R. Horton, the Arlington, Texas-based builder ranked the largest in the country by Builder magazine, had signed onto the group, bringing the number of members to 13.
The approach stands in contrast to that taken by a preceding group of big public builders, using the same name, which sponsored a modest and relatively ineffective ad campaign in The Wall Street Journal, spelling out the financial strength and professional management practices of big builders. “That was the limited mandate of that group,” explains James Zeumer, vice president of investor and corporate communications at Pulte Homes, in Bloomfield Hills, Mich., and one of the lead advocates behind the new PHBCA.
This group, by implication, has a much broader, more ambitious charter: to establish the largest, publicly traded home builders as a distinct market force within the home building industry; to educate the media about the unique contributions that home builders, particularly production home builders, make to the U.S. economy; and in the long run, ideally raise their stock valuations.
The Starting Line Neil Devroy, vice president of communications and public affairs at Centex Homes, in Dallas, recalls the genesis of the PHBCA. Early in 2003, he and a few other executives were gathered in the hallway of a Washington, D.C., financial institution before a meeting. An article had been published in a major newspaper about the perceived housing bubble, Devroy recalls. “None of the public home builders were seeing anything resembling a bubble,” he recounted. “The article also mentioned mortgage rates, and because of our ability to get financing, we are not affected by that.” As the men spoke, they agreed that the publicly traded builders were not doing a good enough job explaining how their companies were managed and financed. Ideas began to form.
Fred Cooper, Toll Brothers' vice president of finance, recalls discussions among executives who wanted to invest time in educating the financial and investment communities in the dramatic evolution of the large publicly traded home builders over the past decade. “The analysts do get it,” he insists. “It's more the investment funds who might not be investing in home building because of their experience of a decade ago,” when a housing bubble burst and left a lingering scar.
Cooper says the CEOs continually discussed the “misunderstanding and lack of recognition of the changes that have occurred among large publicly traded builders in the last 10 to 15 years,” but by late spring agreed that a formal effort was needed if plans to educate the investor community, the financial markets, and the media were going to have any real traction.
Professional Help The CEOs also realized that they and their staffs needed help, acknowledged Devroy, to launch a national communications outreach program. They first considered asking the NAHB to handle it. But publicly traded builders are a relatively small part of the NAHB. “It's not fair to ask them to allocate resources for such a narrow segment of their membership,” says Devroy. “We do think we can work together with them because they have such a wealth of data and resources. But we would fund this separately.” A request for qualifications (RFQ) was drawn up and sent to a handful of large public relations agencies.
“Great strategies underpin great communications campaigns,” he explains. “If you have a flawed strategy, a great communications campaign will fail.”
The council declined to identify which agencies made the cut, but Fleishman, the eventual winner, was among a small number of finalists to receive a request for proposal that included recommendations for dealing with tough industry questions such as how to respond to Freddie Mac's and Fannie Mae's accounting issues.
Anderson says he put together both a short-term and long-term plan for timely actions to start to get the story of public builders “out there.” The key to delivering the message is for all member CEOs “to speak from the same playbook,” says Anderson. The messages aren't engraved in stone, but a unified voice will be more clearly heard than 13 distinct voices in a chorus.
Fleishman's recommendations won out. And with a game plan in place, Devroy, Cooper, and Zeumer—among others—went to work finalizing CEO commitments. Each builder ultimately agreed to chip in a substantial, but undisclosed, flat-fee contribution to sustain the council's efforts.
The Long Road Ahead The first prong of the outreach campaign is focused on educating the media, explains Anderson. “There are major gaps in education,” he says. A large part of the business press happens to be housed in the Northeast corridor—New York, Washington, D.C., and Boston—and writers draw from their own experience. “There tends to be a perception on the part of the media that what they experience in prices, cost, and taxes is true nationwide,” says Anderson. “There's huge disbelief that you can buy a four-bedroom home on an acre of land for $200,000. That's our jumping-off point.”
In Las Vegas, Anderson met with the real estate editor of The Washington Post. Real estate in this national newspaper is a local story, so the pitch was local, focusing on Loudoun County, a booming section of Northern Virginia that has placed strict rules on housing growth, creating scarcity. Where there is scarcity, housing values increase, as does demand, notes Anderson, and this can be a benefit to builders. “Some publications have written about one aspect of the story, and others have written about another, but few connect the dots,” he says.
Other dots that need to be connected include the economies of scale that big builders enjoy, and the transformation of home building management, especially as the industry consolidates and bigger builders absorb smaller companies. “We lay out the story of why these companies have made themselves into very predictable growth companies,” explains Anderson. “With reliable futures and steady demand, they are less sensitive to interest rate fluctuations and other factors that had previously influenced the fortunes of the sector.”
The PHBCA might also develop a focused opinion/editorial campaign, perhaps penning pieces for business oped pages, or following the footsteps of Mobil Oil's series of advertisements in national newspapers discussing the environment and other issues.
“It's kind of like a political campaign,” says Anderson. “There are different key messages and we want to make sure they're resonating in different markets.”
Toll Brothers' Cooper is pleased. “We used to go in alone and promote our own company,” he says. Now, the companies speak together to promote the industry, and the message may get through. Or, as Anderson puts it, “It's a category sell, not a company sell.”
The negative image of developers who are insensitive to the environment and construct cheap, ugly developments in place of a forest must also be directly tackled, says Anderson.
Large home builders can turn that image to their advantage. “When a municipality has a choice to go with one builder or another, my understanding is that recent history has shown that they will go with a big builder who can provide amenities that municipalities demand, such as open space and contributions in kind for schools,” says Anderson. “Big builders have become working partners with municipalities.
In that regard, they would be less of a target for those who have environmental concerns, because they have the greater resources to implement Smart Growth policies, he notes. He ends with the big picture. “America's largest home builders, who are a distinct sector of the home building industry, are well positioned to expand. The wind is at their back.”
Getting those figures to sink in is one of the goals of the group, says Beazer Homes' CEO Ian McCarthy. “We need to communicate that the face of the home building industry has been transformed,” he says. But the image that many members of the media and the investor community have is frozen in the past, he says. “They think of us as real estate companies. We are really retailers, handling the largest purchase of anyone's life.
Another commonly held misperception, notes McCarthy, is that “the moment interest rates go up, the housing market drops to zero.” Nothing could be further from the truth for large, well-capitalized builders with banks of land and ready access to capital, he says. “We will probably gain market share if rates go up,” as smaller builders might suffer, he notes. There are also new opportunities to move buyers to a multiplicity of mortgage products, apart from 30-year fixed rates, that did not exist 10 years ago, he notes.
Talking Points Part of PHBCA's goals is to bring greater clarity and uniformity to the message executives share with the media. Among the points they expect to stress:
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