Fighting Shape

How are builders of all sizes and niches responding to the downturn? What's in their business plan for 2008? What are they doing on the sales front that seems to be working with today's seemingly all-too-patient buyer? These were the questions we sought to answer when we set out to interview four builders in each of three cities as part of our Builder Roundtable this fall.

Our readers may have fewer sales to occupy their attention, but they are staying incredibly busy revamping their operations so that they emerge from the downturn in fighting shape. Here are the top 15 actions builders are taking.

Builders are:

• Re-writing job descriptions. They are asking their people to wear multiple hats and moving managers down to contact level with customers, suppliers, and subcontractors. Well-capitalized builders are examining functions that they outsource with an eye toward bringing them in-house. Others are making necessary personnel reductions to improve cash flow.
• Building homes faster. Many are bringing their subcontractors and suppliers in for meetings to talk about how they can work more effectively together. They are providing subcontractors with better information on tightened schedules. They are asking subcontractors to work more closely together and monitoring jobsites more closely.
• Value-engineering their designs. Builders are taking wasted space out of houses, removing vaulted space, extra bedrooms, and rarely used formal rooms. They have engaged in classic value engineering-trying to achieve the same architectural look with less-expensive products. But many have also developed new sets of smaller plans, because this is the most effective way to save on direct construction costs.
• Lowering direct construction costs. Recent home price declines have led to redoubled efforts to lower direct construction costs. Builders have negotiated additional savings with subcontractors and suppliers. They have improved scopes of work, subcontractor walk-throughs, and quality control to lower costs per square foot.
• Redoubling training efforts. The rising tide of sales earlier in the decade lifted all boats. Now builders are separating their best salespeople from the rest and providing continuous training to help them achieve sales goals. Few salespeople have the necessary background to prospect for sales in today's market.
• Emphasizing sales fundamentals. Builders report that there are still buyers out there looking to add more space, downsize, or move to a better location. It's vitally important in this sales environment for salespeople to develop close relationships with buyers to find out why they are looking for a new home. Is it because they are adding a new member to the family, looking to retire, relocating from a different city?
• Competing with resales. Builders are feeling the pinch from "used" homes. Resales don't have the great features of new homes, but they often enjoy an advantage in their location. Builders are emphasizing energy-efficiency, green construction, and floor plans that suit today's lifestyles-things buyers can't find in existing homes.
• Adjusting their marketing mix. Most builders are dedicating more resources to online advertising and personal marketing campaigns at the expense of newspaper ads. They recognize that sales won't occur overnight anymore, and they are trying to develop long-term relationships with customers.
• Adjusting where they build. Builders reported that they are doing less work in outlying suburban fringe locations, in some cases shutting down projects until the market returns. In each market, they reported that closer-in locations are selling much better than outlying locations. The best-performing locations are often urban.
• Working closely with their banks. The builders we interviewed are taking a proactive approach toward banking relations. Several reported that they have renegotiated lending terms. Others confessed that banks had asked them to put more equity into deals. They all seemed to be feeling the credit squeeze. Everyone is very focused on cash flow.
• Taking their case to the government. Builders cited unnecessary municipal regulation, designed to benefit existing-home owners, as a major impediment to the provision of affordable housing. They agreed that building at higher densities is necessary to achieve lower price points, but said it remains extremely difficult to do so because of government regulation.
• Becoming better leaders. Builder executives emphasized the importance of great leadership during trying times. They advised that builders run their companies with more financial transparency. Though it's tempting to retreat behind a desk during hard times, they suggested that managers spend more time interacting with their people.
• Being realistic about the future. Most builders go into 2008 with lowered expectations, though a minority expects the market to rebound late in the year. For the most part, builders are budgeting for the worst and hoping for better.
• Watching closely for signs of a comeback. Builders are keeping a close eye on key metrics to look for signs of a comeback. They are monitoring levels of unsold inventory-both new and existing. They are keeping close tabs on consumer sentiment, cancellations, and traffic. That said, most builders we interviewed don't expect a turnaround until 2009, at the earliest, given trouble in the credit markets.
• Positioning their company for recovery. If history is any guide, the comeback, when it comes, will be swift. Builders want to make sure they are ready. They are upgrading managers and changing incentive plans to hold on to key employees. Many are entitling land so that it's ready for building once the market turns.

Participants:

Larry Webb, CEO, John Laing Homes, Newport Beach, Calif.

• John Laing is one of the two largest private home building companies in America by revenue.
• John Laing operates 13 divisions in California, Colorado, Arizona, and Texas. It consistently earns top rankings in architectural design, construction excellence, customer care, and home buyer satisfaction.
• In June 2006, John Laing was purchased by Emaar Properties, a Dubai-based international housing developer.
• That same year, John Laing was recognized as one of America's Best Builders by Builder magazine.

Terry Wardell, president of Wardell Builders, San Diego

• In 2004, Builder's sister publication, Custom Home, recognized Wardell Builders as its custom builder of the year.
• Wardell's company has a long history of winning major architectural awards. This year it won Best New Home of the Year from San Diego Home and Garden.
• Wardell has created some fine home building systems through the years. Those tools, along with a large field staff of carpenters and superintendents, enables the company to build homes to exacting standards and achieve high levels of customer satisfaction.

Mike Hall, president, Hallmark Communities, San Diego

• Hallmark is a production builder of first-time and move-up housing.
• The company was recognized with the prestigious Lee Evans Award for Business Management in 2002. It has also appeared on Builder magazine's list of the fastest-growing home building companies in America.
• Hallmark develops land in addition to building houses.
• Hallmark built more than 500 homes for fire victims after the last major fire swept Southern California. It is mobilizing to come to the aid of victims again.

Jay Moss, CEO, Mosaic Homes, Irvine, Calif.

• Mosaic is a new home building subsidiary to SunCal, a major developer in Southern California and one of the biggest developers in the country.
• Mosaic plans to build high-end luxury and single-family production homes on more than 20 sites throughout California.
• Jay is perhaps best known as a top executive within KB Home, where he worked for 25 years. Most recently, he was the Southern California regional manager for KB Home. He was also KB's national sales manager

Larry Burrows, president, Winchester Homes, Bethesda, Md.

• Since 2003, Burrows has been president of Winchester Homes, a vertically integrated builder that targets luxury home buyers in the Washington and Baltimore metropolitan areas.
• Winchester was the first regional builder to earn the NAHB's National Housing Quality Award.
• Other achievements include: JD Power and Associates #1 in Quality (2007 & 2005) and NAHB Builder's Achievement Award "25 Acts of Charity" (2005)

Roger Lebbin, founder and president, Mid-Atlantic Builders, Rockville, Md.

• Mid-Atlantic builds attached and detached single-family homes throughout the Maryland suburbs of Washington, D.C.
• For the past 10 years, each of its home designs has been recognized with an architectural award.
• Builder magazine, in conjunction with the NAHB, recently named Mid-Atlantic Builders as one of three national recipients of "2006 America's Best Builder" award.

Robert (Bob) Mitchell, chairman and CEO, Mitchell & Best, Rockville, Md.

• Mitchell & Best is a leader in distinguished single-family homes that mainly target the move-up and empty-nester market segments.
• Mitchell & Best has received the prestigious "Builder of the Year" award an unprecedented 15 times.
• Bob Mitchell was recently inducted into the NAHB Hall of Fame.

Steven B. Alloy, president, Stanley Martin Cos., Reston, Va.

• Stanley Martin is currently the largest builder of single-family homes and townhomes in Fairfax County. It is also the largest privately held builder in the metro D.C. market, with 352 closings in 2006.
• Steve is a life director and past president of the Northern Virginia BIA and serves on the Board of Directors of Housing Choices for All.

Jack Zausa, president, Zausa Homes, Orland Park, Ill.

• Zausa is one of the fastest-growing home builders in the country.
• Jack founded his company only 10 years ago, but has already developed it into a powerhouse, building more than 100 homes last year.
• Zausa concentrates on the townhome and entry-level portions of the marketplace with affordable homes, developing family-oriented communities in a dozen suburbs within the Chicago metro region.

Chris Coleman, president, Dearborn-Buckingham Group, Northfield, Ill.

• Dearborn-Buckingham is a semi-custom builder of townhomes and detached single-family homes in the near North, Northwest, and Western suburbs of Chicago, founded 10 years ago by Chris Coleman.
• The company has developed a strong niche in infill townhome construction, which has provided some insulation against the downturn.
• Dearborn-Buckingham closed 40 homes last year and expects to do at least that number in 2007.
• The company was the 16th fastest-growing home builder last year, according to BUILDER magazine's list of Fast Track builders.

Alan Lev, president, Belgravia Group, Chicago.

• Belgravia specializes in townhome and condominium developments throughout Chicago, including downtown.
• Through its history, the company has pioneered emerging neighborhoods in Chicago, identifying the ideal time for redevelopment.
• Belgravia is dedicated to providing high levels of customer service, high finish levels, and lasting value for its buyers.
• Alan is past-president of the Chicago chapter of the HBA of Greater Chicago.

Bill Kennedy, CEO, The Kennedy Group of Companies, South Barrington, Ill.

• The Kennedy Group is one of the largest independent builders in the Chicago region.
• The group was formed 20 years ago and includes affiliated companies with projects underway in Illinois, Wisconsin, and California. Other projects have been completed in Florida and Texas.
• Under Bill's leadership, the companies have built more than 26,000 homes and more than a half million square feet of office space.
• A senior life director of the NAHB, Bill also owns and manages several land companies that buy and sell parcels of land.