America's Best Builders 2007: Focus On Flexibility

Much like race-horses wearing blinders, America's Best Builders—Gaffney Homes, The Green Co., Touchstone Homes, and Ideal Homes—have kept their focus on what's ahead despite a year of suffering sales. Last year's closings may reflect consumer caution, but the leaders of these four leading-edge building companies are planning for what's next, even as they adapt to what's going on now.

And adapt they have: They're building homes that are smaller and include fewer frills, and they're selling them for less. As buyers turned their focus from opulence to outlay, these top-notch builders answered by erasing those invisible enticements that designers love but consumers will never miss if they don't see them in the models. Charlottesville, Va.–based Gaffney Homes, for instance, has temporarily terminated its placement of floor-to-ceiling pillars in the foyers of its models, while Touchstone Homes has converted the once-standard attic to an optional “bedroom in the sky” that's selling like crazy to parents of teenagers.

As they “right-size” to accommodate a slumping market, this year's ABB winners are dealing with today to prepare for tomorrow. The Green Co. in Newton, Mass., has held fast to its pattern of steady, smart growth, which prevents it from jumping into bad deals yet allows it to enjoy modest year-to-year sales gains. And Oklahoma City's largest builder, Ideal Homes, steers clear of financial troubles—which it suffered in the 1980s—by keeping a low debt-to-equity ratio, even while recording solid sales gains.

All of this year's winners have plans for growth and are flexible enough to diversify their designs during a market downturn that has the public pining for a different product than the builders had on their drawing boards. That flexibility, they say, is what makes them winners, and it's what will help them grow whether the housing market is strong or sluggish.

High End At Any Price

In a region known for tough controls on building, green has fashioned ecology-minded developments of upscale attached homes for empty-nesters.

THE 1969 DAYTONA-YELLOW Camaro parked in the three-car garage of a spec home in Charlottesville, Va.'s Old Ballard Farm subdivision is builder Mike Gaffney's lucky charm. Every time he finishes a home, he parks the sports car in the garage until the place sells.

It must be working. In a sluggish housing market, Gaffney Homes closed on 58 homes last year, 13 more than the year before. The privately held company hung onto a 13 percent market share, and its sales revenue spiked by about 18 percent, to $24 million, in a market that, like most, is saturated with housing inventory.

Mike Gaffney, president, Gaffney Homes

Credit: James Kegley

In fact, Gaffney Homes, which builds semi-custom and production homes, town-homes, and condominiums in Albemarle County, has more than tripled both its number of closings and sales revenue since 2003, making it the fastest-growing home builder in central Virginia.

Along the way, Gaffney, 52, grew his small staff to 30 employees and transformed himself from a builder of custom homes to one who will build whatever will sell in Charlottesville—and he'll sell it at the price Virginians are willing to pay at the time.

The result is that the company, helmed by a one-time used-book salesman, builds homes that range from $300,000 to $2.3 million in a market where the average price is $461,000. Yet the builder's focus on quality and style comes through in even the most affordable homes. “It doesn't matter what the price point is,” explains the firm's vice president and controller, Mike Ball. “We're still going to be considered the high-end builder at that price point.”

Whether the home is a two-bedroom condominium or an 8,000-square-foot mansion with a pool, its roomy, wide-open interior bears a sleek Gaffney stamp. Gaffney Homes mixes granite countertops with stainless steel appliances and satiny wood floors in kitchens; squeezes in nearly as many bathrooms as bedrooms; and sprinkles in architectural surprises, such as pillars that separate the foyer from a formal living or dining room. The builder's favorite among the 275 homes he has built since stumbling into the business after renovating his own first home 20 years ago: “The one I'm building,” says Gaffney.

The homes fall into three categories: luxury, semi-custom single-family homes that are at least 3,000 square feet; single-family production homes that are smaller than 3,000 square feet; and multifamily homes, including condos and townhomes, which account for 63 percent of Gaffney Homes' construction activity and 42 percent of its revenue.

Last year, the firm ventured into downtown infill housing for the first time, breaking ground on 14 narrow, four-level homes on ultra-steep lots about a mile from the University of Virginia campus. “The land that's left in the city is very challenging,” notes Gaffney, who is selling the homes for $529,000.

But until 2002, Gaffney Homes kept a narrow focus on 10 or so semi-custom and production homes a year, ranging in price from $400,000 to $1 million. The year before, Charlottesville's largest employer, the University of Virginia, declared a hiring freeze just before the terrorist attacks of Sept. 11. In response to the sinking local economy which resulted, the company diversified into townhouses and condominiums that sell in the $300,000 to $400,000 range. As the market began its recovery and Charlottesville's appetite for luxury returned, the firm answered with mansions that sell for around $2 million.

Now, says Ball, “You have the best of both worlds: a company with 20-year roots in the community—we're not going anywhere—but at the same time, it is growing. There's an established feel, but an entrepreneurial spirit. At Gaffney Homes, we're pretty passionate about being entrepreneurs.”

Gaffney caught that passion while he was majoring in math and actuarial sciences at Central Connecticut State University in the 1970s. He chose to work for the 26-year-old owner of a chain of used-book stores and dropped out of school to work at the boss's first retail store in Boston “to learn how to be an entrepreneur.” That mentor's name: Leonard Riggio, who went on to found Barnes & Noble.

ROOM TO BOOT: The 4,080-square-foot Wellingly model at Old Ballard Farm in Charlottesville, Va., sits on two acres. Its kitchen (below) bears the Gaffney Homes' “stamp” with granite countertops, stainless steel appliances, and wood floors.

Credit: Gaffney Homes

Credit: Gaffney Homes

“What I got from him was a tremendous desire to do everything I could to help him be successful,” says Gaffney. “He created that in all of us. I think I have re-created that in Gaffney Homes.”

Riggio hired college kids, handed them responsibilities beyond their years, and turned them into managers. Gaffney has given some of his own firm's executives the opportunity to invest in his building projects, a perk that has, at times, reaped them more income in a year than their annual salaries.

“I create opportunities for long-term relationships,” he says. “The key is to get the right people who are aligned with your goals.”

Gaffney left New England in 1979 with an armful of clothes, a sleeping bag, and a $50 station wagon, and drove south. When he arrived in Virginia, he says, “I was an entrepreneur without a business.” So he started a wholesale textbook business and embarked on a search for a cheap house to buy in the Blue Ridge Mountains. He found an A-frame he could afford—but it was empty inside, just studs and a shell. He moved in and hired an out-of-work builder to help him finish it. He spent the next two summers working on residential construction crews. In 1987, he sold his mountain home, rented an old farmhouse, and started building his first spec house. It sold eight months later; the next one sold before it was finished. “I went from part-time builder to full-time builder” with that sale, recalls Gaffney.

For the next five years, Gaffney built one custom home at a time. By 1992, he was up to eight houses a year. When he started building townhouses in 2002, he became a production builder and whittled his building costs down to $65 per square foot.

Soon after, the demand for luxury town-homes exploded in Charlottesville. Gaffney responded by adding elaborate embellishments such as see-through fireplaces, curved banisters, and built-in TV cabinets, standards that allowed him to raise prices.

SMALL BUT SLEEK: Condos at Glenwood Station in Charlottesville, Va., are 1,232 to 1,580 square feet and feature two or three bedrooms. Kitchens (below) come with some of the same high-end finishes buyers find in semi-custom homes, sleek granite countertops, polished wood floors, and stainless steel appliances.

Credit: Gaffney Homes

Credit: Gaffney Homes

“When it's a buyer's market, price is really important, so the design of the house will have lots of options [instead of luxurious standards],” notes Gaffney. “When the market's great, the challenge is: How do you wow the next buyer? In a seller's market, we make the options standard and add them into the price.”

The seller's market of the early 2000s, of course, left Charlottesville and most other markets with an excess of inventory—and a return to a buyer's market. So Gaffney has dusted off his 2002 plan for affordable townhomes; on the drawing board are homes that will sell for less than $200,000. He also alerted Realtors that he would slash prices on standing inventory to move the homes.

Still, says Ball, Gaffney-built homes will retain their sleek look and quality assembly. “We looked at what we put into the house that we like but that the customers don't think is valuable,” he says. In single-family homes, for instance, buyers won't miss the entryway pillars if they don't see them in the model. Kenmore appliances will replace high-end GE Profile models in some units. Wraparound front porches will disappear. And on some models, garages will become optional. “We've taken a hard look at our product and re-engineered it down to lower price points where we see the demand,” says Ball.

In the process, the company will scale back home prices by $20,000 to $40,000, bringing some single-family homes into the $300,000s, and some townhomes even lower.

The firm also has figured out how to save money by cutting waste and unnecessary spending, notes Ed Zarzyski, Gaffney Homes' vice president of construction. Builders are instructed to squeeze every drop of caulk from a tube rather than tossing one that's still a quarter full. Purchase orders from the field now need Zarzyski's approval, so crews are making fewer spur-of-the-moment purchases and spending less time running to the store. “We used to get stacks of invoices for trips, gas, man-hours,” says Zarzyski, who estimates field staff is making half as many miscellaneous runs as a year ago.

FOCUSED YET FLEXIBLE: The fastest-growing home builder in central Virginia, Gaffney Homes has grown its profits by building what Virginians want to buy—from custom homes to condominiums—in various price ranges.

Even the builder's trade partners have noticed a change for the better. “They seem to be more organized than most builders, which eliminates trips,” says John Lloyd of John Lloyd Electrical in Charlottesville. “And they don't call the subs out until they're ready for them. Other builders will call them out, and they're not ready. That's the traditional way.”

The company has changed its ways, but “we're not trying to change the feelings that people get when they walk into a Gaffney home,” notes Zarzyski, who says the firm won't skimp on concrete foundations or trim. “Those are things some of the customers [wouldn't] see,” he says. “Those are things the customer would feel.”

That's important to Gaffney, too, who describes his product saying, “It feels like home.”

Dave Phillips, CEO of the Charlottesville Area Association of Realtors, describes the homes as “unique in a way that's subtle, yet impressive.”

“There are a fair amount of builders who are building in that upper end of the price range,” notes Phillips. “Mike has done a good job of distinguishing himself by the quality of his construction. And the number of bathrooms-per-bedrooms ratio—well, he understands folks like me who have three daughters.”

GAFFNEY HOMES

Within five years, Gaffney's customers may feel at home outside of Charlottesville as well. Gaffney, who expects to graduate from the University of Virginia's Darden School of Business with an MBA in 2008, has plans for “rapid expansion” of his company. In fact, he estimates the firm will close on 101 homes and collect $45.6 million in sales revenue by 2008. First stops could be the nearby Virginia cities of Waynesboro and Lynchburg, and Gaffney will likely add mixed-use—residential combined with street-level retail or office space—to his diverse product mix so he can build in Charlottesville's downtown.

Charlottesville Mayor David Brown says Gaffney will be welcome there. As a former president of the area Chamber of Commerce, chair of two city water and sewer committees, and leader of a $16 million renovation of Charlottesville's historic Paramount Theater, Gaffney “is an incredible asset to our downtown,” notes the mayor. “And he builds high-quality homes. People always feel like they can recommend him.”

The Only Game In Town

In a region known for tough controls on building, Green has fashioned ecology-minded developments of upscale attached homes for empty-nesters.

SOME BUILDERS VIEW CLUSTERED housing as a way to keep prices down. The Green Co., building on Cape Cod and in the Boston suburbs for more than 50 years, sees it as the best way to create environmentally conscious communities that can lure people from the detached homes they love.

That strategy, coupled with fresh design, smart construction planning, and unrelenting customer service, has led to solid sales success in some 20 developments over the years. Along the way, Green has garnered a slew of industry awards and pioneered attached housing in communities that once said “no” to such development.

Left to right: Dominique Sampson, vice president of sales and marketing; David Caligaris, president; Alan Green, chairman; and Daniel Green, vice president and principal

Credit: Matt McKee

“The Green Co. understands, better than any developer I know, what the local community will accept in the way of design and density,” says Jon Witten, a Boston College law professor who represents area communities.

Time and again, the company has sought to be “the only game in town,” as it tried new approaches that the market never saw before. It was among the first builders on Cape Cod in the early 1960s to offer single-family homes on the waterfront with an amenity package of swimming pool, clubhouse, and ball fields.

Then, in 1973 it introduced attached housing to the Cape, with the 210-unit Falmouthport condo community, built on the site of an old sand pit. But wasn't that a risky move, especially at a time when the OPEC Oil Embargo dampened the market for second homes? “Risky?” echoes Alan Green, the 79-year-old company chairman. “We had the challenge of putting land parcels together, and, of course, the lenders weren't used to this type of housing. Our market research was what we read about in House and Home.”

Still, the company learned a lot from Falmouthport—most notably the value of sensitive land use and the discovery of a burgeoning empty-nester market looking for a new lifestyle. Those lessons gave the company the confidence to push ahead with a whole series of cluster-home communities, including many in Boston's choicest suburbs. Says Green president David Caligaris: “Attached housing gives you the flexibility to work with the land in ways that make the most sense.”

UPSCALE DENSITY: Built in clusters of two or three homes, The Green Co.'s homes at Winslowe's View are sited to take maximum advantage of the environment.

Credit: The Green Co.

Enter a Green Co. community, and you quickly appreciate the meaning of the company's mantra that everything starts with the land and the goal of preserving the natural environment. That's certainly the case at The Pinehills, a large master planned golf community eight miles south of historic Plymouth, Mass. One of the first builders to start work in the community, Green is now developing Winslowe's View, a development that will total 550 attached homes—of which 380 have already been sold—by the end of 2008.

As you drive through the community, you get the feeling of being in a private world where meticulous care for the natural environment is paramount. Mature trees, shrubs, flowers, walking paths, winding roads, and rolling topography that positions homes at varied levels all work together to create a sense of place. In Winslowe's View, Green strategically places clusters of two or three attached homes so that owners can enjoy rear views of woods, fields, or parts of the Jack Nicklaus and Rees Jones golf courses, which weave through the property.

“When they plan a community, many developers start with the road and move toward where they want to put the houses,” explains Alan Green. “We start with the rear of the home and come forward. We also try to build only on one side of the road, so you aren't facing other homes, and we like to site homes around the perimeter but away from main roads, leaving open space in the middle.”

Adds vice president Daniel Green, “When we are buying a parcel of land, we will walk it five, six, seven times in order to identify and preserve the environmentally sensitive areas.”

One good example is a 1,552-square-foot, single-story model, in which the master bedroom and living room offer a golf-course view and open up onto a spacious mahogany deck running the entire 29-foot width of the home. Offset siting and privacy fencing keep homeowners from seeing adjoining houses on either side. Starting price: high $300s. Overall, the average price of Winslowe's View condominiums—at about $530,000—has been running about $200,000 higher than that of most condos on Boston's South Shore.

By staggering or turning the positions of street-facing garages, Green also creates a private courtyard leading to the front entrance of each home. Homeowners can personalize that space with landscaping of their choosing.

SMART GROWTH: A privately held company in a region leery of sprawling developments, The Green Co. follows a strategy of modest year-to-year sales gains.

All of these efforts blend to create attached-home living that feels like a single-family environment—and that's a key advantage if your objective is to lure empty-nesters from detached homes that they've babied, sometimes for decades.

Green knows that many in this target audience would like to take the plunge, but getting them to do it is a carefully orchestrated effort. “These are people who have watched their communities change and have seen their neighbors move away,” says Dominique Sampson, vice president of sales and marketing. “And they are getting increasingly tired of the money and energy that they have to put into maintaining a big home and yard.”

But since they are dealing with homeowners who typically are under no great urgency to buy, the Green approach is clearly “soft sell.” Most buyers will return to the models four, five, or six times before buying, says Sampson.

Once they've decided to buy, a home coordinator begins working with customers almost immediately. This includes assisting them with their choices at a design center adjacent to the models.

Green has set up an elaborate “45 points of contact” system, designed to maintain continuous communication with buyers from the time they first visit a model through three separate post–move-in walkthroughs. At the very outset, all new buyers get individual phone calls from Alan Green, welcoming them to the community.

To further distinguish itself from the other nine builders in The Pinehills, Green also works hard to bring its residents together. In addition to tennis courts and two pools, Winslowe's View features an expansive village commons where it has located a colonial-style meeting house, complete with full kitchen and gathering room, where homeowners come together for parties, exercise classes, and other events. Next door is another structure, designed in the manner of an old-fashioned New England general store, where homeowners pick up their mail or linger to enjoy coffee, ice cream, or penny candy—all on the honor system. There's even a modest lending library and wireless Internet service.

Talks with homeowners confirm that the Green strategy works. “It feels like I've had a weight lifted from my shoulders,” says teacher John Stempelski, who moved into Winslowe's View in January 2006. He and his wife, Ann, a school principal, plan to take early retirement in the next couple years and left a custom home in a community only a couple of miles away. Another buyer, Michelle Meister, notes that she and her husband, Brien, decided on Winslowe's View when their son went off to college and Brien's parents moved into the Green community. “We didn't want to move into a retirement community,” says Michelle. “Here, people are active, intelligent, and interesting. They're all in the same boat—coming from somewhere else.”

Independent surveys by the NRS Corp., a housing research firm, show that 97 percent of Green customers would recommend the company to their friends—and nearly 90 percent have done so. The firm is the 2006 NRS Diamond Award winner for highest customer satisfaction in the country.

Green routinely uses its current residents as “ambassadors” at public events, such as breakfasts in the meeting house, a spring antique show on the village commons, or the fall art exhibit in the model complex. “It's much more credible when our homeowners say good things about our communities,” says Sampson.

THE GREEN CO.

With a record of success that extends over more than five decades and some 2,400 closings, The Green Co. seems well positioned to survive this latest 20 percent to 25 percent market decline in the Massachusetts housing market. It keeps careful controls on construction with an evenflow system that now averages out annually to starting 1.5 homes every Monday and closing the same number on Thursday. Even in the boom years of 2004 and 2005, that number never got much beyond three starts and three closings per week. However, the company has shifted to building a greater percentage of “designer” models—spec homes that incorporate popular features and are available for fast move-in.

“What we want is steady, smart growth that doesn't force you into making bad deals,” says Caligaris. That tack sits well with Green's trade-partners council of key subs and suppliers, which meets regularly with the builder. The growth plan also makes it easier to adhere to the company's quality standards.

Green intends to keep its focus on the empty-nester and plans to start another community of 125 attached homes at The Pinehills. Still, there's been a flurry of over-55 developments in the greater Boston areas, as towns seek to boost the tax base without additional burdens on school budgets. To differentiate itself once again, Green plans to start 25 clustered detached homes at The Pinehills. These luxury homes, with about 3,500 square feet and selling for $1 million or more, will seek to “bring the inside out” by creating more livable space outside the home, such as an outdoor dining area and fireplace.

This willingness to be flexible and responsive to customers, Green's managers say, is an essential part of creating the blend of features that they believe will continue to make Green “the only game in town” for its target audience.

Growth Spurt

A slump in Atlanta's housing market won't derail Touchstone Homes' plan to top $1 billion in sales within seven years.

SINGLE-FAMILY HOME CONSTRUCTION has dropped by 4 percent in Atlanta in a year, and the pace of home sales there is about 11 percent below that of late 2005. Selling prices are flat, and inventories have swelled to eight months' worth of sales.

It's the moment Rick Stein, CEO of Suwanee, Ga.–based Touchstone Homes, has been waiting for.

“I consider this a lucky point in time for us because we have prepared ourselves for this opportunity,” says Stein, who has developed lots and built homes in suburban Atlanta for 23 years. “We've been the beneficiaries of good times, but we will be a beneficiary of this, too.”

Left to right: Jeffrey Abraham, CFO; Bryan Cohen, president; and Rick Stein, CEO

Credit: Stan Kaady

Stein's $84 million firm is poised to buy as much land as possible at the deflated prices that accompany a building slowdown, adding to its store of 2,000 lots in Gwinnett, Hall, Forsyth, Douglas, Cobb, Barrow, and Fulton counties. In fact, the builder/developer aims to grow at an “extreme” pace by buying land and other builders, says Stein, who predicts his firm will build 1,000 homes a year by 2010. It closed on 273 homes in 2006, and Stein estimates the company will sell more than 500 this year. While he's at it, Stein intends to open in a secondary Southeastern market by year's end.

Bracing Stein's confidence is his balance sheet: In 2003, Touchstone Homes closed on 191 homes as it tweaked its product in anticipation of the start of its growth spurt. Closings dipped to 167 the following year, but the firm's net profit percentage almost doubled. It invested some of that money bolstering its own infrastructure, increasing its staff by 30 percent and enlisting employees in a new “opportunity for improvement” program that rewards them for suggesting new profit-making opportunities or cost-cutting steps—to the tune of $6,250 to the staffer with the most good ideas in a year. Meanwhile, it opened a 5,000-square-foot, Tuscan-themed design studio and beefed up marketing and branding of the Touchstone Homes name, and watched as gross profits rose and costs fell.

TWENTIES TWEAK: The Berkeley model features Craftsman architecture from the 1920s and can house up to six bedrooms, including the builder's popular optional “bedroom in the sky.”

Credit: Touchstone Homes

Still, the builder of mid-priced single-family homes and townhomes has not skirted the slump: Over the past year, notes Domonic Purviance, a market analyst with housing market research firm Metrostudy, Touchstone Homes has “been hit significantly.” He says the same about all builders along Atlanta's fringes, as a healthy portion of buyers around the perimeter are out-of-staters who relocated to Georgia after cashing in when prices spiked on the homes they owned in Florida and elsewhere. Lately, though, those would-be Georgians have had trouble selling their out-of-state homes, so fewer are moving in.

“Atlanta is not a bubble market,” says Purviance, who explains that the double-digit appreciation that fueled markets such as Miami, Washington, and Boston skipped over the Gate City of the South, “but we're impacted by markets that have experienced a bubble. So in certain areas of Atlanta, you can buy a big house on a big lot on the fringe for a lower price.”

But many builders aren't as financially healthy as Touchstone Homes, suggests Stein, who expects the downturn to do-in some of his smaller competitors. When it does, he'll be there with offers to buy. “We've basically been holding our fire power for this moment,” he says.

“The future of Atlanta is extremely bright. This [slowdown] is simply a correction. We will deal with that problem appropriately, but our strategy is growth. I'm bullish.”

Dealing with the downturn means reducing inventory, scaling down the size of homes, and cutting construction costs, notes Stein.

“We're financially downsizing to fit the market,” he says. “If you're in a market where the mortgage payment is important, you have to build smaller houses. Builders that are going to survive are right-sizing their product.”

To that end, says Bryan Cohen, Touchstone Homes' president, the firm is offering upgrades that once came standard in the firm's higher-priced homes—and has found buyers are willing to pay extra for them. “People are buying the options and putting them back in,” he says. “We're not an everything's-included builder.”

Leigh Windham, vice president of sales and marketing, says buyers in a housing crunch—especially first-timers—fixate on closing costs. “To them,” she says, “the bottom line is the bottom line.”

Cohen agrees: “People are looking at [homes] as shelter again. They've got to squeeze the value. For the last few years, we've been spoiled.”

WAITING GAME: Plans for rapid growth will materialize as privately held Touchstone Homes buys land and other building companies when selling prices dip to their lowest point during the housing downturn.

The situation doesn't faze Stein. “It's just like anybody in the car industry,” he says. “If you have excess inventory, you have to adjust your product. That's what every single builder will do.”

And many builders will delay construction on long-planned projects. As they find they can't afford to hold onto unproductive land for which they paid a premium price, predicts Stein, they will sell low.

“The local builders have too much land and too many lots, “says Cohen, who notes that Touchstone Homes did not acquire any lots while prices were skyrocketing. Stein adds: “We'll be able to get [Grade A] locations we otherwise wouldn't.”

Stein is confident the housing market in Atlanta, which has added 100,000 new residents a year since 1980, will bounce back within 12 months or so. “These are short-term issues,” he says. “We're in a vibrant market with good prices.”

And a Touchstone home is a good value, offers Purviance. “They offer a decent fit-and-finish that puts them at a reasonable price and offers good value ... compared to some of the other builders,” he says.

“If I were in the market, they would be the first ones I'd go to,” agrees Bob Nichols, a Monroe, Ga., contractor who serves as president of Touchstone Homes' trade council. He calls the builder a “forerunner” in adopting code changes, citing the firm's switch from 10 SEER to 13 SEER for heating and air conditioning before code required it and its standard programmable thermostats in most homes.

“This way, they help the consumer with their energy bills by putting better-quality products in the homes,” says Nichols, general manager of Snellville Heating & Air. “It also adds to their marketing value.”

TOUCHSTONE HOMES

As the firm looks for ways to cut costs, Cohen says it's trimming expensive extras that don't scream “value” to would-be buyers. The builder, for example, has eliminated exterior wall protrusions, such as bay windows, except on the front. Extreme roof pitches, attics, and two-story family rooms also are history. In their place are engineered roof systems, optional top-story “bedrooms in the sky,” and a media room atop the family room instead of a high ceiling and unused space.

“We've never been a builder going for the lowest cost per square foot or the biggest-square-foot home,” says Cohen. “When you drive up to the home, it screams at you: ‘Come in, come in!'”

Indeed, a signature Touchstone flair is an elegant front elevation. To squeeze nine units into a 162-foot townhome cluster, for example, the builder designed the interiors first, placing windows where they were needed. Then came the exterior design. The surprising result: The nine splits in the front elevation do not match the boundaries of the nine townhomes; that is, the elevation splits in the middle of two townhome units in some places.

Such finishing touches are nothing new to Touchstone Homes, which began operating in 1994 as the home building arm of United General Industries, Stein's residential and commercial development company.

Stein, who describes himself as “agile” rather than “creative,” traditionally has customized his product to suit a good piece of land rather than passing on a lot that doesn't fit the kind of home he builds. “Most builders just won't buy the land,” he notes. “We've come to realize this is one of our strengths.”

As a result, homes in one Touchstone community differ greatly from those in the next. To avoid blunders and save time on the jobsite, the company models everything. “When we try to do something new, 85 percent of the new thing is already known to us,” says Stein. “We model, we estimate, we think it through before we push the nail. We analyze it down to understanding 85 percent of that. Just 15 percent is unknown. We whittle our risk down to nothing.”

As the company grows, though, that approach might not work, admits Cohen. “It's become a part of our history, but we can't keep doing it this way as we get bigger. As we get the numbers up, we will have to change our corporate philosophy.”

The firm could get some help from the smaller home builders it intends to buy over the next few years. “It's going to pull together all of the expertise we've been trying to garner,” notes Stein.

Jeff Abraham, Touchstone's CFO, agrees. “Every time we create a success, we're looking for the next opportunity,” he says.

Stein hopes that by 2014 Touchstone Homes' revenue will grow to $1 billion. His optimism, he says, reflects his attitude.

“It's the journey, not the destination,” says Stein. “We are having an incredible adventure.”

He adds, “I don't want it to end. To keep it going, we've got to find new ways to do things. It's a desire to follow an adventure.”

Anything Else Is Not Ideal

A quest for continuous improvement drives a fast-growing builder that targets first-time buyers and first-time move-ups.

IN 1988, AFTER NEARLY 20 SUCCESSFUL years in real estate and home building, Gene McKown went belly-up, a victim of an economic slide in the Southwest brought on by collapsing oil prices. Two decades later, the 62-year-old McKown—in partnership with co-owners a generation younger—not only has recovered from that setback but also can lay claim to being Oklahoma City's largest and most innovative builder.

What's behind that rebirth? McKown's own savvy in assembling and developing land in the metro area's choicest locations. Just as important, co-owner and son Vernon McKown has revved up a bright young sales and marketing team and made Ideal Homes a national leader in energy-efficient homes. Meanwhile, Todd Booze, the firm's remaining co-owner and Vernon's friend from the University of Oklahoma, presides over a buttoned-down building operation that wins praise from trades and suppliers alike.

Front row: Vernon McKown, president of sales; Middle row, l to r: JaRee Stambeck, CFO; Russ Gammill, vice president of purchasing; Gene McKown, president of development; Back row, l to r: Todd Booze, president of construction; Brian Rice, vice president of operations

Credit: Ideal Homes

Together since the company's start in late 1989, the three owners have spearheaded a growth surge that took Ideal from 29 closings in 1990 to 435 in 2005. Even in a real estate market off by about 20 percent, Ideal was on track in 2006 for more than 500 closings and about $75 million in revenues. In all, the company has notched more than 6,000 sales in 16 years.

And Ideal isn't about to rest on its laurels. Whether it's a new Web-based scheduling tool, employee courses in financial literacy, or a gleaming new design center for home buyers, the management team keeps looking for more ways to gain an edge.

“They are not builders who make a lot of money in the boom times and then go off and lead the good life,” says Bob Schultz, a Boca Raton, Fla., sales and marketing consultant. “They are very good business people who just happen to be home builders.”

Learning from Gene's bankruptcy, Ideal now owns free and clear about 1,500 acres of undeveloped land, paid for out of $15 million in retained earnings and investor capital. Moreover, it has methodically accumulated that land primarily in close-in suburbs that encompass the area's best schools.

“If you are going to be a large builder over the long haul, you need to buy land in the right places,” says Gene McKown, “and our strategy is to chase the school districts.”

Case in point is Valencia, a 600-acre tract that two years ago was part of a vast wheat field in the fast-growing community of Edmond, north of the city. Ideal's first master planned community, Valencia straddles two of the area's blue-chip school districts.

MID-RANGE WINNER: The Hendrix model in Ideal Homes' Signature line starts at $150,000 and features an open 1,654-square-foot floor plan.

Credit: Ideal Homes

That $7 million land investment is paying off. With a product mix that caters overwhelmingly to first-time buyers and those moving up from their first home, Valencia accounted for 50 percent of Ideal's sales in the first half of 2006. The firm also is building at 15 smaller sites in the metropolitan areas—almost always on lots it has developed.

Valencia, with its winding streets, cul-de-sacs, and 40 acres of parks and open space, offers Ideal its first chance to offer all of its product lines in a single community that will build out over a seven- to 10-year period. The mix ranges from a 1,000-square-foot model costing about $110,000 to models running more than $250,000 with 2,600 square feet and even some larger custom homes that top $300,000. Among the fastest sellers in Ideal's largely brick façade, ranch-style lineup is the 1,964-square-foot Kingsley, featuring an open floor plan with study off the front entrance, formal dining room, chef's kitchen with island, and vaulted 10-foot ceilings in the living room and master bedroom. Price: about $160,000.

Regardless of model or price, Ideal emphasizes energy efficiencies that have done more to distinguish its homes than perhaps any other feature. Adecade ago, the company was among the first builders in its price range nationwide to qualify an entire line of homes under the EPA's Energy Star program. Says Energy Star national director Sam Rashkin: “Ideal Homes is one of a select number of large national or regional builders who have committed 100 percent of their homes to be Energy Star qualified. More importantly, Ideal generously shares invaluable lessons learned about bringing energy-efficient homes to the marketplace with the rest of the industry.”

TOP OF THE LINE: The Galway in Ideal Homes' Infinity line features 12-foot ceilings in the living room and in two bedrooms. The four-bedroom, 2,600-square-foot homes start at $230,000 and come with a three-car garage.

Credit: Ideal Homes

A partial list of these energy-saving technologies includes: blown-in insulation for walls and ceilings, low-E window glass, Tyvek breathable moisture barriers, radiant heat barrier roof sheathing, 90 percent efficiency gas furnaces, and SEER 14 air-conditioning systems. In 2005, to further demonstrate its commitment to pioneer new energy-saving techniques, Ideal built and showcased in Valencia the first zero-energy home priced under $200,000. Among its features: photovoltaic roof panels, ground-source heat pumps, and tankless hot water heaters. An earlier “Health House,” built in cooperation with the American Lung Association, boasted a fresh-air ventilation system—now found in all Ideal Homes—that recycles the air in the entire home every 24 hours.

As Vernon McKown sees it, energy efficiency may not be what attracts buyers to a development, but it is a key factor in closing the sale, particularly with women. “When they start thinking about buying soccer shoes and all the other bills they have to pay, saving $40 or $50 a month on energy really has an impact,” says Vernon. In fact, Ideal guarantees buyers that heating and cooling costs will not exceed a predetermined usage rate, or the customer will be reimbursed the difference.

“My biggest electric bill was $103 in a month with several 100-degree plus days,” says Chris Bergin, a young television production specialist who bought a 1,280-square-foot unit in Valencia in early 2006. “I am really impressed with the construction and the energy efficiency of this home.”

STRONG BALANCE SHEET: While recording solid sales gains, Ideal Homes' debt-to-equity ratio has dropped below 2.5. The company owns 1,500 acres of land free and clear.

In a continuing effort to keep first-time buyers such as Bergin happy and manage their expectations about the experience, Ideal Homes has implemented a steady stream of customer service programs over the years—focus groups, surveys of past buyers of Ideal's homes and those of competitors, and a customer service coordinator who maintains regular contact with buyers before, during, and long after the closing. Based on feedback from all these channels, as well as that of the sales staff, Ideal Homes revamps one of its product lines each year to bring it closer to prevailing customer desires. A good example is Ideal's former entry-level Medallion line, which shed its vinyl siding exterior for brick, in its transformation to the new Classic line.

Visit an Ideal model home, and you'll be greeted by a sunny “new-home consultant,” who mirrors the early 30s age profile of the company's typical buyer. Before touring the models, you'll first get an orientation on a large touchscreen plasma display, installed new in 2006, that provides essential information on the surrounding community, Ideal's track record in the industry, and the quality, design, and energy efficiency of the home. “The touchscreen does a great job of showing our innovations and sets us apart from other builders,” says sales consultant Jennifer Seale. “Plus, we can update the images as we add new features and programs.”

Does it work? “About one in eight people who visit our model homes end up buying,” says Ideal's 30-year-old marketing director Steve Shoemaker. He and his wife, Jama, bought a Kingsley model in Valencia.

And once a family decides to buy, Ideal is adding new tools to make the process easier. In 2006, the company opened a 4,500-square-foot design center just 10 minutes from Will Rogers Airport. There, under one roof, buyers can view and choose virtually every option, inside and out, that they need in their new home: brick façades, exterior doors and lighting, appliances, flooring, cabinets, and more. “With all the choices they need to make, people's eyes tend to glaze over,” says selection center coordinator Beckie Neff, “so we typically work with them over three visits.”

Buyers can also supplement their trips to the design center with visits to Ideal's Web site, where a new “Builder Vision” option lets them decorate their home and try out different options.

All closings will soon take place in a new office area adjacent to the design center. Ideal runs its own mortgage company and offers a gamut of programs, ranging from 100 percent financing to a new lease-buy plan that lets a family rent an Ideal home for up to a year until they raise the needed down payment or pay off bills. And if a move-up buyer's efforts to sell a home stalls, Ideal will buy it at an agreed-upon price based on current market value, as determined by an independent appraiser, with no agency commission.

These and other programs, such as a “guide to homeownership” with plenty of details on maintenance concerns, have combined to steadily increase the level of buyer satisfaction. Company surveys show that the share of customers who say they would refer others to Ideal has risen from 86.3 percent in 2002 to more than 95 percent today. Typical is Russ Trafford, who heard about Ideal from colleagues when his company transferred offices from San Jose, Calif., to Norman, Okla., the south suburban community that is home to the University of Oklahoma and Ideal's headquarters. “We looked at a couple other builders, too, but Ideal was the clear choice,” says Trafford, who adds that he got “twice the home at half the price” of his San Jose space, as well as the “best-built home I've ever owned.”

IDEAL HOMES

Innovative programs aside, Ideal's senior managers will tell you that the quality of its people—both its employees and its trade and supplier partners—is the chief reason for the company's torrid growth record. Every job candidate goes through five hour-long interviews with staff, a three-hour work-history interview, and a thorough check of references. Once hired, employees must attend financial literacy courses, which explain Ideal's operation and the impact of each worker's job on the company's success. Attend those sessions and, whether you are a custodian or a leading salesperson, you qualify equally for quarterly profit-sharing pay-outs, which in 2006 were projected to total about $12,000 per employee, according to Gene McKown.

It's all a part of the company's open management style, which Ideal adapted from the “Great Game of Business” program. “Nothing can improve unless it is first measured,” notes CFO JaRee Stambeck, “and we are very open about sharing with the employees all the details on how we are doing on closings, revenues, and other important details of the business.”

That same open-book approach drives co-owner Booze's relationship with the vendors and construction trades. For example, Booze shares Ideal's annual strategic plan with key subs and vendors and has formed a trade steering committee that meets monthly to discuss sales, construction activity, and quality assurance issues. In addition, he is introducing a new online “Web Information Services” site, where Ideal's building and vendor partners can check progress on jobs, as well as track purchase orders and payments. Each day, Ideal's building superintendents download new information into this system from their PDAs, so crews and suppliers have the latest information.

Says Booze, “Our culture is to communicate and to help our partners get what they want, which is steady work, fair prices, clear specs, and job-ready building sites.”

Rick Ogle, a principal of Brewer Carpet One and a supplier for a decade, says Ideal has gone out of its way to educate its building partners and help them integrate the same kinds of efficiencies and management practices that the builder has implemented in its own operations. Adds Ogle, “They've taught us all to never be satisfied with our success.”

And no one battles apathy more zealously than Ideal's senior managers. Every quarter, each manager takes on an important “rock” or task that must be completed before that three-month period is over. Among fourth quarter 2006 goals: a thorough study of every development in the metropolitan area to assess the market; preparations for certification under the NAHB's National Housing Quality program; and development of the strategic marketing message for 2007.

Meanwhile, with the company's solid record of achievement, public builders have come calling. But for now, says Gene McKown, Ideal is quite content to pursue its “big, hairy audacious goal” of 95 percent employee and customer satisfaction and steady annual sales growth of 5 percent (the increase was nearly 30 percent in 2004). “We feel very fortunate,” says Vernon McKown. “We're in a business where we make people's dreams come true, and we're pretty good at it.”