When The Drees Company decided early this year to convert its Zaring Premium Homes brand to its Drees Homes brand in the Cincinnati market, it characterized that change as a “simple transition” that would allow the Fort Mitchell, Ky.-based company to consolidate its advertising, sales, and marketing in that area.
That switch also wrote the final chapter for a brand that had been around for nearly five decades. During its history, and especially during the 1990s, Zaring Homes was in the vanguard among builders when it came to efficient construction (in 1998 it had reduced its cycle time to 60 days from 153 days three years earlier), and online marketing (its website was getting 14,000 visitors and leading to 25 sales per month in 1998, a year when many builders were still baffled by the Internet).
But Zaring Homes had been leaking money for a number of years when Drees announced in October 2000 that it would acquire Zaring’s divisions in Cincinnati, Indianapolis, Raleigh, and Nashville, a deal it consummated in February 2001. Victimized by ill-timed expansion and low margins, Zaring Homes in all likelihood would have evaporated were it not for Drees’ rescue. But it’s worth remembering the company as more than a historical footnote, and as a builder whose boldness, for better or worse, became its signature and its undoing.
Aggressive growth
Founded in 1964, Zaring Homes—as Zaring National Corp.—went public in 1993 and almost immediately started expanding its market presence. In June 1994 it opened a sales office in Salt Lake City, which the company viewed as an “underserved” market. Around that same time, Zaring moved into the Raleigh and Indianapolis markets. By 1996, it was building in Charlotte and Louisville, and had moved into Knoxville, Tenn.
Its then president and CEO George Casey, who came on board from Toll Brothers in January 1995, devised a 14-volume how-to training manual, which he described as “a sort of Betty Crocker Cookbook” on running a business and building houses. The company introduced this manual at its Knoxville division, whose management group had little housing experience, and Casey saw the manual as potentially making it easier for Zaring to grow; he expected Zaring Homes would add at least four new markets by 2001.
During this heady period, Zaring aggressively reached out to different customer bases. In 1996, it created HomeMax, a Raleigh, N.C.-based retailer of manufactured homes, which signed agreements with Champion Enterprises to sell their products in the Carolinas, Kentucky, and Tennessee.
Big builders such as Pulte, Centex, and U.S. Homes were eyeing prefab housing at the time, too. But Zaring Homes was “one of the first site builders to recognize manufactured homes as a popular alternative form of houses in America,” Mallory Smith, Fleetwood’s eastern region vice president, said at the time. In fact, Zaring envisioned HomeMax as a national entity that some day might represent as much as 50% of its total business.
In 1997, Zaring acquired Indianapolis-based Legacy Inc., a builder of entry-level homes selling in the $90,000 to $140,000 range (compared to Zaring’s average selling price of $260,000). Zaring renamed the company to Legacy Hearthside Homes and planned to expand its offerings to Louisville and Nashville. Zaring also had an on-your-lot custom division called Design Galley Homes, whose average selling price was $340,000.
Zaring wasn’t afraid of taking a flyer, either, when in the late 1990s it got involved with pro dealer Wickes Lumber’s “Frame a Home in a Day” program, which Wickes’ president Dave Krawcyzk projected could eventually build 18,000 homes per year.
New leader, same story
But Zaring’s grand design eventually unraveled, as this builder, like so many others, became overly infatuated with market share and bit off more than it could chew.
•Zaring exited Salt Lake City only months after entering it, without building a single house.
•HomeMax, which incurred nearly $10 million in pretax losses in 1998, was put up for sale, and sold in early 1999 to American HomeStar. At the time of that transition, HomeMax had eight stores and six under construction, well short of Zaring’s plan to open 50 outlets.
•Casey—who now runs Orleans Homebuilders—was fired by Zaring Homes in December 1997, along with the principals at two of Zaring’s subsidiaries. The company’s chairman, Allen Zaring III, took over the day-to-day operations and said his primary focus would be improving the company’s margins. “While I can’t erase the past three years’ performance, I will do my best to positively influence the future,” he said at the company’s annual meeting.
Zaring Homes, with 600 employees, had doubled its revenue between 1994 and 1998, and the company had invested more than $3 million in technology, according to the Cincinnati Enquirer. However, its stock price and profits kept falling under Zaring’s leadership: It reported net losses of $6.1 million and $15.7 million in 1998 and 1999, respectively, even as revenue in the latter year hit a record $309.6 million and backlog that year increased by 76%.
By that point, the writing was on the wall, and the builder—which at one time was closing 1,500 homes per year—hired the investment bank Warburg Dillon Read to advise it on selling the business. In October 2000, the company sold its assets in Kentucky to the managers of its Louisville division. That same month, Drees paid $12 million to acquire Zaring’s Raleigh division, and subsequently acquired its divisions in Nashville, Indianapolis, and Cincinnati. What was left of Zaring changed its name to First Cincinnati Inc.
For Drees, the benefits of this transaction were almost immediate. It placed Drees into new markets and increased its annual revenue to $850 million in 2001 from $515 million in 2000. Drees discontinued using the Zaring brand in all of its markets except Cincinnati, where it sold under the Zaring Premium Homes label until that was converted to the Drees brand in January of this year.
“Our level of commitment and quality was no different than it was at the time of the acquisition. Therefore, the transition will be seamless,” said Drees in a prepared statement about the brand switch.
John Caulfield is senior editor for Builder magazine.
Note: The date of HomeMax's creation has been corrected from the original publication of this article.
Learn more about markets featured in this article: Cincinnati, OH, Knoxville, TN, Raleigh, NC, Salt Lake City, UT.
