Mike Friday, CEO and co-owner, Woodland Homes, Huntsville, Ala.
Credit: Chris Rank
Millions of homes foreclosed. Billions of dollars lost by homeowners, builders, banks, and investors. Hundreds of thousands of construction and mortgage finance jobs gone. No end in sight.
Frantic builders scrambling for cash probably aren’t the most receptive audience right now for stories about some company that’s surviving by adjusting its product mix or because it’s fortunate enough to be in a market that hasn’t been crushed. Survivors, though, share an instinct—to reinvent themselves in the face of adversity and before everything hits the fan—that other builders in more dire straits, if they’re honest with themselves, might realize they either ignored or acted on too late.
One example of reinvention is Keystone Homes in Augusta, Ga., which in the previous three years enjoyed steady annual gains that hit $59 million in revenue and 336 closings in 2007. This year, Keystone’s closings are expected to fall to between 220 and 240 units, primarily because of the oversupply of unsold homes in its markets, “particularly resales,” says its president Mark Gilliam. But Keystone is now considering getting into on-your-lot construction for the first time and is already looking for “untapped markets” beyond the four counties in Georgia and South Carolina it builds in.
This year’s Fast Track special report reveals that change is a state of mind and success is a long-distance runner. These profiles are about creativity, farsightedness, and, to be honest, luck. They might lead some of you to reflect on your own businesses, and perhaps recall a passage from the Book of Psalms that reads, “The seed that falls on good ground will yield a fruitful harvest.” When the housing crisis subsides, good ideas could prove fruitful, too, but only for those ready to plant them.
Hedging Its Bets
Rental construction is getting Irvine, Calif.–based Sares-Regis through a weak market.
Bill Albert, president-multifamily development and construction division; Geoffrey Stack, partner, Sares-regis Group, Irvine, Calif.
Credit: Kelly Fajack
Sares-Regis Group isn’t giving up on building for-sale homes. But until buyers return, this builder and developer is dedicating its energies in Southern California to for-rent projects, having started 1,050 apartments in the first six months of 2008. “We’re letting the market tell us what the balance needs to be,” says Bill Albert, president of Sares-Regis’ Multifamily Development and Construction division.
This switch has been percolating since 2005, when Sares-Regis ended the year with 660 unsold homes in Southern California. Soon after, the company took 320 for-sale condos in Palm Desert, Calif., out of play by converting them to rental apartments. When the housing market “fell off a cliff” in 2007, says Albert, the division had reduced its standing inventory to 60 homes and had paid off the construction loan on its 344-unit Canyon Villas community in Aliso Viejo, Calif. The experience taught the company “to be nimble and stay ahead of the curve,” says Geoffrey Stack, one of Sares-Regis’ principals.
So far, its moves have paid off, and Sares-Regis should be profitable again in 2008. Stack foresees “significant growth over the next seven to 10 years” for its residential divisions, and Sares-Regis will eventually jump back into for-sale housing. But to what extent “is the $64 million question,” says Albert, especially with three for-rent projects going strong:
About Face: Sares-Regis has shifted from building for-sale multifamily homes to for-rent projects such as Westgate Apartments.
Credit: courtesy Sares-Regis Group
In Pasadena, the four-story Westgate Apartments will offer 480 apartments that average 881 square feet and will rent for $266 per square foot. Albert says the rest of the units in the 820-unit master plan were originally going to be for-sale but now will probably be leased.
Sares-Regis is also redeveloping an industrial site across from a metro station in Anaheim for The Crossings, with 312 apartments averaging 950 square feet that will rent for $275 per square foot. Albert says that the company’s construction model now actively seeks transit-oriented settings.
At its third rental project, on a site in Ontario, Calif., near two highways and a local airport, Sares-Regis is constructing a three-story, slab-on-grade building called The Grove at Marketplace, with 258 apartments that average 910 square feet and will lease for $190 per square foot.
Sares-Regis is investigating getting deeper into workforce and active adult housing. But its for-rent projects—whose first occupants should start moving in by late summer or early fall 2009—are where Sares-Regis expects most of its growth to come from over the next few years. “We’re building now exactly what we want to build,” says Albert. In Northern California, where sales have held up a bit better than in the south, the company expects half of its construction in San Francisco to be for-rent apartments in 2009, says Rob Wagner, a company principal who runs this division.
Marketing Machine
Alabama’s Woodland Homes thrives on self-promotion.
Mike Friday, CEO and co-owner, Woodland Homes, Huntsville, Ala.
Credit: Chris Rank
Mike Friday isn’t shy about tooting the horn of his company, Huntsville, Ala.–based Woodland Homes, which he started in 1995 and which last year cracked Builder’s top 200 builders ranking for the first time. “As I’ve built this company, I realized that nobody is going to promote Woodland Homes unless we do it ourselves,” says the 48-year-old Friday, who’s been selling homes since he was 19.
Friday is always thinking of ways to heighten customers’ awareness of his company. He positioned Woodland Homes’ 10,000-square-foot headquarters behind a fully furnished model next to a huge electronic billboard with its ad along a highway where 65,000 cars travel daily. Woodland Homes won top prizes at its annual Parade of Homes event so often that the local BIA stopped judging the contest altogether. Friday and his wife, Melissa, now star in their own cable TV program, “Dream Home Cooking,” where Melissa prepares her favorite recipes inside a model at one of Woodland’s 10 communities and Mike conducts tours of the homes. Maybe it’s a coincidence, but in June, when the show debuted and aired 140 times, Woodland Homes had record sales—31 homes, versus 15 to 18 during other months this year. Friday spent the first 15 years of his career working in other builders’ sales offices and was mostly dissatisfied with the customer service they offered. So about 18 months ago, he instituted a policy where customers are contacted two days, 10 days, 14 days, and 30 days after closing. “Our goal is to have an army of consumers out there promoting Woodland,” says Friday, whose company generates 20 percent of its business from referrals. Friday is confident that Woodland Homes can double its size within the next two to three years. Its multifamily division, which Friday started in 2005, “has made a tremendous difference for us” in terms of increased volume. (Woodland has conducted one-day promotional events where it has sold 25 townhomes in two hours.) Woodland’s townhouses, which range from 1,400 to 1,800 square feet and sell from the $160s to the $220s, include detached garages and have small backyards.
Attached to Growth: Adding a multifamily division a few years ago gave a tremendous boost to Woodland Homes, which expects to double in size by 2011.
Credit: courtesy Woodland Homes
“Whatever we focus on expands,” boasts Friday. To free up more of his time to concentrate on sales, marketing, and land acquisition, Friday hired Matt Lombardo as Woodland’s operations manager in 2003. Lombardo came on board at a time when the builder’s cycle time was a leisurely 253 days. By enforcing a construction timetable, Woodland reduced its cycle time by 100 days and is confident enough to schedule closings 60 days out.
Woodland Homes controls more than 1,700 lots, which might seem excessive for a company that expects to close 190 homes this year. But Friday is banking on the influx of high-paying jobs into the Huntsville area, which he calls “a high-tech mecca.” The Pentagon alone is relocating more than 4,700 jobs to the Tennessee Valley region by 2011. “Our best years are ahead of us,” Friday asserts.
Midwest Makeover
New products shield Iowa’s Hubbell Homes from the ravages of spec-happy competitors.
Rick Tollakson, CEO, Hubbell Realty, Des Moines, Iowa
Credit: Mindy Myers
Last year was a watershed for the Hubbell Homes division of Hubbell Realty in Des Moines, Iowa. Hubbell Homes had been averaging 75 to 80 completions annually. But in 2007, it doubled its production and enjoyed record sales of 220 units.
Rick Tollakson, Hubbell Realty’s CEO, explains that his company simply reacted to the slew of builders that was throwing up spec homes like there was no tomorrow. Hubbell decided to attack the market “on several fronts” by diversifying. Beyond the houses it was building for second- and vacation-home buyers, Hubbell expanded its offerings to include multifamily townhouses that now account for a quarter of its sales; attached villas for empty-nesters that make up 20 percent of its annual revenue; and a single-family entry-level product starting in the $170s that accounts for 30 percent of sales.
Hubbell Homes itself had around 150 spec homes in various stages of construction as of mid-July 2008. But Tollakson suggests that its richer product mix kept Hubbell from suffering the same fate as Regency Homes, which was Iowa’s largest builder until it shut down operations in April. In fact, he expects Hubbell Homes’ sales to increase this year by nearly 40 percent, to $50 million.
Down Market: Hubbell Homes' entry-level product generates 30 percent of sales.
Credit: courtesy Hubbell Homes
Diversity has long been Hubbell Realty’s middle name. Founded in 1855, the company consists of 18 operating entities. Its divisions include two-year-old Hubbell Construction Services, which tackles larger commercial/industrial projects as well as urban residential (which Tollakson does not include in his projections for residential sales). One such project, Drake West Village, near Drake University, will provide 46 units of student housing along with 9,159 square feet of retail space.
Land development is where Hubbell Realty got its start, and it’s still a vital part of its business. This division includes a community development arm that recently expanded into “Conservation Living,” which develops eco-friendly communities such as Glynn Village in Waukee, Iowa, which was Hubbell’s best-selling development last year.
Hubbell Homes has a total of 25 residential developments in Des Moines’ 500,000-person metropolitan area. To reach buyers, Hubbell does “a lot of marketing,” says Tollakson, including a robust Web site, which Hubbell revamped this year. In April, the company hired Susan Mixdorf as its Internet concierge, who responds to visitors’ queries and converses with them through a live chat feature on the site. “Our traffic is growing every week,” says Mixdorf.
Hubbell may also have found its next growth venture: A quasi-government agency recently contacted Hubbell about fixing up and maintaining foreclosed homes. “Working with the government is always slow,” says Tollakson, “but we’re pursuing this.”
Going With The Flow
Growth comes with the territory for South Carolina's Mungo Cos.
Stewart Mungo (left), president of land development; Steven Mungo, CEO, Mungo Cos., Irmo, S.C.
Credit: Brett Flashnick
Mungo Cos. of Irmo, S.C., has thought about expanding into Greenville and even of hopping south to Savannah or Augusta, Ga. But Steven Mungo, its CEO and co-owner (with brother Stewart), isn’t rushing anywhere. “At some point, enough is enough,” he asserts. “I don’t want to be D.R. Horton.” You’d never know that, though, by Mungo Cos.’ recent track record. Founded in 1954 by their father, Michael, this builder was relatively sleepy during its first half-century. But over the last five years, it’s grown along with South Carolina’s economy.
In 2003, the builder started a commercial division, Mungo Construction, which focuses on government-financed affordable housing. That division did 220 units in 2007 and expects to do 263 this year.
The builder expanded into Charleston, S.C., in 2005 with Harbor Homes, which has since branched out to Myrtle Beach, S.C., taking advantage of a common subcontractor base. Two years later, Mungo Cos. bought First American, a builder based in Apex, N.C., that was building about 50 homes per year in the $300,000 range but needed a financial partner to expand.
Stewart Mungo, who oversees the company’s land development division, suggests that Mungo Cos. is like other organizations that succeed by reinventing themselves. Harbor Homes, for example, gave the company “a fresh start,” says Steve, to avoid past mistakes and incorporate what was working. Harbor Homes operates under an overhead contribution model, so 90 percent of its direct expenses are production. Even as the Charleston market softened, Mungo says this division, which controls around 225 lots, is positioned for future growth. “We’re negotiating for another two years’ worth of lots.”
Diverse mix: Mungo Cos. offers customers a range of products, from government-financed affordable houses to semi-custom dwellings.
Credit: courtesy Mungo Cos.
Mungo Cos.’ custom home division, Sovereign Homes, which launched in 1989, built 13 homes in 2007, but hadn’t taken off as much as Steve had hoped. So last year, he installed a new division president, Allyson Way Hank, and shifted the division’s construction to semi-custom with standard models and options. “The demographics in Columbia, S.C., [where Sovereign builds] aren’t great for the high end; you can buy a custom home there for $300,000 because builders don’t know what they should be making. But we think Sovereign could be a 30-home-per-year division.”
The brothers readily attribute their victories to the health of the markets their company serves. But Mungo Cos. has done smart things, too, like cross-training employees to work in multiple divisions. Its next stage of reinvention could be green development. After running into wetlands issues, Mungo Cos. hired biologist Jim Lewis as its corporate environmentalist. The company is currently setting up a mitigation bank to eventually sell wetlands credits to the Department of Transportation.