The Housing Chronicles Blog: Some new home builders starting up as market is down

Monday, April 27, 2009

Some new home builders starting up as market is down

One of the interesting parts of a down cycle in the housing industry is when the former executives of larger public home builders decide to leverage their contacts and experience and start up their own companies. I think this provides several benefits to potential home buyers, including a greater variety of designs and floor plans, seasoned executives overseeing the process and more competition in the marketplace. From a story:

“We feel like the timing is pretty darned good,” said Jay Lewis of Surrey Homes, who is building the business with the backing of investors. “I believe that existing-home prices aren’t going to get any lower.”...

In this market, being private, as long as your debt level and other costs are low, is a distinct advantage. He can have the nimbleness and depth of market knowledge of a small, private company yet still capitalize on big-builder buying power because trades and other suppliers, desperate for business, are willing to sell him goods and services at the same rates they charge production builders in return for fair margins. Lot developers, too, are offering options on softer, more reasonable terms...

He said his company’s hurdle rate is low enough for him to sell homes at those prices with some upgrades standard, such as solid-surface countertops, tile, and Energy Star appliances.

He plans to also differentiate his homes by including a longer-term warranty and maintenance plan. Under the maintenance plan the company will schedule routine visits to the houses for warranty plus three more years to caulk cracks in stucco and perform other preventative maintenance.

Lewis admits it’s a risk to start a new building business now, but it’s mitigated by strong partners and no debt, he said. Homes will be built with cash on hand, rather than by borrowing...

Click here for full story.

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