Homebuilders use downturn to retool
Homebuilders are retooling, rightsizing and hoarding cash as they weather the country's prolonged housing slump. They've discovered new ways to get homes built during the downturn, like turning to private equity firms to provide project funding. And they are innovating in other ways: adding technology, rethinking design, going green and investing more in market research to build a home that consumers will buy, builders said. Jeff Mezger, CEO of KB Home (KBH), said the Los Angeles-based builder, one of the largest in the nation, believes the worst is behind it. KB has taken $2.3 billion in impairments over the last five years, Mezger said, while speaking on a homebuilding panel at the annual Urban Land Institute conference under way in Los Angeles. In the frothy days of the housing bubble, builders had no interest in partnering with land developers, but now, with millions of lots that banks need to unload, builders see the value of forming partnerships — and sharing in the profits — to get projects done, he said. They've also used the downturn to work smarter, builders said. Orleans Homes, a regional builder in the northeast and Midwest, had customers come in and review architectural plans and learned they didn't have it quite right on their countertop design, said George Casey, who was hired in March 2010 as Orleans emerged from bankruptcy. Casey told attendees that Orleans is using its second chance from bankruptcy to do things differently. That includes benchmarketing against industry leaders, upgrading technology, improving market research and finding operational efficiencies. "We've had to become great stewards of capital. We need to think like investors," he said. "The truth is, we have to realize that cheap debt is gone. You have to make equity returns on what you are doing. That's not such a bad thing in this industry." Others are using the downturn to become social media savvy and to improve their architectural designs. Kathleen Cecilian, president of Cecilian Worldwide, a marketing and branding firm, talked about how her firm helped cabinetmaker RSI as it branched out into homebuilding. It quickly built market share with innovative marketing efforts — including advertisements on pizza boxes, a method of targeting renters that might be interested in the firm's affordable-priced homes. Nine months after opening a community in Menifee, Calif., in Riverside County, one of the areas hardest hit by the foreclosure crisis, the firm had sold out its 103-lot development. Several builders talked about retooling product lines to meet emerging needs, such as multigenerational living. Walnut, Calif.-based regional builder Shea Homes is focusing its Spaces concept on the 25- to 40-year-old market, where it anticipates some of the strongest growth. The brand focuses on flexible and efficient interiors. Despite the look inward and the efforts to retool, builders said they expect 2012 to be another tough year. "People who are overleveraged are dead men walking," claimed Lawrence Webb, CEO of fledgling California builder The New Home Co., which began operations in 2009. But none were convinced that America will become a renters' nation. "Wait until those next year's rental rates come in," said KB's Mezger. "They'll realize homeownership is a great deal." Write to Kerry Curry. Follow her on Twitter @communicatorKLC.