News Flash: Ashton Woods Puts $75 Million to Work for Home Builder Acquisition

Correction–An earlier version of this post contained two incorrect statements: One of Ashton Woods’ banks was misstated. The correct name is Regions Bank. Also, Cory Boydston’s title while serving at Beazer Homes was incorrect. The correct title was senior vice president and treasurer at Beazer. We regret the errors.

Ashton Woods, the Roswell, Ga.-based, No. 24-ranking home builder in the nation, completed a re-capitalization with investors 40 days ago that will provide the company with $50-to-$75 million over a five-year period, to target acquisition and set up or strengthen beachheads in five or more markets.

“We’ve been able to do a couple of things in a very tough market,” said Ashton Woods CEO Tom Krobot in an interview. “We extended our revolver with Wells Fargo and Regions Bank for two years, and we went to Wall Street and were able to get capital to expand our business. We really have a very good story,” Krobot added. “In our fiscal year–May to May–we made money.”

Krobot is under a confidentiality agreement with his new investors, and as a private company, doesn’t need to disclose them.

He said the adrenaline infusion of acquisition capital will go immediately toward beefing up Ashton Woods’ fledgling position in Raleigh, where it has a single subdivision open with a new model, and just closed on a second subdivision. Additionally, Ashton Woods recently hired a land acquisition person in Austin, and will look to quickly grow in that market, as well as San Antonio,  Charlestown, S.C., and Minneapolis.

“We’re also looking at opportunity in Charlotte and Denver,” Krobot said. Currently, Ashton Woods operates in seven cities in five states: Arizona, Florida, Georgia, North Carolina, and Texas, and reported $320 million in 2009 revenue on closings of 1,319 homes, according to Builder magazine.

Ashton Woods has hired San Francisco-based home building and developer mergers and acquisitions consultancy Avila Advisors to identify both home building company candidates and land position opportunities that could represent a fit within Ashton Woods.

“We’ve put together a list of 100 company targets with strength in these markets,” said Tony Avila, CEO of Avila Advisors. He and the firm’s president, Hector Calderon, will head up the match-making initiative, looking not only for operators, but for land and lot positions that suit Ashton Woods’ strategic aims.

“It’s a first- and second-move up emphasis, so purely entry-level players probably won’t be a strong fit,” said Avila.

If you want to contact Tony Avila, click on this link.

Krobot attributes the company’s acquisitive mode to four positives that position Ashton Woods for opportunism just as many of its peers are fighting for dear life.

In early 2009, Ashton Woods negotiated a swap of all $125 million of its senior subordinated notes that carried a 9.5% interest rate and were due in 2015 for 11% senior subordinated notes due the same year, but that carry no interest charges for the first three years. The pot for the note holders was also sweetened by giving them Class B interest in the company equaling 19.728% of the company’s equity. In addition, Ashton Woods amended its senior credit facility to provide as much as $95 million in borrowing capacity. The restructuring also included the infusion of $20 million by the company’s original owners. By mid-2009, the company brought on finance heavyweight Cory Boydston, who signed on after serving as CFO of Starwood Land Ventures and senior VP/treasurer at Beazer.

Ashton Woods, which like Mattamy Homes, has a Canadian parent company, the Great Gulf Group, which builds both towers and single family residences in Canada. The Canadian residential real estate market has held up fairly solidly and may account for the fact that both Ashton Woods and Mattamy have acquisitive strategies in the U.S. market right now.

As for the U.S. market, Krobot sees continued headwinds in the near future. As the company’s fiscal first quarter drew to a close in August, Krobot said his firm’s closings decline about 6% year-on-year vs. 2009, which, he said, he’ll take.

“When you look at the overall market drops of 20% or 27% versus this period last year, 6% is pretty good,” he said.

August 31, 2010 | Filed Under Finance, Home Builders, Uncategorized | Leave a Comment 

A Home Buyer Tax Credit, Version 3. For or Against?

Another tax credit for home buyers? Not very likely, but if it were to come trundling down the pipeline when our dear Congressional representatives punch back in from their Summer vacays and try to get reelected, would home builders support it?

Again, would home builders “just say no” if the government asks nicely whether it’s okay to stimulate the “engine of the economy,” to stabilize home prices by stoking home buyer demand yet again?

We’d bet on it.

Yet, trundle down the pipeline the proposal may, for after the lagging indicator rout that has been existing- and new-home sales data for July, and the widening gyre of high-anxiety the data has set in motion, the powers-that-be in Washington won’t discount a home buyer tax credit redux as a preposterous notion that would result in summary political extinction.

Here’s HUD Secretary Shaun Donovan’s non-denial denial to CNN yesterday, as reported by Reuters.

“It’s too early to say whether the tax credit will be revived,” Donovan said in an interview on CNN’s “State of the Union” program. He said the administration would “do everything we can” to stabilize the shaky U.S. housing market.

So that’s different, isn’t it?

Actually, Mr. HUD Secretary may only be being polite in answering the question of a mainstream media reporter who thinks Washington must continue to try to fix everything that’s broken.

We know that a few short months ago, on the ramp-up to the expiration of the credit April 30, nobody with a prayer of getting a seat in the wake of mid-term brush up this November would have “gone there.”

That’s partly a function of things having gone pretty okay pre-April 30, as far as talk of a housing recovery. If housing rebounded, could the broader economic recovery get even more traction and eventually translate into job growth? There was a collective inhale, which turned out to be pre-mature.

Clearly, now, things continue to compare modestly better than the worst of times just after the October 2008 cataclysm, which is probably as good as anyone could hope. Remember, then, everything looked as if it could and would only get worse.

What surprises us now is that so many are surprised about the numbers that came out last week–especially among folks who say their operational m.o. is to expect the worst and hope for the best. Recall that, until April 30, Uncle Sam was giving buyers a little giftie to spur them on, and giving sellers at least some of that giftie to get just a bit of a cushion in their asking price. All in all, a kind of housing Dyson vacuum cleaner.

So who would not have moved on that $6500 or $8000 opportunity when the getting was good? Wouldn’t every last one of the critters out there who could ante up the downpayment and secure the loan have done it?

How would there not be a dramatic, even a historic, fall-off in sales for a month or two after the program expires?

Still, to hear even some of the smarter business analysts, you’d think their only familiarity with how housing works comes from buying, selling, or refinancing their own places. The tax credit expiration dates–both last November and this past April–have been the only catalysts of action in the market place for more than three years. Other than that, it’s virtually been a no-bid environment.

Those two deadline dates in November and April did a couple of things–they resulted in diminished absolute inventory of new-homes, and they moderated home price declines across a protracted period of time.

What the market lacks now is any force of conviction or moment–such as fear of missing out–that can create real demand out of the raw materials of demand. While “absolute vacancies” is a real number, and a daunting one, demand, everyone knows, is a highly variable number. Demand varies. The proverbial adult child in the basement, and the aging parents in the spare bedroom are part of our stereotype for pent-up demand.

Housing starts versus anti-depressant and anti-anxiety medication sales must be a pretty telling inverse curve relationship for the past few years.

Yes, prices will give ground in many markets, and those declines will continue to make headlines. Foreclosure sales will speed up, and the fact that private sector hiring–Friday’s all-important data release this week–continues to be tepid to non-starting throws a wet blanket over any number of drivers toward household formations.

What we’d observe is that over-reacting to data–which may be a key cause of over-reaching on the house price correction–takes two forms. One, over-reacting to technical data versus looking at the real-world factors–such as household formation and job formation–that directly impact the data. The other is over-reacting to nearer-term, and one-off data points rather than looking beyond the next three to six months and looking at longitudinal trends for insight. As a result of such shortcomings, analysts and journalists jump on the bus of negativity because it sounds smarter and more counter-intuitive to be negative, which is what analysts and journalists want.

Joe Nocera, a top-flight New York Times business journalist by way of Fortune magazine, who writes, reports, and analyses with the best of them when it comes to corporate business stories, just doesn’t appear to get it as he tries to put two and two together about housing’s current travails.

Essentially, every participant in the housing market has a reason to be afraid. And that fear is paralyzing.

Nocera litanizes how “every participant” is curled up in a fetal position now, but neglects to note that this is all about money and value. Fear becomes greed in short order as soon as somebody puts a floor under the value of properties. It surprises us that Nocera could write:

At the same time that the administration was offering a hefty tax credit to spur home sales, the government’s wholly owned subsidiaries, Fannie Mae and Freddie Mac, were imposing rules that made it increasingly difficult to buy a home. And Fannie and Freddie have the ultimate say these days because without their guarantee, Wall Street securitizers won’t buy a mortgage from a bank — because Wall Street is just as fearful as every other participant in the market.

It’s scary when a guy who’s been known to go for the jugular when he’s going after corporate hanky-panky can portray Wall Street’s titans as “fearful” about anything. They’re not fearful, Joe; they’re simply waiting for the blood in the streets to get deeper before they move into the market.

The point is, most reaction to the grim data reports on housing in August is over-reaction. It seems that government officials and aspiring denizens of Capitol Hill are ready to run with the over-reaction of economists and journalists as some populist standard.

But home builders and developers have had enough of tax credits for home buyers. Home builders and developers want two things. They want government to stop spending programs that trigger heavier tax burdens on those in households and businesses that are paying taxes. And they want government to remove bureaucratic barriers and costs that get in the way of businesses carrying on business.

So we’d bet that any initiative to resurrect a home buyer tax credit will get vehement opposition from an industry are that wants nothing more than for private sector dynamics to reestablish a footing among people who’ve made improvement in repairing their houshold balance sheets.

That may take a while, and it may take longer than it would have if Washington had never introduced its barrage of housing supports dating back to 2008. We’ll never know. That’s past. But the new Congressional season is the future, and it paves a campaign path straight to the first week of November.

What are you going to support?

August 30, 2010 | Filed Under Uncategorized | Leave a Comment 

Taylor Morrison’s Sheryl Palmer Unplugged

Earlier this week at our DC offices, we got elating tidings that our treasured and indispensable co-worker, Boise-based Christine Serlin, gave birth to her second child, Ella Jane. Like her mother, Ella Jane seems to like to do things a bit ahead of schedule, which Ella Jane’s older brother, 3-year-old Oliver, and her mother and father were all for. But when someone who’s “indispensable” goes out a week earlier than planned, it has a Charlie Chaplin-like domino effect that can be amusing to witness, but not if you’re the one who all the dominos fall on.

At any rate, we’ve been busier these past few days than we’d ever imagined, especially for the Dog Days of August. But that shouldn’t add up to punishing you, so we’re going to do something a little different—and hopefully compelling—to thank you for your continued loyalty and your inadvertent tolerance in light of our insanely overmatched bandwidth. We’re going to give you something extra today, just for being interested enough to open this post.

It’s this. On Monday, we wrote about Taylor Morrison president and CEO Sheryl Palmer’s No. 1 point of focus, getting her team in tact to Calendar 2011. We tipped you off as to why we are drawn to the Taylor Morrison story. It’s an entity and a set of land assets that are attracting interest among potential acquirers who can afford to take a longer ramp way to dominance in housing’s next “up” cycle. At the same time, Taylor Morrison’s UK-based parent company Taylor Wimpey LLC, may (or may not) find it advantageous to spin off or sell its North American unit if the bid price is right.

With the new-home business in such a state of limbo, and with share prices of home builders so undervalued right now, one would hardly think of now as the time either buyer or seller would find motivation. But that’s precisely when these dramas tend to occur—when few expect them. Witness flashes of mergers and acquisition appetite in other industries, witness painfully inconsequential returns on many conventional investments, witness historically favorable rates on borrowing costs for big deals, and witness home builders sitting-duck caches of “dry powder” that will vanish into dust eventually if time and a non-starter housing market drag on into 2011.

If a snap-back in pace, or at least a resurgence in consumer sentiment doesn’t enter the 2010 4th Quarter zeitgeist, we’re betting on another round of shrinkage in the key cast of home builder characters in the drama.

Citibank home building analyst Josh Levin appears to agree. From a note he wrote earlier this week—following, of course an earlier blast we put out on the prospect of home builder m&a—Levin says:

“We think that the likelihood of consolidation has increased for five reasons: (1) new home sales have dropped to levels almost none of the management teams anticipated and have demonstrated no recovery so far (2) in sharp contrast to the 1Q10 earnings calls, on the 2Q10 calls managements sounded rather discouraged about the industry’s near-term growth prospects (3) most managements are now focusing more on gaining market share (4) the broader economic outlook, particularly the prospects for job creation, has deteriorated markedly and (5) as discussed below, size confers an advantage. Although it is difficult to quantify, our best assessment is that some consolidation is more likely than not if the outlook for job creation were to materially worsen or if the next spring selling season shapes up to be a bust.”

So, we think you’ll be interested in our extensive verbatim interview with Sheryl Palmer below, where you’ll get to know who she is, how she thinks, and what her take is on the drivers of operational success for both Taylor Morrison and home builders in general.

During the course of over an hour, we talked about Taylor Morrison’s working relationship with its UK parent, the company’s post-merger integration issues, strengths, and weaknesses, operational threats and opportunities of the moment, its geographical footprint, its land-buying strategy, its headquarters-to-field balances, and the constant rumor-mill that has them on the block, as well as more personal Palmer insights, motivations, and ambitions.

(Editor’s Note: this transcript is faithful to the conversational, stream-of-thought exchange that occurred and hasn’t been air-brushed for grammatical correctness.)

Enjoy.

BB: What brought you to Taylor Morrison in 2007, and what were your initial challenges?

SP: I was looking to the company because of the international presence. When I actually joined Morrison, I had kind of left home building business for a while. I wasn’t sure what the next chapter was going to be.

I went over and met with the team. First I interviewed with the management, and then I interviewed with the Chairman Norman Askew, and I was really intrigued.

Within my private and public prior lives, I’ve had some just remarkable experiences that I wouldn’t trade for a moment, between Blackhawk and Del Webb and Pulte… Vast experience and fabulous people I have gotten to work with and experience.

But there was something quite unique about the international presence. Even though I had worked with Pulte, which had international, I certainly was never involved in it. So with my eyes probably half open to it, two things happened for me.

One, I thought the company was at a fast rate of change in its maturation process. It really needed both help and sophistication to get to the next level, especially given the market dynamic. Two, I thought there was so much to be learned from a company that does the same thing we do differently.

So, I jumped in.

Six months later, the discussion started – now the discussion of the merger had started even earlier… years earlier according to the rumors.

So that was why I came in. It’s actually exceeded all my expectations.

BB: How does a North American home building operation with a UK parent work? Is it a comfortable set up? Does everybody get it on both sides of the oceans?

SP: It’s different, but different is good. We’ve had the opportunity on both sides of the pond–and looking at our UK, Canadian, and US business—to learn from each other.  In a perfect world, you wish the cycle was different in every market. Don’t you wish that you were hedged all over the place… isn’t that the diversification story?

If you go back decades, I don’t think we’re as counter cyclical as we might hope to be, but there is some difference. Certainly within our Canadian business it is. In the short term, there’s been differences within the UK and US businesses…. If you look at it over a span of time, maybe not too different, but still different.

BB: Tell us about your marching orders as you stepped into leadership here at Taylor Morrison.

SP: So when I first started and I had the opportunity to spend some time over there and look at structure … it’s just different… culture… it’s just different. But the opportunity was to look at those differences and ask, ‘what works there that we don’t even contemplate?’ If it’s the way that we handle mortgages, if it’s the way we handle the Realtor relationships (they don’t even exist)… they don’t even exist here… it’s just so different.

It’s kind of taking the pieces apart…that can make sense, that can actually be tweaked and then work within our business.

When the UK market really started changing, we had—at that point, depending on where you were in the country—two to three good years of difficult times under our belt. And what it did for the UK with Pete Redfern, who’s our Group CEO, was that it allowed him to really recognize – there were many markets here in the US where you were knee-deep before you really believed it was happening to you, even if it happened to you in other places, you still didn’t believe as an operating team that it was happening right here.

From a more global perspective, Pete could see that, and it allowed us to make very good decisions in the UK on our building, on our spec inventory, on our land acquisitions, … the same decisions we made in Canada, because we kind of planned for the worst and hoped for the best.

So from a macro standpoint, that’s why it’s been quite enjoyable. From a day-to-day, I’ve just loved it.

BB: You were talking about ‘doing the same thing, only differently.’ Is that a case you’d describe as knowing it when you see it, but can’t necessarily articulate the difference?

SP: Some of that. I’ll give you a more operational example. I remember when I was touring the UK and … walked into a sales office and talking with the sales consultant, and talking about their buyers, their traffic, where’s it coming from? The level of ownership the sales person had for the buyer walking in that door was almost 100%. Now that’s a very different experience.

She pulled out her map of literally the marketplace and the market’s divided differently because of the different concentration levels. She goes and she pulls out her map and it’s got hundreds of these little… and it might sound archaic, but candidly, it was just fabulous…. Hundreds of these little dots, colored dots… and she says, ‘well these are my buyers,’ and ‘these are my customers,’ and ‘this is the publication circulation,’ and it was almost like going back to the old days, and she says, ‘if I don’t get an ad this Sunday in the Christian News, I’m going to lose traffic, and I’m going to lose sales this week.’

Now how many sales people in the US could really tell you that.

That also carried through to the customer service relationship. It was and still is all managed at the local level with the sales person and the superintendent. You came in through the sales office…

In many instances, in the US, we try to keep the customers out of the sales office in case they’re upset. What they do is make sure that relationship never gets to a point where you don’t want your customer in your sales office. So basic and fundamental.

On the flip side, we have a program where we have internet sales consultants, who do a significant portion of our sales. That relationship is something the UK never would have contemplated that they’d been able to build into their system.

So it’s looking and wanting to find the gems that can make a difference.

BB: How does that ladder up to cultural differentiation, in terms of what you try to promulgate here that is part of the meta – this is who we are?

SP: Pride. Pride is as much as anything, as being part of this international organization. Proud to be different. Proud when we can do something unordinary.

We have this internship program…where there would be four interns that would come over from the UK… (we’re actually talking about executing it the other way)… and they would be in our division for 8 weeks 10 weeks. The company would have them live over here, and they would be part of that team.

So there’s this camaraderie… we do these divisional presidents meetings on an annual basis…and we swap countries…

So it’s about pride. These times have changed the way people desire and acknowledge help and support. In organization, I’m proud that it’s not about it has to be my idea, it has to be the right idea for the business. And when you actually get to experience that, … because three years ago, the UK was just kicking butt, and we’d go over there an our heads would be hanging pretty low.

We’re looking for every trick they can share. And the next year, they’re starting to feel it and what can we do to help our way through this and to prevent.

So the culture in the company is very different in every single location we do business. And that’s just perfect in my opinion.

It works under a core of pride and passion and enthusiasm for what we do and doing the right thing. That’s what we carry collectively.

BB: You’ve been glancing off this issue of integration… can you benchmark us as far as the integration…the merger? We’re three years into it—is it done? You’ve gotten to witness another more vaunted merger take place.

SP: You know I’ve been through a number of them, and I’m quite grateful for that. There’s a reason all the M&A books are written the way they are. They’re not easy.

I was with Del Webb, left Del Webb, was with Blackhawk, … and then resigned from Blackhawk to go to Pulte… and while I was in my two-month notice period to go to Pulte, put together the deal to buy the holdings of Blackhawk, so I was actually on both sides of that transaction.  

But then left the team because I moved to Arizona, so I kind of watched that one from a distance, but I’d built that team 10 years earlier… then, six months later, the Pulte-Del Webb merger happened. I think I was the only individual at the time that had actually been at both companies. Went to the Pulte corporate office–that was the old Del Webb corporate office… so yeah… you learn from the good and the bad…

We [Taylor Morrison] definitely, I believe, did it different. I think there were a couple of things that were absolutely critical. I don’t think the word merger is used in the company today….We’re Taylor Morrison… and really everybody’s a Taylor Morrison person today.

I think you have to stay true to the reason you made the business decision. The core honesty in that decision process and in that communication is fundamental to your success. What I mean by that is that if you’re buying the assets, then you’re going to approach the structure and the management differently. If you’re buying the company or merging two companies because of differences in skills and complement… for example, like Del Webb and Pulte did, then, in my opinion, you want to hold dearly the things that you want to protect in both those companies.

We brought these two companies together because they had two very different skill sets. There were certainly financial implications… But at the end of the day, the thing that made this complement is that you had a quick-turn production builder in Morrison and you had a master-plan developer in Taylor Woodrow.

We had skills that were quite different and quite complementary geographically. We had great overlay, but that didn’t mean that Company A all of a sudden – because they got these assets that they had that experience.

It didn’t mean that just because you had a Pulte subdivision, now you could go run a Sun City because it was in the same market.

You had to appreciate what the differences are.

When we started the integration process, we were going to hold ‘what is our go-forward strategy?’ and ‘what are we?’ and make sure that we had the skills to deliver on that.

So, first we created the structure, and recognized what these new divisions and businesses were going to look like. Once we did that, absent of any names, then we started filling in boxes, and interviewing for those positions.

We interviewed, from a management standpoint, for every single position. It was an incredibly onerous, rigorous process. We didn’t do it for optics. We did it to make sure… because Management Team A couldn’t have an appreciation of the skills of the others because they didn’t know them. So, we started at the top, at the division president. But even that division president, we had to make sure, within our process, it wasn’t about, ‘I’m comfortable with this team.’ That’s part of the equation, no doubt about it. ‘But I’m comfortable that I have the skills now amongst the team.’

We actually had a panel conducting interviews to make sure that that process was pure.

We were able to communicate that process very succinctly to the organization. It does make it easier when you understand what you have.

BB: Can you give me a sense of what the picture you had in mind when you populated the organization chart with the talent? You have a master plan developer expertise and you have the quick-turn production builder, so the new operation on the ground boil down to in that marriage of skill sets?

SP: We made sure we had the talent on the ground that could execute on the business that was there today, and had the strategic ability to see the business looking forward. So, for example, you might have had a division, where almost the whole management team, let’s say, was finance. Even though they were construction, sales … they’re all finance folks. They couldn’t view the business holistically the same way. There are certain things that they’re going to be 100% on target about, but there are pieces and parts missing. Now the market starts changing and you don’t understand the consumer, you don’t understand from a merchandising standpoint …your execution isn’t quite as important because it’s all about the dollar. Now that’s an extreme example, but we had to make sure we had the complement of skill sets.

There wasn’t one vision for the company. We actually had to do that market by market because the dynamics of that business was going to be different. If I looked at a market like Phoenix, we’re still continue to be a master planned developer with high-turn, very production oriented business. … but not high amenity… a more traditional community builder.

Where we’ll have other markets, say Austin or Southwest Florida where the make up was long term assets which were highly amenitized…. Planning and building… and that was a different skill-set that we needed to exist here.

So, truly, it was making sure we understood the one to five year plan and making sure we had the skills within the team and the camaraderie, the dynamic chemistry within the time to get us where we needed to go.

So it was a wearing process. People that had worked with folks for a long time…. And thought that “this was what they needed.” As they began to open their mind to “wow, there are other ways to do something that might give us a strength that we don’t have in the organization today.

That’s a very healthy process.

It was great for the folks that ended up in those seats. But, as important, it was great for the balance of the staff to appreciate… because some of those folks lost their mentors and their bosses, but they recognized and could actually—this was so transparent—see why we made the decisions we made.

What we did at the very same time, which was also key—our communications to understand at the employee base wanted in this new organization… through focus groups, through surveys, through outside resources coming in and interviewing people to understand what is the core value set in this new company that we’re creating, because we kind of have this blank sheet of paper.

Let’s together make sure that it’s consistent with our internal value system. It came from the bottom up and the top down, and kind of met in the middle. So people can own their decisions in the company because they feel they’ve helped shape them.

BB: Is your signature on that integration story?

SP: August 2007. Day One of me taking over was me creating the North American Leadership Team with that same process I described at the Division Level, I stayed pure to at the National Level. We might have had 6 regional presidents and I needed 3. I hate to say it was my stamp, because I think our team created it and executed it, and that’s where the success came from. It truly was the team.

I think my style and openness with people and my flexibility to seek to understand was probably – this is hard for me to say–was probably what we needed at that point, because it’s traumatic for folks. It doesn’t stop you from having to make the right decision. But you have to understand what people are feeling, because if I could say, the absolute signature value we brought to that process, all the way through the integration, for three years, has been honest communication.

You might like always like the message, but you know that if you’re getting the message, and that management’s transparent and honest with you, people can deal with that.

Nobody likes what’s happened to us. It’s no different than the process of having to downsize the company, and not be able to say that we put as much energy into the folks that we let go as the folks that were staying… And those communications equally had to feel okay.

BB: If all of the public builders had regarded their situation and challenge as a turnaround, they’d be in better shape.

SP: If they had been proactive instead of reactive, I think that’s very true. We were in a different place that actually created our ability to look at the business as a do over. Because we actually had to. As difficult as something like this is, I felt blessed that the market – this is a horrible thing to say – that the market wasn’t moving at 200 miles an hour. It gave us the chance to set the structure. It let the culture be created. To put the process in place, to plan for the future. When you’re running like that, you just kind of let it happen, and we didn’t, we planned for it. We planned for this day as the market was going to turn to be ready to be able to take advantage of that.

BB: Can you talk about what the company has been doing, strategic moves, land acquisitions, dealing with trying to find the right balance in geographies and footprint, etc.?

SP: It cracks me up when everyone has their predictions. Eventually, somebody’s going to be right. We are a different company, with being privately held U.S., publicly traded UK. It does put us in a little bit different space. We’re financed completely out of the UK. If I look at some of the challenges US private builders have… we might have those on a more macro level but it’s quite different. I don’t actually have to deal with that on a day to day basis. We finance Canada locally. We have a little bit of everything. So it’s allowed us to focus.

The message to the team is to control what you can control, and just do that as best as you can.

On the market: I’m an optimist at heart. But I’ve become quite the realist and pragmatic as well. This for me is well past the 6th year anniversary of … starting in Las Vegas with Pulte… getting there 30 days before the market crashed. It seems like it’s become a way of life.

There are disciplines within the organization that have become a way of life. It’s not a matter of it’s a good market or a bad market. Getting away from those fundamentals is what got much of our sector in trouble. We didn’t have to understand the market and the consumer, because people just came and they bought.

At some point that just doesn’t work. At some point, location, location, location… what’s worked for us for 50 or 100 years is pure.

So our operating model is to make sure that the underlying data – there has to be some business acumen and overlay that goes into that decision process – supports our position on market on acquisitions.

Our approach over the last 6 to 12 months has been quite different than any of the other builders. We haven’t subscribed to the ‘I’m going to buy land to [kind of] bridge us to that promised day. I don’t know when that is. Things will be better in six months, so I’ll buy now and get some appreciation.’

We just haven’t subscribed to that. We’re in a different place and I understand that everyone is making different decisions in their board room on what’s right for them, given their company needs and dynamics and covering overheads can be the right approach.

It hasn’t been for us. Our approach has been, we’re going to right size the business no matter painful that’s been… Market by market, and every business is going to be profitable. You can’t have land burdening the balance sheet. We all had our share, but we’re not going to go there again. We can’t have land burdening the balance sheet that’s not going to deliver profitability to the business.

So our underwriting process / rigor and team ownership of – everybody wants to grow their business, but we want profitable growth – that task is fundamental to our success to date and to our go-forward strategy.

It has prevented us from participating in the finished lot run up through the 4th quarter. We just didn’t play there, because fundamentally, we weren’t going to come to market in Summer ’10 with lots that had to be impaired. We just weren’t going to do it.

What we did was we took more of a mid-term approach because that was a space that actually we didn’t have to compete in.

As you’ve seen we’ve bought some good-sized partially developed/partial raw – about 1800 units here. We just bought 1,200 units in Austin. That’s working really really well. In the short term, store count isn’t what we want it to be, so we’re having to re-grow the business profitably. But we believe strategically that was the right thing to do…

I don’t personally, necessarily believe we’re going to see another leg down. But I personally don’t know for sure that’s true.

We can’t put ourselves in the position–there’s a lot of inventory that was bought that’s coming to market now and it just doesn’t work.

I’m real pleased with all of our acquisitions. I wish there was more of it over the last 12 months. But I’m pleased because that mix in our portfolio is absolutely our future.

We’re still working through some of our troubled assets. We have some of those that are at market, some of those that are in mothballed state,  … the ones that we didn’t believe were going to give us the value over the midterm, we divested of…we’ve had two years making sure we’ve right-sized that portfolio market by market and made some real tough decisions. Some of those decisions required us to lose people… because we didn’t have the store count.

But we couldn’t just sit there and hope. For three years, if you go back into all the forecasting, the next quarter was going to be much better. We couldn’t make that bet. And I’m an optimist at heart, don’t get me wrong.

Events, random issues, fundamentals all overlay one another ….

It’s the first time in my life I should be on the debate team. I feel like I can get on both sides of the debate and win. I say that to our board in the UK when I try to articulate where the market’s at… I can give you all the good reasons that we’re going to start to see improvement. But I can also give you all the reasons that this is going to stay with us for a while. I think they probably balance themselves out, but I will tell you, if debate teams across the country in high school are not using this as tool to understand how different the economic factors and what that does to people’s psyche…

That’s the piece that nobody can estimate, that nobody can plan for. It’s fascinating.

It’s not that we’re risk-averse. In fact we would never grow the business if we were. It’s ‘we’re going to get paid for that risk.’

BB: So there are two affirmations when you’re buying land… one is that is that it pencils and it gets you what you’re looking to do in terms of your own business plan and scope. And the other is that if you are competing with other builders, then you’re in that game of competing to buy versus competing to sell, so you’re not paying the price for that competitive bid up…

SP: We’re not in it to be the biggest. We don’t feel that’s necessary. You have to have size and some level of scale, obviously, to get ahead in the business, right. So, there’s the practical application. But, a lot of people have entered that mid-term space now out of need.

We kind of traveled alone there for a while. We’re okay to stay quiet and off the radar. I don’t normally or typically agree to interviews. We’re okay staying off the radar. Because it’s just about running the business, and doing the things we’re supposed to do and making it right for the shareholders.

BB:  In the markets you’re in, talk about where you’re at and what you’re responding to…

SP: Culturally, we have relentless view on cost control. Healthy… you have to spend money to make money. So it’s not just about saving money; it’s about spending money where it counts. That really runs through the entire organization. And everybody feels that responsibility. We do things, … we had a contest one year about the big idea. What are the things we can do that aren’t done out there? and how do we drive efficiency through the organization? I think culturally, the relentless approach on cost is one. The responsibility and empowerment of every individual in the organization to make the right decision and to have the support of the organization, even if that decision is not right.

It allows people the courage to go the extra mile, because they feel good about it. I think about, down to the community level, cost…. And it’s about living in the moment. And if the plan is 3 sales a month or 2 sales a month that divisional team… that community team has a responsibility and the power to go find those 2 sales a month. And they get the support on the divisional level.

And the next layer that’s so important…. I come from the field…and having been through the different environments and cultures… is it local decision-making? Is it command control? I’ve been involved in all of them. To me, none of them are right or wrong. Obviously, everybody’s got a different style.

It’s about finding a balance.

I think that’s what we’ve done very very well. We have a very flat organization. It was flat three years ago. It didn’t come out of need. It came out of… we believe the right way to run the business.

This is a local business and we believe that heartfelt. Having the opportunity to put the folks in every seat that wanted to do the right thing about the business allowed them to utilize resources in the organization and not have to have every single local lead approved… and feel okay, because that’s what makes the business better.

Finding that balance – decisions are made locally, and ‘there are things I just don’t have to worry about because those resources are there for me,’ and actually believe it… It sounds silly, but it’s age-old: Corporate vs. Field.  I think our environment’s really quite different, and I’m quite proud of that.

If our underwriting plan guy has found something in a deal that didn’t make sense, it wouldn’t be that this guy screwed up this deal, it would be he saved me from making a lot of decisions. That’s a really different attitude. It permeates through the organization and starts down at the field level. If the superintendent’s got issues, he’s gonna go find that resource. It just is a really healthy place.

BB: How do you manage the inflection point that occurs shifting emphasis from adversity management to the next set of challenges to grow…?

SP: That doesn’t worry me to be honest. It’s not one of the things that keeps me awake at night. The reason is, naturally this business attracts some very aggressive group of entrepreneurs. At the most senior level, that’s a very healthy part of our mix. So the instincts are there to want to grow the business, but the discipline to make sure we do it the right way. We’re actually planning for–we have an involved strategic planning process on an annual basis, reviewed on a quarterly basis – that time.

But we’re making sure that the controls and the processes are well established in place. As the market improves, we’ll have the best of both worlds, because there will be another cycle.

It scares me, to be honest, when I look and see what happened in the Fall. There was three years of pain, and builders beating land sellers and banks over the head, trying to convince them that market values weren’t there… and had to get to a psychological adjustment on what market values needed to because when you residual it back, their perspective on what the values were just didn’t work. And overnight we made that go away.

We just said, ‘poof!’ and it was gone. Because, now after the big Fall, everybody says, ‘those really are worth what I thought they were.’ But guess what, when it comes through the cycle, the house isn’t going to appraise there.

So the discipline and foundation of kind of building it from the ground up … but having the strategic ability to see the end is a good balance.

BB: How have you evolved the sales culture? Do you see tangible disciplines that are a level greater than you would have seen when you first started?

SP: Our national VP of sales is from the UK. He’s the one person on my leadership team who’s actually from the UK. He’s been with Taylor Wimpey 25 years or so. 20 plus years… his name’s Graham Hughes. He joined us over here… he actually came over on a stint to work with me when I was with Morrison about two months before this all started. He’s now here permanently.

He brings a different perspective. One of the things that we’ve done internally… we’ve had two in-house trainers. One could argue that that is a luxury in today’s environment. We don’t believe so, because, fundamentally, if we’re not selling houses, the machine stops. If we’re not buying land, the machine stops.

Everyone’s obviously got their input to the process, but fundamentally, the resources to make sure that our teams are properly motivated, properly educated, and they have the resources in these difficult times.

If you think about the success of the sales person, it does come down to the psyche of the sales person. It’s been critical. So we do a significant amount of group training, one-on-one, encounters, as well as, we’ve complemented that with things like the internet sales consultant…

BB: Just the knowledge base – the moving target on home finance has been hard to stay current with…

SP: That was one of the changes we did…as we had a number of different mortgage relationships around the organization… We consolidated it to one three years ago, and then last year, we brought it in as Taylor Morrison… it was a JV and we bought the rest of it…now it’s 100% wholly owned….

Her name is Tawn Kelley–Mortgage Funding Direct. She’s the largest table-sending mortgage broker in the country–for two or three years–she emulates everything that’s good about our culture. She makes sure that her builder and her customers are taken care of… and our capture is close to 90% company-wide. It’s remarkable.

Once, the sales force sees mortgage as a sales role, something ‘I have to do’ … it’s like ‘can you help me how to figure out how to sell this house?’ So we were the first to market with ‘dollar-down’ and go back a couple of years with forward commitments… Tawn’s actually at the helm of that.

JM: What’s happening with product? How has that evolved with respect to market demand?

SP: We’re a curious organization. We’re really seeking to understand what the future buyers’ needs are. The only thing we know for sure is they’re changing. How? I don’t think we can exactly appreciate. What are the trade-offs consumers are going to be willing to make? What is the meaning of homeownership and house, going forward? Some pretty basic, but spatial questions. We’re really trying to understand.

We’ve retooled. I’ve read where builders don’t understand the consumer, and that’s okay… we’ve certainly as an organization had our fair share of houses out there in the marketplace that weren’t properly targeted to the consumer need.

From an existing portfolio, we’ve gone through and made sure that the positioning of the product–we’ve shut down models where it made sense; we’ve restarted; we’ve retooled; we’ve done the same things everybody else has done to make sure that our product in the market is matched to the consumer need. Obviously, as we’ve seen across the country, affordability, value—an overused word, they’re different to everybody. We need to make sure to have an appreciation of the needs and wants of lifestyle choices that people need to make in every market.

So, one of the other things we’ve held very purely in the organization is our underlying market research function. Right now we’re going through a pretty significant national survey to try get a greater perspective on what the macro economy has done to consumers at different stages of life. Where they are today and how that’s changed their perceptions on homeownership and what’s going to be important.

It’s an important exercise, but it’s not everything, because with all the market research – I guess that’s where I started 25 years ago, in marketing–you have to take all of that as a tool to help us to guide us to make the right decisions. But I think fundamentally, it’s a bigger question than–it’s not just a flight to affordability… it’s a flight to understanding what people’s needs are. Once again, affordability to you and to me and to someone else is different. The tradeoff I’m willing to make … we’re seeing a lot of flight back to the basic needs. I don’t want the nice things in my house; I’m willing to give up square footage, but location and time with family … there are things that are becoming more important.

Locations are becoming different. How people use that product … you think about the new generation of folks who 50% of them seeing themselves traveling internationally to work… What does that mean in their homeownership decisions? Do we have to look at homeownership differently? Is there a different model for homeownership?

We’re exploring all of that… what about the boomerang kids? They’re all coming home! I’ve got two of them… Multigenerational is huge…

BB: Some of the limbo comes from the fact that we were stamped with things that were easy to get because the money was easy.

SP: There’s a lot of people who believe ‘this is just a phase we’re going through.’ And ‘Homeownership will continue to be the dream.’ I don’t subscribe to that. I think– without being overly dramatic–this recession is forever changing the mindset of people’s brains on what’s important in life. The way we spend. Our value system.

For decades, homeownership has been a way and place to plan for one’s retirement. Coming out of the Del Webb environment, where this is a safe harbor for my family, I trust Del Webb.

Then you think of people coming out of the Great Depression and how long it took for them–our parents and grand parents–to … my grandparents still hid money under the mattress. I don’t think we’ll do that…. but I think it’s going to forever change…

If I were to be honest… I’m not smart enough to know what those answers are…but we’re certainly trying to get ahead of them. I don’t also think we have a perspective yet on what actions will happen politically that will change people’s view on homeownership. Think of the impact of some of these tax changes and what that’s going to do to people’s discretionary dollars. One of the things that just fascinates me about working in the UK and Canada is that it’s a very different view. You make a commitment to a property, that commitment follows you, not the property.

How are we going to change? I don’t think we know all that yet. There’s a lot of maturing that we still have to do.

BB: Can you tell us more about you and your background… what influences you?

SP: I moved a lot. It’s hard for me to even say what I would have called home.Born in LA. Lived in Atlanta, New York, back to LA in high school, San Diego for college, … continued that pattern as an adult… lived in Arizona, Northern California, Nevada, …three tours of duty in Arizona…. so probably flexibility was something I grew up with, and when you’re a little kid, sometimes, it’s tough, sometimes when you’re a kid and you have a Southern drawl and you live in New York…and you come back to LA and you’ve got a Southern/New York accent, you learn to be flexible.

And you learn to look at some of the good in people because some of the bad comes out really fast.

I grew up in an environment where my parents traveled a lot. It was a very successful household. I probably grew up wanting to be different from my mom and not work and be a house mom… just like they say, I probably grew up just like her. She traveled internationally, was never home, … she was a designer/manufacturer of clothes.

I didn’t really understand why my parents weren’t really present. What was impressionable? I think there was a point where I was living in New York… where I had to do some assignment for school, and I was probably 12 or 13… and I had to do some news clippings, and I found this article on my mom.

It gave me a different appreciation of what she was doing in terms of impact, and how she wanted to make a difference in the world of design. It forever changed my perspective on, how do you find balance in your life and the mission she set out on…What they taught us–I don’t know if it was a conscious mission–was to be very caring and to be flexible. And there are no victims. We make those decisions and we carry that core responsibility. This served me very well. Because I think you have to be flexible.

Our organization is one that is incredibly flexible. I have a genuine appreciation for people, and a genuine tolerance for adversity. That whole victim thing comes from a sense of responsibility and wanting to make a difference.

Probably the last thing that my parents gave us as children growing up is that it’s okay to be me. It was okay that I had a Southern New York accent in LA and nobody could understand me. It allows you to establish relationships on a different level. It sounds kind of corny, but it’s what I really believe.

San Diego State University… Special Education… that came with the flexibility. When I was going to school, I was working for McDonald’s Corporation. I did a lot of work with less fortunate children with McDonald’s and that’s what I wanted to do, was to be a special-ed teacher… kind of grew through the marketing environment at McDonald’s …. Had aspirations of working at the big Golden Arches in the sky, so I needed agency experience. I ended up on the agency side, here in Phoenix with Phillips-Ramsey.

Then, lo and behold, through taking every moment, and living in the present moment, I ended up with Del Webb as my account…and eventually I was asked to come be the marketing manager for Del Webb. I left the agency world.

I was a pretty free spirit. You kind of took it as it came. The corporate environment just wasn’t me back then. I was in my early 20s and, when you work in the agency world, it’s pretty footloose and fancy free. And now I’m in this environment that it was hose seven days a week, it wasn’t me… I was thinking about going back to the agency side, but I loved the business.

It was somebody in the field here in Phoenix who said, ‘You know, it’s just so different here in the field. You just can’t appreciate it… and I loved the experience of working with the field… I didn’t like the corporate world. He said, “You got to come and be a sales manager.’  And I said, ‘A what?’ … 20 days later, I had my real estate license and I was the sales manager at Sun City West, and I had 25 agents who probably had an average of 10 or 15 years under their belt working for me. I could never know more than they did, I just knew different. Once you get into the field, it’s remarkable. The rest just happened.

I didn’t set out to run a home building company. I actually set out to be a special-ed teacher.

But I took it one day at a time. Just had incredible mentors along the way.

Rich Vandermeer, Sun City West… saw something in me… he said, ‘You’re meant to be in sales management… I can teach you sales… you do it every day, Sheryl, you just don’t realize that.’ He was remarkable… A year at Sun City is like five years somewhere else… you’re doing 1200 homes in a year in one community… a lifetime’s experiences…

He took some of my natural instincts around my care for people and properly focused them. It was like seek to understand, explore, investigate, take in all the information… cause I might have been just, pretty quick to just go do it, just get it done. He helped me to take a step back and understand, appreciate, and then execute on that. He always believed in me that my instincts and trust with people … where I was a kid coming in and a team of 25 people were wondering “how are you going to help us” and within the next three months we have a team of people who took things to the next level.

What he was masterful at was understanding my own personality traits and how to work those within a business environment.

Then when I went to Blackhawk in a private environment, I was able to round out the business side of it from the sales and marketing side. I’ve probably had confidence and fear rolled up in one little ball, so when I had the opportunity at Blackhawk to open and run these new active adult communities for them, I was just young and cocky enough to think that I could do it, but I really had no idea what I was getting myself into. But once again, I was surrounded by a group of really talented people and had the desire and curiosity… that’s probably what Rich gave me… I think the character and the creativity were attributes I brought, but the curiosity to go and seek more information to make the best decisions probably the gift Rich gave me.

It’s okay not to know. The humility comes pretty easy. Very early in my career, I surrounded myself with the best people, and it’s so okay that they are so much better than me. It’s perfect; it’s what I want. So I’m going to have the best finance talent around me, and the best land talent; because I’m going to look at it different. It’s that complement that makes us as a team better.

It’s the permission to be okay with that.

BB:… what do you like to read… cultural passions…?

SP: I love to travel.  Two weeks ago I was in Tenerife, which is in the Canary Islands… I was in Barcelona and Madrid for my 25th Anniversary… it’s a big deal.

My husband says he’s a happy single married man… we only see each other on weekends. I leave Sunday night or Monday morning, and get home Friday night, … it’s different… we’ve been doing it for about four years.

I really do my best to protect my weekends with my husband and kids – I have three children… Diane is 30, and married (stepdaughter). Lindsay…22… and Randy will be 21… (boy)… they’re the support system … my kids moving like I did and being okay with it… has just been remarkable.

I love to golf, travel…

This week I’m in four time zones… I actually get a high on that. Four years running I still do. I do like… what the traveling does for me… people ask, ‘well, how do you go to the UK every month?’ I say, ‘well, that’s my 10 hours on that plane.’ That’s truly my personal time. If it’s reading junk… watching a movie…if it’s getting caught up on email, I get to choose that… when you run at the pace we do…

The last thing that I do personally that’s really important to me is working out. It gives me that hour, ideally, … gym… running, doing something… take the time to clear my mind… it’s a little bit of everything on the reading side…

I just read, The Big Short. It’s everything. I enjoy sometimes a good James Patterson murder mystery just to complete waste… I love motivational reading. It’s a blend…whatever my time allows. I don’t get to enough… it’s really my trips overseas or vacation is where I reserve my enjoyable reading…

JM : What makes you tick? What keeps you up?

SP: Getting to 2011. It’s making sure we continue to do the right thing. I think I have a great will to win and to make an impact, and that Taylor Morrison has the ability to make a footprint on our industry. That we can do things the right way. It’s not to suggest that others don’t, it’s just it’s a tough world out there right now.

Everyone’s got different definitions of good leadership. To create an environment where people can see themselves and their future moving forward together is what we’re about. If you think about the power of people all going in the same direction to accomplish the same thing and if they’ll do their piece of the pie it actually makes a difference is what we want to be and what we are. You can compare it to a football team charging down the field and they have to be in synch… My vision and dream is our whole organization charges collectively that way and has the passion to get there together.

That’s pretty powerful.

JM: what can you say about the company and or its assets being in play?

SP: It’s [supposedly] been in play since I got here… that’s what I’ve been told… I think I heard last week that we got bought by two different builders. It’s not true.

The way you worded it–staying for the long haul vs. an exit strategy–the board has a responsibility to continue to understand its options, as the management team has a responsibility looking at the options within a market and how you diversify. For some reason there’s a lot of … I’m sure there’s a good chunk of it because of the environment that we’re in… I don’t know if it’s the intrigue of the UK… I’m sure it’s somewhat the refinancing that we went through. But that rumor’s been out there a long time.

And at some point in our future, it will likely be true.

When that is I can’t tell you. What I can tell you right now is, nobody’s bought us; the company’s not on the market  today; and the rumors keep going.

Do we continue to explore all of our options? Absolutely. That’s our obligation.

The market has sure changed in the last couple of months, huh?

So when I tell you the speculation will be true … what I tell the team a lot … because I think there were rumors about Taylor Woodrow and Morrison for about three years… is eventually it happens. Eventually there will be a strategy that will make sense for this organization that could be different than what we are today. But it’s not something I can let myself get caught up with day to day… I’m on the board; I’m involved with the day-to-day decisions from a group perspective. We’re going to continue to operate our business.

BB: What does the balance of 2010 feel like to you?

SP: 2010: it’s been a tough first half and it’s been an emotionally challenged first half. People really kind of took an exhale at the end of the year. Because it’s like, finally… we’re an optimistic bunch and we’re always looking for that good news. Life was good. The first half was difficult because it was like a 2 by 4 over the head that people really didn’t anticipate.  That’s hard. That hurt. So when you look forward, I’m a real believer that some level of predictability and stability is actually great success for 2010.

I actually think it’s pretty good success for 2011. I think there’s a lot of indicators – I do believe the phrase that we’ve bumped along the bottom … I think we have. I think there’ll be some markets that will have some further challenges and there’ll be some that will fight back better than others. But there will be a control around that because I think there are some larger factors, and it might be the mortgage industry that will prevent us realizing too much of that benefit.

We have to be careful–and I said this to the team yesterday–not to let any piece of bad news make us think that the world’s falling apart, and any piece of good news make us think that we’re going to have 10% appreciation next year.

Because I think we’re going to operate in this flux. But actually the knife’s not falling anymore, and that’s success. I’m not one personally that subscribes to the V… I think as it comes back, it could come back good, but I don’t think it will be overnight.

So I think we have to plan for the worst and be ready for the best.

Making sure that the workforce has pride in what we’ve sustained… now, we’ve turned the corner. But have we rounded 2nd or 3rd yet? I’m not sure yet. But we’ve rounded the corner. I feel very comfortable with that.

What I said at the division presidents last meeting … ‘Our greatest success is We are Here, you guys and we are here in a big way!…’

We’ve gained market share in every market we do business in. We done more than hold our own in sales pace per community, our cancellations, areas from an accounting standpoint we shouldn’t have excelled in we excelled in. So be really proud of what we have accomplished… but now how do we get better and take advantage of what we can?

Thanks to Christine Serlin and her early-arriving, lovely 7-pounder Ella Jane, you heard it all here first.

August 19, 2010 | Filed Under Finance, Home Builders, Uncategorized | Leave a Comment 

The Housing Finance Fun Begins Next Week in DC

Recovery’s a good thing. Too bad we’re obliged to accept that housing recoveries, like other radical healing processes, are ugly more often than they’re pretty. 

For nigh on two years–since the financial Richter Scale bobbed off the charts in the weeks that led up to Lehman Day–the clamor has been for nothing so much as visibility. People swore up and down for months that they’d accept the pain, however harsh, as long as the volatility, uncertainty, doubt, bad surprises, and general invisibility were gone.

Well, how about now? What if the numbers are what the numbers are going to be–at least for a period long enough to define the business environment one should budget for in 2011?  Notwithstanding our Federal Reserve leadership’s branding of the moment, we won’t know the day that uncertainty and doubt will have truly become non-factors without the benefit of hindsight.

We won’t know that healthy greed has begun to win the war against healthy fear until a lot of individual battles are tallied up and plotted out in the history books. Still, the evident likelihood is that a range-bound “muddling along” will characterize the months ahead, and, sadly, not all of our enterprises are built to endure a muddle along mode.

We asked for it, now how’s this for visibility?

In this muddle-along environment, when the words “there is, and hasn’t been, and won’t be a better time to buy a new home than right now” may never have been truer in so many ways, and the answer, more often than not is, “so what?!” our elected officials and government agencies on Capitol Hill and will try to figure out what’s ailing housing finance policy.

With a sense of timing that has to be regarded now as typical–the first of a series of critical open forums housing finance reform will be ”The Conference on the Future of Housing Finance” –will take place next week, as Congress enjoys its summer recess.

Citi’s Josh Levin hosted a conference call yesterday to focus on “The Outlook for GSE Reform and Housing Market Policy,” with speaker Dwight Fettig of D.C. lobbyists Porterfield, Lowenthal & Fettig. Net, net, here’s the Levin’s topline on the key take-away:

Handicapping the Outcomes–How quickly and radically the government alters current GSE and housing market policy will to a large extent be a function of the health of the housing market in 1H11. The healthier the housing market, the easier it will be for politicians to make major changes. Conversely, if the housing market remains weak, many members of Congress will likely be reluctant to make major changes to the GSEs or other housing policies since no one wants to deliberately harm the housing market. Although there has been some speculation that Congress may reduce or eliminate the tax deductibility of mortgage interest, such a change is highly unlikely and has become “almost a third rail” in American politics. Mortgage cramdowns are also unlikely to happen unless the housing market experiences another significant drop in prices. One issue on which there is growing bipartisan agreement is that government agencies such as the GSEs should no longer have multiple and sometimes conflicting goals.

Meanwhile, more immediate policy action points could and should go into effect, according to commentary from CNBC editor John Carney in today’s New York Times.

The first fix is rather simple: the Obama administration should declare that it will not exempt Fannie- and Freddie -backed mortgages from the 5 percent rule. Then it should push Congress to amend the Dodd-Frank Act to put F.H.A.-backed loans under the same risk-retention scheme as other mortgages.

Bankers and bureaucrats will no doubt object that this will raise the cost of lending. That’s possible, although if all lenders were subject to the same rules, free-market competition might lower costs to consumers in the long run. If asking banks to keep a larger share of risk on their balance sheets is a good idea, we should not allow a government-approved brand that flouts the new risk-retention rule.

Clearly, sorting out how $8 trillion in home finance should be managed and leveraged by those vested and invested in double–and conflicting–missions will expose the warts and all of both our democracy and our private enterprise complex.

On January 11, 2011, Treasury is required under Dodd-Frank to offer its grand take on what housing finance should look like and how it should work at the nexus of public and private interests.

As we said at the top, it’s necessary to recovery, but it ain’t gonna be pretty.

August 12, 2010 | Filed Under Uncategorized | 1 Comment 

Did Home Builders Trade Off Better Land Deals to Juice Cash Generation?

Cliches do their work and get tired for good reasons. They’re often annoyingly obvious and aggravatingly true. “Be careful what you wish for,” for instance. Way back when–in December and January–as we were tallying up Net Operating Loss tax refunds home builders recouped after the extension from 24 months to 60 months backward, the clawback number quickly climbed well north of $2 billion without so much as breaking a sweat.

“That was the stupidest thing that ever happened,” said one of our highly placed public home building company executives.

Right about now, after a phalanx of home builders completed an 18-month tear to devour finished home lots everywhere at prices that swelled to double or triple distressed-deal pricetags, the sense of this comment, “the stupidest thing that ever happened,” becomes clear.

When you think about it, home building’s biggest beneficiary of an NOL refund–Pulte–already had enough land, so it didn’t need to participate in the ‘09-’10 run on finished lots. Too, the No. 2-ranking NOL refund recipient, Hovnanian, probably did use some of the windfall for land purchases, but most likely banked the lion’s share of the tax rebate for operations.

So, in fact, less actual NOL refund money made it into the land-buying market than meets the eye. But, that doesn’t mean the perception among land-sellers and banks has not been impacted by NOL refunds’ flow into builders’ acquisitions piggy-banks.

Says another home building company CEO:

It scares me, to be honest, when I look and see what happened in the Fall. There were three years of pain–builders beating land sellers and banks over the head, trying to convince them that market values weren’t there… and [the land sellers and banks] had to get to a psychological adjustment on what market values needed to be, because when you residual it back, their perspective on what the values were just didn’t work. And overnight we made that go away.

 We just said, ‘poof!’ and it was gone. Because, now after the big Fall, everybody says, ‘those really are worth what I thought they were.’ But guess what, when it comes through the cycle, the house isn’t going to appraise there.

In other words, invoking the option to shift accounting timing on collecting tax refunds on business losses from later (the future) to sooner (the past) may well have won a policy battle, but it likely made the war longer and more difficult, with an even greater list of casualties as a result.

Says one of our trusted public home building company leaders:

“[NOL refunds] probably did contribute to a temporarily elevated demand for lots, and distorted the market for a while, but that’s over now.”

So thanks to an “extend and pretend” bank regulatory environment, an artificially inflated liquidity pool of cash put into the coffers of public builders who were bursting at the seams to open new communities to flex their competitive muscle and validate their footprints, an opportunity was lost.

A true-up of land market bids and asks that could have occurred widely by now got delayed. Near-term cash-generation interests trumped longer-term health and profitability.

Here’s a painful truth. Minus a jobs and consumer confidence recovery (which could still emerge, however anemically, out of the fog of broad regional economic trends), housing’s now stuck between a rock of no demand stimulus and a hard place of land sellers who won’t mark their lots to realistic end-home-buyer market rates.

Home builders’ focus on what they can control–which is not the economy and jobs growth–is more important than ever.

A key story of the balance of 2010 will be whether at least the public home builders displayed financial discipline (or not) in their lot acquisition activities dating back to Spring 2009. We have, or will see a fair number of communities come on line in 2010 and early 2011 based on those lot purchases, and the question of the moment is whether the underwriting was sound or not.

So even as end demand remains in the thrall of unclear employment and disastrous home finance trends, the supply side–namely land prices–is going to be where players seize a competitive and profitability edge coming out of 2010. But that won’t occur for anyone who hasn’t learned to pencil lot acquisitions with the discipline to exclude both appreciation and a faster pace of absorptions.

An anemic recovery is a recovery, period…

(Folks, this note will be our last until our return from a week on the Sonoma California Coast … a vacation we gratefully appreciate. Until August 9, then, best regards to you all!)

July 29, 2010 | Filed Under Uncategorized | Leave a Comment 

New-Home Builders Try New Tactics to Win Share from Resale Real Estate

Hardly a soul in home building’s arena needs reminding, but nine out of every 10 homes selling into this beast of a market are not newly built houses. Data’s now out on June existing home sales, and a quick review of run rates on mortgage applications for purchases and pending home sales data suggests that a 4 handle on existing home sales for July and/or August may easily come as no surprise.

One in 10 of a universe of 4.9 million can conjure bad-trip flashbacks to October 2008 through June 2009 for most new home builders. Still, most of the ones we’re talking with believe that the 4th quarter of 2010 will mark the moment housing will begin to walk on its own feet for the first time since subprime meltdown became a Google search term.

Still, how many home building company executives feel precisely the way Sheryl Palmer, CEO of Taylor Morrison describes her sense of gravity-free zone housing entered since Uncle Sam stopped using tax dollars past, present, and future to prime the demand pump?

“For the first time in my life I should be on the debate team,” Palmer says of her gut sense of what’s next for housing. “I feel like I can get on either side of the debate and win! When I try to articulate where the market’s at, I can give you all the good reasons that we’re going to start to see improvement. But I can also give you all the reasons that this is going to stay with us for a while. I think they’re probably going to balance themselves out.”

Palmer attests to being an optimist with her optimism in check.

What will go on in the market through the balance of 2010 and all the way through 2011 and likely into 2012 is an X factor new home builders haven’t needed to script into their playbooks during past downturns: seven figures worth of homes whose borrowers will reach the end of their respective tethers.

So the plot line typical for a home builder to work through periods of rough going–which is to shrink the balance sheet, triage land exposure, cut directs and indirect costs, roll back prices, and gut out the worst by generating barely enough cash to cover everything that’s got to get paid for and hope that somebody doesn’t come along and appraise the land asset at less than one thinks one can get for it–doesn’t work for this downturn.

In too many instances and too many places where new home builders make their living, the market environment is too full of current and imminent distressed sales for the usual housing slump rules to apply.

Now, the questions of whether a prospective buyer can get financing, can afford to move, can sell their current home for what they paid for it or even what they owe on it, can hang on to their job, etc. loom large in today’s economy.

New-home builders offer new-home communities, and a certain number of times–one in 10 right now–buyers want that. What about the other nine out of 10?

How many of those 90% of resale buyers in today’s market are on the fence about whether they’ll go for used or new?

Realistic home building company strategists believe that their first best plan hinges less on the housing economy getting better and more on their own firm’s ability to take share in the current market.

“There are enough of our buyers out there right now,” is the way one of the nation’s dozen largest home building company CEOs puts it. “We just have to do better at getting at them.”

Truth be told, until the jobs picture changes, and changes sustainably–which some people believe is entirely possible as an entire multi-billion person consumer class of spenders continues to take shape on the other side of the planet–adversity will remain the flavor of the day in the residential investment part of the U.S. economy.

Meanwhile, the 200 or so companies who’ve been able to stay alive through a four-year slog to this point are going to have to step it up yet one more notch to snag sales from among buyers who are on the fence trying to decide whether to buy new or used.

“We needed a tie-breaker,” says Meritage Homes CEO Steve Hilton of his decision to make affordable energy sustainability a core skill of Meritage’s recovery strategy. “All other considerations being equal, we think our green initiatives can and will swing buyers our way.”

Hilton reports that Meritage’s vaunted Lyon’s Gate community in the Phoenix market town of Gilbert, Az., has netted 1o sales to buyers with qualified financing in its first three weeks since grand opening. Not a bad absorption rate in what may go down as one of the nation’s worst post World War II new home periods.

Meritage’s Lyon’s Gate equation–exceptional energy efficiency performance and exceptional affordability–owes part of its viability to the downturn itself. The 210 lots were purchased from RBC Bank as a result of the demise of Hacienda Builders–the reset on the land price was, and will continue to be the way any home builder can shut the gap between owning and renting, and between cost of owning and household means.

Also, the Meritage Green strategy now comes in four versions, of which Lyon’s Gate represents Version 4, the most ambitious. Each version of the Meritage Green starts with a minimum of Energy Star qualified plus, and ladders up the efficiency spectrum to solar/thermal and a high performance wall system that come as standard features in new-home communities such as Lyon’s Gate.

C.R. Herro, Meritage vp of environmental affairs, explains that just as all real estate is local, all affordable green home building initiatives are local as well. Step one is the lot purchase, which ensures that a production home builder or developer can roll back home prices substantially to compete in the market with resales, including distressed sales.

Next came building science, says Herro. “We worked on building the home the right way to achieve the energy savings we were shooting for, and after that we attacked the costs,” he said.

The savings to the buyer, he said, come with the overlays achieved not only on direct per square foot building and materials costs, but via concessions among vendors, credit programs with local utilities companies, and local and federal tax credit programs. It’s a complex layering of operational savings and cost take-outs that benefit the home buyer not only on the home price point but on the operating cost of the house.

Herro says that regional and divisional leaders across Meritage’s geographical footprint are enthused about introducing Lyon’s Gate type features and pricing in the communities they open nationwide. But they need, by the same token, to make sure they’ve got the same or equal cost savings and credit benefits to bring to bear, given their different climate zones, local green initiatives, utility company programs, and Meritage’s national agreements with key vendors.

“In many ways, we’re challenging the regional and divisional people to show us why they can’t implement these programs rather than to prove to us that they can execute,” said Herro.

Looks like Meritage may have found the “tie-breaker” it’s looking for to get a home buyer off that new-or-used home purchase fence.

Do you think new-home builders can or will make any headway in their efforts to wrest share from the resale market as the downturn stretches into its final innings?

July 22, 2010 | Filed Under Uncategorized | Leave a Comment 

Don’t Get Caught Up in Talk of a Housing Double Dip

If you believe your home building organization has a future, you should be paying little or no attention to the talk these days of a double-dip in housing. According to the operators we talk with, you’re paying attention to today, to tomorrow, to the month of June.

With all due respect to most real estate reporters and stock analysts, they’re full of it. First they pooh-poohed the extension of a tax credit, saying that it wasn’t going to be effective at driving incremental sales, now they’re crying that the end of it is going to send the market reeling into oblivion.

Any home builder worth his or her salt fully expected a drop-off in sales after April the moment the extension and expansion legislation passed last November. Many we talked to last Fall used the term “another leg down” following the latest stimulus measure. Recent gloom and doom pronouncements over falling mortgage purchase applications and orders falling by 25% say the numbers are “worse than expected.”

Worse than who expected? Not home builders.

Never mind what happens to sales and traffic following the tax credit expiration. The more important point of focus right now is bringing your backlog in to closing on time, on budget, and without costly mistakes. Your final batch of homes that got orders before the Stimulus deadline day are going to close this month.

Many builders we’ve talked to have put themselves “on the hook” for the $8000 credit to home buyers. That is, if they don’t complete the home for closing by June 30, they’re contracted to give the buyer the $8,000 check that would have come from the U.S. government.

So, in the month ahead, there’s your buyers’ experience to deal with, along with tricky financing, escrows, home inspections, an appraisals landmine, construction cycle time, a looming June 30 settlement deadline, a host of unpredictables you need to manage with velocity to get your margin. Fletcher L. Groves deconstructs the relationship between velocity and margin in an elegantly logical essay in his “Escape from Averageness” blog series.

At the core of Groves’ logic, the theory is that speed is one of a new-home builder’s best friends in a competitive environment where distressed sales are chronic and pervasive.

Time, and the money lost or gained in the duration it takes to deliver a new home, is the hard currency that can give production builders an edge that scales. Just as the land cost base needs to get wound back toward historic real estate norms, home builders can only achieve viable margins by improving their construction cycle times and inventory turns.

Now that the government punch bowl has been removed from housing, house prices both new and used will probably need to make up at least some of the $8,000 difference to re-ignite home buyer excitement in the market. To do that with any hope of sustainable viability, home builders will have to seize on costs that get away in the construction cycle and push the savings to the bottom line.

Meanwhile, we’re certain volatility isn’t going anywhere. Although June through August are typically slower months in home selling, operational focus on bringing that backlog in profitably will be where each team tries to work during the important period ahead.

We enjoyed this comment to Barry Ritholz’s The Big Picture quote of the day:

Charles Maley Says:
June 7th, 2010 at 9:40 am John Kenneth Galbraith once said “when it comes to the stock market there are two kinds of investors. Those who don’t know where the market is going, and those that don’t know that they don’t know where the market is going.”

Those that have knowledge don’t predict. Those that predict don’t have knowledge – LAO TZU

http://viewpointsofacommoditytrader.com/1507/the-last-man-standing-survivor-or-skill/

June 8, 2010 | Filed Under Financial Crisis, Home Builders, Uncategorized | Leave a Comment 

Time Off

Housing Crisis will be observing a needed, if not deserved, holiday break from this afternoon, May 21, through the Memorial Day holiday, May 31.

During our absence, we leave this thought in advance of Memorial Day. We are thankful to men and women of all ages, in our armed services in all parts of the world, who work around the clock to protect us and our freedom.

To you and your families and friends, we owe a debt of gratitude.

See you again June 2.

May 21, 2010 | Filed Under Uncategorized | Leave a Comment 

Home Building Focus Post Policy Punchbowl–Land and People

We’re going to go (not too far) out on a limb today and suggest that, from this past Saturday to this coming Friday at midnight, home building companies collectively will write more new-home sales than they have in any single week for the past 48 months.

As a stimulus program, we believe the $8,000 and $6,500 tax credits for home buyers operated largely as designed, especially when you blend in the way that human nature works. Human nature–not so different than the Deep Blue IBM computer that used to match chess-playing skills and wits against one grand master or another of the human variety–learns by getting it wrong to get it less wrong next time, and eventually getting it right.

When it comes to home price corrections, combined with low low interest rates, combined with a tax credit bump, it certainly didn’t hurt a buyer under most circumstances to wait until the very end of the program. Providing a buyer could be assured of arranging financing to close by June 30, many of them would do better on price or other concessions if they could make builders wait ’til the 11th hour for a deal.

What should be debunked, after all however, is the myth that there is no demand. What should be affirmed is that demand is psychosomatically pre-disposed; it has been suppressed by turmoil in mortgage financing and job losses; it can be stimulated by policy incentives; and it is keenly sensitized to the felicitous and precise alignment of house prices, interest rates, and broader consumer confidence.

What also should be debunked after this week, and after this six-month push since Congress extended and expanded home buyer tax credits through the end of this month, is the myth of home building companies as nothing but oversized general contractor-order takers.

What the extension and expansion of the credit may not have done was to put new-home sales volumes on steroids, although it has brought the months’ supply of new-home inventory within a whisper of a normalized six months on a national basis.

What it likely did was to allow ever more discerning home buyers time to measure carefully what they’re getting for their money, giving “new” a chance to show its value amidst a tsunami of distressed, short-, court-house steps, and other foreclosure sales. New’s value shows up strong in manageable monthly payments, in predictable household maintenance costs, and in a tendency for savings on energy costs.

Even with the prospect of six million foreclosures more to work themselves through housing’s correction, new homes have gained ground among buyers who plan to dwell in their homes rather than lever them toward grandiosity.

What the extension from last November through April also no-doubt did was to improve the tenor of the national psyche through what might otherwise have been one of the longest and darkest winters anyone alive could remember.

Closer to home though, what has occurred in the past 12 to 18 months or so among home building organizations themselves essentially set up the possibility of having a record week in home sales maybe not seen since the bubble days.

This time though, discipline and risk kept close track of each other, and design, production, and sales have worked as they never have before.  Most home building companies today are 25% to 30% the size they were in 2006, and they’ve done some amazing things to reengineer their business structures to the market. How? Fewer people are causing more value.

After a week like this one, managements may get the best glimpse they’ve gotten for years at who the real talents are in their companies.

Clearly, we’re seeing in public company earnings announcements and in private company results that home building firms must reinvest if they want to drive recovery their way. That reinvestment comes in two key flavors, land and people.

The May issue of Harvard Business Review takes out a special report on “How to Keep Your Star Talent,” noting that, among 100 companies surveyed:

One of the big mistakes companies make with “high potential” performers, the article says, is shielding talent from tests were they could fail and another is keeping your young leaders in the dark.

Share future strategies with them–and emphasize their role in making them real.

This is exactly what we had in mind as we developed this year’s new high production home building management event, The Housing Leadership Summit, taking place in two weeks, May 10-12, at the Four Seasons in Chicago. We want both company leadership and “high potential” leaders there because our program addresses the information, networking, and management challenge needs of both groups.

With help from our friends Clark Ellis and John Doherty at FMI Inc., we’ve created specific workshop tracks that focus on development of your team, not just for the next year, but for a future that will demand more and different skills than they’re equipped with right now.

Here’s how we phrase one of the drills our workshop peer groups will go through on Tuesday, May 11, in an all-day, roll-up-your-sleeves work session:

Assume that your divisional staff is dealing with a set of typical circumstances. Those who remain have probably been forced to accept pay cuts, have certainly not had bonuses in several years, are wearing multiple hats, are working long hours, still are not sure that they will be retained and/or that their company/division will remain solvent and have seen friends and colleagues lose their jobs, homes and life savings over the last few years. 

Challenges:

  • Morale is hard to gauge, it’s a combination of “survivor euphoria”, “survivor guilt” and fear.
  • The market is at its bottom and should improve from here, which is a positive thing for your company. However, it also means that other builders, service companies and others will be looking for talent. Your remaining staff will begin to have employment options again for the first time in several years. Your best and brightest will be most at risk for leaving quickly and unexpectedly.
  • How do you motivate and inspire your team to act as a team? People focus on their own self interest during the best of times. During times like we have seen in our industry since 2006, people become obsessed with their own self interest.
  • How do you get your team to think “long term”? Define “long term”  in today’s market environment. This could mean getting the team to at least think through the impact of their decisions and actions through the month or quarter.

 Assignment:

In your table groups, develop at least three specific strategies, initiatives or actions that your team will implement to galvanize your team. Be prepared to discuss how you plan to engage and activate the creativity, energy, experience and brain power of your “survivors”. Think about and be prepared to discuss at least one significant risk to your plans.

We’ve already got a stellar roster of executives from public companies D.R. Horton, Hovnanian Enterprises, KB Home,  Lennar, Meritage, M/I Homes, M.D.C. Holdings, NVR, Pulte, Standard Pacific, Taylor Morrison, Toll Brothers, and from private builders like Bloomfield Homes, Caviness and Cates, Centerline, Charter, Cityview, Corey Barton, Dan Ryan Builders, David Weekley, Drees Homes, Fischer Homes, FourSquare Builders, Gehan, Holiday Builders, Joseph Carl, LGI, Mattamy, McBride and Son, Ole South, Providence, Rausch Coleman, Shea, Sivage, Surrey, Vicinato, Wade Jurney, and Westport Homes.

We still have some room, and we want you and your “high potential” talent there. What better time and circumstances to share your strategy with an up-and-comer.

What we’d like to do is to host you to a beverage in celebration of your best week in selling new homes in a while.

And we can work on how you’re going to do it again, and again, and again.

April 26, 2010 | Filed Under Financial Crisis, Home Builders, Uncategorized | Leave a Comment 

A New Quarter Begins a Critical Stretch Ahead for Home Builders

As we start writing here today, the Census population clock reads: 

308,981,186

It’s April 1, National Census Day. The snapshot of America’s households that will serve as the key population benchmark, which leads to myriad decisions on apportionment of resources and responsibilities, for the next decade occurs today.

It’s a day that counts. It may also be regarded as a day of reckoning for the housing economy. Today, the housing economy–particularly as regards homeownership–begins to be de-coupled with economic rescue policy.

Here is a good, clear write-up of the big-time government support programs that have propped up housing as emergency measures for the past 18 months or so.

By the way, now, the Census Bureau population clock reads:

308,981,272

Calculated Risk does not write favorably about policy intended to support housing. The author reminds his readers repeatedly that the reason the crisis continues in housing is that there are too many vacant living units, and an overhang of homes for sale that need to be cleared out for the housing economy to re-find equilibrium.

Calculated Risk, whose name is Bill but who answers to CR, states often that the leading indicator to watch for genunine improvement in the housing economy is Residential Investment. He says that RI won’t improve until excess housing units become a normal number of vacant housing units.

The question remains, more policy or less policy. Can and will the private sector take care of the housing crisis.

By the way, the Census Bureau population clock now reads:

308,981,357

One of our friends, Ron Robichaud, who has long helped home builders with their capital structures, believes a combination of policy and free enterprise needs to focus on one goal: stabilizing house prices.

Here is his general thesis:

STABILIZING HOUSE PRICES
Assumptions.

  • It is a commonly accepted fact that the economy cannot stabilize until residential real estate stabilizes.
  • Residential real estate cannot stabilize until the excess inventory is absorbed and until prices stabilize.
  • Housing prices are caught up in a never ending downward spiral fueled by foreclosures and the dumping of those foreclosures on the market, selling them for 50% of the outstanding indebtedness or less.
  • In many housing markets, the combination of speculation and “creative financing” resulted in a disastrous housing bubble. Consequently, excess inventory was produced, and prices escalated far beyond affordability as a result of increased demand and larger houses with more expensive specifications. Some of the price escalation was smoke because it was artificially created (speculative versus legitimate demand), and some was real in the sense that something of tangible value that cost something generated the escalation. This distinction is important in designing any effort to stabilize house prices and transition to a “healthy housing market”.  The foreclosure/short market is ignoring that distinction thereby exacerbating the race to the bottom for house prices referred to as No.3 above.

    • Proposal Goal: To Stabilize House Values.

    Proposal:  Issue USG Guaranteed Bonds to Fund a program designed to reduce the volume of foreclosures.

  • Administering/Executing Authority – State Housing Finance Agencies.

    • Program Summary:

  • Prior to foreclosure – bank alerts Agency.
  • Agency conducts analysis:
  • Value of the property in a normal market is determined.  In order to determine the value, a formula would be created that would consider the history of values of like properties in the market over a five year period.  Discounted replacement costs would also be part of the formula.
  • Condition of the property.
  • Mortgagor financial circumstances.
  • Agency proposes a tailored approach that includes the following:
  • The mortgagee writes down the amount of the loan to the value of the property in a normal market.
  • Fund assumes the obligations of the mortgagor by assuming the title; thru a second mortgage or by a tri-party agreement with the mortgagor and mortgagee.  Fund makes the payments to the bank.
  • During the period while the Fund is obligated, the municipality foregoes the real estate taxes.
  • The property is rented until it can be sold at its normal market value. Ideally the existing occupant remains in the property if they can pay the rent or if they qualify for a rent subsidy that combined with what they can afford meets the rent.  It appears that a significant number of people purchased houses who should not have and who have very little likelihood of ever being able to afford. It. They need to move, but there has to be a mechanism to do that that doesn’t destroy the value of the property or the lives of the purchasers.
  • Upon the sales or refinancing of the property the bank is paid the outstanding indebtedness and the fund retains the remainder.

    • Private sector money exists, and has urgency to find investment opporutnity, but the ones who control it are afraid. They want assurance about the wisdom of their investment and the magnitude of the risk they’re taking.

    At the same time, a home buyer today would want assurance, if he or she can get it, that their purchase today won’t wind them up underwater tomorrow.

    A key to the plan above would be how the appraised value of the property would be arrived at irrespective of the current title-holder’s means of paying that number.

    By the way, here’s what the population clock now says (okay, I’ve had a few interruptions and technical difficulties).

    308,981,677

    So, within the space of about 40 minutes, we’ve added 491 people on the U.S. Census population clock. 350,000 SFD home starts just isn’t going to cut it to meet the need of America’s households, so recovery is going to come.

    The trick is getting from here to there. If you’re working for a public company, you’ve got a headstart thanks to the capital your organization can draw on. But that six-step lead won’t last for that long, we don’t think. As soon as public company volumes start picking up, the money is going be looking hard for private home building operators who’ve been keeping their teams in good shape for the right moment.

    It’s anybody’s guess when that might be.

    308,981,741

    April 1, 2010 | Filed Under Uncategorized | 1 Comment 

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