Local home builders battle the big boys

Dec. 7--Fifteen years ago when you walked through the door of your new home, chances are it carried the name of the local family who built it -- Elliott, Dunmore, Mourier, Lewis or Sweigart.

Such area builders ruled the roost then, when Harry C. Elliott III and Tom Winn battled back and forth to be No. 1 in annual sales.

Today Tom Winn's Winncrest Homes is a subsidiary of one the nation's largest homebuilders, Miami-based Lennar Corp., which battles for No. 1 in the Sacramento region with the biggest builder of them all, Fort Worth-based D.R. Horton Inc.

Folsom-based Elliott Homes, meanwhile, ranks 17th in sales this year -- its 162 home sales trailing far behind nearly 1,000 sales by Lennar, according to an industry market researcher.

Nothing more clearly indicates the corporate takeover of the region's homebuilding business than this: Where local, family-owned companies once dominated, six of every 10 homes sold in the Sacramento area this year are now being built by national production builders -- giant corporations that buy microwaves and dishwashers by the thousands and take cues from headquarters in Texas, Florida, New Jersey or Los Angeles.

That market shift has forced the local companies to sharpen their focus as they attempt to capitalize on what they say are some of their chief advantages: being small, nimble and rooted in communities where they've been doing business for decades.

The growing domination by national companies is an increasingly familiar story. Across the country, big national builders and sizable regional construction firms rushed into the fastest-growing metropolitan areas during the boom years. That is especially true in California, where the firms were lured by a record-setting housing gold rush and where their big bank accounts proved helpful in dealing with the state's strict building regulations.

"When things get drawn out, the deeper-pocket guys have a better chance of success," says Elliot T. Eisenberg, housing policy economist for the National Association of Homebuilders, a trade group in Washington, D.C.

That's hardly to say that local family owned homebuilders -- Elliott, JMC, JTS, Tim Lewis, Dunmore, Parkland, Corinthian, Cambridge and Reynen & Bardis, among them -- are headed toward extinction. Many are coming off some of their most profitable years.

"It's high probability the big private guys are there for the long term," says Rick Baldonado, analyst for Costa Mesa-based Hanley Wood Market Intelligence, a national homebuilding industry researcher.

"They're conservative. They're smart. They're going to play it right."

Still, one local builder sees gains just ahead.

"I suspect the nationals' market share will shrink when the market improves," says Sid Dunmore, owner of Granite Bay-based Dunmore Homes, which is marking its 54th year in the region. "Ours will definitely increase."

Dunmore makes that prediction even though just four corporate giants -- Lennar, D.R. Horton Inc., Centex Corp. and KB Home -- accounted for 41 percent of new home sales last summer in El Dorado, Placer, Sacramento, Sutter, Yolo and Yuba counties, according to Greg Paquin of the Folsom-based Gregory Group. That's up from 28 percent in summer 2005.

Just six years ago, at the start of the boom, Roseville-based JMC Homes was the region's No. 2 builder. Elliott ranked fifth, and Sacramento-based JTS Communities, named for its founder, Jack T. Sweigart, was 10th, according to Hanley Wood.

As 2006 comes to a close, only JMC is in the top 10 -- at No. 10.

National production builders say they're in Sacramento to stay. They aim to build many of the 128,000 homes on the region's drawing board in the years ahead.

But local builders like to cite their own advantages. And experts agree they're real.

"The smaller builders who build good homes and have good reputations, it's like going to a good local hardware store as opposed to going to Lowe's," said Eisenberg of the National Association of Homebuilders.

"Nearly 40 years of good will being built up in a community. I don't know how you put a dollar value on that," says Ian Craig, general counsel of Sacramento-based JTS Communities.

With their emphasis on a personal hometown touch, family ties and, in some cases, multigenerational histories in the region, builders such as Rachel Bardis, managing partner of Sacramento-based Corinthian Homes, say they're "trying to create a customer for life. We're going to be in town forever. The publics can come and go."

She says locals react quicker to market changes and can capitalize on available niches. Roseville-based Treasure Homes has developed a reputation for energy-efficient homes. Sacramento-based New Faze Development builds houses on parcels bypassed by larger developers.

"The way we've been able to compete with public builders is to buy land in places where other people had not gone, and we'd do all the work," says Allen Warren, who founded New Faze in 1990. "I generally don't think too much about those guys."

Sacramento-area family builders say they don't have to send their profits to headquarters in other states or meet Wall Street's short-term earnings expectations. Most important, they say, is their land advantage.

Many bought property years ago when, compared with the run-up in land prices that accompanied the 2000-2005 housing boom, it was cheap. They also steered it through city halls for the approvals needed to build.

By contrast, many deep-pocketed national builders buy land already approved for housing and closer to when they start construction, and that greatly adds to the price.

"We go out and buy our land assets years and years in advance," Dunmore said. "We're building on land I bought in the 1980s and some I bought in 1990."

Big local builders also can gain an edge with more distinctive architecture than the mass-scale designs often used by national builders, says industry consultant John Schleimer, owner of Market Perspectives in Roseville.

"Many are formula builders and have plans they have been building for several years," he says of bigger firms. "Some of the locals have improved design quality and can compete against the nationals from that standpoint."

Altogether, the nine top local builders still plan more than 10,000 new homes in the region in coming years, according to Hanley Wood statistics. By comparison, Los Angeles-based KB Home alone plans 5,500.

The corporate giants that dominate the Sacramento market can claim their own advantages. The biggest, they say, is the huge amount of investor capital.

"As national builders, we have access to a national cash source and national purchasing power that other small builders don't," says Barry Grant, Sacramento-based president of KB Home's North Bay territory. "That's one of the reasons you're seeing more and more market share."

Like other homebuilders, Grant cites the region's economy and job growth, its quality of life and still a relative affordability compared with other parts of California.

"That's why we've been here and will be here next year and the next decade," he says. "I think there's a place for private local builders and for nationals."

New Faze's Warren agrees. He says there was plenty of money for everybody during the housing boom, especially for local builders, whatever their market share.

"Some of those guys probably made more money in the last five or six years than they ever dreamed of making," he says. "I was right there in the game and I've done very well."

Copyright (c) 2006, The Sacramento Bee, Calif. Distributed by McClatchy-Tribune Business News. For reprints, email , call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.



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