Click here to enter the 2009 America's Best Builders competition.
Credit: Chris Cone
Left to right: David Drees, president and CEO; Ralph Drees, founder and chairman; and Barbara Drees-Jones, vice president of marketing
For Drees Homes and London Bay Homes, winners of America’s Best Builders for 2008, the last 12 months saw challenges met head on, new initiatives undertaken, and carefully thought-out processes leading to success.
This year’s winners were not shocked by the market downturn. Despite being in a number of hard-hit markets, Drees posted good—if not great—financial numbers, and continued a push to modernize its operation through technology and business process reinvention. London Bay defied all logic by posting its most successful year amid turmoil in Southwest Florida. While employee cutbacks were made, neither company gouged its workforce to improve its bottom line.
For Drees, 2008 marks its third America’s Best Builder title. This year heralds London Bay’s first time in the winner’s circle.
Perhaps the greatest value a company seeking to be voted one of America’s Best Builders will find is in the arduous application process. More than a few past winners have admitted that it took them several years of practice filling out the long and detailed application before they even had the courage to submit for the award.
What did they gain? Knowledge. An understanding about their company—how it was being run, what its deficiencies were, and where it was headed—that they did not have before, say several current and past winners.
“There are some people who don’t apply because they feel embarrassed about the performance of the company,” says London Bay Homes vice president and CFO Stephen Wilson. “From 2003 through 2005, we weren’t satisfied with our state of operations, so we didn’t feel like we were qualified to compete for America’s Best Builder.”
Credit: Nancy Denike
Left to right: Mark Wilson, president and CEO, and Stephen Wilson, vice president and CFO
After entering in 2002, London Bay did not re-apply until this year. During that time London Bay found its groove, exploited its niche market in Naples, Fla., and now can proudly call itself one of America’s Best Builders.
“It’s a bit of a downer of an industry to be in at the moment,” Wilson says. “Other people’s friends and family members in the industry are being let go. For us to be able to say, ‘Hey guys, we’re America’s Best Builder, feel really proud about that,’ is a great motivator for our team.”
London Bay Homes, Naples, Fla.
27 Units
Made-To-Order Home Builder
Credit: Photo by Nancy Denike
(l to r) Mark Wilson, president and CEO; and Stephen Wilson, vice president and CFO, London Bay Homes
From its roots in custom building, to semi-custom and villa homes, and now with condo projects in the works, London Bay Homes has grown up--and the industry is taking notice.
What’s a pair of brothersfrom the central England city of Birmingham doing in a corner of Southwest Florida building luxury mansions and villas? Creating beautifully designed homes and making money, that’s what.
Looking back, it seems inevitable that Mark and Stephen Wilson would end up building something. Their father was a developer and builder in England, and family conversations often centered on land deals and development, says Stephen, vice president and CFO of London Bay Homes.
Mark, now president and CEO of London Bay, came to Florida in 1984 as part of his father’s business to find commercial development opportunities between Ft. Myers and Tampa Bay. Somehow, he missed Naples.
“Naples was kind of sleepy; there didn’t seem to be a whole lot going on,” Mark says.
Since splitting with his father’s company and starting London Bay Homes with his wife, Gemma, in 1990 (she has since retired), Mark has put considerable thought into what to build, where, how, and with whom. Building high-end, design-driven homes offered him an avenue to pursue his artistic and entrepreneurial desires, and he saw a niche for just such homes in Southwest Florida.
“When you looked at the luxury market 17 years ago, there were some big boxes being built, but with very little design, and some of the builders were concentrating on how big, how cheap,” Mark says. “I knew there was a luxury segment that would pay for good design, good quality, and top-of-the-line materials. And if you structured a business around that while providing this luxury segment with excellent service, we could build a successful company.”
SERVICE ORIENTED
Credit: Courtesy London Bay Homes
LIVING LARGE: The five-bedroom, six bath, Bacara model at Estuary at Grey Oaks offers 5,493 square feet of living space, along with an outdoor fireplace, kitchen, bar, dining area, swimming pool, and raised spa.
It is London Bay’s single-minded focus on service, to the extent that all its operational decisions are reached only after considering the impact on customers, that sets it apart.
“If you’re building for CEOs of large companies, then the process is as important as the product,” Mark says.
London Bay, owned by Mark and Stephen along with a Wilson family trust and vice president Steve Miller, builds custom homes, semi-custom homes, and villa homes. Never ones to stand still, the company is developing two condo projects, as well as spreading out geographically with its first planned project outside Naples, a 50-unit villa development in Sarasota.
For a custom project, London Bay assigns two employees to a customer who will follow the buyer from initial contact, through design, construction, and even into the warranty phase. But it’s not just a matter of getting phone calls to stay in touch; clients have the ability, through Web-based software solutions, to check the progress of their home 24 hours a day and see photos and construction schedules. Clients can also make design changes and get financial ramifications in real-time from London Bay to help guide their decisions.
“You can map a client’s emotional reaction to information across the life of a project, and it’s going to go up and down regardless of how you perform, because they are going to have anxious times and relaxed times,” says Miller, who runs the company’s custom home and semi-custom home divisions, as well as London Bay’s design company, Romanza. “And knowing how to manage that is something the team has worked hard to perfect.”
All that information, from choices of plumbing fixtures, to daily reports, to documentation of key decisions, are recorded digitally, and at the end of the process, both the client and the company each receive a CD with all the information on it, so if there is ever a question of why something happened, they can go back to the disk.
Credit: Courtesy London Bay Homes
The 8,108-square-foot Cristina model within Mediterra includes five bedrooms, a study, library, and theater.
If a consumer is considering buying a villa home in a production neighborhood development, they get nearly the same level of service, says Stephen Wilson, head of London Bay’s neighborhood division.
“We can take them through a full selections process in a matter of two to three days, rather than stretching it out over six months,” Stephen says. “It makes for a very different buying experience for that client.”
Because their clients rarely live full-time in Naples, being able to give real-time pricing information to clients on either the custom side through a giant Excel spreadsheet, or via BuilderMT software on the neighborhood side, gives London Bay a big boost with their customers, the three owners say.
GETTING BETTER ALL THE TIME
Credit: Nancy Denike
SPECIAL CONSIDERATION: London Bay Homes president and CEO Mark Wilson (right) reviews building plans with Alain Filiault (left), director of construction, and architect Dan DiComo (center).
Despite a down market in Southwest Florida in 2007, London Bay had a great year.
“Bizarrely enough, $5 million and up houses appear to be having their best year ever in Naples,” Stephen says.
London Bay had 18 closings in 2006, and 27 through the first half of 2007. While much of that is off backlog, 2007 will be London Bay’s best year to date, and Stephen projects 2008 will fall back to 2006 levels, when the company saw sales revenues of $73.4 million.
A key to the company’s financial success is its innovative financing strategy that puts a lot of the risk on outside investors, while recouping much of the profits. It has cut its debt-to-equity ratio by more than half over the last two years while nearly doubling net margins.
Outside investors, many of them former London Bay clients, are generally worth in the hundreds of millions of dollars, and are interested only in their own internal rate of return on their investment, Stephen says.
“We’re doing something that has to stand up to an alternative investment that might be in the stock market or derivatives or commercial property,” he says. “We’re not working with somebody who is the typical ego investor who says, ‘That big house on the beach, I did that.’ It’s a very different mindset.”
Financial Performance
Stephen’s background working as an accountant in mergers and acquisitions and in special assets, a bank division dedicated to collecting what it is owed, in the United Kingdom allowed London Bay to look at creative funding sources. He joined London Bay in 1999 after he tired of corporate culture and London Bay had reached a size where he could put his financial skills to use to help secure funding.
Another key to London Bay’s success has been building its team of employees. Six years ago, the company was struggling to retain employees, Mark says. In an effort to weed out employees who do not fit London Bay’s culture, all three owners now separately interview all job candidates, and all three must sign off on any hiring.
“If people are really hard working and intelligent, but they don’t have the right attitude, don’t have them,” Mark Wilson says. “Smarts and hard work aren’t enough without the right attitude.”
Drees Homes, Ft. Mitchell, KY.
3,031 Units
A Builder Evolving
With roots firmly planted, Drees adapts to a new market.
Credit: Bryan Moberly
Left to right: David Drees, president and CEO; Barbara Drees-Jones, vice president of marketing; and Ralph Drees, company founder and chairman
For a builder with such humblebeginnings—late 1960s, Northern Kentucky, working out of an old trailer, his wife handling payroll, his father doing the books as a hobby, and his kids sweeping the floors on weekends—Ralph Drees’ company has evolved.
Named one of America’s Best Builders for the third time, Drees Homes now uses technology to drive business process improvement and financial stability.
Still, one thing Drees hopes never to see his company change into is a public one—especially in light of the current housing recession.
“There are a few companies in this country that have stayed private no matter how large they got, and that’s what I would hope for,” Drees says while visiting the office on a fall morning. Though he relinquished control of day-to-day operations to his son David in 2000, the role of chairman of the board and office morale booster keeps him around.
Credit: Courtesy Drees Homes
The Wyngate offers a first-floor owner’s suite, and ranges in size from 2,700 to over 3,200 square feet. This model is located in Raleigh, N.C.
“Luckily, we’re not a public builder; we don’t have to show that we’re making more money this quarter than we did last quarter,” he says. “To be in that kind of whirlpool, that would take a lot of the fun out of it.”
And while many public builders posted huge losses and had to live with rumors of bankruptcy or buy-out, Drees posted profits of over 10 percent in 2006 and almost 5 percent in 2007, and saw solid closings numbers both years. And the company wasn’t forced by Wall Street into shuttering large numbers of divisions, massive land sales, or giant financial losses.
For 2008, David has a three-pronged plan: Invest in sales and marketing, sell and build homes for less, and reduce land holdings and speculative inventory. The end goal is to reduce debt and get out from under carrying costs, David says.
“That’s what we’ve been communicating to our managers and our employees what the company is doing to put ourselves in a position to win when things come back,” he says.
Process Improvements
Perhaps the most impressive aspect of Drees’ operation is how a company with such veteran leadership understands the need to change and adapt and is using technology to drive process improvements, both for corporate managers of its many divisions and also field personnel. This is a company that takes how it does things seriously.
Credit: Courtesy Drees Homes
Popular Plans: Located in Fairview Plantation in Nashville, Tenn., the Wainwright offers a view of Old Hickory Lake and, with four bedrooms and 4,500 square feet, offers plenty of living space.
Drees developed a program and designed software specifically to manage its field purchase orders, says Larry Herbst, vice president, secretary, and treasurer, and also the individual who started Drees’ information systems and helped develop many of its software systems.
“We were getting field purchase orders from subs, and we’d have like 45 of these a house,” Herbst says. “And nobody was analyzing these. Was this an estimating error? Why are we getting billed extra for this?”
But now the company can pinpoint the problem, save supplies, and keep its costs down. As a result, Drees sees lower costs and variances, fewer purchase orders, and supplies in the field are being used more efficiently.
Another successful Drees process, put in place 20 years ago and often called evenflow building, is building by predictability and scheduling, says executive vice president of operations and CFO Mark Williams. The idea, Williams says, is that subcontractors will never have to sit around on a jobsite and will want to work with Drees.
Credit: Chris Cone
Teamwork: At left, Terry Sievers, president of Drees’ Midwest region, meets with vice president, secretary, and treasurer Larry Herbst (center) and vice president of human resources Effie McKeehan.
“They will not show up to discover that the site is not ready, that the material isn’t there,” he says. “They can depend on us being on schedule, thus increasing their efficiencies and ultimately improving our pricing.”
That philosophy extends to slotting starts and land purchases as well and allowed the company to get out ahead of itself on land acquisition during the waning stages of the boom and into the downturn, Williams says. But Drees is actively working to move its land and has already sold some; and its position as a privately held company will allow it to do so without taking the public beating that many big national companies have.
Cost-Reduction Strategy
Credit: CHris Cone
David Drees (center) talks to (l to r) Premier region president Dan Jones, vice president of national purchasing and operations David Metz, and vice president of production Jack Herbstreit.
Drees has tackled value-engineering as well by drawing on relationships with its trade partners. Drees involves its trade partners along with its in-house architects in helping the company value-engineer its product and includes all parties on walk-throughs of a prototype of each new design.
“They will help identify where things can be changed to become more efficient and cause less problems,” Williams says. “Looking at the drawings is great, but seeing the drawings [come to life] improves the likelihood of detecting short-comings.”
Drees is not afraid to use technology to learn how to be more efficient. A software system from J.D. Edwards enables the company to view financial reports on a given home design, historically for a division, a city, or multiple cities.
Seeing that data clued Drees in to other inefficiencies. Why do identical faucets cost different amounts in different markets?
Financial Performance
That insight led the company to seek national contracts, and already it is buying plumbing fixtures and putting them on site for plumbers to install, instead of allowing the plumbers to supply the fixtures.
More national contracts are coming for Drees, and more cost savings with them. The man in charge of cost reduction at Drees, David Metz, vice president of national purchasing and operations, is visiting all of Drees’ locations, identifying best practices, and implementing them where possible. Metz is also seeking national contracts to get better cost efficiencies.
And on top of all those improvements, Drees is spending more on sales and marketing than ever before. The company added a national sales director and a market research director under vice president of marketing Barbara Drees-Jones, David’s sister. Some new initiatives involve Internet marketing and working with outside advertising agencies to bring a fresh perspective in wooing customers.
One thing is certain with Drees, it never stands still and is never satisfied with the way things are. Operations at Drees are constantly under review and always improving.
“It’s an incredible transformation over almost 40 years,” says Jack Herbstreit, vice president of production.