DIGGING IN: Eric Dille hopes to parlay his Denver-based remodeling company, B & D Professional Builders, into a new home building enterprise by early next year.
Credit: Celin Serbo
Jim Prewitt and Tim O’Brien expect energy efficiency to drive buyer demand in, respectively, North Carolina and Wisconsin. Eric Dille is banking on Denver’s housing market to bounce back sooner and stronger than other Western metros. Partners Len Tylka and Dave Armstrong are seeking investors to manufacture hurricane-resistant homes in Orlando, Fla. And Josh Doyle believes his one-on-one relationship with customers will be the key to success for his year-old business in Toledo, Ohio.
Whether they are seeking redemption after being humbled—or spit out—by the current recession, or think they have something genuinely new to offer jaded and reluctant shoppers, startup builders such as these are filling the void created by so many failed builders having exited the playing field. How many more startup builders are preparing to get going is difficult to gauge, although there doesn’t seem to be any shortage of former owners and officers of regional and national production builders who are rebooting or thinking about it, some more openly than others.
“People are sensing opportunities,” observes Michael Maples, a principal of Danville, Calif.–based Trumark Homes, which launched a year ago and in August started building models for its first project, a 39-home community in Upland, Calif., called Wyeth Cove. “It’s less competitive than it was, and banks are starting to lend again.”
Trumark Homes is part of Trumark Cos., an established developer that is looking for and providing lots to the home building community, focusing on markets where there’s a dearth of new neighborhoods. Besides Upland, Trumark has negotiated bank and private-equity financing for a 5.5-acre parcel it is buying from the city of Brea, Calif., where it plans to build 60 single-family detached homes ranging from 1,200 to 2,200 square feet; and another parcel in Orange County where it will build 68 detached homes. Trumark is also in due diligence phases on two parcels in Northern California.
The company projects 60 closings next year, between 150 and 200 in 2011, and between 300 and 400 in 2012. It’s marketing its products with the tagline “Creating New Traditions,” which Maples explains is shorthand for “helping customers turn a house into a home.” So, for example, gift baskets for new owners might include supplies for their first dinner party along with paint touchup kits.
GREEN SHOOTS
Predicting growth in a bad economy is something less than science, as Jim Prewitt discovered after starting Prewitt Custom Homes in New Hill, N.C., in December 2007. Prewitt thought his company would close 10 homes in 2008; by July 14, 2009, it had sold only three and expects to sell only two more through the remainder of this year.
That’s okay with Prewitt, 46, who says he “wanted to slow down” after selling his stake in an 11-year-old builder, Homescape Building Co., where he and his partners had conflicting growth objectives. That selloff financed Prewitt’s startup, which he runs with his wife, and gave him the chance to get back into the field again. He’s building spec homes with “unlimited customization potential,” and before he starts any house, Prewitt confers with real estate agents to figure out what type of home might sell best in each subdivision.
Prewitt’s house designs aim to match the way people actually live. “I had one customer tell me, ‘you think like a woman,’” Prewitt recalls, referring to the functional way his homes are laid out. The homes meet Energy Star guidelines, and Prewitt recently started taking classes to become a green builder using the NAHB standards.
Also marketing green building aggressively is Tim O’Brien, 41, who incorporated Tim O’Brien Homes in Waukesha, Wis., in June 2007, a month after he was laid off by William Ryan Homes, whose Wisconsin division he ran for seven years. Back then, permits in the area were down 40 percent, but O’Brien managed to start 28 homes in 2008, making his company the 12th-largest builder in the Milwaukee market that year. O’Brien is a big advocate of total quality management, which he combines with his passion for energy efficiency. His company was one of eight builders nationwide to participate in the EPA’s WaterSense pilot program, and all of his homes are 100 percent Energy Star certified. O’Brien recently began following the NAHB’s green standards, and this summer his company was building a $350,000 zero-energy house.
GUIDING LIGHTS
O’Brien expects to start 50 homes this year and 60 in 2010. He’s eyeing Illinois as his next market. But his company isn’t likely to expand beyond its financial capacity because looking over his shoulder is Mark Neumann, a well-connected local developer who was instrumental in helping O’Brien get his business off the ground.
STANDING APART: With guidance from developer Mark Neumann, Tim O’Brien is quickly growing his business into one of Wisconsin’s biggest builders.
Credit: David Nevala
O’Brien put $100,000 into his startup, which he raised by cashing in his stock options from William Ryan Homes and taking equity out of his own home. He raised another $50,000 each from Neumann (whose brother Ken owned Neumann Homes in Illinois) and Neumann’s son Matt, who is president of the
family’s development company. But three banks that had offered to bankroll O’Brien’s business pulled out when the credit market collapsed. “I had three homes in the ground, payroll, and vendors to pay,” recalls O’Brien. Mark Neumann kicked in more cash and used his reputation to persuade other banks to lend. O’Brien eventually secured a $2 million credit line collateralized by his assets, and another $300,000 revolver.
Mark Neumann, a former U.S. Congressman who is now running for governor of Wisconsin, is providing O’Brien with lots through his development company, Neumann Developments, a major advantage for a startup builder that otherwise “would have to pay 70 percent to 75 percent of the appraised value of the land in cash,” says Neumann. He thinks any startup’s fatal mistake is spending more than it takes in, so he meets monthly with O’Brien to go over the home builder’s books.
In Denver, Eric Dille is hoping his remodeling company, B & D Professional Builders, can be his “segue” into a new home building venture by early next year. His guide on that journey is Jeff Prager, a former builder and land developer, who teaches economics at the University of Colorado, and is president of Backroom Management Services, an accounting consultant.
The 37-year-old Dille has been building houses since he was 17, and his background includes stints with David Weekley Homes and D.R. Horton. He and his partner, 47-year-old contractor Greg Bickelhaupt, started B & D as a sideline with $15,000 in September 2006. Three weeks later, Dille got laid off along with 70 percent of Weekley’s divisional workforce, and B & D suddenly became his full-time job. They’ve since expanded the business, which specializes in basement refinishing, to a projected $850,000 in revenue this year.
Dille, a former Marine, is gung ho about building for a Denver market he thinks is poised to recover and is about to experience a “mass migration from California.” He believes he could start a home building company for around $500,000 if he can take down 20 lots cheaply, build them out, and sell the homes within 18 months. (His 1,800- to 2,200-square-foot homes would start at $350,000 and be built to allow owners to age in place.) Dille wants his first two houses to be in the ground by January, and his ultimate goal is to build 125 homes per year. At presstime, Dille was negotiating to acquire 100 unfinished lots in the sprawling Castle Pines North development between Denver and Colorado Springs.
Prager—who started Strauss Homes in 1994, which grew into a $26 million business closing 137 homes annually before he liquidated the company in 2003 to retire briefly—sees volatile market conditions leading to “the greatest resurgence in small business since World War II.” But while he’s been hired as Dille’s advisor and “mentor” (Dille’s word), Prager’s chief function seems to be tempering his protégé’s exuberance. “It’s a fun stage we’re at right now, but it’s also a frustrating stage,” says Prager. “You have to spend the time at the front end to get things right, or you’ll pay for it at the back end.”
STORM CHASER
Len Tylka doesn’t need mentoring. The owner of LTL Builders in West Palm Beach, Fla., has been developing and building custom homes since 1971. He is also one of Florida’s leading authorities on building codes. But Tylka and two partners—Pensacola developer Dan Gilmore, and Dave Armstrong, who owns Armstrong Custom Homes in Melbourne—are sailing uncharted waters with their new company HardShell Homes, which would target workforce buyers with steel-framed homes made in an industrial plant in Orlando.
GOING WITH THE WIND: Len Tylka is teaming up with another Florida builder and developer to manufacture small, green, wind-resistant homes.
Credit: Josh Ritchie
The plan, says Tylka, is to produce homes that range from 800 to 1,600 square feet and sell for between $70,000 and $140,000. The seminal features of these homes, which would be assembled on slabs, are their resistance to winds up to 175 miles per hour and their manufacture and assembly to the NAHB’s green building standards. Tylka says that if financing is in place (the initial investment needed would be “seven figures”), production could begin in November. The factory is near two ports, and Tylka foresees distribution beyond Florida to other Gulf states and Caribbean markets.
Armstrong has experience with system-built construction, having worked five years ago with the Georgia-based modular home producer Precision Homes. That alliance was undone by the economy, and because Precision wasn’t green enough for Armstrong, a member of Florida’s Green Building Coalition and an NAHB-certified green verifier. He also favors affordability and wants HardShell’s mix to include a 1,000-square-foot house with a $55,000 price tag.
Tylka and Armstrong think trailer parks could be fertile targets for HardShell’s houses, especially if the state ever follows through on the threat to ban mobile homes, a threat that grows louder with each successive hurricane season.
DOING IT ALL
Recessionary storms that crippled Ohio’s housing market didn’t deter Josh Doyle from quitting Owens Corning’s financial leadership program in August 2008 to start his own business, Homes by Josh Doyle. Since then, his Toledo-based company has built five houses, including his own.
This turn of events wouldn’t surprise anyone who knows the 27-year-old Doyle. His father Steve is a veteran home builder in Lima, Ohio, and Doyle was designing homes for his dad’s business when he was 15 and working on construction crews.
Doyle’s startup’s costs were virtually nil because he’s a one-man show, handling sales, design, and construction management. (He’s drawn house plans on the back of a paper towel in a prospect’s kitchen.) His customers secure construction loans, and he has no land costs because he only builds on owners’ or developers’ lots.
The opportunity Doyle sees for his company is to build quality, affordable homes quickly. He recently completed one house in 59 days (his normal cycle time is about 90). Most of his product has been in the 2,600-square-foot range priced under $200,000 (excluding the land cost). Those homes include 3/4-inch floors, engineered wood panels on the outside walls, engineered trusses, and ample insulation.
Doyle says what’s critical to his business right now is maintaining “my rapport with customers.” He recently started a house for his first referral, which he got, he thinks, because “when you do what I do, you become friends with the people you work for.” All of his customers recently attended his wife Amy’s baby shower.
While he never wants to lose that buyer connection, Doyle can’t go it alone forever if he wants to reach his goal of building two homes per month. He’s been putting in 80-plus hour weeks preparing one of his homes for the local Parade of Homes this fall. So when he’s asked when he’ll hire his first employee, Doyle takes a deep breath and replies, “It’s not too far off.”