Home Building’s Higher Ground

In rare times when everything works, the only downside is that nobody much bothers with what could and should be done better. When nothing at all works, futility makes it equally difficult to learn what it might take to improve matters. But when just a few odd things find success against a backdrop of paralysis and deterioration, they attract attention and provoke questions.

Mercedes Homes’ Paige Shipp and Stewart Parker Portrait by Reid Horn What’s the product? What’s the price? What’s the location? What’s the local market doing? And perhaps most importantly, at this stage of the game when cash from inventory turns is no less than a life-and-death necessity, the question becomes simply: Can we do that, too?

We find ourselves scouring home building’s once beehive-like landscape for anomalies, outliers–projects and neighborhoods within submarkets that perform at a modicum of normalcy. After all, most communities in most geographies can barely notch one sale a month. When we find an exception to the rule, we ask those same questions, wondering whether it’s a singular sensation or an example for others to follow. And we find that, more often than not, the pattern that emerges in what’s working is roughly what you’d imagine: effectively sold, competitively priced offerings within easy striking distance of still-pulsing job centers.

Mercedes Homes’ Scott Silvis Portrait by Reid Horn What could be helpful to others with enough financial wiggle room for tactical adjustments, though, is something more than the blend of astute land buying, shrewd product design, lean operations, good salesmanship, and a gust of fading economic tailwind. It’s a willingness to change, to switch things up and swap out what’s not working for something that might, to practically mutate to find a survival formula in today’s brutal market.

Clearly, home builders are not going to turn the tide of a global economy that has entered a slowdown period, nor will they cure what ails the trillion-dollar credit marketplace. What they can do is sell houses to people who can still afford to buy them and want to act now. The question is: Can builders change their business model, their land buying model, their sales and operations model, and their home models to capture those who are still out there ready to buy? For the next year-plus, creative cash generation will be the badge of every survivor in the sector, particularly among private companies.

So our lens settles on a rolling hillside in a northwest Dallas suburb where sits what may once have been considered to be an unassuming piece of land, but which now represents a 16-unit-to-the-acre cash generator. At the same time, our focus trains on Mercedes Homes, a home building regional power that the downturn has pummeled and crippled. Mercedes’ former halcyon days and current nightmares are in popped-bubble markets in Florida. So playing its cards perfectly in Texas–where there’s still a whiff of home buying volume–may buy it time to live down the cardinal sin of home building: going too long on land.

It’s not so much what the Mercedes team is doing to make the Carrington Village neighborhood in Lewisville, Texas, work; it’s what they’re doing differently, down to a man–or a woman–to make the most of the resources they have to work with.