“We were on notice that we were being prepared for market, and because of that, we were managing against shorter-term goals and horizons, and working with really scarce resources,” Holder says. “In each of the scenarios we heard from the bidders, the result could have had positive outcomes—if only because each of these people were home building people, pure play. When you’re in a market that’s so competitive with product, people, processes, systems, margins, and the ability to execute, it’s good to be talking to people who live and breathe these things.”
Other positives were almost certainly exclusive to TRI Pointe. Not only was there very little geographical overlap with the footprint of the WRECO operations in TRI Pointe’s tiny coverage area, but the TRI Pointe plan was to leave the home building brands and leadership in place. Now, maybe those individual company operators were not the ultimate arbiters of who’d come out with the prize, but given the complex Reverse Morris Trust accounting structure of the transaction, Weyerhaeuser, its board, and its stakeholders needed to buy into trusting their feeling for what would work best.
“Weyerhaeuser management had to spin this back to their shareholders, so a deal that was going to keep their company brand names and their people in place has got to sound good to them,” says Barry Sternlicht, chief executive officer of Starwood Capital and chairman of the board for TRI Pointe. Sternlicht has been the-minnow-that-swallowed-the-whale on a number of occasions, including the 1997 Starwood Lodging purchase of ITT Sheridan for $14.3 billion, a company twice Starwood’s size. “They had to pick their horse, and they could trust Doug, Tom, and Mike.”
Sternlicht didn’t profess to be enthusiastic—initially—in leaving six brands, including TRI Pointe Homes, in place, saying he could see “positives and negatives about the idea.” But Bauer, Mitchell, and Grubbs won him over to the notion of home buying as a local decision, based on local knowledge from the dirt to the deed.
“It was management’s recommendation, and certainly we knew that Weyerhaeuser’s board and shareholders liked that idea as well, so it didn’t hurt,” Sternlicht says, adding that his confidence in the wisdom of that path, versus a total integration of the units into a single operating brand company, comes from his trust in Bauer, Mitchell, and Grubbs. “I’d known Doug and knew of the others for 20 plus years while they were all at William Lyon, and tried to hire Doug a few times. His loyalty impresses you. You learn to judge people by what they do in a crisis, so I got to see them all that way.”
Setting the Bar
Bauer, Mitchell, and Grubbs are well into their third decade of working together. They’re more often than not spoken of in the same sentence, and sitting together at the grand expanse of a boardroom table at the TRI Pointe Group’s new Irvine, Calif., headquarters, they don’t so much finish one another’s sentences as they complete paragraphs blended of three separate but trusting perspectives. They’re central to how TRI Pointe put itself on the map as one of home building’s wunderkind publics on such short order.
“I want to create products that arrive fully formed in the future, just barely ahead of customer expectations,” says Quadrant Homes’ Krivanec. “Doug, Tom, and Mike challenge us to be nimble, to be responsive to customers, to employees, to be innovative. They set the bar and trust us to reach and exceed it.”
Which doesn’t mean agreeing with 100% of what operators like Krivanec, Shapiro, Warren, Holder, and the Pardee folks were already doing. Quite the contrary, in fact, and that’s not a problem for them. They’d been left alone to fend for themselves for several years working under the Weyerhaeuser umbrella, and learned hard-nosed entrepreneurial behaviors by heart. What they welcome now is having been taken in, as if by adoptive parents, who recognize immediately and implicitly what it’s taken to survive and prove oneself in highly adverse circumstances out in the wild world of a fragile, choppy, lumpy recovery. They expect structure. They expect discipline where needed. A strong, gentle push in the right direction—sometimes diametrically opposite of where they’d been heading—is something they each regard as a blast of fresh oxygen after learning to cope on a less than adequate supply.
For instance, Krivanec had to swallow hard when he first experienced that “gentle push.” It had been Krivanec’s brainchild, coming out of the recession, for Quadrant to pivot out of its low-cost-provider comfort zone—managed profitably for years under the masterful direction of former Quadrant chief Peter Orser, one of home building’s best-of-breed practitioners of the “Rayco model” of high-volume home production. Krivanec—with a pedigree that includes stints at KB Home, Ryland, and Ivory Homes—had come of age in a home building era that focused heavily on “University of Toyota–style” lean production modeling, even-flow starts and completions, and low-average selling price offerings. He reported through to Orser for most of his 14 pre-TRI Pointe years at Quadrant, and got his big moment just as the tech industry began to flex its “new geography of jobs” muscle in the Seattle and Northwest markets.
The pivot point for Quadrant was a head-turner new architectural template, a “Douglas Fir Country Modern” style, borrowing heavily from a blend of Silicon Valley chic and forestland-influenced new urban tones. Its models and neighborhoods would open under a new name, Evoke, that would submerge the Quadrant brand in favor of a handle that meant dreams, aspirations, and inspirations to a new, well-heeled tech professionals able to spend a penny on having it his or her way. (See page 60 for more on the Evoke line.)
Evoke struck a chord, to say the least. It sold well enough to make a holy mess of Quadrant’s ability to manage its labor and direct costs per unit, given all the variability and “personalization” the models invited from a rather persnickety clientele. While the selling prices, after upgrades and options, shot north of seven figures on each home, the margins kept nowhere near the pace of the expense. That had to stop, and although no one could quibble with the pulse-quickening designs and the award-winning stature of Evoke, TRI Pointe was about to tolerate what came across as a rogue business margin model in its portfolio.
Ironically, it again was the Woodley Architectural Group team that came to the rescue on the makeover.
“The fear I had initially was, ‘Is this going to be a tap on the breaks in our momentum serving the demand in the market?'” recalls Krivanec about the reality-check moment that kicked in as Bauer, Mitchell, and Grubbs looked at the Quadrant plan. “Instead, their disciplines and look at the opportunities in the market allowed us to take it one more step in a brand revision, adapting all that was positive about this new ‘Northwest Modern’ style we’d pioneered, keeping it greatly differentiated, and at the same time producing a home we can iterate profitably under our collective Quadrant brand name. It was a huge relief, especially the way they kept total regard for the entrepreneurial spirit. They’re always asking us, ‘How can you stay nimble? How can what you do scale? How do you stay responsive to your customer, your employees?’ That’s why we feel right now like we’re part of something big.”
Trendmaker chief Will Holder affirms that he, too, is liking the sound and the feeling of the challenge he’s getting from TRI Pointe executives to get out of his product-line comfort zone and get some “where the puck is going” positioning into the mix.
