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Business Observer Friday, Feb. 1, 2019 4 months ago

Prominent homebuilder readies for a new realm of competitors

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One of the biggest locally based homebuilders in Florida is now backed by public capital.
by: Mark Gordon Managing Editor

If there was a dean of the region’s homebuilder industry, it could certainly be Pat Neal. Highlights of his career and company, Lakewood Ranch-based Neal Communities, include:

• Building more than 14,000 homes, stretching from Collier County to Hillsborough County, in more than 90 communities.

• Being named Professional Builder magazine’s 2015 Builder of the Year.

• Being named one of 2012’s “America’s Best Builders” by Builder magazine.

• Having nearly 50 years of experience in buying land in the region.

Neal Communities has bevy of units, including Neal Signature Homes, Neal Land Ventures and Charlene Neal PureStyle, among others. The 266-employee company had $453.4 million in revenue in 2017, up 5.3% from $430.30 million in 2016. And Neal, 69, shows little signs of slowing down in his ongoing quest: to beat public builders that dominate the new homes landscape in the region.

In a recent interview, Neal addressed several industry and company management topics. Edited excerpts:   

Q. What are the toughest challenges a homebuilder faces in the region?

We are the largest private homebuilder in the region, but smaller than all of our public builder competitors. The public builders have substantial material price advantages over us (Lennar buys 42,000 dishwashers, we buy about 1,200).

They have access to public capital. We now have public capital access for the first time. We achieved a rating from a public bond-rating agency and secured long-term fixed rate debt to diversify capital sources and support continued strategic growth.

What Neal Communities does produce is a more highly refined product with a better fit and finish, more humane and conscientious customer and warranty service, a better land plan and more attention to detail. Our challenge is to overcome brand awareness advantages and opportunities for scale of the public builders.

Q. What’s the Neal Communities secret to managing, buying and selling land?

Continual focus. Our land committee of 11 people meets every Monday morning at 8 a.m. to go over the 70 land purchases on our acquisition list — of which we have currently three under contract and three in due diligence.

We have a full time and highly skilled land buying team of five people. The team tracks every piece of land in Manatee, Sarasota, Lee, Collier and southeast Hillsborough counties for transactions, change of life (death, divorce), land use changes and infrastructure changes to be first to buy the best land.

'What Neal Communities does produce is a more highly refined product with a better fit and finish, more humane and conscientious customer and warranty service, a better land plan and more attention to detail.' Pat Neal, Neal Communities 

Q. What’s the best land deal the company has ever executed?

Probably University Park, which opened in late 1991. There were five acquisitions averaging $4,200 per acre in 1980, roughly 10 cents per square foot. (Then) we sold a lot in Kenwood for $50 per square foot. So, this was about 500 times the purchase price.

Q. How have the increased costs in labor and materials impacted Neal Communities and other homebuilders?

Most of our increases have been steel, aluminum and lumber because of tariffs and import restrictions. A home has more aluminum than most cars (windows) and a lot more steel than most people realize. Other increased costs are mostly the result of government: about $18,000 per home in impact assessments and permit costs; $7,000 in sales taxes and documentary stamp taxes; $6,000 in hurricane standards; $5,000 in new energy standards.

As these costs are borne by all homebuilders, they provide no competitive disadvantage. All costs are ultimately passed on to the consumer. They contribute to the cost of living and the increasing difficulty in providing new homes to "Hometown Heroes" and working class, particularly young people, living in our communities.

Q. How big will Neal Communities be in a decade?

We have consistently put our retained earnings back into the business. This year, we paid all our bank and private debt and received a public bond rating so we have access to the public financial markets.

In 10 years, our company will have about 2.5 times as much capital as now. We should be able to build and sell well over 2,000 homes per year. We will also expand into a greater role in family life, into family housing styles, and into larger master-planned communities to compete with the public builders. We certainly have room to grow our reserves in Lee, Collier and Hillsborough counties. Perhaps we will move to other communities in Florida.

Q. What will it take for communities to solve the affordable-attainable housing gap?

It is hard to produce new homes for our "Hometown Heroes," middle-class, working-class and young people.

At Neal, our beginning home price is about $223,990. However, we will be offering homes below $200,000 in 2020. We will attack some of the cost drivers in our creation (such as) government, land costs and exclusionary zoning.

Our goal for this year will be to produce wonderful new homes for families and adults for about $170,000. This will be difficult, but it will provide homes in our industry for working families, public employees and young people who provide the economic fabric of our communities.

 

READ OUR COMPLETE COVERAGE

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Land demand trending toward infill, multifamily

Labor short, materials tight in 2019

Prominent homebuilder readies for new realm of competitors 

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In residential real estate, the home is now a tech sector

Close to home: Builder attributes fast growth to focus on local market

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