Stock Development diversifying to mitigate risk
Because the memories are burned so deeply — and yet still so raw — the CEO of Naples-based Stock Development Co. is determined not to let another recession threaten or weaken the business he and his father began in 2001.
To do that, Stock is strategically working to diversify the business so that it is less reliant on sales of the custom, often multimillion single-family homes that the company has come to be known for throughout the region.
“The downturns, particularly the latest one, were painful, but they were also good in a way in that we learned a lot,” says Stock, 48. “We learned some good lessons in hindsight, and they made us a better company.”
Chief among those lessons was the importance of diversification.
It’s an idea that’s driven Stock in the past three years to buy high-priced land in Naples for an eventual waterfront condominium tower; branch out into upscale apartment development; and make plans for a $45 million speculative mansion in Palm Beach.
“Our philosophy has always been that we’ve wanted to diversify our business model to mitigate risk,” Stock says.
Diversification is familiar territory to Stock: In previous growth cycles, the company has created a swimming pool company, an interior design firm, an in-house mortgage broker and a title company to augment the home building that is its foundation.
Even there, Stock — which generated gross revenue of more than $880 million in 2015 and 2016 combined — has branched out into three distinct product lines.
Its Classic Homes line offers residences priced from $400,000. The company’s Signature Homes’ collection properties are priced from $700,000 to roughly $1.5 million, Stock says, while its Custom Homes line — the fastest growing segment of the company — provides upscale living quarters for $3 million and up.
But while previous efforts at diversification have yielded spin-offs or divisions with ancillary connections to its core home building business, the latest incarnation has Stock going vertical with multifamily housing and commercial development in a way — and perhaps a deliberateness — it hasn’t before.
“We started out as a developer and a home builder, and eventually we diversified, and especially as we began to come out of the last recession after 2010, we knew that we needed multiple operations, multiple lines of business,” Stock says. “That’s why we got into commercial development and, now, multifamily.”
"Our philosophy has always been that we've wanted to diversify our business model to mitigate risk." — Brian Stock
On the apartment side, Stock has constructed a pair of multifamily projects and has a third in the offing.
Spectra, a 324-unit complex on 32 acre in Fort Myers that the company completed in July 2017, was sold earlier this year to Coast Ridge Real Estate for $71.4 million.
“There seems to be a lot of capital in the market interested in just that type of development, so we concluded it was a good economic decision specific to that project,” Stock says. “I don’t see us always being sellers of multifamily projects we do going forward.”
Such is the case with Inspira, a 304-unit, upscale rental development in Naples that is in the final phase of construction. Stock expects the first residents to move in in July, and that the entire community — complete with a 10,000-square-foot clubhouse and a host of other amenities — will be delivered in October.
The company is also preparing to develop a 300-unit apartment community in Sarasota, on Fruitville Road at Interstate 75, near a site that Bass Pro Shops had considered in 2016.
On the for-sale residential side, Stock is also working to develop a 3.55-acre site in Naples adjacent to the Ritz-Carlton Naples. There, Stock plans to build One Naples, an 18-story luxury condo tower on property at 9136 Gulf Shore Drive.
The company acquired the site and an affiliate marina in the summer of 2017 for $19.7 million, and continues to “fine tune” its designs based in part on what residents and neighbors want for the area, Stock says.
Stock Development has expanded its commercial capabilities, too, adding to what will ultimately become five buildings at its Stock Plaza project in Collier County.
Lessons in Diversity
Stock learned the importance of spreading risk from his father, K.C., with whom he founded the development company 17 years ago.
Stock’s grandfather, a farmer, had begun a building supply business in a small town outside Green Bay, Wisconsin. To equip the business with lumber, on the weekends K.C. and a partner would use horses to haul logs out of a nearby river.
In time, the business became so lucrative that K.C. invested himself in it fully, and before long, he was manually unloading train boxcars filled with lumber. Stock and his three older brothers pitched in, too, by cutting grass an doing what needed to be done.
“Dad led by example,” Stock says of his father, with whom he still talks almost daily about the business. “The theme was we all had to work hard.”
Eventually, all four Stock boys worked in the family business, which went on to open multiple locations across Wisconsin and diversified — there’s that word again — into providing design services, manufactured finishes and assembling products beyond pure materials.
By the time Stock Building Supply was sold in 1998 to what is today Great Britain’s Ferguson plc, the company had roughly 750 employees. Shortly after the sale, Stock was invited to relocate to North Carolina, the company’s U.S. headquarters, to work in the purchasing department. The job would mean Stock would have to travel two weeks out of every month. Stock passed.
Around the same time, K.C. had purchased land in Southwest Florida as an investment, buying into an area the family knew from vacations in Naples.
Stock decided to focus on land development, in Florida. During the first week of September 2001, Stock Development was incorporated, Stock’s kitchen table doubling as its headquarters.
The company planned to focus on some land it had purchased in the Lely Resort, in Naples.
A week later the terror attacks of September 11 rocked air travel and pushed the country into recession. Stock and his father decided the nascent company needed to be more fully integrated, the way the lumber supply business had been transformed.
When a homebuilder defaulted on lots in Lely, Stock pounced and took over their lots. That deal led to sites in Olde Cypress in Naples, Paseo in Fort Myers and elsewhere.
Within six years of its founding, Stock Development had hundreds of employees and even more lots under its control and thousands of reservations.
But by the end of 2007, hundreds of potential buyers had decided to walk away from contracts and deposits of 20%.
“We realized we couldn’t outsmart or outride the market, and we couldn’t afford the carrying costs we had,” Stock says.
The company decided to take the drastic step of discounting prices on its homes — by 30% to 60%.
Stock describes the next 18 months of working through the company’s inventory as “extremely difficult.”
“We were upside down on our land positions,” he says. “But we didn’t renegotiate with our banks, we paid back all the principal and interest, and we think that lenders appreciated how we handled things.”
At least one banker says Stock showed tremendous integrity in the face of adversity.
“They showed themselves to be people of strong character, and they were committed to repaying their loans rather than walking away from them,” says Beverly Matter, a vice president of real estate banking at Wells Fargo Bank N.A., in Tampa, who has worked with Stock for the past dozen years.
“They were committed to working to a successful outcome.”
As the region’s economy gradually improved, so did Stock Development. To date, the company has built more than 4,500 homes, from Lakewood Ranch to Naples, juggling nearly 50 different neighborhoods. It’s beefed back up its employee count, as well. Today the company has more than 250 full-time employees and even more part-time workers.
But while the economy has rebounded changed, so has Stock.
He’s become more convinced than ever of the need to diversify. The company’s push into commercial development at its Stock Plaza was based on the need to “mitigate risk because of the cyclical market.”
Not that Stock Development plans to exit the homebuilding business.
“Going forward, I see us doing a mix of single-family homes at varying price points and also some multifamily — a mix of mid-rise and high-rise developments.”