Loading
They've Seen It Before
UPDATE by Mark Gordon | Managing Editor
Pat Neal and Lee Wetherington have a combined 75 years of home building experience. And they also share the distinction of being named the top entrepreneur of the year by the Gulf Coast Business Review. Lee won it in 2005, and Wetherington in 2003.
Those awards were indicative of each entrepreneur's business acumen and success in building multimillion-dollar companies. It didn't hurt, though, that the Sarasota-Manatee homebuilding market was among the fastest-growing in the national housing boom.
So as the market cools - or as Wetherington says, normalizes - what's next for Wetherington and Neal? What kind of strategy will each utilize to handle the slowdown?
Not dead yet
"I've been here five or six times before," Wetherington says, referring to home-building recessions in the past three decades. "I'm not going to get scared. I'm just going to keep running a company."
Wetherington sums up a big part of his strategy in one word: Wait.
He says the correction will last through the rest of the 2006, so a big part of his plan is to just ride it out and be patient. He's cutting prices about 10%, as much as $25,000 for some homes, but he's not going giveaway crazy like some big national home builders. He's not wooing would-be buyers with flat screen TVs and Caribbean cruises.
Once or twice a month, Wetherington says, a potential buyer comes to the Sarasota-based home building firm and offers to pay a ridiculously low price for a home. He balks at that, too.
Wetherington is analyzing his costs, such as how much he spends on construction and raw materials, as well as from what vendors he is buying. His research shows a continued spike in construction costs, so he wants to insure his suppliers have the stability to be there through the downturn.
He's not hiring any new employees and he's using the normal 10% to 12% annual attrition in any company to whittle down his staff. Seven employees have the left the firm over the past eight months; those positions haven't been replaced.
One area Wetherington isn't going to cut costs in is marketing. "You got to let them know you're here," he says.
Wetherington's "be patient" strategy is buoyed by the profits of the past five glorious years. "The money we made," Wetherington says, "we kept. I'm a pretty frugal guy."
He has not bought any land since last summer and has no plans to in the near future, saying he already owns enough land to last 10 years, building about 200 to 250 homes a year.
Wetherington says even with the slowdown, his company is still selling homes - just not as many as before. The company has about $23 million in sales so far in 2006; it had about $40 million in sales at this time last year. "We are still selling houses," he says. "It's not like we are dead."
'A big boom'
Neal says the slowdown might last longer than Wetherington's analysis, possibly until the fall of 2007. He says that length of a slowdown makes sense, given that 2004 and 2005 were his two best building years since he started in the business in 1968.
Neal hasn't adjusted his five-year growth plan, but to meet his company's projections he says he will have to "supercharge" and work harder through late 2007 and into 2008.
Like Wetherington, Neal intends to be conservative and patient and hold on to cash and profits made during the past three to five years. He also hasn't bought land in more than a year, with no intentions to buy any soon.
Neal takes the optimistic view, saying the low period is "almost a perfect world." It gives Bradenton-based Neal Communities a chance to catch up with the 300-plus homes it has in production. The firm is only opening one new major subdivision this year, Forest Creek in Parrish; Neal expects to have about 20 sales there this month. Neal is also planning to open one subdivision in 2007 and possibly three in 2008, based on his current thinking that the market will be better at that time.
Neal also takes the long-range view. Again, as has Wetherington, he has been there, done that when it comes to slowdowns in the home-building business. He's doing some of the same things Wetherington is, as far as not hiring new staff, monitoring construction costs and continuing to spend on marketing.
"It's a big boom," Neal says, adding that this lull is just that, a dip. He still expects the resounding demographic trends for Florida to bail out the market.
Those numbers, Neal says, include 78 million baby boomers, one-sixth of whom will spend some part of their retirement in Florida.
From 2004 to 2024, 5.5 million of those 13 million new Floridians will die, leaving a net population gain of about 7.5 million. At an average of 2.3 persons per household, that would be 181,159 new homes built per year. More than enough for Neal, whose company normally builds about 250-300 homes a year.
What's more, Neal says, is that the buyers of these homes, especially those in the later years of the baby-boom generation, aren't shy about spending money. "They buy bigger homes and get more goodies," Neal says. They don't fret at the thought of being 65 years old and signing a mortgage.
By the Numbers
REVENUES AT A GLANCE
2003 2004 % Chg.
Lee Wetherington Homes $95 million $116 million 22%
Neal Communities $66 million $110 million 66%
Your free article limit has been reached this month.
Subscribe now for unlimited digital access to our award-winning business news.
Join thousands of executives who rely on us for insights spanning Tampa Bay to Naples.
