From file "019_pss" entitled "PWsunny.qxd" page 01
From file "019_pss" entitled "PWsunny.qxd" page 01

The wave of home builder consolidation that washed over Florida in the spring and summer months carried with it the promise of higher levels of construction and potentially more sales for pro dealers. However, there are some clouds hovering over the Sunshine State, and when one of their builder-customers gets bought, dealers say they usually have to demonstrate that they can be reliable providers of products and services to new owners that often arrive with rigorous expectations and aggressive expansion goals.

“Somewhere along the line, you have to produce if you want to keep the business,” says Ed Dietrich, president of three-yard Deerfield Builders Supply, based in Deerfield Beach, Fla. “And while everyone talks about how you have to be cost-competitive, it's also a combination of service and quality that counts.”

There's no debate that the stakes are rising for dealers in Florida, which issued 228,000 residential building permits in 2004, more than any other state, according to Department of Commerce estimates. The number of big builders that are trying to cash in while this market stays hot has been remarkable, even by the industry's current frenetic standards:

  • In August, Hovnanian Enterprises, housing's eighth-largest builder, completed its third deal in Florida this year when it bought Fort Myers–based First Home Builders. That same month, The Drees Co. entered Florida by acquiring Jacksonville-based Harmony Homes. And Technical Olympic fortified its position in Florida, its home state, by completing its $837 million purchase of Coral Springs–based Transeastern Properties, the industry's 37th-largest builder.
  • In July, M/I Homes, out of Columbus, Ohio, bought Tavares, Fla.–based Shamrock Homes, which controls 2,100 lots and should close 205 homes in 2005.
  • Toll Bros., the industry's 14th-largest builder, entered Orlando in June through an all-cash purchase of Landstar Homes' central Florida division, which controls 2,500 lots and is projected to close 530 homes this year.
  • Even before these deals were consummated, dealers had been reaping the benefits of what some claim has been unprecedented construction in the state. Consequently, Florida dealers insist they're prepared for any big-builder incursions because they've already structured their businesses to handle more volume. “Our trucks are never more than a few hours from any job-site,” says Louis Weeks, who co-manages 84 Lumber's yard in Jacksonville, one of 18 locations this Eighty Four, Pa.–based national pro dealer operates in the state.

    As another example, over the past two years, Nokomis-based Kimal Lumber has seen its truss sales double to nearly $7 million, after it added two Alpine saws to its truss plant and installed larger tables with double gantries “to handle far more than the current demand,” says Kimal's president, Al Bavry Sr. This fall, Kimal plans to further expand its production capacity by opening a 30,000-square-foot facility for engineered wood products and millwork.

    Several dealers also point to consolidation within their own ranks that's run parallel to what's happening in the housing industry. Stock Building Supply, for example, acquired two Florida dealers—Winter Haven–based Adams Building Materials and Sebastian-based Gator Lumber—in recent months and in each case noted the growth in permits issued in the markets those dealers served as a motivating factor behind the purchases.

    Staying in the Game Pro dealers generally agree that when large builders buy local competitors, they allow at least some operational autonomy and retain key purchasing personnel, which means dealers end up working with contacts they know. Brian Martin, general manager for North Fort Myers–based Raymond Building Supply, points specifically to First Home Builders—whose closings and revenue in 2004 jumped, respectively, by 65 percent and 108 percent—as a builder that its new parent probably won't tamper with too much. “First Home has been very successful in recent years, so I think that [Hovnanian] would want to keep in place that handful of people that got them there.”

    Dick Jackson, president of Homestead-based K&A Lumber, concedes that acquisitions could be a “disaster” for dealers that aren't in an acquiring builder's good graces. But he says ownership changes might not be as tumultuous for dealers as they once were because “the business is becoming standardized, and builders are doing business pretty much the same way.”

    Some dealers, though, see this latest maneuvering by big builders in their state as another peal in the death knell for personal relationships between local builders and local suppliers. “You're just not doing business with the person whose name is on the marquee anymore,” laments Scott Lovett, general manager for Jacksonville-based Manning Building Supplies, which operates in seven Florida markets. When it comes to retaining an acquired builder's business, Lovett says his company has had more luck with “quality conscious” builders. He observes, though, that giant builders are, in the main, “price driven.”

    Price alone, though, won't win a builder's business. “We're in an era where there are fewer dealers in a much stronger market, and you have to do the job right, deliver complete packages,” says Bavry, a 43-year industry veteran. “It's not so much of a price game anymore.”