When home building activity climbed to its highest level in more than 17 years in October, 2003, building permits during that month also hit high notes that have not been heard since 1984. At the same time, economists expressed confidence that builders would sell more than 1 million new homes in 2003, the first time that plateau would be exceeded.
As the industry's leaders tune up for another stellar performance in 2004, many have been working to solidify their relationships with builders by offering more construction and installation services for the new-home market. For example, Raleigh, N.C.–based Stock Building Supply now has framing crews on staff in many of the 24 markets where its 224 yards operate. Depending on the market, Builders FirstSource (BFS), based in Dallas, installs windows, trim, doors, wall panels, and insulation. Redmond, Wash.–based Lanoga Corp.'s Home Lumber division in Colorado has 25 on-staff carpenters and installs half of the windows it sells to builders, according to its president, Max Guetz. And the list could go on.
In fact, residential construction is also beckoning The Home Depot, which bought three flooring installers in October 2002 that, as part of the HD Builder Solutions Group, now offer installation from 17 offices in nine states. The group's president, Mark Fiksa, says Depot plans to add countertops and design services in the future.
Still, working with builders can be rigorous and precarious. Kevin O'Meara, Builders FirstSource's COO, admits that he still isn't sure if installation—which BFS has been offering for around three years—can be profitable in the long term. And most pro dealers have yet to distinguish their services from one another for builders.
“I can take you to our 10 divisions, and half will love BFS, the other half will love Stock,” says Paul Dodge, vice president of purchasing and distribution for Dallas-based Centex Corp.
Without question, the most aggressive pro dealer in the construction services arena has been San Francisco–based Building Materials Holding Corp (BMHC). Its four-year-old BMC Construction subsidiary has grown steadily: In August, BMHC acquired a 51 percent stake in Dallas-based framer Better Builders, and two months later it acquired a majority stake in Stafford, Va.–based ANM Carpentry, which framed around 3,000 homes in 2002. Through nine months of its fiscal year ended Sept. 30, 2003, BMHC generated 57.3 percent of its revenue from construction services and component manufacturing, versus 52.6 percent in the same period in 2002.
“Big builders' strength lies in identifying attractive parcels of land, developing home designs and properties, and selling homes. Everything else is a process and we can eliminate a lot of risks,” says Michael Mahre, BMC Construction's CEO. “We're managing a labor force that, in some markets, is scarce and is not always professional. With us, builders know they aren't working with two guys in a pickup truck.”
Charlie Cheshire, president of Better Builders (now called BMC Construction/ DFW), says his company is in a far stronger position to pursue residential and commercial projects. “Growth in this business is limited to capital and cash flow,” he notes. “It would have taken us 10 years to get to where we now can be in three.” —John Caulfield is an Old Bridge, N.J.–based freelance writer.
