Chicago-area home buyers know what they want, but some out-of-town builders have had trouble tuning in to those desires.
As a result, a multitude of local builders have dominated the Chicago housing market. Now, though, three national home building firms are testing the lucrative Chicago market and say they’re committed to solving the riddle of what sells here.
The three newcomers are D.R. Horton Inc. of Arlington, Tex.; Ryland Group Inc. of Columbia, Md.; and Calton Inc. of Manalapan, N.J.
Although there already are some 300 home builders in the Chicago area, these national companies say they’re not afraid of the competition. They hope to succeed, in part, because of their considerable financial clout.
Why target Chicago?
“National builders have noticed that we’ve had eight very good years (in home sales), and Chicago wasn’t affected by the recession as much as other areas of the country, especially the East and West Coasts,” said Steve Hovany, president of Strategy Planning Associates of Schaumburg.
“There were 23,500 new-home sales in the Chicago area in 1993, and I expect to see more this year,” Hovany added.
While the Chicago market may appear to be ripe for the picking, there are many possible pitfalls.
“The national builders are finding that this is very different from other areas of the country,” Hovany said. “There is no single Chicago market. Rather, they must cater to all our sub-markets. There are many image issues, such as the perceived differences between Naperville and Aurora, and Naperville and Bolingbrook.”
Chicago-area buyers also are sensitive to what school district they move into, Hovany noted. And no other area in the country has so many levels of local government that affect home building.
“National builders don’t want to get into land development, but that is normal here. And they frequently underestimate the time to get zoning,” he said. “In the late ’70s and early ’80s, several national builders tried Chicago but failed. The ones that survived-Centex and Pulte (the nation’s two largest builders)-took a local approach and survived. People don’t think of them as national firms.”
Dan Star, president of the Illinois division of Pulte Home Corp., agreed about the complexity home builders must face here. “Every little sub-sector is a mini world of its own,” he said. “You have to understand the system. What looks easy from the outside can turn into disaster.”
Jon Fogg, president of the Illinois division of Centex Homes, agrees that entering the Chicago market can be difficult. “What works in California or Texas does not necessarily work in Chicago,” he said. “But one of the advantages of being a national builder is being aware of trends in other parts of the country and taking advantage of them here.”
Hiring local talent is one strategy the new national builders are using to shorten their learning curve.
D.R. Horton selected Jay Dulla to run its Chicago office. Dulla had been head of land development for Elgin-based Par Development Inc.
Calton hired Gerald Harker, a lifelong Chicago resident and former president of the Chicago division of Centex, to be president here.
Ryland went with Bloodgood Sharp Buster, a national architectural firm with long experience in design in this area. One of the partners, Doug Buster, had been head architect for Arlington Heights-based Lexington Homes for several years.
However, Ryland picked an out-of-towner to head its operation here. Donald Siegel, sales and marketing manager of Ryland’s Schaumburg-based office, came here from the company’s mid-Atlantic region.
How have they done so far?
Todd Owings, president of the Orange Report, a Naperville-based scorecard of housing sales, believes Horton and Ryland “are going to make a big splash here. Calton probably will do well, too, but we’ll have to wait and see what product they come out with. That’s the crucial element.
“Horton and Ryland wanted to get started fast, so they bought land in existing developments. But that also meant that competition was right on their doorstep,” Owings said.
Owings predicts Horton and Ryland could rank from 10th to 20th among Chicago-area builders this year-an impressive start.
Hovany warns, though, that big numbers don’t mean everything.
“They may sell a lot of homes, but that might not generate enough profit to justify staying here. If the investment isn’t paying off according to corporate goals, they may decide to leave Chicago.”
Nationally, D.R. Horton sold more than 2,000 homes in 1993 with a sales volume of more than $300 million. The company specializes in single-family homes with custom features for entry-level and move-up buyers in the Mid-Atlantic, Southwest and Western regions. The company operates in 10 states.
Horton’s Dulla said the national headquarters does not dictate product, price or location, and “we use all local hires, no out-of-staters.”
D.R. Horton is building at Ashbury Farms in Plainfield, Pheasant Chase in Bolingbrook, Sterling Manor in Geneva, Victorian Meadows in Oswego and Bristolwoods in Bristol, Wis.
Dulla opened Horton’s local office, in Rolling Meadows, in January 1993. “Our first project here-Sterling Manor-basically sold out in less than a year,” he said.
Dulla predicts sales may hit 200 this year, 240 in 1995, and 400 to 500 by 1998-a growth rate of 20 percent a year.
“Buying lots in existing subdivisions gave us good entry into the market without high risk,” Dulla said.
The first all-Horton project is Washington Park in Gurnee. The sales center opened in May for homes starting under $200,000. Three models are nearing completion and are expected to be ready by July 23, the opening day of the Parade of Homes, which will be held at Aberdare Estates across the street from Washington Park. “That ought to give us good exposure,” Dulla said.
Within the next few months, Horton plans to introduce a subdivision in McHenry County, its seventh in the Chicago area.
Ryland-the nation’s third-largest home builder with sales of 8,433 in 1993 and revenues of $1.5 billion, operating in 19 states-is expanding.
“We saw Chicago as a prime area-one of the largest housing markets in the U.S.,” said Siegel, who opened the Chicago division in April 1993.
He predicts sales of 250 here this year and more than 400 in 1995. “We expect to make some major land acquisitions in the next three to four months in the hot markets-Aurora-Naperville, McHenry County and Lake County.”
Ryland is building at Fieldstone Village in Crystal Lake, which is more than half sold out; at Autumn Meadows in Aurora, which is nearing sellout; Autumn Lakes in Aurora; and Autumn Grove in Aurora. Prices range from the low $100,000s at Autumn Lakes to the low $180,000s at Fieldstone Village.
Calton Inc., which announced formation of a Chicago division in February is the most recent national builder to throw its hat into the local ring. Calton was able to lure Harker out of retirement to head its operation here.
“I know the market,” Harker said, which is an understatement coming from the man who, for 17 years, was president of the local Centex division.
“It’s exciting and a big challenge to start from scratch,” Harker added.
The Chicago division initially will focus on sub-markets in the north and northwest suburbs, and is negotiating options to acquire land and build a sales backlog to generate favorable operating results in 1995.
Nationally, Calton has developments in central New Jersey, eastern Pennsylvania and central Florida. Calton, which emerged from a Chapter 11 bankruptcy reorganization in May 1993, intends to sell its non-core operations to focus on home building.
Harker said the company first will serve niche markets with Braeburn in Crystal Lake and Delaware Crossing in Gurnee. “We’re trying to forge an image,” he said.
The 132 homes at Braeburn will range from the low $180,000s to the low $220,000s, while the 90 homes at Delaware Crossing will cost from the mid-$180,000s to the mid $220,000s.
Both properties are scheduled to begin sales in August.
So, more players enter the game, pitting national clout against local savvy. Conventional economic wisdom says that increased competition can only benefit the buyer.
