Out of the, Mainstream into Success

Out of the, Mainstream into Success

By Jean Gruss

Editor/Lee-Collier

Ten years ago, brothers Michael and Stephen Peel were stuck in a corporate rut.

Michael, barely 30 then, was an accountant in Columbia, Md., with trucking giant Ryder System and Steven, then 25, was an assistant field manager with homebuilder Centex in Naples.

"Neither one of us was suited for corporate life," says Michael Peel. They felt underpaid, underappreciated and were bothered by the constant pressure to meet quarterly financial goals.

Instead of stewing about it, they quit their jobs and started their own homebuilding company. It was a risky move. Neither had much money for the capital-intensive business and Michael had no homebuilding experience.

But the brothers timed the homebuilding boom perfectly, parlaying meager savings and a small loan from a relative into a successful company. Last year, Gulfstream Homes recorded revenues of $50 million on sales of 125 homes.

A modest beginning

In their first foray together in business, the Peels bought a home in Naples Manor in the mid-1990s using $20,000 of their savings and another $20,000 using their credit cards. They later resold the house for $67,000, netting $27,000. "That was our seed money," Michael Peel recalls.

Using the profits from the sale of the Naples Manor house, the brothers' plan was to build a model home in Golden Gate Estates, an area east of Interstate 75 that was platted decades ago. Homebuyers who wanted two- to five-acre lots in Collier County hired small "on-your-lot" builders to construct their homes in areas such as Golden Gate Estates.

The Peels thought they could be successful because the other builders in that area were small, local outfits that built with outdated designs and pushed customers with the hard sell. "The competition was archaic; they made it easy," Michael Peel recalls.

The Peels would introduce newer design touches such as higher ceilings, plant ledges and archway entrances. By contrast, the competition's homes looked like they were made of Lego blocks and had low-sloped roofs that dated to the 1970s.

But with no track record, the Peels couldn't get bank financing to build that first model home. So they turned to their mother's second cousin, John Aglialoro, currently chairman and chief executive officer of sports equipment maker Cybex International.

Aglialoro agreed to lend the brothers $80,000 to build the model home. He charged them 8% interest and required them to pay him back within two years. "It was expensive money," Michael Peel recalls.

With the money, the Peels bought a 2.5-acre lot nearby for $33,000 on "builder's row" along Golden Gate Boulevard in 1998 and started building the model home. Michael sat at the model selling all day while Stephen lined up the subcontractors and supervised the construction. They touted Stephen's experience building for Centex and showed prospective customers the newer designs. By the time the model home was complete, they had three signed contracts.

Their first customer was a young Italian-American couple who the Peels later sent to Disney World on an all-expense-paid vacation to celebrate Gulfstream's fifth anniversary. "They were our most important customer," says Michael Peel.

With the contracts in hand, the brothers started calling on banks that had previously ignored them and First National Bank of Naples agreed to lend them $100,000.

Along with the model home, the Peels advertised in weekly newspapers and developed a sophisticated Web site, something their competition lacked. Within the first six months, the brothers had 30 contracts to build homes in Golden Gate Estates.

Move to planned communities

Despite their initial success building homes on their customers' lots, the Peels wanted to move up in the homebuilding world by building in master-planned communities. In a planned community, a builder buys lots from a developer who has assembled a large parcel of land and put in infrastructure such as sewers and streets.

"We wanted to continue to grow and planned communities were an obvious choice," Michael Peel says. They had survived their first year in business and the positive cash flow gave them confidence. Plus, building in planned communities is more profitable because it's a more efficient use of labor and materials to build several homes in close proximity.

So in 1999, the Peels jumped at the chance to build in Indigo Lakes, a 350-lot development east of I-75 in Collier County. But building in a planned community means the builder has to buy the lots, something that requires a lot of capital. To lock in 110 lots at Indigo Lakes, the brothers needed to get $1 million in financing to buy 10 lots and build two model homes.

The brothers scrambled to get bank financing but were turned down repeatedly. "We were just too new a company," Michael Peel recalls.

However, one bank took interest. Washington Mutual was a new player in the Naples area and their bankers were eager to build the business. They lent the Peels $800,000 at the prime rate plus 1% and the brothers put up the remaining $200,000. "It was every last penny," Peel says. "From a financial standpoint, that was the scariest time for us."

The development turned out to be a success as young families moved to more eastern parts of Collier County seeking reasonably priced homes. By then, Naples home prices had started their relentless climb.

Once they started selling in planned communities, revenues and profits rose. When it was building on customers' lots, a Gulfstream home started at $100,000. But at Indigo Lakes, Gulfstream's homes cost from about $300,000 to $400,000. What's more, the company was able to build houses faster than before because it was building several houses at once in one location.

Success at Indigo Lakes gave Gulfstream Homes the credibility it needed to build in other communities. Soon after it started building at Indigo Lakes, the company built on 49 lots at Veridian, a planned community in Fort Myers.

Banks started knocking at the door too. "The tables got turned; It was awesome," says Michael Peel, grinning. Gulfstream now does business with three banks: BB&T, Regions Bank and First Horizon Bank. With its good track record, Gulfstream's cost of money is now the prime rate plus 0.5%.

Building for Bonita

To ensure future growth, many builders prefer to build in large developments and for developers who plan communities in the thousands of acres. But the competition to get in them is fierce because local builders compete with national homebuilding companies that have much greater financial leverage.

Undaunted, the Peels started sending their promotional material to executives with The Bonita Bay Group, a Bonita Springs-based developer well known for its environmental stewardship and top-notch management. In 2003, the Peels had adopted environmentally sensitive building practices (see related story) and they believed that those would appeal to the Bonita Bay Group.

"Their environmental commitment is what drew us to them in the first place," says Ginny Ross, land sales manager for Bonita Bay Group.

When the Bonita Bay Group was planning the Verandah community in Fort Myers, they offered Gulfstream the opportunity to build on 125 lots. Verandah was the first community in the state to be certified as a "green development" by the Florida Green Building Coalition, a nonprofit organization made up of businesses, government agencies and environmentalists. These voluntary industry standards cover issues ranging from energy efficiency to health and site preservation.

The developer only works with 30 carefully chosen builders and it screens new builders closely. For example, it asked Gulfstream to provide its financial statements as well as references from banks, subcontractors and the company's 25 most recent customers. "We view them as an extension of our brand," Ross says.

Bonita Bay Group keeps close tabs even after the builder is selected. "They have a guy named Mike and all he does is drive around all day long watching the builders," Peel says. "He's like a county inspector."

Gulfstream is currently building model homes at Verandah and has not yet started selling there, but Peel says he's confident that sales will go well. Verandah reported 385 sales in 2005, more than 82% above projections and double the 2004 sales.

More important than current sales, Peel says he hopes to land more opportunities at future Bonita Bay communities. The developer has banked thousands of acres in places such as Hendry County for future development and Peel says the partnership will offer the security that comes with steady work.

"When we started the company, that seemed so far out of reach," says Peel.

GREEN BUILDING STANDARDS

Gulfstream Homes builds with standards that are designed to be energy efficient, healthy and environmentally friendly. These are some of the techniques and materials the company uses for every home it builds:

• Install sealed, airtight recessed lights to keep the heat out of the home.

• Seal air-conditioning ducts to prevent cold-air leaks into the attic.

• Plant vegetation around the house that requires less water.

• Install energy efficient appliances.

• Seal the cracks between the slab and the interior of the home to reduce moisture and keep pests out.

• Seal air-conditioning ducts during home construction to prevent dust from settling in.

• Install high-tech air-conditioning filters that can trap dust.

• Use Sherwin-Williams Harmony paints that are lower in toxins.

• Insert baited tubes in the walls and the slab that reduce the need to spray for pests.

• Use drywall that is 100% recycled.

How Gulfstream Went Green

In 2003, Michael Peel started reading about building techniques that would make homes more energy efficient, healthy and environmentally friendly.

His brother, Stephen Peel, wasn't too keen about his brother's idea.

After all, the two brothers and co-owners of Gulfstream Homes had built a successful homebuilding business without using "green" building techniques.

"I was a bit resistant to it," says Stephen Peel, who oversees the construction of the homes while his brother Michael runs the financial side of the operation. He understands the harsh reality of construction sites and changing building methods would surely present tough challenges.

Still, his brother Michael persisted.

"The thing that got our attention was indoor air quality," says Michael Peel. Fumes from such materials as paints and carpets are especially toxic to children. That hit a chord with the Peels, both of whom are parents of young children.

"I started thinking about it from a marketing standpoint," says Michael Peel. "A better way to build is always our philosophy and this could give us a real competitive advantage."

With the help of Naples consultant Jennifer Languell, an engineer who runs the WCI Green Building Demonstration and Learning Center at Florida Gulf Coast University, Gulfstream Homes adopted green building techniques developed by the U.S. Green Building Council, a building industry nonprofit whose motto is "Build Green, Everyone Profits." Gulfstream is the only builder in Southwest Florida that incorporates these standards in every home it builds, Languell says.

One of the major challenges was to get subcontractors to go along with the new techniques. For example, workers have to cover the air ducts so dust doesn't settle into them during the homebuilding process. But how do you teach that to workers who don't even clean up their sandwich wrappers and soda cans after they eat lunch?

The key was to get the Gulfstream Homes field supervisors committed to doing things differently. They would ensure that the subs would do the work based on those standards. The Peels did that by hiring Languell to train the company's 26 supervisors over a six-month period. "Employees were committed to our vision because it made them feel they were part of something more important than just building homes," Peel says.

But selling a "green" home to prospective customers proved to be even harder. "We don't have people coming to us wanting a green home," says Michael Peel. "We had to force it to a certain level."

All Gulfstream homes come with certain standards such as energy efficient appliances, recycled drywall, paint that doesn't release toxins and baited pest tubes inside the home's walls that reduce the need for pesticides. In all, these materials and techniques add about $5,000 to the price of a home, which the Peels say hasn't been difficult to pass on to customers in these times of fast-rising home prices.

However, the brothers say that when it comes to options, customers prefer to spend their money on other things. That's because they can't see many of the 50 green options Gulfstream sells because they're behind the walls, in the ground or in the attic. For example, homebuyers would rather spend $10,000 on granite countertops in the kitchen than special insulation foam under the roof.

To improve the sale of these options, the Peels are working on setting up a "green room" inside their headquarters building in Naples to show customers some of the benefits. "It's hard to convince customers of the value of what we do," Peel says.

In the meantime, the brothers say they feel good about the way they're building homes. "We sleep better at night," says Michael Peel.