Staying on track

Staying on track

Real estate by Jean Gruss | Editor/Lee-Collier

America's First Home keeps costs under control while staying nimble enough to shift with the

changing market. It's paid off.

Like so many homebuilders in Southwest Florida, America's First Home's growth has been nothing short of meteoric.

In 2001, the Bonita Springs-based builder of affordable housing sold 92 homes. In 2005, sales rose more than tenfold to 1,100 homes. That distinction landed the company in 21st place in Builder magazine's "Fast Track 2006."

But as everyone knows, the market hit the wall in 2006 as speculators disappeared.

How America's First Home executives managed the dramatic slowdown and sold roughly the same number of homes in 2006 as 2005 involved some quick thinking, foresight and discipline.

The situation is not going to improve anytime soon. "We really think this market's going to get tougher," says Barry Frey, who runs the company with his father, Bill Frey. "You've got to really run a tight ship."

Among other tactics, the company refused to buy expensive lots, it eliminated some features inside its homes, it found less expensive building materials, it slashed the time it took to build a house and started its own mortgage company to help buyers become homeowners.

"I've been through that '90s recession," says Frey. "In a downturn, cash is so important."

Starting out on Sanibel

Bill Frey began building homes on Sanibel Island in 1973 and was among the first to build elevated homes that meet Like so many homebuilders in Southwest Florida, America's First Home's growth has been nothing short of meteoric.

In 2001, the Bonita Springs-based builder of affordable housing sold 92 homes. In 2005, sales rose more than tenfold to 1,100 homes. That distinction landed the company in 21st place in Builder magazine's "Fast Track 2006."

But as everyone knows, the market hit the wall in 2006 as speculators disappeared.

How America's First Home executives managed the dramatic slowdown and sold roughly the same number of homes in 2006 as 2005 involved some quick thinking, foresight and discipline.

The situation is not going to improve anytime soon. "We really think this market's going to get tougher," says Barry Frey, who runs the company with his father, Bill Frey. "You've got to really run a tight ship."

Among other tactics, the company refused to buy expensive lots, it eliminated some features inside its homes, it found less expensive building materials, it slashed the time it took to build a house and started its own mortgage company to help buyers become homeowners.

"I've been through that '90s recession," says Frey. "In a downturn, cash is so important."

Starting out on Sanibel

Bill Frey began building homes on Sanibel Island in 1973 and was among the first to build elevated homes that meet today's flood codes. Bill's son, Barry, grew up working at his father's construction sites and graduated from the University of Pennsylvania in 1985.

By then, growth on Sanibel was slowing as land on which to build was becoming scarce. The father-and-son team became one of the first builders at Bonita Bay, the signature development by The Bonita Bay Group in Bonita Springs. Their company, Frey & Son Homes, was building luxury custom homes from Naples to Sanibel and survived the recession of the early 1990s.

Then Bill Frey met Pat Logue and Jim Sublett of First Home Builders in Fort Myers, a builder of affordable homes geared to first-time buyers. While Barry was busy running Frey & Son, father Bill decided to partner with Logue and Sublett and expand the builder's operations in Orlando.

After two years, Frey split with Logue and Sublett and took over First Home's Orlando expansion. He renamed the company America's First Home and Barry joined him in 2001. "[Bill Frey] really liked the idea of getting people into their first home," says his son.

As it turned out, nearly half the buyers weren't first-time homeowners at all. Instead, they were speculators who planned to flip the homes for a profit.

Speculators drove much of the company's growth in recent years. During the height of the boom in 2005, no more than 15% of the buyers cancelled their contracts. In 2006, 40% cancelled their contracts to buy. "The majority are speculators walking away," Frey says. In a few egregious cases, the company has pursued legal action against speculators who blatantly walked away without cause.

Speed and price

During the most recent housing boom, demand for labor and building materials was so strong that it slowed construction of a home to as long as 130 to 150 days. That was tough for builders like America's First Home that finance the construction of the homes.

"We believe that speed is really important in this business," Frey says.

America's First Home now has cut the time it takes to build a home to 90 days. "Our goal is to cut it down to 60 days," he says.

To cut the time, the company armed construction superintendents and subcontractors with wireless laptop and handheld computers that schedule the work. With 30 to 40 subcontractors involved in building every house, it's essential to time it right. In the old days, the superintendent would call the subcontractor on the phone. Now, with schedules in real time via the Internet, the job can get done faster.

Faster construction can help keep costs down. That's especially important for competitively pricing a home. In 2001, the company's homes cost $125,000 to $150,000. By 2005, the same homes cost $250,000 to $300,000. Now that the speculators are out of the market and there's a smaller pool of buyers, Frey has brought the price of a home down to the $200,000 to $250,000 range.

Cutting costs

To bring home prices to a competitive and affordable level, Frey reexamined all the homes' amenities, construction materials and processes. He cut extras where he could and found new ways of building that saved time.

For example, the make-up vanity that was standard is now an option. Same with the pre-wiring for a security system, the underground pest-control system and the vertical blinds.

Instead of plywood, the company now uses a less expensive wood board. Metal studs replaced wood studs.

It even discovered that replacing concrete blocks by pouring concrete into a metal mold around the house made the home structurally stronger. What's more, it cut construction time by several days.

One of the keys to controlling the cost of a house is not to overpay for the land underneath.

For a $200,000 home, lots that have all the necessary utility hookups can't cost more than $40,000. At the height of the land boom in 2005, such lots were selling for $60,000 to $70,000 and Frey says his company didn't buy at all that year.

By contrast, the lots the company purchased in 2003 and 2004 ranged from $25,000 to $30,000 each. The company now has an inventory of 2,800 lots, or about a two-year supply.

Still, lot prices have been falling and America's First Home is looking at some lots in Lakeland that have dropped under the $40,000 range. "Now is a great time to be buying," Frey says.

Financing key for first-time buyers

Now that the focus is back on first-time homebuyers, the key to getting them in a home is financing. That's because most first-time buyers have little money to put down and questionable credit, Frey says.

To do that, America's First Home has trained its sales people to be credit counselors. They sit down with prospective buyers and discuss their credit history so that they can qualify for a loan.

Sometimes, boosting a credit score to qualify for a loan can be as easy as writing letters to clear up a mistake, agreeing to pay back creditors a small amount of money each month or demonstrating a history of paying utility bills on time. "A lot of it is discipline," Frey says.

America's First Home will make sure a buyer qualifies and obtains a loan commitment from a lender and charges just $500 as a down payment. "We finance the house while it's under construction," says Frey.

Four to five banks, including Wachovia and Bank of America, provide the company with lines of credit to fund construction. "We're well capitalized," Frey says. "We've performed on our business plan."

Still, the banks are growing cautious. "They're asking more questions than they were," Frey acknowledges.

The builder's salespeople keep tabs on the buyers while the home is under construction, usually about three months. They make sure buyers don't fall behind on bills and get final approval for their loan. Fewer than 10% of buyers back out because they fail to meet the terms of the loan.

To gain more control over the process, America's First Home started a mortgage company a year ago called Patriot Home Funding. Today, 70% of their buyers finance a new home through that affiliate, Frey says. "We don't make a lot of money on them; tight margins."

In addition, America's First Home offers a rent-to-own program run by Investment Brokers of Cape Coral. Under the program, private investors lend money to homebuyers who can't get a traditional mortgage. That program accounts for 20 home sales a month, Frey says.

Hispanic market is a big opportunity

Habla Espanol?

If you work for a homebuilder today, it pays to learn Spanish.

At America's First Home, the affordable-housing company owned by the Frey family of Bonita Springs, about half of sales are to Hispanics. Barry Frey says they're part of the large wave of Spanish-speaking immigrants who arrived in the U.S. seven to 10 years ago and now have the means to buy a house.

Most of the sales staff at the company is bilingual, including the mortgage brokers.

"The Hispanic market is very loyal," Frey says, noting that one-third of the company's buyers come by way of a referral from another customer.

America's First Home has redesigned its homes to accommodate Hispanic culture and traditions. For example, extended families tend to live together in one house, so the company designed its homes so that buyers could add more bedrooms on a second floor or convert the garage to two bedrooms.

Hispanics also tend to have more and larger family gatherings. So America's First Home designed bigger driveways that can accommodate six to eight cars and larger kitchen sinks.

"We think the Hispanic market is quite large and growing," says Frey.

-Jean Gruss