Last October, in the middle of one of the worst housing slumps in history, two men got together and decided it would be a great idea to create a home building company. Although construction companies were folding faster than bad poker hands, Colin Wright and John Stubbs mixed good business sense with capital and innovation, and created Henry Walker Homes.
Friends and family might have been skeptical but, one year later, their business is not only surviving the downturn, it’s flourishing and expanding into more areas of the state. So what did Wright and Stubbs do that other home builders didn’t? They chose projects selectively, limited risk and hired top-notch employees.
A Conservative Approach
“You need to be prepared for the worst-case scenario and ask if you’re okay living with the worst case scenario,” says Wright, CEO of Henry Walker Homes. “[Builders] should ask that question before they go into every deal. If you’re not structured to survive the worst case scenario, you’re not structured correctly.”
So far, for Henry Walker Homes, the structure is holding strong. In 2010, the company’s goal was to close on 14 homes. But that number is already up to 40, and they’re looking at closing more than 125 homes in 2011. New construction is happening in Kaysville, Layton, South Jordan, Farmington, Draper and coming soon in St. George to the exclusive Entrada community.
The home construction industry in St. George took an especially big hit when the real estate market plummeted, and Henry Walker Homes was able to acquire land inside Entrada for a remarkably affordable price. The company is passing that savings onto future home owners, who will be able to get a luxury home in the exclusive community at an unbelievably low price.
“There are so many deals. We probably see 20 deals for every one we take,” says Stubbs, president of Henry Walker Homes. “You want to grab the cheap land, but it really is making sure you’re in great locations and providing homes the customers want.”
“Risk is a good thing,” he adds. “But limit the risks. Do what you can to mitigate that risk. We’re not crazy cowboys. We’re very risk adverse. Very conservative.”
Part of their conservative nature comes from their lifelong experience in the home building industry. Stubbs knew in high school that home construction was his career path. He worked with Ivory Homes and Richmond Homes, learning good business practices and expanding his knowledge of home building. During his time as division president at Richmond, Stubbs took his team from building 127 homes per year to building more than 1,200 every year. He figures he has been part of the construction of nearly 10,000 homes in Utah.
Wright’s first job was mowing lawns for model homes. He has since studied the science of housing, earning a Master’s degree in real estate from Columbia University. Most recently he was the Southern Utah area manager for Ivory Homes.
Wright considers his job as a home developer to be similar to a symphony conductor. He works with the civil engineers, architects, contractors, marketers and all the other people it takes to create a home. Wright then organizes the different pieces into a singular act that concludes with a family moving into their first home.
Although Stubbs experienced the housing slump in the ‘80s, this is the first recession Wright has worked through. He’s come to realize that excess in one direction will often lead to an excess in the opposite direction, creating a pendulum effect until the market settles somewhere in the middle. When he saw home building permits drop from 20,000 in 2005 to only 5,000 in 2009, he knew the market had hit bottom and was ready to rebound.
As a partner in Strategic Capital Partners, a private equity company, Wright acquired distressed properties in 2009, getting cut-rate deals on land in developing areas. He convinced Stubbs to jump on board, and soon Henry Walker Homes was selling new developments, even in the lackluster economy.
During the housing boom, says Wright, the world fundamentally changed, creating a new paradigm for real estate. Homes had become personal ATMs, risky loans were approved every day and all that was needed to obtain a home loan was a job. As a result, home foreclosures and bankruptcies are at an all time high. Now, due to tightened loan requirements from the government and financial institutions, potential home owners are jumping through hoops and putting up significant amounts of cash for down payments, trying to purchase homes that dropped in value over the last two years.
Getting in the building industry at this time has proven lucrative for Henry Walker Homes for a variety of reasons. With land prices reverting back to 2002-03 values, great deals are there for the taking. But every deal that comes their way is scrutinized closely to make sure the benefits outweigh the risks. The duo never jumps into a project until everyone feels it’s a safe bet.
“When you can fall and land in a pile of $100 bills, when things are easy money, it’s time to get out,” Stubbs says. “It’s probably going to turn and go really bad. We’ve had a heck of a correction in the market.”
Both Stubbs and Wright know of many reputable construction companies that didn’t survive the housing slump and either had to close up shop or are operating on a day-to-day basis. Lots that were worth $150,000 in 2006 are now worth $50,000, leaving some developers left with huge deficits.
“My heart goes out to those people who paid an exorbitant price and maybe leveraged themselves too thin and the bottom fell out,” Stubbs says. “If you’re already in the soup, keep swimming. Don’t go down without a fight. But it if doesn’t look right or smell right—don’t do it.”
Along with land deals, Wright and Stubbs have been able to select the most qualified, most experienced employees. With thousands of construction employees out of work, they were able to be very selective when it came to hiring staff. They estimate 160 workers participate in the construction of each home built.
Wright and Stubbs agree that one of the best results of the success of their business is the ability to get people returning to the work they love. “Our employees are absolute rock stars,” Stubbs says. “We have the best of the best. It’s so satisfying to sit down with these people and get them back to work.”
A Plan for Sustainable Growth
The business plan for Henry Walker Homes is simple: place an emphasis on creating high-quality products, acquire land deals where growth can occur, be more concerned about preserving the current lifestyle as opposed to growing the company and create a first-class quality of life for employees.
They’ve taken the best processes and policies from their past experience and re-engineered the recipe to create a durable business that should survive any fluctuations in the market. By incorporating lessons from the past, they’re looking forward to a great future.
“Henry Walker Homes is not trying to race to the top, our goal is to strategically expand as we come across the right opportunities,” Wright says. “Our plan for growth ensures our company will remain a vibrant part of Utah’s homebuilding industry for years to come.”