The
playing
field
in
homebuilding
–
as
capital-driven
as
the
business
is
–
has
tilted
in
favor
of
publicly
traded
firms
for
years.
Now,
perhaps
more
than
ever,
private
builders
looking
to
survive,
thrive,
and
compete
need
to
differentiate
themselves
and
focus
obsessively
on
operational
efficiency
as
a
spear
tip
to
their
customers’
hearts
and
minds. 

By
focusing
on
what
others
aren’t
building,
solidifying
relationships
on
the
ground,
improving
processes
incrementally,
and
carving
out
a
niche
where
they
can
stand
apart
from
peers,
private
builders
can
achieve
stronger
margins,
maintain
brand
value
and
grow
sustainably
despite
the
advantages
held
by
large
public
competitors.

Those
were
some
of
the
main
takeaways
from
a
session
held
last
week
at
the
International
Builders’
Show.
Michael
Berke,
Founder
of

Tempo
Capital
Group,
organized
and
moderated
the
session,
“Private
Builder
Playbook:
Proven
Strategies
to
Win
in
a
Big
Builder
World.” 

Dave
Erickson,
President
and
CEO
of
Georgia-based

Grand
Oak
Builders,
Clint
Mitchell,
CEO
of
Indianapolis-based

Estridge
Homes,
and
Jon
Grabowski,
CEO
of
Charlotte-based

Red
Cedar
Homes,
led
a
session
aimed
at
spreading
the
word
about
what
can
work
in
a
headwind
market
to
a
privately
held
homebuilder’s
advantage.

Delivering
a
differentiated
product

For
private
builders
looking
to
stand
out
in
2026
and
beyond,
offering
a
differentiated,
high-quality
product
is
essentially
“table
stakes”
needed
to
get
ahead
of
the
pack.
Erickson
warned
that
private
builders
need
to
be
careful
of
the
“siren
song”
that
pushes
competitors
in
one
direction. 

In
his
experience,
leading
brokerage
firms
or
research
firms
will
often
present
data
to
builders
with
a
large
bell
curve,
and
emphasize
the
importance
of
positioning
oneself
squarely
in
the
middle
of
it. 

“What
they
do
is
they
create
a
stampede
because
they’re
going
out
to
you
and
four
or
five
other
builders
and
say,
‘you
all
need
to
be
over
here
at
$400,000,
or
you
all
need
to
be
here
at
$600,000.’
And
they
generate
this
tidal
wave
of
activity
where
there’s
way
too
much
competition,”
Erickson
said. 

The
panel’s
consensus
was
this:
instead
of
competing
directly
with
the
national
public
builders,
private
operators
should
focus
on
providing
value
through
a
differentiated
product. 

“Build
what’s
not
being
built
is
an
important
ingredient.
And
to
do
that,
you
need
to
be
looking
into
the
future
–
six
to
12
months
down
the
road.
The
projects
in
the
pipeline
–
where
are
they
going?
You
don’t
want
to
pile
on
top
of
them
if
there
are
too
many
of
them,”
Erickson
explained. 

Estridge
Homes,
for
example,
provides
a
premium
master-planned
community
product,
typically
in
the
$800,000
to
$1.0
million
range.
The
builder’s
average
sales
price
of
$900,000
is
about
3.5
times
higher
than
the
average
price
of

nearly
$225,000
in
their
home
market
of
Indianapolis.

This
means
that
there
aren’t
many
buyers
in
that
price
range,
but
there
also
isn’t
much
competition
either.
The
public
builders
in
the
Indianapolis
market
rarely
build
homes
at
that
pricepoint. 

Estridge
Homes
has
doubled
their
average
sales
price
over
the
last
ten
years.
Part
of
that
is
simply
because
of
appreciation
and
inflation,
but
much
of
it
was
an
intentional
shift
towards
higher-end,
master-planned
communities,
a
small
but
underserved
segment.
This
is
because
Mitchell
wanted
to
carve
out
a
niche
that
is
different
from
what
the
public
operators
are
doing. 

“They
do
what
they
do
really
well,
and
we
don’t
want
to
try
to
compete
with
it.
So
over
the
last
10
years,
we
continued
incrementally
to
move
up
market
and
get
even
more
custom
looking
on
the
architecture
in
terms
of
the
scale,
proportion
and
materials.
And
then
we
embrace
and
encourage
a
lot
of
customization,”
he
said. 

Red
Cedar
Homes
also
avoids
going
head-to-head
with
the
public
builders.
According
to
Grabowski,
one
method
his
team
used
was
finding
properties
with
room
for
50
to
80
lots
located
next
to
a
larger
community
from
a
public
builder.
They
would
compete
with
public
builders
for
the
same
buyer
pool
but
differentiate
themselves
by
offering
a
slightly
more
expensive
product. 

For
example,
if
the
public
builder
came
to
market
with
a $325,000
home,
Red
Cedar
Homes
would
offer
a
$350,000
house
with
some
key
upgrades. 

“We
spent
a
lot
of
time
vertically
integrating
ourselves,
whether
it
was
through
cabinetry,
countertops,
solid
surfaces,
or
flooring
options
—
not
to
a
full
custom
program,
but
being
friendly
on
options,
giving
choices,
and
doing
things
that
the
public
builders
have
essentially
taken
out
of
their
business
to
find
more
value,
efficiency,
and
cost
savings.
We
found
that
if
we
were
within
about
25
grand
more
than
their
price
point,
it
was
the
same
buyer
pool,
at
least
in
our
market,”
Grabowski
said.

This
strategy
also
enabled
Red
Cedar
Homes
to
tap
into
the
public
builder’s
marketing,
as
the
national
builder
would
already
be
driving
traffic
to
the
site. 

Maximizing
operational
efficiency

For
private
builders,
maximizing
profit
margins
through
operational
efficiencies
is
another
ingredient
they
view
as
critical
to
success
and
survival.
However,
there
isn’t
a
single
magic
wand
that
will
improve
operational
efficiency. 

“The
industry
average
over
the
years
for
the
building
industry
is
about
7%
net
[on
each
home
delivery].
If
you’re
not
already
at
7%,
you
need
to
be
digging
hard.
And
quite
honestly,
the
difference
between
7%
and
12%
net
isn’t
one,
two,
or
three
different
things;
it’s
50
different
things.
Picking
up
a
10th
of
a
point
here,
two
tenths
of
a
point
there.
You’re
looking
for
waste,”
Erickson
said. 

Builders
can
pick
up
efficiencies
through
quicker
inventory
turn
times,
tighter
budget
estimating,
negotiating
on
land
or
finding
better
deals
with
contractors,
to
name
a
few.
According
to
Erickson,
his
team
regularly
tests
new
trades
willing
to
offer
better
deals
by
putting
them
on
a
small
spec
job. 

Grabowski
highlighted
the
importance
of
achieving
labor
force
efficiencies.
While
public
builders
often
have
about
20
people
per
100
homes,
Red
Cedar
Homes
employs
seven
people
per
100
homes.
Part
of
this
is
because
of
efficiencies
in
the
company’s
BTR
business.
Investing
in
technology
and
AI
can
also

help
builders
to
scale
without
adding
additional
employees. 

Countering
public
builder
incentives

In
an
environment
where
public
builders
are
pursing
aggresive
incentives,
should
private
builders
follow
suit?
The
consensus
from
the
panel
is
that
private
operators
shouldn’t
try
to
replicate
what
public
builders
are
doing,
but
should
instead
experiment
with
what
works
best
for
them. 

At
first,
Red
Cedar
Homes
attempted
to
match
the
public
builders’
aggressive
incentives,
including
interest
rate
buydowns,
as
they
thought
that
was
necessary
to
stay
competitive.
After
offering
buyers
multiple
incentive
choices
and
reviewing
the
data,
Grabowski’s
team
saw
steady
traffic
and
conversions. 

About
85%
of
buyers
chose
closing
costs
or
upgrades
rather
than
rate
buydowns,
so
Red
Cedar
Homes
doubled
down
on
value-added
incentives
to
protect
both
pricing
and
brand
positioning. 

“We
created
enough
incentives
that
we
were
still
capturing
traffic,
playing
off
of
the
larger
builders
and
creating
value
there,
but
not
necessarily
just
giving
it
away,”
Grabowski
said. 

Erickson
argued
that
what
works
in
one
market
may
not
work
in
another,
but
if
a
product
is
unique,
high
quality
and
in
a
good
location,
it
will
often
require
fewer
incentives
to
sell. 

Mitchell
explained
that
Estridge
Homes
takes
a
product-by-product
approach
to
incentives,
as
some
may
sell
well
while
others
are
struggling. 

“We
try
to
be
disciplined
and
resistant.
Like
everybody,
there
does
become
a
point
where
we
may
need
to
download
some
inventory
or
create
cash,
but
we
don’t
have
the
quarterly
earnings
calls
to
deal
with,”
Mitchell
said. 

Coopetition
with
public
builders
on
land

Big
builders
have
an
advantage
in
land,
so
how
can
smaller,
private
operators
compete?

“They’ll
overpay
for
land.
They
will
enter
into
contracts
and
then
back
out,
forfeiting
their
deposits,
and
it
doesn’t
faze
them.
It’s
kind
of
an
unlevel
playing
field
on
the
land
game,”
Berke
said. 

In
the
case
of
Estridge
Homes,
Mitchell’s
team
decided
to
partner
with
the
public
builders.
One
master-planned
community
that
Estridge
Homes
is
working
on
has
about
600
homes,
500
apartment
units
and
some
retail
and
healthcare
uses.
Mitchell
said
there
is
strong
interest
from
public
builders
who
want
to
be
part
of
the
project.
Estridge
Homes
will
build
the
upper
end,
and
a
public
operator
will
build
the
entry-level
homes. 

“In
this
case,
we
were
getting
a
lot
of
strong
offers,
and
we
were
playing
the
game
of
trying
to
get
these
heavy
deposits
from
the
builders.
One
of
them
finally
spoke
up
and
said,
‘Hey,
why
don’t
we
be
your
equity
in
the
project?’
We
pretty
quickly
put
something
together,”
Mitchell
said. 

Erickson
emphasized
the
importance
of
investing
in
land.
Early
in
his
career,
he
noticed
that
access
to
land
was
tight
and
controlled
by
only
a
few
developers,
so
he
focused
on
securing
overlooked
parcels.
He
steadily
built
land
inventory,
and
years
later,
he
became
the
primary
player
in
his
market. 

If
a
private
builder
can’t
finance
land
deals
on
its
own,
Erickson
argued
that
partnering
with
two
or
three
financially
stable
builders
to
control
land
is
a
worthwhile
option.
Private
investors
are
another
good
financing
avenue. 

Access
to
capital

For
private
builders,
competing
with
public
counterparts
on
capital
would
be
a
futile
effort.
Public
builders
have
enormous
access
to
inexpensive
capital
and
have
huge
balance
sheets,
giving
them
an
unfair
advantage.
However,
there
are
still
numerous
ways
for
private
builders
to
access
capital. 

Red
Cedar
Homes
uses
traditional
local
and
regional
bank
loans,
but
private
debt
has
also
become
increasingly
attractive
for
them
due
to
its
higher
leverage,
non-recourse
terms,
and
competitive
rates. 

Erickson
also
explained
that
he
has
always
used
banks
for
his
financing,
but
also
stressed
the
importance
of
leveraging
equity
partners. 

Estridge
Homes
relies
heavily
on
community
banks
for
AMD
and
vertical
lending,
but
their
capacity
limits
mean
that
Mitchell’s
team
often
works
with
multiple
banks
or
increasingly
considers
competitive
debt
funds.
For
land,
the
builder
usually
partners
with
JV
or
institutional
equity
investors,
trading
a
significant
share
of
profits
to
access
the
necessary
capital. 

Counterpunch

One
of
the
main
takeaways
from
the
session
was
this:
instead
of
always
competing
directly
with
the
large
public
operators,
private
builders
should
seek
ways
to
establish
a
differentiating
factor.

This
involves
differentiating
themselves
through
unique,
high-quality
products
targeted
at
underserved
market
segments,
offering
thoughtful
value-added
incentives,
optimizing
operational
efficiencies,
strategically
partnering
on
land
opportunities
and
leveraging
diverse
financing
sources. 

The
session
made
it
clear
that
private
builders
can’t
outspend
public
competitors,
but
they
can
leverage
creativity,
focus,
strategy,
operational
efficiency,
and
above
all,
trusted
local
relationships
with
land
sellers
and
partners
to
stay
competitive
and
customer-centric
in
an
increasingly
cutthroat
homebuilding
environment.