A Big Competitor's Entrance

National Builder KB Home Is Battling With Local Firms for Projects Large and Small

The last great expanse of developable property near Gaithersburg is the Crown Farm, with its rolling hills and freshly cut grass, nestled near Interstate 270 and the heart of Montgomery County's biotech community. It is such an irresistible jewel for home builders that bidding for the property at times resembled begging.

So when Los Angeles-based KB Home swooped in on the 180-acre property this summer as lead builder in a $137 million, 2,000-house deal, the region's home builders did not need to be told the ground underneath them had shifted. The nation's fifth-largest builder, with $7 billion in revenue last year, jolted the country's fastest-growing home-building market, setting the stage for even sharper battles between regional and national builders for a limited amount of land.

"We are all absolutely fierce competitors," said G. Cory DeSpain, who oversees home building in Virginia and Maryland for Pennsylvania-based Toll Brothers Inc., which deals mainly in luxury homes. "They will find their market niche here. They have deep pockets. They are a big company. They're probably going to take some market share from people."

The question is: From whom? As in other urban locations, the region's home-building market is dominated by more than a dozen national builders. The competition is fractured, though, with no single builder getting more than 10 percent of home sales. The perennial leader is Reston-based NVR Inc., which operates under five brands, including Ryan Homes. NVR led the region in 2004 with 2,477 sales -- an 8.2 percent market share -- making it the most likely market-share loser because of increased competition spurred by KB Home.

KB's entrance into the market is also likely to affect regional builders such as the Stanley Martin Cos., Craftmark Homes Inc., Miller & Smith Inc., Bozzuto Homes Inc., and others that increasingly compete with the larger companies on smaller projects.

After courting the Crown family for a decade, Aris Mardirossian, a local businessman, fielded sale and partnership offers from home builders around the region, the country and the world. He did so remembering a promise he made to the family -- to bring in a company that would not build a standard Main Street community. Nothing raised his eyebrows.

So he and his partner, Steve Lebling, essentially gave up. They decided to forgo a big builder, finance the purchase themselves and sell off parts of the property to individual home builders. Then KB Home came calling. The builder had just moved into the Washington region. It was looking for a signature deal.

"A lot of the big guys looked at this project said, 'I have this type of house sitting on my shelf and I'll just pull it off the shelf and slap it in,' " said Steve Coniglio, KB's local vice president for land acquisition. "We said we would look at it with fresh eyes."

Besides coming up with more than $100 million -- the project also has financial backing from Centex Homes -- KB offered a vision for a new urbanist community, relying heavily on mass transit: think downtown, Connecticut Avenue in the suburbs, with modern cityscape architecture, maybe even stacked townhouses. The negotiations lasted a couple of hours.

"We both wanted to create a jewel for Gaithersburg," Mardirossian said.

Only 10 years ago, KB Home was heavily focused on its back yard in California, building about 8,000 houses a year, mostly starter homes. But led by Chairman Bruce E. Karatz -- who built, in Las Vegas, a replica neighborhood of "The Simpsons" family house and just formed a partnership with Martha Stewart -- KB moved east, selling bigger, more expensive homes to up-and-coming professionals. KB now ranks first in home sales in Tucson; second in Jacksonville, Fla., and San Antonio; and third in Denver. It built 31,646 homes last year.

"They are taking market share from other builders wherever they go," said James F. Wilson, an analyst with JMP Securities LLC. "They consider markets interesting to enter if they can do a couple thousand houses a year."