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A Big Competitor's Entrance
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Because of the tight land supply, KB is approaching the Washington market in the way other national builders have recently: going after big, signature projects while also fighting for smaller deals against regional home builders such as Stanley Martin, Craftmark, Miller & Smith, and Bozzuto.
"I think people perceive us national builders as only being interested in the big deals," DeSpain said. "That's not the case. We want to do the big deals. We also want to do the small deals."
That has made doing business more difficult for the regional home builders, which often focus on small or medium-size deals. How KB will affect the situation is unclear.
"When I look at KB Home, right now I have competition from 15 national home builders, so KB will make it 16, and that's really not too big a deal given I'm already competing against them anyway," said Steven B. Alloy, president of Stanley Martin.
Regional builders have also always had a distinct disadvantage against the nationals in that their pockets are not as deep. The inability to write big checks for property has become more of a problem as the national builders increasingly go after smaller projects, willing at times to overpay for them.
Alloy and other regional home builders recently devised a solution to that problem: raising money through the public financial markets. Stanley Martin recently issued $125 million worth of junk bonds.
"There is no situation now where we are at a disadvantage," Alloy said. "We didn't want [the national builders] to have a capital advantage over us."
Regional builders do have one advantage over national builders: their long-standing relationships with local government officials, who can help guide projects through the approval process, sometimes with better results. In many residential land deals, prices are set by how many lots a builder can get approved.
"In our market, the ability to get government approval is a big deal, and newcomers will always have a hard time with that," Alloy said.
Senior executives at KB Home think they solved that problem by hiring Coniglio to run its day-to-day operations in the region.
Coniglio has worked locally in the industry for 17 years, including most recently for national builder Pulte Homes Inc. He hired about 15 people, many with local connections. He bought the land in Loudoun County from Centex Homes and the land in Prince George's County from several developers. Both already had partial approvals from government officials. With the Crown Farm development, KB Home decided to pursue having the land annexed into Gaithersburg from Montgomery County, thereby avoiding a lengthy and complicated, and recently controversial, development review process.
"When we are done here," Coniglio said, "I want to see a wall of awards. That's our goal."
