Hanging On to the Boom

Land, Market Strategies Help NVR Post Profit

Along Gum Spring Road at the edge of Loudoun County, the rumbling of a tractor and the pounding of hammers are reminders that local builder NVR, one of the nation's largest, is still putting up homes.

The housing industry is ailing, foreclosures are rising, consumer confidence is waning, and NVR of Reston is playing the contrarian, chalking up modest profits while big competitors are posting huge losses.

Industry analysts say the company has remained profitable by offering a variety of prices, focusing on locations where it can have high market share and taking a conservative approach to land acquisitions. Instead of buying land outright, it options to buy, minimizing its risk of getting stuck with too much land and tying up too much capital, particularly in downtimes like this.

"They are now seen as a company in an enviable position," said David Zelman, president of Zelman & Associates, a housing analysis firm that closely tracks NVR. "Clearly their business model has been proven out in this very difficult environment."

In 2007, NVR posted a $333.9 million profit, a sharp contrast to competitors such as Pulte Homes, which lost $2.25 billion, and D.R. Horton, which lost $712.5 million.

In the first quarter of 2008, NVR showed a $43.5 million profit. Pulte lost $696.1 million, and D.R. Horton lost $128.8 million in its fiscal first quarter.

NVR operates in 12 states and 22 metropolitan areas under multiple brand names. NVHomes offers high-end houses. Ryan Homes has a broader range of prices, and Fox Ridge Homes and Rymarc Homes target first-time buyers.

"They have maximized the builders to serve all the targets," said Robyn Burdett, a real estate agent with Re/Max Allegiance in Reston. "When the higher-end market is working and more people want options, they were doing well. Yet in this market, when nobody is selling, they're doing well because they have the low end of the market. They have spread themselves across different targets and territories."

Dwight C. Schar, 66, a former junior high school teacher who is part owner of the Washington Redskins and Johnny Rockets restaurants, started NV in 1980. In 1986, he made a successful hostile bid for Ryan Homes, a company five times NV's size. The company was then renamed NVR.

Like other builders, NVR bought up chunks of land. But by 1990 the market was sinking, and the company lost $261 million. Two years later, NVR filed for bankruptcy protection. It emerged in September 1993.

That fall from grace changed the way the company did business.

Instead of buying raw land, it started making down payments -- often 10 percent or less -- with an option to buy land that already had infrastructure such as streets and sewers. And it exercised its options to buy lots only when consumers signed contracts.