A Look at Taylor Morrison CEO Sheryl Palmer

Sheryl Palmer is not yet a housing industry icon, but the new CEO of Bradenton, Fla.-based Taylor Morrison is quickly gaining celebrity status. After all, she's got clout.

Taylor Morrison now claims to be the 15th largest home builder in the United States following the merger of Morrison Homes (No. 24 in 2007 Giant 400 Rankings) with No. 17 Taylor Woodrow. Actually, if the two subsidiaries of British publicly traded Giants had merged at the beginning of 2006, Taylor Morrison would have hit No. 14 in last year's Giant 400, with 8,839 North American closings for almost $3.38 billion in 2006 housing revenues.

That would have brought Taylor Morrison in just behind No. 13 Meritage Homes Corp. ($3.44 billion, 10,609 closings) but ahead of No. 14 Weyerhaeuser Real Estate ($2.98 billion, 5,996 closings). But in the real world, the new North American company was formed following last year's British mega-merger of parents Taylor Woodrow and George Wimpey into Britain's new No. 1 builder, Taylor Wimpey. Taylor Morrison didn't even get its new name until just a few weeks ago.

What's in a Name?

"We finally decided late last year that our U.S. operation will be Taylor Morrison because the name Taylor Wimpey has no brand equity in the U.S., and both Taylor Woodrow and Morrison do," Palmer explains. "Our brands will be Taylor Morrison Homes and Taylor Woodrow Communities (the developer of large master-planned communities). We'll retain our Monarch Homes brand in Canada."

Palmer, who previously was executive vice president for the western region of Morrison Homes, will oversee a new company forged from the merger of land-heavy Taylor Woodrow with Morrison, a high-production builder that primarily purchased finished lots. "The huge benefit of this merger is the combination of those diverse skill sets," Palmer says. "We'll still have some communities where we primarily develop land and sell lots to other builders, but we'll look at every market individually. We're now a home builder and a developer."

Taylor Morrison is beginning to look more like the largest public home builders, with development activities feeding its own home building operations far more than Taylor Woodrow did. "Culturally, that's one of the challenges," Palmer says, "building a unified company from the pool of diverse talents we have. It's one of the things that makes this merger exciting."

Increasing Product Diversity

Taylor Morrison has its largest land holdings in the Eastern U.S., especially Florida. Home building operations run the gamut from entry level to move up to high-end housing in Arizona, California, Colorado, Florida, Nevada and Texas. Taylor Woodrow had a well-established reputation as a luxury home builder in California, very different from the community and high-rise condo development profile in Florida.

Palmer spent most of her 20-year career in Arizona, California and Nevada — much of it with active adult community developers such as Pulte, Del Webb and Blackhawk Corp. "I joined Morrison in May 2006 as executive vice president, with responsibility for many operations, but especially the western U.S.," she says. "Early in 2007, discussions began about the possibility of a merger, and we started to work on it internally in both companies." The merger became final in July. Palmer took over as CEO in August.

Look for Palmer to lead Taylor Morrison toward even more product diversity. Her vision of where this new company is headed doesn't look anything like the pasts of either predecessor.

Changing Strategy for the Boom Ahead

"First and foremost, we've got to be a lot more flexible," she says, "given the volatility of our marketplace. We have to separate short-term and long-range strategies. "Short-term, our goal is the same as everyone else's," she says, "cash management and relentless cost control. All builders are now facing decisions we haven't had to deal with in years. We're doing everything from feverishly building out some sites to walking away from others. We're not closing on some parcels, selling others and just letting some sit for a while."

But Palmer never lets go of her vision of where she wants Taylor Morrison to be when the market turns around. "We always have to keep in mind where we want to be in five years," she says. "What are consumers going to look like, and what will they want?"

Taylor Homes' Valencia II, Austin, TX

She has some ideas. Palmer thinks the housing industry — perhaps all product marketers — have fixed sights on the baby boom generation for too long. "Look past the boomers, at the generation under the age of 40 right now. The echo boom is actually twice the size of the baby boom," she notes. "How do we position our company to take advantage of that market segment when sales turn around?"

Palmer believes the demographics point to a housing boom beginning in 2010 that may push the next decade past the start levels of the early 2000s. "We won't see it in 2008 because of the excess inventory on the ground now," she says. "And we may never see another 13-year run without a cycle. But we really need to be driven by what that next generation behind the baby boom wants."

Palmer believes they'll be more location-sensitive than the boomers. "A lot of builders seemed to operate on the premise, 'If we build it, we'll sell it!' As an industry, we lost the discipline of making sure that location and product mesh with demand," she says. "Even in these tough times, we still see well-positioned communities that are selling houses. That's where the win is."

Infill and Canadians

Palmer doesn't see the price of gasoline as a long-term driver of location-sensitive housing developments. "The price of gas will moderate in time," she says, "but location is always the critical dynamic. We got into building housing where the infrastructure doesn't support the traffic. That just doesn't make sense." As markets continue to grow, she says, people have to make trade-offs on price and location. If you save them driving time, you're rewarded with pricing power.

She cautions against a wholesale move toward product density. During the boom, Palmer says, land prices drove density into places it doesn't make sense. "We have to understand consumer preferences in every sub-market. In infill locations, people will pay a premium for density all day long, but when you try to move those same products to outlying locations, it doesn't work," she says.

Palmer has taken Taylor Morrison out of the high-rise condo business, even in coastal Florida. "We've got some land holdings we're selling because we think the market is saturated for the next three to seven years," she opines.

What does excite her is the possibility that Canadians, Brits and Europeans, buoyed by the strength of their currencies against the U.S. dollar, may take up some of the slack in markets in Florida, Arizona, even Texas. "The Canadians are already here," she says. "Even in some communities in Southern California, 30 percent to 40 percent of the traffic is coming from Canada. And we're seeing a huge influx of Canadians in Florida this winter."

Overseas Reach

Palmer is also excited about Taylor Morrison's prospects of selling to British second-home buyers and Europeans. "We're the only U.S. home builder owned by a U.K. parent, and we have a worldwide presence," she says. "We'd be crazy not to capitalize on that by marketing our communities in Florida and Arizona through our retail locations in Britain. And if the lower cost of living in Texas is an attraction to many Americans, think how it looks to the British."

Palmer has cut the 1,900 employees in the two merged companies at the end of 2006 to 1,350 today. "We've had a combination of merger and business-related reductions," she says. "One of the opportunities, obviously, was to reduce staff by eliminating duplication. Across the country, we are still about 50-50 between former Morrison and former Taylor Woodrow people. We're trying to keep the best from each organization."

Palmer says the culture of the new company is based on commitment to the local nature of the business. "Culture is something you live every day, not something you just talk about," she asserts. "We'll allow different cultures to thrive in the divisions because they enhance our ability to serve customers better. The markets are local, and the culture of the company should be tailored to the challenges and opportunities at the local level. One of the things that was great about both Morrison and Taylor Woodrow was that division management teams were empowered to make the key decisions on land and product. A core value of our company is that these are all local businesses."

Palmer expects final numbers on 2007 to show Taylor Morrison with closings and revenues off about 30 percent from the combined total of the two companies a year earlier. We'll have to wait for PB's Giant 400 Report to see where it ranks in relation to others. But Taylor Morrison — and Palmer — will certainly bear watching in coming years.