When (And How) To Add New Management Specialists Needed When Housing Markets Recover

Even as most builders desperately fight to survive the current housing crash, some are edging their way toward the launch pad for the next housing boom. And surprising as it may seem, experts endorse the idea that the midst of the deepest housing cycle in more than 20 years is also the best time to plan when and how to shape management teams for a steep recovery trajectory.

The next growth market will be very different from the past two decades, they say. And to win in this fiercely competitive arena, builders will need newskill sets in the management team.

“Everybody is so hunkered down playing defense on their own goal line that most are not thinking about what can be gained when the offense gets the ball again,” says people management consultant Martin Freedland, chairman of Atlanta-based The Berke Group. “This is the perfect time to recruit young management talent and develop a training program to fast-track those young managers into positions of authority and responsibility.” It's also a great time to weed out tenured people who no longer have the drive or specialized skills to succeed in the next growth cycle, Freedland adds. “You can't afford to have people just hanging around.”

If you have a 'C' player on your team, Freedland advises, replace that person with an 'A.' “In today's market, it won't cost you a nickel more to make that upgrade,” he says. “There's a lot you can do without much cost at all that will pay big dividends when the market turns.”

Shocking Sales Shortfalls

Builders and management consultants interviewed for this report were unanimous in their condemnation of the vast majority of sales managers and salespeople working in the housing industry today. They also endorsed sales as the most vital function, one ripe for change in many companies. “Nevermind recovery,” says Houston-based sales management consultant Tom Richey. “A lot of builders will never make it to recovery if they don't upgrade management and training right now. If your sales team is not selling, you need to make a change. People must be held accountable for results. Potential buyers are out there shopping in every market.”

The most glaring deficiency in sales managers, Richey says, is lack of knowledge on mortgage finance and inability to train salespeople in how to communicate to buyers the differences various mortgage finance options make in monthly payments. “It's not the price of the house that matters,” Richey bellows. “It's the monthly payment.”

Richey says he mystery-shopped one sales agent on a $611,000 house. “She pitched me a monthly payment of $6,000 to carry the house, which was only $2,000 too high. That's just nonsensical. If you're going to make it to the recovery, you'd better find someone who can sales-manage how to sell financing. What buyers want to know is, 'How much house can I get, for how little money per month?'”

Because sales managers and agents throughout the housing industry are either incompetent or shell-shocked by the market — or both) — many builders are recruiting new sales managers and agents from outside the industry. Richey advocates looking for sales management candidates in the mortgage industry because they have a head start on understanding how to sell and close on financing. “I'd like to see builders hire former loan officers,” he says, although he admits loan officers with sales management potential may be few and far between. “If you find people with mortgage skills who also can sell, you'll sell a lot of houses, beginning right away,” he predicts.

Work-outs and Equity Financing

Management consultant Doug Wilson of Newport Beach, Calif.-based Next Solutions believes builders ought to immediately recruit a specialist with experience in doing work-outs with banks and a finance specialist with knowledge and experience structuring equity financing deals with private investment groups.

“A lot of companies we're working with are recruiting such two-person teams and placing them in separate subsidiary operations or limited liability companies,” Wilson says. “They look for good land buys from banks or builders who are about to go under. The separate entity then funnels the land to the building company.”

He says the specialist in equity financing should be “a CFO-type who has strong, existing relationships in the investment community and knows how to structure partnerships with insurance companies and other investment groups.”

Houston, Texas-based giant David Weekley Homes is not hiring. Chairman David Weekley says he's already thinned the ranks down to the very best managers and wants to hang on to those rather than add specialists. But he sees wisdom in the idea. “We'll probably need to develop more in-house capital structure expertise as we go forward,” he admits. “We'll need that to grow as we come out of this downturn, because we do have big plans.”

Littleton, Colo.-based management consultant Chuck Shinn believes banks may be largely out of the land acquisition and development financing market for as long as 10 years. He thinks land deals will be financed by institutional and private equity investors: “Funding for acquisition and development will go back to the way it used to be, before the banks got into it. We'll see more insurance companies and pension funds than banks,” he says. “There won't be a need for land acquisition specialists to chase a scarce commodity, but building company CFOs will need to know how to bird-dog private equity and have contacts in the investment community. A guy like that would be a good hire.”

Tom Krobot, president of Atlanta-based Ashton Woods Homes, takes a contrarian view on the idea of hiring specialists to go after bank workouts. “There are already so many people out there looking for land deals, they are like flies at a picnic,” he says. “And besides, what the banks are doing is packaging troubled builder loans into portfolios that sell for between $40 million and $150 million. The loans are discounted, some to 25 cents on the dollar, some as much as 65 cents on the dollar.

“They are not disposing of the properties individually,” Krobot says. “They get the loans off their books immediately. They don't have to foreclose. And they don't have to create a department in the bank to deal with all these assets. Most important, they get the federal regulators off their backs.

“I don't think those two-man teams will have much luck getting banks to dismantle the bundles so they can access individual assets,” Krobot says.

Streamlined Systems

Chuck Shinn sees value in having an in-house systems specialist to get all the company's processes ticking like a Swiss watch. “If you make sure all your systems are really efficient — including sales, production, purchasing and scheduling — you'll find it's much easier to ramp up production when the market turns without hiring nearly as many new people,” he says.

Shinn adds that even now, with companies cut to skeleton management teams, many builders find everything is working better after cleaning up their systems. “With good systems,” he says, “supers should be able to carry a load of 15 to 18 houses at one time, warranty tech reps can handle 100 houses, customer liaison officers can deal with 20 to 22 customers at a time.

“If you run tight systems and processes, you'll need fewer people to gear up as the market heats up,” Shinn promises, “and you'll be able to attract better people because everyone wants to work in an efficient company. They're happier and healthier and more productive. And of course, when you have better, more productive employees, you also need fewer of them.”