2011 NHQ Awards: High-Quality Green: Wathen-Castanos’ Recession-Busting Strategy

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PHOTO: The team at Wathen Castanos Hybrid Homes in its Pomerol model at the Capri Court at Harlan Ranch neighborhood in Clovis, Calif. From left: Josh Peterson, executive vice president, CFO; Mike Nimon, president; Richard G. Wathen, owner; Laura Mather, executive vice president, sales and marketing; Kevin J. Castanos, owner. Photo by Paul Mullins

There comes a time when every builder must face the proverbial fork in the road — when two very distinct paths present themselves and a tough decision needs to be made. For Fresno/Clovis-Calif.-based Wathen Castanos Hybrid Homes, Inc. [1], that crucial moment came in late 2008, during “some of the darkest days of the housing market,” according to Mike Nimon, president of the third-generation, single-family home builder.

During that time, Nimon and his team watched as the competition aggressively slashed features and cut square footage in an effort to drop prices to a rock-bottom level. “We sat down in the fourth quarter of 2008 — when everything looked as if it was hopeless — and we had a couple of choices: We could match up to what the competition was doing and cheapen our existing product lines or we could re-evaluate what we had and decide what we want to be in this new market,” says Nimon.

In the end, the team chose the latter, opting for a long-term strategy that centered on building high-quality, energy-efficient, green homes that are appropriately sized and priced for the “new normal.” Wathen Castanos Hybrid Homes is by no means new to green — the company started building Energy Star-certificated homes in 2001 and has had a strong reputation for delivering high-performance homes that exceed California’s Title 24 requirements. But its new mission was to take green to the next level, including the development of a zero-net electric product.

“We knew we needed to be the energy leader in our market,” says Nimon. “In our hot, dry climate, where it often exceeds 100 F in the summer, there’s a high demand for efficient cooling. We wanted to make energy savings a key tenant of our new processes and products. A green label is not as important to our buyers, but if we can demonstrate that we can put money back in their pocket, they get that.”

The challenge, says Nimon, was being able to pull off a high-end, green product while still meeting strict cost demands. Buyers were willing to give up some square footage, but not amenities and design features like granite countertops, high-end fixtures and faucets, and high-quality tile and carpeting. “Our buyers were asking for more, but for less money,” he says.

To execute on its new vision, the company developed a product development strategic plan that would serve as the roadmap for re-designing its existing product line within a tight, 16-week schedule. The process takes into account nearly every discipline within home building — from architects and trade partners to purchasing and sales and marketing — and includes intensive value engineering sessions to determine trade offs on all aspects of the home with the goal maximizing value, performance, quality, and, of course, cost efficiency.

Using the new process, the company completely re-designed two product series (Ivy Gate [2] and Foxton Chase [3]) to push the limit of energy performance without giving up key features and amenities. “For instance, we found ways to keep granite countertops by going with more efficient designs,” says Nimon. Other key amenities that were added or saved through intensive value engineering sessions include: great rooms, home management centers, loggias, interior courtyards, pantry space, and European-style elevations, as well as maximizing rear yard spaces for outdoor living. “And we were able to bring the average HERS (Home Energy Rating System) rating on the models from the mid-60s down into the high 40s, low 50s,” says Nimon.

The new product development strategic plan was key: “We were able to get out to market with a high-quality, green product line before everyone else.”

In April 2009, shortly after developing its new product lines, the company embarked on a holistic branding campaign that extended to every facet of the organization, even the company’s name. Taking cues from the auto industry, the company added “Hybrid Homes” to its name. Says Nimon, “We felt that we developed what is the hybrid car of our industry. We economized the house with the right value points for this market. We have an HVAC engine that runs more efficiently, a tighter building envelope, and we have more glazing than our competitors. No trade offs, just trade ups.”

To help demonstrate to potential buyers the energy performance of its homes, the company uses the HERS index as “sort of a miles per gallon” comparison, says Nimon. “We tell them that a zero on the HERS scale equates to no energy costs, and that a typical new home in the area is 100 HERS. Our homes are anywhere from the high 40s to the mid-60s, so we can equate that to dollars and cents savings.”

The company also advertises and promotes the actual energy bills of its buyers, which average anywhere from $100 to $200 less during peak months compared to typical homes in the area. “Our biggest feedback on the hybrid is that they cannot believe their energy costs are so low,” says Nimon. “They’re absolutely shocked when they get their bill, so why not highlight that in our ads?”

Wathen-Castanos’ bet on green has paid off for the builder. Its Foxton Chase series sold out in a year (half the time originally planned) and its Ivy Gate line has “sold extremely well,” according to Nimon. “We’ve gained the sales pace in a very difficult market, and we’re vying for the top position for most permits pulled in the central valley. People literally come in and ask for the hybrid. That’s a great brand to have.”

As far as the competition is concerned, as the saying goes, imitation is the sincerest form of flattery. “Our competition has tried to find some other green label to brand their products, and they’re struggling to match up to what we’ve done,” says Nimon. “Our whole marketplace has had to change to market energy savings.”

Notable Benchmarks

• Work Improvement Groups — Specific team “chartering” that uses DMAIC (define, measure, analyze, improve, and control) methodology to empower employees’ leadership toward solutions 
• Process mapping — Strategic team process mapping that identified more than 20 areas of team improvements centered around our mission
• Third-party verification — Confirmation of quality results verified to an industry, third-party standard (e.g., Builders Challenge, Energy Star)
• Strategic goal setting — Monthly, quarterly, and yearly goals tracked by a dashboard matrix to measure success
• Weekly staff success recognition — All staff have annual goals that are defined in weekly practice objective sessions and recognized by the president in success updates.
• Extensive home buyer touch points — Builder-to-buyer communication by sales, construction, design, lender, and Customer Care at planned experience points
• A strong corporate commitment to Wathen-Castanos Cares — Creating exceptional buyer experiences by treating customers with integrity, appreciation, and respect; fostering an environment that demonstrates appreciation for employees and their families; sharing profits and resources with the community.

2011 NHQ Awards Judges

• Serge Ogranovitch, Potomack Group (lead judge)
• Frank Alexander, Actus Lend Lease
• Todd Booze, Ideal Homes
• David Caligaris, The Green Companies
• Kevin Estes, Estes Builders
• Tom Gillespie, management consultant
• Dan Gorski, Veridian Homes
• Dan Green  The Green Comapanies
• Denis Leonard, Business Excellence Consulting
• Chip Pennington, Shea Homes
• Duncan Prahl, IBACOS
• Bill Saint, Simonini Builders
• Charlie Scott, Woodland, O’Brien & Scott
• Gary Zajicek, Veridian Homes

The National Housing Quality Awards are sponsored by Professional Builder and the NAHB Research Center. Editor’s note: The NHQ Awards include three levels of award: Gold, Silver, and Bronze. The 2011 class did not have a Gold- or Silver-level winner. For more information on the NHQ Awards, visit www.HousingZone.com/NHQA [4].