David Drees, 48, remembers the housing crashes of 1982 and 1992 well enough to know the current maelstrom will not last forever, and that chances to expand will arise from this bloodletting just as from the previous two.

"Our goal is to survive," The Drees Co. president says now. "Weather the storm and be ready when opportunities present themselves, and we can start growing again.

"I was in school when the housing market crashed in the early 1980s. ...I graduated in 1982 [with a degree in construction management] eager to get into the industry. But my father [Drees chairman Ralph Drees] said he didn't have a job for me. So I went back to school for another year and a half

Fort Mitchell, Ky.-based The Drees Co. climbed from No. 30 to No. 21 in a Professional Builder's recent Giant 400 rankings, mostly because the firm operates on a fiscal year ending March 31. The timing of when PB gathers data for the report, early each year, ranks Drees on a year that ended the previous spring. Most of the industry is ranked on data from the previous calendar year. So Drees rose on housing revenues of nearly $1.11 billion from 3,031 closings in a year that ended in early 2007.

"It's a timing thing," Drees admits. "We look worse than others when the market is going up, but better when it's going down."

In its most recent fiscal year, Drees closed 2,233 homes for revenue of $833 million, so the firm is shrinking like others, but more conservatively than many — especially the big public home builders, who are slashing operations and closing divisions.

"We now have 750 employees," Drees says, "compared to about 1,050 at the peak of the market in 2005. We've been slow to downsize because we want to maintain an organization that can capitalize when the market comes back. We haven't closed any divisions. Our crystal ball isn't that good. We don't know which will come back faster, so we wouldn't know which ones to close, even if we decided that was the right thing to do."

Drees is downsizing by eliminating jobs in construction and field operations, but he's keeping his sales management teams intact. "That's one area where we continue to invest," Drees says. "There will be a window of opportunity when the market turns — before the industry is geared back up for high production — that will create a bonanza for builders who are still standing and ready to meet that pent-up demand. And the sales operation will be critical to do it."

Drees believes his company's geographic footprint also creates an advantage. The firm has operations in the Midwest and Southern border states, radiating from its home market of Cincinnati. It also entered into Texas, where Ralph Drees expanded in the aftermath of the 1982 national housing crash. "We're a lot better off than a lot of our peers," Drees offers. "We have a very small presence in Florida [Jacksonville], and we're not in California, Arizona or Nevada, where the inventories of unsold homes are greatest.

"The only other coastal market we're in is Washington, D.C., which has a strong local economy,"

"We watch the inventories of unsold homes closely," Drees says, "and we think the excess inventories in Texas and North Carolina will also be eaten up fast when demand returns to normal."

Texas now contributes nearly 31 percent of The Drees Co.'s closings, slightly more than its home Cincinnati market, which are a combination of Ohio and Kentucky suburbs. The D.C. market adds 12.6 percent. The firm also has operations in Indianapolis; Nashville, Tenn.; and Charlotte and Raleigh, N.C.

His Midwestern conservatism shows when Drees is asked what changes in product mix he contemplates. "None," he says. "People still prefer single-family detached homes, and when the market comes back, I believe the value we'll be able to deliver will be compelling."

Drees has always maintained a focus on 'A' locations close to suburban transportation corridors and builds detached move-up homes, many on large lots. (In Texas, the firm's average sale price in Dallas is $360,000 and in Austin, $525,000.) "The rising price of gas may affect sales in far-distant suburban locations," Drees reasons, "but change happens slowly in housing. People want what they want, and unless regulatory changes make it impossible for us to deliver houses at prices they can afford, I don't see a big shift in the product preferences of our buyers."

Drees acknowledges there's a growing market for high-rise condo product but shows no interest in it. "All forms of multifamily product can get overbuilt very easily," he says. "If we run into affordability issues, we may move to building detached homes on smaller lots, but our product mix is decided by the local management teams. They keep their fingers on the pulse of the market, and in most cases, what buyers seem to prefer is still single-family home ownership."

However, Drees builds attached townhouses in the Cincinnati and Washington, D.C., markets, and recently added townhouses to the mix in Cleveland, Ohio, and Raleigh, N.C. "But it's a small segment of our business," he says, "and I don't see that changing."

David Drees runs a tight ship in financial management of his family's privately-held firm. "We're managing our balance sheet very conservatively," he says, "trying to convert assets to cash wherever possible and paying down debt. The public builders had much more robust land acquisition operations than we ever had. They bought more land and so, when the market crashed, they've had bigger land holdings to dismantle. In most cases, all we've done is shift the mission of our land guys from acquisition to disposition."

Drees now has $400 million tied up in land ownership and lot option contracts, down from a peak of $450 million in June 2007. By the end of this year, Drees expects to have that land investment down to $350 million. The firm owns 8,500 lots, in various stages of development, and controls

Still, Drees believes big changes are coming in the way his firm and other large builders will finance land acquisition and development of future communities. Drees now accesses capital through a syndicate of seven banks in its line of credit, but he is not sure he can count on the banks to fund his future growth.

"We have a revolving four-year deal that renews every year," he says, "so we're sitting pretty. We're not violating any covenants. We're still making money because we still have some commercial and investment properties on our books. We've had some of those assets since the 1980s, but we are worried about the lending capacity of the banks."

Drees believes the future may be more in joint ventures with equity partners than in traditional debt financing by banks. "It's something we're exploring, something we think may revolutionize the way builders do business," he says. "We think we have to get equity financing for land deals, and to get into [company] acquisition mode again.

There's a lot more equity financing available than bank financing. The banks are not going to be making money for a long time. Meanwhile, there's equity out there looking for deals. We have to find a way to structure joint ventures that make it work."

Drees says he's not ready to start buying land again, but that day may not be far off. "It could be in nine months, but it might be two years," he says. "The opportunity will come when the lenders have more real estate on their books. They'll be under a lot of pressure to get rid of it, and we're waiting for that day."

In the meantime, Drees plans to option lots at the best prices and terms possible for as long as the supply holds up. But he has no intention of converting his company to the NVR model of permanently land-light operations. "We're a developer in most of our markets. Texas is the exception. We've made our best money as a developer, and we'll go back to it when it makes sense. Controlling the look and feel of a community creates advantages. And of course, when we develop, we have our choice of the best lots.

"The NVR model is the rage right now," Drees says, "but I think the industry will lose its infatuation with it pretty quickly when land prices begin to escalate again."

When the market comes back, Drees thinks we're going to need a program to identify all the new players. "Not just builders, but developers and banks will be gone," he says. "The builders who survive will be bigger, and the largest public builders will be stronger than ever," Drees says. "A lot of home building companies are going out of business, but when recovery comes, some of the senior managers the public companies turned loose will find some venture capital, and you'll see a surge of new start-ups as well."

Don't be surprised to find Drees among those larger companies entering new markets via acquisition.