LIVE from the International Builders’ Show 2020

Announcer: This special edition of the Epcon Franchise Builder Podcast was recorded live at the 2020 International Builders’ Show in Las Vegas, Nevada. It features a panel of Epcon home builders discussing how they’ve simplified and diversified their companies through a home‑building franchise model.

Jad Buckman: Good afternoon. Thank you all for being with us today. I’m Jad Buckman, business development director for Epcon Communities Franchising.

With us, we have John Delin, CEO of the Integrity Group out of Dallas/Fort Worth, and Andy Dreyfuss, partner with Nova Triad Homes out of Winston‑Salem.

We have two gentlemen here with strong ties to custom building. John was a custom builder who made his way through that life to becoming a builder‑developer. And Andy is the flip of that. Andy is a developer who used to sell lots to custom home builders, who has become a builder‑developer.

A little bit about these guys’ companies. Integrity Group is led by John and his brother Steve Delin. Integrity’s first project in the production world was single‑family, active adult community in DFW, Ladera Keller.

This was 115 homes priced from 275 to 500. The market success was proven. These guys sold 115 semi‑custom homes in 26 months.

Currently, Integrity is actively engaged in five other Ladera active adult communities in DFW and have separated themselves as the top choice for active seniors in the DFW market. In 2019, these gentlemen closed over a hundred homes.

Nova Triad, Andy’s company, Andy leads them out of Winston‑Salem. He has raised over 30 million to acquire and construct multiple subdivisions across Forsyth, Guilford, and Alamance Counties.

Currently, Nova Triad has five active adult home communities in Winston‑Salem, Greensboro, Burlington, Mebane, and Asheboro. Andy and his team accomplished 39 closings for over 13 million in sales in 2019 and project 50 in 2020. So we’ve got guys who should be able to give quite a bit of value to this group today.

I want to get a little engagement from the audience before we get going. By a show of hands, how many of you are currently building custom homes in the room? Very good. So the vast majority.

Any of you building other product in addition to your custom home‑building business? So just a few. How many of you have considered diversifying your business to find more efficiency? So we’ve got quite a few in that world.

With that guys, we’re going to kick it off, and we’ll start with John. I think what would be helpful would be to start with a little bit about the market dynamics in DFW when you guys made the shift and jumped into production building.

John Delin: Sure. Thank you for having us here. Anybody remember there was a little old bump in the road in 2012? Yeah? I tend to forget pain too.

We had been working as custom builders for a number of years. I probably have almost 35 years’ experience now.

I had really had started seeing signs of a shift in the marketplace in DFW and was really looking at different opportunities to be able to offset what was probably going to be a turbulent time.

We were already beginning to see it in the custom market and had started looking into what we do today, active adult communities, and had spent quite of time studying that and understanding it.

And so, in 2012, we started our first one, and it was quite dramatic to make that jump from doing a dozen to 20 custom homes a years to starting to be in the volume‑builder market, but the market dynamics for DFW made that possible.

Of course, like some of you all know, in some of your other markets, in DFW, I was glad I did because it wiped out a tremendous amount of the custom home builders, the 2008 to 2012 market crash. For us, it was perfect timing to be able to offset what I call a new economy and a new part of the way home‑building was to be done.

And so, we focused all in, moved all of our chips into what we do with that, and we have at least five communities under production right now, and expect to start over 200 homes this year, so our volume is rapidly growing.

Jad: Absolutely. Thanks, John. Andy, same question to you. A vastly different market. What were the conditions that brought you into this world of production in active adult?

Andy Dreyfus: Sure. First of all, my partners and I decided in 2009 to do the opposite, and we purchased about 20 subdivisions over three years in Greensboro, Winston‑Salem, Burlington, busted subdivisions, to be candid, from developers, and we started selling lots.

We had about 1,500 lots, and we were selling them from custom builders building $800,000 homes, which is in our part of North Carolina very expensive, all the way down to D.R. Horton building $135,000 homes, apartment substitutions.

So we watched all the builders in our geography. In particular, we watched the baby boomer market. We saw what was happening and we knew it was coming, and we saw a high‑end builder in Greensboro start selling $450,000 patio homes in the recession. We liked what we saw.

And then we saw an Epcon franchisee in Burlington sell about 35 homes a year behind a cemetery next to a mobile home park. So like, hmm, these guys are onto something, and we wanted to diversify.

In about 2015, we said, look, we want to become builders. We certainly don’t have the expertise to be a custom builder. We don’t want to compete with D.R. Horton. What can we do that’s in the middle, that’s really focused on baby boomers because we knew that they were coming?

In 2015, 15 percent of the American population was over 65. Today, it’s 20 percent. And for the first time in American history, we will have more people over 65 than under 18 very shortly.

So we wanted a product that we could scale. Our market is not large. It’s 3,500 permits per year. We wanted something where we could get about two‑percent market share, two‑to‑three‑percent market share, 70 to 90 homes a year.

We liked the baby boomer, patio home market, in particular, where the HOA mows the yard, right? When you’re 70, you’re not going to mow your yard. You’ve earned the break. So we saw the Epcon product and decided to become franchisees and it’s been good ever since.

Jad: Thanks, Andy. John, we’re going to direct this one to you. We talk about DFW. Everyone knows that’s one of the mega markets. We’ve got people in here who compete in those big markets.

Can you talk to us about the strategies that you’ve used to separate yourself and compete with those larger regional and national builders?

John: Sure. The major part was getting it out of my brain that I wasn’t a custom home builder anymore and we weren’t a custom home‑building firm anymore.

I’ve been blessed that we’re a family business. My brother partners with me. Both my sons run important parts of the operation. My youngest, he’s VP of the residential operation. And what’s really great is they’re way smarter than me, so they make everything I do look good and look easy.

But we had to get it out of our brain and that was a little bit challenging at first. In order to go ahead and try to make that transition and say you’re going to, again, go from 20 homes a year to now ‑‑ our starts will be where they’re headed towards ‑‑ everything has to change differently.

You have to think differently, the way that you organize your structure. I think in 2012, after the recession, there was 5 of us left, and today, we’re over 50 team members strong.

And so, we had to find and do the right things as far as bringing on the right people, put them in the right places that could make life easier. If we didn’t, we were all going to be working our tail feathers off a whole lot just like we used to do in the custom home‑building business.

But this time, it’s a simpler model, and you can really increase your capacity dramatically by changing your mindset and then learning from a whole bunch of people that already know.

That was the other thing. I’ve always been a great student, and we work directly with Phil Fankhauser, one of the founders of Epcon. He did a lot of teaching that I was able to soak up and our team was able to soak up to help us make that transition.

It is not easy to go from 30 to over 300, so there’s just a lot of things that fully come into play that you don’t ever even think about when you’re in the customs side that now all of a sudden come about when you’re in the volume‑building side.

Jad: Can I ask you one more question, sir?

John: Sure.

Jad: I think one of the things, as we were talking about this discussion today that’s helped Ladera become that number one choice is the lifestyle. Can you talk a little bit about your unique lifestyle that you guys produce in your communities?

John: Sure. The main thing that we started doing was trying to look differently at the market we were in because we compete against Del Webb. And so, what we really focused on was what was going to get people to come in there.

The main thing was of course we knew already we had built a better‑looking home. We tried to bring the characteristics of a custom‑type home into that market, so we did that.

And then I’d love to take a lot of credit for it, but I can’t, especially because there’s probably members of our team in here that we knew what we were doing as far as working on the lifestyle part. We just kind of fell into that part. It was dumb luck, and I’ll take dumb luck a lot of times.

But we really focused in that area. In fact, today, we pretty well joke behind the scenes that people come in for our lifestyle and they happen to pick up a home on the way out the door.

We got very good at focusing on part, and we have communities now where we’re pre‑selling in the communities, our new homeowners, or soon‑to‑be homeowners, are already doing supper clubs, are already doing dinner outs.

In fact, one of our communities that we started back in 2015 has had three or four different cruises over the last four years where they have homeowner groups.

Our communities average about 180 homes per community, and they’ve had groups of 70 go on cruises together. And so, we think that’s really cool and we focus a lot on that, and it’s helped us develop the core of our amenities around things.

We’ve even developed a new amenity that now goes into our community. We call it The Shack because a lot of our men came to us and said, “Hey, main activity‑building is great. We like it, but we want a place we can go play poker and smoke cigars.”

So we obliged, so we’re excited about that. It is unisex, so it does have exhaust fans in there, so the gals can use it as craft rooms also, but they are separate amenity buildings.

We focus heavily on what does our customer want and how can we give it to them and keep it in the mix and deliver a heck of a home to them that they become very satisfied with.

Jad: Very good, John, thanks. Andy, we’re going to switch over to you. Not everyone here is in a megaplex like DFW. Talk a little bit about being a builder in the b‑markets, the mid‑markets of the country, the Greensboros of the world.

And how are you able to squeeze out the volume of closings you guys are pulling off each year?

Andy: Well, first of all, we focus across about a 50‑mile geography, and I think we’re willing to go into tracts of land that larger builders would not want to do.

We’re willing to develop or find a developer to handle somewhere between 10 and 20 acres. We build about three to three‑and‑a‑half units per acre, so we’re willing to go into a spot where we can build 35 to 50 homes.

That’s a lot of pain for 35 or 50 if you’ve developed, building this out and getting it rezoned, but we’re willing to do that. Our larger competitors would not, that’s a strategy.

And the second technique is to blend products. We’re willing to do patio homes with a side patio, and our average price point is about 340. And then we’re also willing to do twins in the same neighborhood. We’ll split them and we’ll do that product at about 270.

So if you want a Toyota Camry, it’s a very nice car. We’ll sell that to you at 270. If you want the low‑end Lexus at 340, we can do that for you as well.

And another approach is we will team up with another builder and split a parcel. You would imagine coming into a subdivision, taking a left, go into a senior section where we’re building.

The municipalities love seniors because they’re not driving. They don’t go to school. All they do is spend money, which is terrific. And then the right‑hand side of the neighborhood as you come in would be more single‑family.

And so, we’re willing to be creative, and the issue is you’ve got to be spread across five or six subdivisions, across 50 miles, which is not always optimal, but it works for us.

Jad: Thanks, Andy. One of the topics, John, we’ll direct this one to you when it comes to the discipline to say no. We’ve had a long history with Integrity.

What we would like you to talk about is a little bit about your philosophy and how that’s evolved since you joined Epcon, and how getting rid of some of those time‑consuming, expensive change orders has altered your business.

John: It’s a good thing I’ve kind of scanned the crowd. My son’s not in here yet, or he’d probably answer the question better than I would because I had a hard time saying no. He’d beat up on me enough until I could actually get the word out of my mouth, no.

And so, that was a challenge that I loved, that he was smarter about thinking about how we were going to do this than I was. I was so used to being in the custom world where you always want to be able to say yes and provide. A yes to me in the custom home‑building world equated directly down to the bottom line. You charge for it somehow.

In the world we’re in now, it may still equate to money down on the bottom line, but at what cost to your resources, because that’s how we measure a lot of stuff now.

Our team, if you look at the number of people on our team per the number of starts and closings that we have per year, we run a pretty lean operation. However, if you do something then that affects that bubble, now your team is paying the price and having to produce to get less.

And so, we have a very good management philosophy in our company. I’m not right anymore all the time, most of the time, and therefore, everybody wants to be able to make sure they can tell me about it.

And so, if I happen to come up with an idea that’s going to affect team resources, I hear about it. But what’s really great about it is it helps us keep our eye on the ball, what we’re trying to do, what we’re trying to deliver.

With the number of starts that we’re headed towards, you have to be able to differentiate yourself from that standpoint and be able to say, this is how it used to be, but this is how it has to be. And so, that’s the big thing that we’ve been able to walk away from now is that word and being able to use that word, no.

In fact, it’s kind of funny. We were all together yesterday picking up a rental car. We were going to go look at a couple of different projects out here.

Our purchasing manager was with us, and she got a call about a potential customer that wanted something ‑‑ I forget what it was. I’m thinking a guest bathroom. They wanted a pedestal sink instead of a regular cabinet sink.

She had to deliver the news to the salesperson, no, it’s on the option list, and no, we’re not going to do it. We’re not going to treat it as a non‑standard option.

And I just sat there and got this big grin on my ears because I looked at my son, and he goes, “Isn’t nice I don’t have to tell you no anymore?” I said, “Yeah.” So it’s part of the challenge. You have to think differently.

Jad: Absolutely. Thanks, John. Andy, we’ll go back to you. Profitability is tied to being efficient in all areas of your business, specifically with regard to financing and land acquisition.

How are you becoming more efficient as you grow and scale your business?

Andy: First of all, as builders, the most expensive thing we purchase is the finished lot obviously, so we’re very careful there. Fortunately, in our geography, Epcon has been building since, I don’t know, down in Charlotte and Raleigh and down in our area since 2005‑2006, so the brand is well‑known.

The bankers tend to be old themselves, old white men, to be candid with you, and they actually like our product a lot. So we’re able to get development done fairly easily because they understand the absorption.

Our product is 80 percent pre‑sold, so the risk is off with a significant deposit. I think the key to land acquisition is to be careful and to phase your developments obviously.

We don’t have the absorption to put 50 lots on the ground at a given time. We tend to want to stay just ahead of ourselves. We want to put a year or a year‑and‑a‑half of lots on the ground, and the bankers understand that.

In terms of construction processes, we have peers like John in Dallas and Pittsburgh and Columbus and Wichita, all over the country, that we can benchmark with, so we understand what our cost structure should be on our product.

Obviously, there’s differences in markets for labor, but we tend to build it at 55 to 58 percent of our sales price, our sticks‑and‑bricks, which gives us a margin that works for us.

I think John has summarized correctly. We want to sit in between a production builder that says no all the time, and we don’t want to be custom builder that says yes all the time, so we have to be thoughtful.

As I tell my team, our margins are higher, our price per square foot is higher, and the buyer is 70 years old. They want the house the way they want it, and we have to thread the needle and sit between the production builder and the custom builder and make it work.

Obviously, we watch cost, quality, and speed, and we really focus on quality. And we can deliver it faster. We can build a home in 120 days.

Jad: Absolutely. Thanks, Andy. John, you have anything to add on this topic?

John: Yeah, that’s a big thing. One of my primary focuses is acquisition of land and putting those things together. In DFW markets, land is extremely expensive, so we work very hard upfront to make sure we can put together the recipe correctly, so that when it comes out the other end, we know then that the cake was baked correct.

And it is a recipe because cake without eggs ain’t cake. So we have to make sure we have a bunch of different processes and different staff levels ‑‑ everywhere from our development team to our production team ‑‑ that everybody is involved, so that we don’t make a mistake.

That was a little bit challenging also because as we continue to grow, the biggest thing that had to get out of the way was me. I was always used to being one of two or three or four people, and now you’ve got a whole bunch of other people. And if you don’t let them think and run, you’re going to work your buns off all your life.

So now, we’ve got a whole bunch of people that help make a lot of the decision that make it easier for us. And so, it allows me to go out and focus primarily on the things that make us really good and be able to get our product in cities and get our land priced at the way we best can.

The efficiency part starts at your smallest level, all the way down at the field guy that’s out there delivering the house every day, all the way back up the chain.

If there’s anything in that chain that’s broken or bent, you’re going to know about it then because we watch a lot. Our cycle time is one of the number one drivers of our metrics of everything that we watch, so efficiencies drive all that.

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