Big Builders Told to Pull Back or Fail

The nation's giant homebuilding firms must pull back if they are to survive the current downturn, an analyst with Wachovia Capital Markets in San Francisco warned at the National Association of Home Builders' Spring Construction Forecast Conference. "Geographic diversification didn't help anybody," Carl Reichardt, Wachovia's managing director and senior equity research analyst, told the conference in Washington. Whereas nine public builders were operating in just California and Florida in 1989, he pointed out, the same nine are now banging heads in a dozen states. Moreover, more than six of the 13 public builders Mr. Reichardt follows on a regular basis go at each other in more than half the 78 metropolitan areas where they build houses. The analyst said the options on the table are to "merge, die, or shrink," and since acquisitions "seem unlikely" given the current state of the financial markets, big builders must reorganize into super-regional operations. "Otherwise," he said, "they are going to continue to beat each other up." Mr. Reichardt also said the industry giants would do well to "focus more on manufacturing" and reducing construction cycle times while de-emphasizing such factors as maximum unit growth and land margins. "Wall Street recognizes that good margins can be made in the contractor business," he said.