There's Hope for Smaller Builders

While large public builders have a "tremendous advantage" over their smaller competitors because they can go directly to Wall Street for the construction money, they are so burdened with disadvantages that smaller firms can run rings around them, an Atlanta-based management consultant said at the PCBC. The so-called publics have so honed the manufacturing process that they cannot react quickly when something like the Chinese drywall fiasco strikes, said Martin Freedland, CEO of the Berke Group. Because management is centralized, he also explained, it is difficult for big builders to change their overall strategy or solve problems. "Problem solvers and creativity are stifled at the local level," according to the consultant. Furthermore, although housing is a highly entrepreneurial business, the big builders are now run largely by people with legal and finance degrees, Freedland said. And because their products are so much alike—and often right across the street from one another—that they compete largely on price. Private companies have some disadvantages, too, but at least they are run by entrepreneurs, many of whom grew up in the business, Freedland said. They're also flexible, he added, receptive to change, know their local markets, can attract the best people and build strong cultures, among customers as well as employees. "There is more to this business than just price," Freedland reminded the conference.