J.F. Shea Co., Inc.

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J.F. Shea Co., Inc.

655 Brea Canyon Road
Walnut, California 91789
U.S.A.
Telephone: (909) 594-9500
Fax: (909) 594-0957
Web site: http://www.jfshea.com

Private Company
Incorporated: 1881 as John F. Shea Plumbing Company
Employees: 150
Sales: $1.96 billion (2001)
NAIC: 237210 Land Subdivision; 233210 Single Family Housing Construction

J.F. Shea Co., Inc. is one of the largest privately held construction companies in the United States. J.F. Shea comprises a collection of companies and divisions, including Shea Mortgage, Shea Properties, the Venture Capital Division, J.F. Shea Construction Inc., the Redding Division, Reed Manufacturing, and Shea Homes. Through Shea Homes, the company’s primary business, J.F. Shea develops master-planned communities in California, Arizona, Colorado, and North Carolina.

Origins

J.F. Shea traces its corporate roots to the John F. Shea Plumbing Company, a plumbing contractor and wholesale supplier of plumbing equipment. The company was founded in Portland, Oregon, in 1881, by its namesake. With the establishment of his plumbing company, John Shea created a family business that would draw upon the talents of four generations of Shea family members—a legacy spanning more than a century—but the enduring strength of the company stemmed neither from the plumbing business, nor did it emanate from Portland. Instead, J.F. Shea’s success and reputation was achieved in the construction industry, specifically in assisting in the construction of major civil engineering projects. The transformation from a plumbing business into a heavy construction business also included the company’s relocation from the Pacific Northwest to northern California, the hub of J.F. Shea’s operations for much of the 20th century.

J.F. Shea entered the construction business as an offshoot of its plumbing activities. During the 1910s, John Shea and his son Charlie formed the J.F. Shea Company, the abbreviated corporate title signaling the company’s entrance into sewer construction. Not long after the company entered the sewer construction field, John Shea’s other sons, Gilbert and Edmund, joined the family business.

One of the company’s first large-scale projects was completed during the 1920s. During the decade, J.F. Shea constructed the Portland Seawall on the Willamette River. The company’s connection to northern California was established during the decade as well, brought about through the construction of the Mokelumne pipeline, which transported water across central California to cities such as Oakland and Berkeley. The construction of the Mokelumne pipeline helped establish the company’s reputation outside the Pacific Northwest, leading to its involvement in several of the largest civil engineering projects of the 20th century. During the 1930s, J.F. Shea built the foundation piers for the Golden Gate Bridge in San Francisco and assisted in the construction of the San Francisco-Oakland Bay Bridge. The company also served as the construction manager for the Hoover Dam, which ranked as the tallest dam in the United States when it was completed in 1936.

J.F. Shea’s involvement in the massive construction projects of the 1930s gave the business a secure place within the heavy construction industry, but the company’s promising new role in civil engineering was put on hold for much of the 1940s. The outbreak of World War II diverted the attention of nearly all types of businesses, forcing them to respond to the different conditions and demands of a country at war. J.F Shea spent the war years building liberty ships and shipyards. Construction activity of the type the company had become used to during the 1930s slowed, prompting management to invest in new industries, such as aluminum, magnesium, and cement.

Post-World War II Growth

The 1950s brought in the third generation of leaders at the company, John Shea and cousins Peter and Edmund. The three Sheas took command of the company’s heavy construction operations during the 1950s, beginning the diversification and expansion that eventually created the multifaceted collection of business interests that described the company’s operations at the end of the 20th century. In 1957, the establishment of the Shea Sand and Gravel Plant marked the beginning of what became known as the J.F. Shea Redding Division, a supplier of aggregate materials to contractors and government agencies. As it matured, the Redding Division’s business scope increased to embrace highway and bridge construction and repair work in northern California. Through a collection of gravel, asphalt, and concrete plants and quarries, the Redding Division produced construction materials and contracted for construction projects in northern California. During the 1950s, J.F. Shea also established Shasta Electric, a full-service electrical contractor offering services for commercial and industrial construction customers.

The diversification begun during the 1950s continued in earnest during the 1960s, as J.F. Shea followed the prevailing corporate trend of the era. Many companies sought to achieve financial consistency and stability by entering a range of businesses, thereby reducing dependence on the caprices of a single line of business. During the decade, J.F. Shea established Shea Homes, moving the company into residential housing construction—a business of vital importance to the company’s financial well-being at the end of the 20th century. The company also divested its interests in the “smokestack” industries it had invested in during the 1940s. The money subsequently was diverted to high-technology investments, leading to the establishment in 1968 of the J.F. Shea Venture Capital Division. Through Venture Capital, J.F. Shea began investing in private start-up companies. Among the list of fledgling concerns aided by J.F. Shea were Compaq Computer Corporation, Brocade Corp., Exodus Corp., and Altera Corp.

Although the 1960s marked J.F. Shea’s transformation into a diversified concern, the company continued to be a heavy construction firm at its core. The decade that saw the company delve into the venture capital business and into residential construction also included several major construction projects. J.F Shea constructed tunnels and stations for the San Francisco Bay Area Rapid Transit System, more commonly known as BART. J.F. Shea’s contributions to BART helped the company secure another high-profile project during the 1970s, when it assisted in the construction of Metro, the subway system in Washington, D.C. The decade also saw the company broaden its business scope further. J.F. Shea established Shea Properties, the commercial and residential investment and management arm of the family business. Through Shea Properties, the company invested in and managed apartment buildings and commercial real estate, at first in California and then in Colorado. J.F. Shea also completed an acquisition during the 1970s, purchasing Reed Manufacturing, a producer of concrete guns and pumps used in civil, residential, and commercial construction projects.

During the 1980s, Shea Homes came to the fore, its growth fanned by the rapidly expanding real estate industry in California. Shea Homes began developing master-planned communities throughout California, registering enough success to warrant the establishment of a division in Arizona at the end of the decade. Meanwhile, aided by the same robust real estate market, Shea Properties substantially expanded its portfolio of retail and commercial properties.

1990s: Expansion of Homebuilding Operations Through Acquisitions

During the 1990s, J.F. Shea’s fourth generation of family management—led by COO John, Jr., Ed, and Gil—spearheaded the company’s geographic expansion. The company’s residential construction business led the way during the decade, as Shea Homes developed into one of the largest privately held developers of residential communities in the United States. Before 1989, J.F. Shea’s involvement in residential construction was limited to California markets, but an acquisition completed in the last year of the decade pushed the company beyond the Golden State’s borders. In 1989, the company purchased Knoell Homes, a large-volume construction company that had built roughly 800 homes in Phoenix, Arizona, two years before its acquisition by J.F. Shea. The acquisition gave Shea Homes its Phoenix-based Arizona Division, an enterprise that served as a springboard for further geographic expansion

Initially, the Arizona Division fared poorly. By 1991, the number of sale closings in the Phoenix market had fallen to 324 homes, down substantially from the 800 closings recorded four years earlier. If it was any solace to Shea Homes’ Phoenix-based executives, their troubles were shared by other home-builders in the Phoenix area. The total number of new housing permits had fallen from 18,000 in the mid-1980s to 10,000 by the beginning of the 1990s, signaling the onset of a recessive real estate market. At this moment of vulnerability, Shea Homes’ management team showed its mettle, turning the company’s troubled state into a position of strength. Instead of retreating in the face of a contracting market, Shea Homes restructured its Arizona Division and launched an aggressive land-purchasing program in 1991. Land prices offered exceptional values, spurring management to purchase as much land as possible. The Arizona Division quickly put the purchased land to use. In a May 1994 interview with Professional Builder and Remodeler, a Shea Homes executive remarked, “We also put houses in the ground as quickly as possible with new plans. The timing was just right. The market was turning around.” Thanks to the aggressive stance, the Arizona Division recorded a substantial surge in business, closing 1,337 homes in 1993. Between 1991 and 1993, the operation’s market share in Phoenix increased from 2.7 percent to 7.4 percent.

Company Perspectives:

Built on a solid foundation, J.F. Shea Co., Inc. has inherited the family commitment to hard work and pride in a job well done. Today, the company upholds the ethics and principles established by John Shea more than a century ago.

As J.F. Shea entered the latter half of the 1990s, the actions of Shea Homes accounted for the major successes of the period. There were two important developments outside residential construction: Shea Mortgage, the home financing arm of the family enterprise, was established, and J.F. Shea Construction, the heavy construction arm, completed an acquisition of a southern California construction company; but the biggest news revolved around the acquisitions and expansion completed by Shea Homes. Shea Homes expanded its operating territory to include residential construction in Colorado, where the company entered the Denver market in 1996, and to North Carolina, where housing communities were developed in Charlotte. By the end of 1996, the company recorded $600 million in home sales, enough to make it the 23rd largest homebuilder in the United States. During the ensuing two years, the company’s stature would increase substantially, as Shea Homes completed two pivotal acquisitions that increased its presence in California, Colorado, and Arizona.

In 1997, Shea Homes gave its fledgling Colorado homebuilding business a tremendous boost. The company reportedly paid $480 million for Mission Viejo Co., an acquisition that included two developments in southern California—Mission Viejo and Aliso Viejo—and a sprawling community in Colorado dubbed Highlands Ranch. The properties in southern California comprised 900 acres, while the Highlands Ranch property measured 22,000 acres, or seven square miles. Highlands Ranch, the prize asset of the acquisition, contained 14,800 homes, but at the time of the acquisition 3,600 acres remained to be developed, enough to build an additional 16,000 homes. With the addition of Mission Viejo Co., Shea Homes was able to sell more than 3,000 homes in 1997, generating more than $1 billion in residential construction revenue.

The acquisition of Mission Viejo Co. was followed by an equally prodigious purchase. In mid-1998, Shea Homes agreed to acquire UDC Homes, the largest homebuilder in Phoenix and one of the major developers of housing for seniors. Additionally, UDC owned lots for nearly 1,600 new homes in southern California. The acquisition of UDC drew praise from industry observers. One real estate analyst, in a July 11, 1998 interview with the Los Angeles Times, remarked: “Shea came through the tough [recessionary] times very strong, and they have been pursuing a brilliant strategy of expanding strategically into Colorado and Orange County. They’ve been able to go into these [new markets] and create more value than was previously there through intelligent planning, development, and marketing.”

Combined, the acquisition of Mission Viejo and UDC represented a transaction value of nearly $1 billion. The magnitude of the acquisitions left J.F. Shea primarily focused on the development of master-planned communities, although the company continued to operate as a heavy construction contractor. In the years after the two signal acquisitions, J.F. Shea attempted to acquire Del Webb Corp., a Phoenix-based builder of retirement homes. Against the wishes of Del Webb’s management, J.F. Shea launched a $690 million bid for the Phoenix company, but the deal lapsed in November 2000. John F. Shea, the company’s chairman and CEO, expressed a desire to resume what he termed “further constructive dialogue,” according to the November 2, 2000 issue of Business Wire, but no definitive agreement had been reached by the end of 2002. That same year, Shea Homes, the main engine driving J.F. Shea’s growth, gained a new leader. In January, Roy Humphreys announced his retirement, ending his 27-year tenure at the company. Humphreys joined Shea Homes in 1974 as an offsite coordinator for the Southern California division before being appointed as Shea Homes’ president in 1980. Humphreys was replaced by Bert Selva, who joined Shea Homes in 1996 to head the company’s Colorado operations. Selva was named president and chief executive officer in February 2002.

Principal Subsidiaries

Shea Homes; Shea Mortgage; Shea Properties; J.F. Shea Construction Inc.; Reed Manufacturing.

Principal Divisions

Venture Capital Division; Redding Division.

Principal Competitors

KB Home; Pulte Homes, Inc.; Tutor-Saliba Corporation.

Key Dates:

1881:: John F. Shea Plumbing Company is founded.
1910s:: Business is renamed J.F. Shea Company.
1989:: Knoell Homes is acquired, moving J.F. Shea into the Arizona residential construction market.
1996:: Shea Homes enters the Colorado homebuilding market.
1997:: Mission Viejo Co. is acquired, greatly expanding homebuilding assets in Colorado and California.
1998:: UDC Homes is purchased, giving Shea Homes the largest homebuilder in Phoenix.