Kaufman and Broad Home Corporation

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Kaufman and Broad Home Corporation

10877 Wilshire Blvd.
Los Angeles, CA 90024
U.S.A.
(310) 443-8000
Fax: (310) 443-8098

Public Company
Incorporated: 1957 as Kaufman and Broad Building Company in Michigan; 1972 as Kaufman and Broad Development Group; 1986 as Kaufman and Broad Home Corporation in Delaware
Employees: 960
Sales: $1.09 billion
Stock Exchanges: New York
SICs: 1521: General Contractors—Single-Family Houses;
1522 Residential Construction; 6162 Mortgage Banking; 6552 Subdivider/Developer

Kaufman and Broad Home Corporation is a residential real estate development company whose primary business is building single-family homes in the western United States and Paris, France, for the entry level and first-time trade up markets. The company also provides mortgage banking services to its home buyers in the United States through its wholly owned subsidiary, Kaufman and Broad Mortgage Company, and offers commercial development, condominium and apartment complex development, and renovation services through its four divisions in France. Kaufman and Broad is the largest home builder in California and among the largest residential and commercial builders in the metropolitan Paris area. In addition, the company builds some residential housing in Toronto, Ontario through its Victoria Wood Development Corporation division.

Kaufman and Broad began in 1957 in Detroit, Michigan, as Kaufman and Broad Building Company. The cofounders, Don Kaufman and Eli Broad, took their initial investment of $25,000 and developed two model homes in the Detroit suburb of Madison Heights. They targeted the entry-level housing market and positioned the company as one that provided well-designed and affordable first homes. The styling and price were well matched for the market; in its first year in business, the company posted sales of $1.7 million, or about 136 homes with the average sale price of $12,500 for a new three-bedroom house. First year net income of almost $33,000 was nearly 2 percent of sales and exceeded the cofounders’ initial investment.

In 1959, Kaufman and Broad expanded into the contract housing business and developed elderly housing and college dormitories as well as new homes for the armed forces and public housing agencies. Sales tripled from their first year in business to $5.1 million, and net income improved to 7 percent of sales. The following year, the company began building homes in Arizona. In 1961, the company went public and raised about $1.8 million in its initial public offering. Total revenue more than doubled from two years prior to $11.7 million, and net income was more than 5 percent of sales.

By the end of 1962, Broad and Kaufman had delivered more than 300 entry-level priced homes in Phoenix and Tempe, Arizona. That same year, the company introduced a new product in Detroit, “Townehouses,” which were attached single family homes. Again, the company understood the needs of the market well; 400 town house units were sold in 30 days. That same year, Kaufman and Broad was listed as one of the country’s 200 fastest growing companies by Standard and Poor’s and became the first home builder to be listed on the American Stock Exchange. Another first for the company in 1962 was becoming the first builder to successfully obtain financing commitments to provide qualified buyers with mortgage loans.

Kaufman and Broad continued to expand into other markets. In 1963, the company entered southern California and developed an attached town house community in Orange County. Sales continued to be strong, and year end net revenue again more than doubled from the two years previous to $31.8 million. Acquisitions of smaller local and regional builders enabled the company to enter other markets such as San Francisco, Chicago, New York, and other cities in the northeast portion of the United States.

In 1964, the company moved its corporate headquarters to Los Angeles from Phoenix, where it had moved earlier in the 1960s. That same year, Kaufman and Broad opened a division in Chicago to handle sales and development in that metropolitan area. The home designs remained value-conscious as the company expanded its market focus to include the first-time trade up buyers as well as the entry level market. Having been successful with the financing commitments it was able to obtain and develop over a three-year period, Kaufman and Broad founded the International Mortgage Company in 1965. The creation of this wholly owned subsidiary allowed the company to provide financing directly to its customers without involving banks or other financial institutions. In the same year that Kaufman and Broad vertically integrated into mortgage services, it consolidated production activities by ceasing operations of its contract division. The division completed homes, schools, and public buildings for an Indian reservation in Fort Wingate, New Mexico, as its final project.

Diversification into other businesses continued throughout the rest of the 1960s. In 1966, the company entered into the relatively new business of cable TV franchising with the formation of its second wholly owned subsidiary, Nation Wide Cablevision. Within five years, the subsidiary was operating franchises in 51 communities on the west coast of the United States. In 1969, the company founded Kaufman and Broad Home Systems, Inc., through which the company entered into the manufactured housing business. By 1971, Home Systems operated eight plants throughout the country and had sales of 9,000 units.

Also in the late 1960s, Kaufman and Broad’s residential housing business was growing as well. Through its acquisition of the local building company Kay Homes in 1967, the company became the largest home producer in the San Francisco Bay area. Kaufman and Broad model homes were introduced in Paris, France in 1969, two years after the company’s first overseas office was opened there. The company’s growth during these years was due in part to customer service programs and good public relations. Kaufman and Broad was recognized by President Johnson in 1967 for its commitment to participate in low-income housing programs. In that same year, the company began offering a five-year limited home warranty, the first in the industry to do so. The following year, FHA, VA, and Fannie Mae approved International Mortgage for home mortgages, making it one of only a few builder mortgage subsidiaries with that approval.

In 1968, in an effort to better define itself as a diversified corporation, the company changed its name to Kaufman and Broad, Inc. A year earlier, the company had become the largest publicly held housing corporation, its growth attributable, in large part, to happy customers. Forty percent of its sales were secured through referrals from satisfied customers. In 1969, it became the first housing builder to be listed on the New York Stock Exchange.

Additional acquisitions in 1970 of Victoria Wood Development Corporation in Toronto, Canada and in 1971 of Sun Life Insurance Company further expanded and diversified Kaufman and Broad. Following the purchase of Sun Life, the company reorganized its on-site housing activities as a new entity, Kaufman and Broad Development Group. By 1972, Kaufman and Broad was America’s largest multinational housing producer and the largest single-family home builder in Paris. The company operated on-site divisions in more than five states, as well as Canada, France, and West Germany. In 1973, the company entered the pre-cut Custom Home market with plants in Denver, Colorado and Minneapolis, Minnesota and the high-rise condominium business with its construction project in New Jersey. Net housing revenues for 1973 had increased to $264.4 million with net income more than 9 percent of sales.

As a result of high interest rates and a national recession—and the concomitant soft new home sales in 1974—the company experienced its first end of the year net loss. Despite the loss, Kaufman and Broad maintained its new market growth and customer service efforts strategy to assure long term profitability. In 1975, it expanded into new markets such as Brussels, Belgium, introduced new products, and offered new services such as the industry’s first 10-year homeowner warranty. By 1977, the recession had subsided and the housing market had rebounded; the company celebrated the sale of its 100,000th home, which was an industry first. Sales in Europe were growing as well. By 1977, under the direction of Bruce Karatz, president of the French division, the company celebrated the sale of its 4,000th home overseas. Under Karatz, the division staged one of what industry analysts said was the most creative advertising campaigns in home building: construction of a model home on the roof of an eight-story department store in downtown Paris. More than a half million people toured the home, which featured, among other things, a car inside the attached garage.

As the company entered the 1980s, its growth was again threatened by high interest rates and an industry recession. In an effort to better align its diverse business interests and to improve operations, the firm was reorganized into four operating groups: Kaufman and Broad Development Group for home building; International Mortgage Company for mortgage services; Home Systems for manufactured housing; and Sun Life for life insurance. A change in executive management also occurred in 1980. Bruce Karatz, president of the French division for the past four years, returned to the states and became the president of the Kaufman and Broad Development Group. His strategy for continued growth in home building was to concentrate on select regional markets that offered strong economic fundamentals. His long-term strategy to become the top producer in those areas that had solid growth potential and exit those markets that did not resulted in Kaufman and Broad phasing out its divisions in Illinois, New Jersey, Germany, and Belgium by 1989. The recession of the early 1980s and the new management’s corporate strategy resulted in the company exiting other markets over the next several months, and by the following year Kaufman and Broad had reduced its on-site activities to California, France, and Canada. Market consolidation also was evident in the French division, where management focused its efforts within a 25-mile radius of Paris and exited areas outside the metropolitan area.

While the company was revising its operating strategies, management improved the quality control and customer service programs to increase referrals and maximize customers’ perception of improved value. Following the recovery of the national economy, Kaufman and Broad concentrated its building efforts in key markets, including the manufactured homes business segment, improving housing revenues by 55 percent in 1985. Additionally, the corporation set company records for year-end financials in both revenue and net income. With the improved sales, the company had become the largest single-family home builder in California. The following year, Kaufman and Broad Land Company was formed to manage property purchasing. Home building in California continued to be strong, with communities such as East Hills in Anaheim, which sold 52 of the 54 homes available in the first weekend.

In 1985, the company acquired Bati-Service, an entry level home builder in France. This purchase made Kaufman and Broad’s French division the third largest builder in the country. That same year in California, the two regional offices each divided into two new divisions. The four divisions allowed the company to address the specific needs of the local community. Corporate management efforts decentralized the divisions, so each division was held responsible for its own construction, planning, and local operations. Marketing and purchasing, however, remained a corporate focus. For the entire California market, the company introduced “The California Series,” a marketing strategy that allowed all divisions to achieve cost efficiency in advertising and promotional programs. The concept was developed to improve economies of scale, to achieve a consistent single corporate image, and to increase brand awareness of Kaufman and Broad homes throughout the state.

In 1986, the corporation again reorganized. Kaufman and Broad Development spun off from Kaufman and Broad Inc., and formed Kaufman and Broad Home Corporation. All on-site housing activities, with the exception of manufactured housing, transferred to the new organization to focus on real estate development. That same year, a new commercial development division in Paris was formed, Kaufman and Broad Developpement. Within two years, this new division had completed a senior citizen apartment complex and 12 office buildings in Paris.

In 1989, the French division approved plans to build Washington Plaza, a new Paris office complex, securing $600 million from pre-sales to groups of institutional investors, a transaction that represented the largest single real estate deal in that country’s history. Two new divisions were formed in Paris in 1989: Maisons Individuelles and Kaufman and Broad Renovation. The Renovation division was established to refurbish older office buildings in the downtown area. Management expanded into this new business because it felt that it provided a new growth opportunity given the scarcity of land in that area. By 1989, due in large part to the division’s commercial development activities, French revenues more than quadrupled from four years prior.

Despite a slowing U.S. economy and uncertainty over the country’s involvement in the Persian Gulf crisis, 1990 was a record year for Kaufman and Broad. End of year revenues of $1.37 billion were the highest in company history. Lower sales in California were more than offset by strong French division operating results, which was led by a 57 percent increase in commercial revenues.

The following year, the French division, along with several banks, announced the $1.7 billion, four-year redevelopment project for the Esso Corporation headquarters’ property in Paris. For 1991, Kaufman and Broad’s net orders worldwide for new construction increased from the previous year, and included California, where the nation’s recession continued. Sales in California were positively impacted by the company’s expansion into the Sacramento market.

In 1992, Kaufman and Broad had record deliveries in California, up 27 percent from the previous year. The company also increased its overall percentage of the new home sales market statewide to 6 percent, the highest of any builder in the state and up from 4 percent in 1991. Market penetration in the state was solid, with the company marketing homes in 72 communities. Also in 1992, the company continued its market expansion and established a new division in California and one in Las Vegas, Nevada, bringing the total number of divisions in the region to 11. Management attributed the company’s success in 1992 to its extensive use of television advertising targeting renters, an audience that was not being reached in the real estate sections of newspapers. This was a marketing technique that few home builders had used, and it was coupled with an “off-site” telemarketing program designed to reach potential buyers who did not visit sales offices. According to company executives, the advertising spots generated more than 75,000 sales leads and resulted in approximately 700 incremental sales.

As Kaufman and Broad entered the middle of the 1990s, sales continued strong in the California region, supported by the company’s commitment to value and affordability; the average price for a Kaufman and Broad new home is typically thousands of dollars below the statewide average. Moreover, its mortgage subsidiary supported the majority of its sales by offering competitive mortgage programs designed for first-time buyers and financed more than three-quarters of the company’s California home purchases. The state’s population is expected to increase by six million by the end of the century, bringing in additional first-home buyers. In Paris, the company’s commercial development activities were expected to continue to sustain the division’s growth. Kaufman and Broad’s position in Paris is expected to grow along with the increasing demand for office locations by foreign companies wishing to do business in Paris, one of the economic centers of the new European Community.