Orleans Homebuilders, Inc

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Orleans Homebuilders, Inc.

One Greenwood Square, Suite 101
3333 Street Road
Bensalem, Pennsylvania 19020
U.S.A
Telephone: (212) 245-7500
Fax: (215) 633-2352
Web site: http://www.orleanshomes.com

Public Company
Incorporated: 1959 as Palm-Aire Corporation
Employees: 367
Sales: $388.5 million (2003)
Stock Exchanges: American
Ticker Symbol: OHB
NAIC: 236115 New Single-Family Housing Construction (Except Operative Builders)

With its headquarters in the Philadelphia suburb of Bensalem, Pennsylvania, Orleans Homebuilders, Inc. develops residential communities in the Pennsylvania and New Jersey counties surrounding Philadelphia, as well as in the metropolitan areas of Richmond, Virginia; Charlotte, Greensboro, and Raleigh, North Carolina; and central Florida. The public company, trading on the American Stock Exchange, is majority-owned and operated by the third generation of the Orleans family.

Orleans' Founder Emigrates from Czarist Russia

Orleans was founded by Alfred P. Orleans, who was born in a Russian village in the 1890s. He was deemed a good prospect for becoming a doctor, but because Orleans was Jewish he was not allowed to attend medical school in Russia. Instead, he was sent to Philadelphia, Pennsylvania, for his education, with the understanding that he would one day return to his village to practice medicine. However, the pogroms that took place in his Russia, which led to the killing and exile of thousands of Jews, made it dangerous for him to return home. In addition, the revolution that swept the czar from power during World War I in Russia made life in Philadelphia seem to Orleans to be far more desirable than that in under the new Soviet regime.

Orleans earned money by selling insurance and real estate on street corners, a common practice of the day. He was able to parlay his success in these trades to set himself up as a home-builder by 1918. He bought parcels of land in Philadelphia's Logan neighborhood and built row houses that cost around $1,200. From the outset, he was devoted to building affordable housing and to making maximum use of the space he purchased. His move into homebuilding proved fortuitous, as the economy boomed during the Roaring Twenties, leading to a greater amount of money available to the middle class for mortgages and more funding for homebuilders like Orleans to buy land and construct houses.

Orleans had the good sense to continue his insurance business, which proved to be his salvation when the stock market crash of 1929 brought on the Great Depression of the 1930s and a collapse in the housing business. Orleans had taken on considerable debt, but because he was still making commissions on insurance he was able to stay current on payments to the Frankford Trust Co. Frankford's president was impressed and offered Orleans new financing so that by 1933 he was able to resume building houses. Orleans not only earned a good reputation with bankers, he gained widespread recognition for being conscientious. He never lost sight of his goal of building affordable yet livable housing, and he also paid regular visits to his job sites, as well as to those of his competitors. Being a hands-on builder was a practice he passed on to succeeding generations of his family. As a result of the owners being on the job, Orleans' houses incorporated a number of spontaneous changes, sometimes to projects that were already completed, such as adding windows and square footage—whatever feature was needed to make the home more livable. This penchant for quality would be appreciated by realtors and homeowners who would benefit from the premium the Orleans name brought to a property when it came time to sell.

Postwar Move to the Suburbs

Orleans scraped by during the remaining years of the 1930s and into World War II by taking partners, most of whom were relatives. A typical Orleans product circa 1940 was a three-bedroom, one-bathroom row house that could be bought in the $3,500 range. During this period, he concentrated on row houses and duplexes, while constructing the occasional apartment building. Orleans recognized that the end of World War II would lead to a housing boom, and to prepare for this time he began to buy up land in the communities surrounding Philadelphia. Meanwhile, he continued to fill out the city neighborhood of East Mount Airy, then made initial forays into Cheltenham Township and Montgomery County, where he was convinced the future lay. As he anticipated, it was after World War II that his business really took off. He was now joined by his son Marvin, who had served as a captain in the Army Air Corps. It was a period that saw veterans return home, get married, and give birth to the Baby Boom generation. With the help of financial benefits provided by the GI Bill, these middle-class veterans were able to attend college and buy homes in record numbers. The demand for housing was strong across the country. In the Philadelphia area, Orleans completed against the likes of William Levitt, who became a legend for applying assembly-line techniques to home building, creating "Levittowns"—cookie-cutter suburban communities that featured street after street of identical houses. The other major Philadelphia builder was the Korman family, which would be the area's top builder for a generation. Orleans was content to be the number two Philadelphia-area homebuilder, constructing 1,000 homes year after year. In the late 1940s, he too turned his attention to the suburbs, concentrating first on Montgomery County. He again displayed a knack for anticipating where people would eventually choose to live. During the late 1940s, for instance, he began to buy up cheap land in Philadelphia's Torresdale neighborhood. Thirty years later, when the demand he envisioned materialized, he began to build houses in the area.

Orleans' son Marvin, wanting to strike out on his own, set up a business in Florida. Backed by his father, he formed Florida Palm-Aire Corporation in June 1959 and built the Palm Aire master planned community that featured five golf courses in the Pompano Beach area. Over the next 25 years, he built 25,000 housing units in Florida. The business was reincorporated in Delaware in 1969 as FPA Corporation and taken public, trading on the American Stock Exchange. In the meantime, during the 1960s, Marvin's son, Jeffrey P. Orleans, went to work for the family business while attending college at Drexel University. Alfred Orleans exhausted his opportunities in Philadelphia by 1968 and focused all his attention on the city's suburbs. As a result, the company's headquarters was moved to Huntingdon Valley and then to its present location in Bensalem. His grandson focused his attention on southern New Jersey, across the Delaware River, where many Pennsylvanians increasingly turned for housing.

Alfred Orleans remained active in the business he founded until he was 92 years old. He died in 1981 at the age of 93. Marvin Orleans died in 1986, leaving his son Jeffrey as the lone shareholder of Orleans Construction Corporation, as well as chairman, president, and chief executive officer of FPA Corporation. For a time, he attempted to run both the Pennsylvania and Florida operations, but poor market conditions in Florida took its toll on FPA, which began to experience severe losses and distracted Jeffrey Orleans from his more successful Bensalem operation. As a result, Orleans lost its number two position among Philadelphia builders, falling as low as number five—well off the pace set by the new market leader, Toll Brothers, whose founder once worked as a subcontractor for Alfred Orleans. To refocus his attention on the Philadelphia market, Jeffrey Orleans began to exit the Florida market. In 1988, he sold the Palm-Aire Hotel and Spa, along with three golf courses, for $28.75 million. In 1990, he sold FPA's real estate brokerage firm, Palm-Aire Properties, to Linda L. Bosley, a vice-president and broker with the company.

FPA Becomes Orleans Homebuilders in 1998

The late 1980s and early 1990s were a difficult stretch for the real estate and home building industries, but by consolidating its efforts Orleans was able to weather the storm and begin regaining market share in the Philadelphia area. In 1993, Jeffrey Orleans reorganized the two companies, with Orleans Construction becoming a wholly owned subsidiary of FPA. In 1998, FPA changed its named to Orleans Homebuilders, Inc. After several losing years in the early 1990s, the company, starting in 1995, recorded several consecutive years of earnings growth. Revenues grew from $108 million in fiscal 1995 to $179 million in fiscal 2000, while income from continuing operations during this period increased from $1.2 million to more than $7.5 million.

As the new century dawned, the diminishing availability of land in the Philadelphia area became a concern. As Jeffrey Orleans explained to Professional Builder, "There's not a lot of building opportunity in the Delaware Valley. Ground is at a critical point. We have a backlog for at least the next five years and we hope to maintain that, but it's getting harder and harder. We're doing infill; we're going farther out. We're spreading into central New Jersey." In an effort to prepare for the future and venture into new markets, Orleans in October 2000 acquired Parker & Lancaster Corporation, a Richmond, Virginia-based residential home builder, paying approximately $6 million in cash and 300,000 shares of common stock. Parker & Lancaster, which generated some $87 million in revenues in 1999, operated in the major North Carolina metropolitan areas of Raleigh and Charlotte, as well as in the state's Triad section and parts of Virginia and South Carolina. The company was renamed Parker Lancaster of Orleans but the subsidiary continued to be run by its current management team with input from Orleans.

Company Perspectives:

Orleans builds value.

Orleans was able to bolster its business in the Philadelphia market in 2001 when it paid $14.7 million in cash and notes payable within one year to acquire the New Jersey subsidiary of Minneapolis-based Ruttlund Co. The assets of Ruttlund Homes of New Jersey comprised 300 lots on three parcels of land. In addition to developing single-family communities in the Philadelphia market, Orleans built townhouse and so-called adult communities, which appealed to empty nesters who no longer wanted the responsibilities of maintaining a large house. The Baby Boom generation, which had once precipitated the move of Alfred Orleans to the suburbs, now prompted his grandson to build suitable housing for this graying population.

Due in large part to the acquisition of Parker & Lancaster, Orleans recorded a major jump in revenues and net income for fiscal 2001. Sales reached $287.2 million and earnings topped $10.5 million. The company continued to prosper in 2002, benefiting a great deal by the poor showing of the stock market and low interest rates. Investing in new homes became a highly desirable alternative to investing in stocks. As a result, in fiscal 2002 Orleans again posted record results, with revenues totaling $354.6 million and net income improving to $17.7 million. Because of these impressive results, the company was recognized by the media. It was listed as the one of the top 50 fastest-growing homebuilders in America by Builder magazine. In 2002, Forbes ranked Orleans third on its list of the 200 Best Small Companies. In addition, Fortune ranked the company number 33 on its list of the 100 Fastest Growing Companies. Orleans ability to maintain its growth also looked strong. Entering fiscal 2003, the company owned some 1,700 lots in the Philadelphia market with another 3,600 under agreement. In Virginia, North Carolina, and South Carolina, Orleans owned approximately 700 lots with an addition 2,200 lots under agreement.

Orleans enjoyed another strong year in fiscal 2003. Although revenues did not grow at the rate experienced in the previous few years, they still improved by 10 percent, to nearly $388.5 million. Net income, on the other hand, increased from $17.7 million in 2002 to more than $27 million. Less than a month after the fiscal year ended on June 30, Orleans took another step in preparing for the future. Once again, it looked to the Florida market, acquiring the outstanding stock of Masterpiece Homes, a residential builder in the central Florida market. In calendar 2002, Masterpiece built 213 homes and generated revenues of $26.3 million. During the first six months of 2003, Masterpiece built 142 homes with revenue of approximately $20 million. In addition, Masterpiece boasted a backlog of 278 homes that were sold but not yet delivered; these comprised an aggregate revenue of approximately $39 million. In the foreseeable future, given low interest rates and continuing demand for housing in the company's primary market of Philadelphia, Orleans' prospects appeared bright. Houses were being sold before the company was able to complete them. Even if the housing market in the Philadelphia area grew tight, the company, with its growing southern division, was well positioned to prosper for many years to come.