The Rottlund Company, Inc.

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The Rottlund Company, Inc.

2681 Long Lake Road
Roseville, Minnesota 55113
U.S.A.
(651) 638-0500
Fax: (651) 638-0501

Public Company
Incorporated : 1973
Employees : 248
Sales : $160.83 million (1998)
Stock Exchanges :American
Ticker Symbol :RH
NAIC : 23311 Land Subdivision & Land Development; 23321 Single Family Housing Construction; 23322 Multifamily Housing Construction

Through its subsidiaries, The Rottlund Company, Inc. designs, builds, and markets detached single family homes and attached townhomes and villas in the Minneapolis-St.Paul, Minnesota; Des Moines, Iowa; Indianapolis, Indiana; southern New Jersey; and Naples-Ft.Myers, Orlando, and Tampa, Florida metropolitan areas. Rottlund homes are sold primarily through the company’s own staff of sales personnel to a wide range of buyers. In 1998 the company celebrated 25 years in business. During that time it had grown from a small local builder into one of the top 60 home builders in the country, with an enormous, even dominant, presence in Minnesota.

Building the Name That Builds the Homes, 1970s

Rottlund was founded in 1973 by David Rotter and Ellroy “Roy” Lund. Within a short while, Bernard “Bud” Rotter also joined the firm. As small home builders, they initially built single family homes, one or two at a time, working and supervising all phases of construction. Roy was involved in directing the actual home construction. David took responsibility for managing production and operations. Bud was in charge of sales, land acquisition, and advertising. Thora Lund, Roy’s wife, served as the office manager. At the start, the company chose to focus entirely on home building in the Minneapolis-St.Paul area. As the founders readily admitted in company literature, there were many ups and downs in the early days. There were times when orders for new homes outpaced the company’s ability to deliver them in a timely fashion. Sometimes sporadic availability of building supplies and weather-related problems caused delays and unhappy customers. There were also times when building materials bought in quantity sat in storage awaiting a new construction project. Cash flow, too, was often strained.

By the mid-1970s Rottlund was known and respected for its commitment to understanding and meeting customer needs. The company began to realize that it needed to diversify the types of construction and be able to offer wider variety to a broader base of customers. By the end of the decade, the company was still building single-family homes, but the Rotter brothers and Lund had developed their long-term strategy that would prove to be a solid foundation on which to build the company through the next decade. To become a “brand name” company meant that they had to better understand not only their own customers, but also the broader trends in the market, including cultural distinctions and the effects of economic cycles on the building industry.

As the company grew in volume of homes being built, it was able to bring into the business the skills of local designers, managers and marketing people. Through their help, the company was able to seriously identify specific niches they could adopt. The new company philosophy was to study the market and identify the empty niches, foreseeing the trends in consumer demand. The company learned how to recognize customer tastes and coordinate styles and products within established building codes at the time achieving creative, personalized results for the customer.

One important need that the company identified was to have agreed upon expectations between the company and a given customer about timelines for completion and type and quality of materials and fixtures that would be used in a home-building project. If happy, satisfied customers were a goal, then communication had to be clear and concise. The company worked to better schedule all phases of the construction, coordinating all the subcontractors involved and allowing for the possibility of weather-related delays. This not only made for happier customers, but brought a cost-saving benefit to the company as well. The company reviewed all of its sales literature, particularly its use of industry jargon, and began to produce materials that were much simpler to read and more appealing in appearance. It also revised many of its forms and legal documents and the way it handled closings to make the process more understandable to the customer.

Challenges During the 1980s

In the early 1980s, the company learned a hard lesson when interest rates soared from eight to 16 percent. Rottlund’s typical practice was to guarantee interest rates to its buyers at the time of a home purchase agreement. But as the overall U.S. economy changed so quickly and interest rates rose dramatically in a relatively short period, the company had to absorb much of the additional cost to still close on properties. While many of Rottlund’s competitors were passing along the increased cost to customers by making forward commitments on mortgages from the secondary markets, Rottlund honored its original commitments to its customers. Although it was a costly lesson, Rottlund gained great respect from buyers, lenders, its subcontractors, and the larger community for honoring its rates.

In 1986 Rottlund developed a plan for success that set the tone for the entire company. The company would 1) be honest and straightforward and well-connected to the community; 2) have a diversified product line for long-term stability; 3) increase its use of modern technology; 4) find, hire, and keep employees who were committed, and 5) go public in 1992 to raise capital for national expansion. It was this final point of preparing for an initial public offering that consumed much of Rottlund’s management team as the 1980s drew to a close. If the public offering was to be successful, the company had to be clearly defined and tightly managed. About this time, the company also made a significant investment to upgrade its technology systems, particularly its computer-assisted design (CAD) applications.

In 1988 Rottlund took a step toward diversifying its product line by moving into the construction of suburban townhouses. These proved to be cheaper to build and buy than detached houses since interest rates were continuing to remain in the double digits. For the next ten years, the company continued to build both types of homes in many different styles and sizes.

Going Public, Growing Large: The 1990s

By the early 1990s, Rottlund was far ahead of all other home builders. In 1993 alone, the company built 845 homes, twice as many as Orrin Thompson, its closest competitor. Of the 845 homes built, 553 were multifamily homes and 292 were single-family homes. This level of production represented seven percent of the Twin Cities home construction market. As John Dierbeck, vice-president of sales, told Ingrid Sundstrom, “We grew because we did our business better and made people happy. Eventually we just broke away from the pack.”

In February 1993, Rottlund announced that it was making plans to expand its operations into other markets. Having raised $6 million in its first public offering in October 1992, the company felt it was adequately capitalized to expand geographically. Initial market-testing was completed and company infrastructure was put in place to support the expansion. The company goal, simply stated, was to become a nationally known builder. Because they knew that building codes, housing needs, products, and costs differed from market to market, the Rotters developed new strategies to determine what housing needs were unmet in new markets it was considering, then planned accordingly. They set out to apply the same Rottlund philosophy, technology, and management style in cities beyond the Minneapolis-St. Paul area. Their expansion strategy called for initially bringing local designers, managers, and marketing people to the team who would give immediate recognition to the Rottlund name.

In August 1993, Rottlund formed North Coast Mortgage, Inc. as a wholly owned subsidiary to arrange financing for home buyers in the Minneapolis-St. Paul area (the subsidiary was sold five years later). In that same year, the company began home building operations in Naples-Ft. Myers, Florida, and Des Moines, Iowa. In 1994 they began home building operations in Indianapolis, Indiana, and Orlando and Tampa, Florida. To support those operations, the company established new divisions in those locations. Expansion also continued that year with over 180 homes built in the Des Moines area and nearly 60 homes in the Naples-Fort Myers, Florida market.

By the mid-1990s, Rottlund was being mentioned in national builder magazines and in real estate development circles and had a growing national reputation. Their customer base had broadened to include first-time buyers, customers moving up, and empty-nesters. The company had developed many styles of homes and branched out into atrium, villa, courtyard, and lodge-style homes. Moreover, Rottlund had become a specialist in developing neighborhoods or communities, not just building homes. The planned communities were designed to include convenient distances to schools and shopping, gardens, swimming pools, spas and exercise rooms, golf and other sports, hiking trails, and parks, all tailored to the lifestyle demands of the intended customer.

Company Perspectives

David Rotter and Roy Lund founded the Company in 1973, and Bud Rotter joined the Company full time shortly thereafter. The Company has grown to become, for many years now, the best and also the largest home builder in Minnesota.

By the mid-1990s lower interest rates were adding stimulus to home-buying and boosting sales of homes. Rottlund expanded further. The company opened new divisions in Tampa and Orlando, Florida, and Indianapolis, Indiana, in 1995. In February 1996, Rottlund purchased the assets, including land, any work in progress, and the future contractual rights, to Kevin Scarborough, Inc., a New Jersey-based company for about $9.8 million. This positioned Rottlund well for expansion into the Delaware Valley of southern New Jersey.

In order to continue to respond to consumer preferences, the company further developed its internal marketing department to better utilize information which was now gathered from buyer profiles, focus groups, exit interviews at model sites, telephone surveys, and demographic databases. In the design department, the company moved to engage a number of unaffiliated architectural firms in addition to its in-house architectural staff.

In 1998 Rottlund Homes, a division of The Rottlund Company by that time, announced an agreement with Elim Care Inc. to develop the Cornerstone Commons of Plymouth, Minnesota, a senior retirement community. The cooperative effort boasted 82 spacious one- and two-bedroom apartment homes, and Cornerstone Assisted Living, which provided 50 apartment homes for people needing supportive services. Surrounding these units the company developed one-level walkout townhomes for use by the wider community of senior adults.

By then Rottlund had become the 59th largest home builder in the United States, having built and sold over 8,900 homes since its founding in 1973, with 6,500 of these being single-family homes and townhomes sold in the Minneapolis-St. Paul metropolitan area alone. At the close of 1998, the company owned or had options for over 2,100 home sites in communities under development and land for the development of over 2,000 additional planned home sites in proposed communities.

As of mid-1999 Rottlund, according to at least two leading trade publications, ranked among the top 100 builders in the nation. Given its commitments to quality and service, the company appeared to be in a very strong position to continue as a “name brand” builder well into the 21st century.

Principal Subsidiaries

Rottlund Homes of Iowa, Inc.; Rottlund Homes of Florida, Inc.; Rottlund Homes of Indiana, Inc.; Rottlund Homes of New Jersey, Inc.; and Rottlund Homes of Indiana Limited Partnership.