Fighting Back: Roger Lebbin helps his Rockville homebuilding company cope with a housing slowdown
Talking With Steve Monroe | from the Business Gazzete 4/11/08
When you enter the offices of Mid-Atlantic Builders on Old Georgetown Road in Rockville, you walk up a long flight of stairs and step into a lobby that is dominated by a gleaming glass awards case stretched along one wall.
The awards and multiple millions of dollars of revenue made by the company for its stylish, custom-made luxury homes certainly bring a smile to the lips of Roger Lebbin, the company president — sometimes.
But these days Lebbin may have more frowns than smiles. He can’t think about past awards — including a 2006 America’s Best Builder award from the National Association of Home Builders — because he must focus on the present and the future. The slumping housing industry has forced him to change a business model that until now has worked well.
One way Lebbin is ‘‘fighting back,” as he calls it, is offering buyers the chance to negotiate prices.
‘‘It’s the first time in 20 years we’ve done this,” said Lebbin, 56, who grew up in Bethesda. ‘‘Today we are doing that because all of our competitors are doing it. And I think it’s unfortunate, but customers now expect it. We’re only doing it on our existing inventory homes.”
That’s because Mid-Atlantic’s inventory, which includes mostly homes in the $500,000-to-$1 million range, reached 19 homes earlier this year. ‘‘That’s the largest inventory we’ve ever had,” said Lebbin, who said he’s sold ‘‘north of 1,000” homes over the years, including developments in Montgomery and Prince George’s counties.
The Business Gazette recently talked to Lebbin about the homebuilding industry and how he’s keeping his head above water.
So, would you say you have a ‘‘glut” of homes you have to sell?
I don’t like the word ‘‘glut,” but I will say there are excess inventory homes out there, and they are further complicated by a rising resale market, and it’s further complicated by foreclosures that have either happened or are in the process of happening. And there are a bunch of them getting auctioned off.
How does that complicate your situation?
It makes people believe they can get a better deal buying an auctioned house. But of course an auctioned house, you don’t really get an inspection, you don’t really know what you’re buying, you have very little time … you might get 20 minutes in the house and there’s no studying going on.
Some people buy a house just for shelter, they need four walls and a roof. That’s not my customer. My customer is looking for so much more than that. They are looking for superior architecture, phenomenal quality, great neighborhoods, beautiful communities. They want the bells and whistles.
So what kind of incentives are you offering? Are you giving away BMWs?
No, we have not offered a BMW … because my customer already has a Mercedes and Lexus. Or a BMW. They don’t need me to buy them a car. And my buyer is very, very sophisticated. They know if they take the BMW they’re not going to get other things.
They come to me for a house, so they want the most house for their money, they want to talk about options, mortgage money, the things that affect the price of a home. Let’s start with a lower price … and Mid-Atlantic has cut its prices, substantially.
How much? Ten percent?
Absolutely. It’s certainly 10 percent, maybe as high as 15 percent. You’re never going to see this again. This is a buyers market — it’s a great time to buy.
Nobody really knows where the market is today [going down or heading back up], but if you looked at graph [marking on a piece of paper], and this is price, and this is time, we saw over a long period of time the market went up steadily. Then I’d say in Washington over the last part of 2006 and all of 2007, this trend line has been heading down and it’s been going downward by a big chunk.
Lately we’ve been bouncing around at what most people think is the bottom … but nobody really knows where the bottom is.
Warren Buffet doesn’t always buy at the bottom. He looks for great values and he buys when he’s ready to buy, but he’s not always looking at the bottom because he feels sure that things are going to go up from that point … he doesn’t have to be at the bottom, he looks for value …
If you wait, there may be no selection left. The house that you wanted may not be available anymore as a new home, because the builders are slicing through their inventory by making huge price reductions, and sometimes they lose money on the house they sell.
Are you doing that?
Sometimes we do. Sometimes we actually sell a house for less cost than we have in it. We have to move these houses. And this has been true of every builder that’s selling new homes in the United States today. If you have to carry it, if you have to hold it, you tie up that money, you don’t have the use of that money. That’s very, very important, plus it costs you money, in interest.
I have a construction loan [to build a house], which is more expensive than a mortgage. Mortgage rates are generally lower.
I do worry long term that there are market forces out there that I don’t control. Mid-Atlantic is a very small local builder and we don’t make a market. [There’s] Toll … there’s Pulte, and Beazer … and the big gorilla on the block here is NVR.
You said your inventory is so high now because of cancellations?
Yes, they’re all from cancellations or defaults. When somebody cancels, they don’t want to walk away, my customers, about 80 percent of the time. The condo market, and speculators, they want to walk away … they’re the exception, not the rule. My customer can’t financially do the deal anymore. They may not qualify, or the program they qualified for when we started building their house doesn’t exist anymore.
For those that have canceled on us, we try to move them into smaller homes that we have in our inventory rather than have them forfeit their deposit. When we’ve gone out and spent a million dollars building them a house and now they can’t come to settlement … we are harmed very, very severely.
They made a deposit … anywhere from $50,000 to $100,000. But I don’t want to keep their deposit. I want them to settle on a house. It’s a custom house we built for them. Maybe they ordered pink carpet. I may not like pink carpet, but I’m going to put it in there if they ordered it and they say it’s what they want. They have the color of the cabinet they wanted, the special theater room that they wanted, and they put up a deposit for that.
What new products, types of homes are you building?
We [recently] broke ground on the Villas at Beech Tree [in Upper Marlboro]. It’s really unique, a beautiful setting, I think it’s going to do very well. This is an age-targeted product. Most of it on one floor, very high-end, for mostly empty nesters that are scaling down in size. This product has not been built anywhere in Prince George’s County to date, so we are taking a little bit of a chance, but our customers have told us this is something they want, and we believe there is a demand for it. So we’re going to find out.
That’s something new that we are doing, and that helps us diversify into a different product. We’re also diversifying into other counties, working on a new product in Charles County.
What about Delaware?
You had mentioned thinking about building there. You know, an interesting thing happened relative to the Delaware market. That market has, shall we say, fallen on hard times. We’re very fortunate that, after much study, and we spent a lot of money looking at it, we spent a lot of time in Delaware, and we made the decision not to go, at that time, and to wait and watch. And as we waited and watched, that market just collapsed. And the people that are there are getting hurt very badly. So we didn’t go to Delaware.
Last question, what is your opinion on the idea of an impact fee on commercial development in Montgomery County to be used for the benefit of affordable housing?
I am certainly very much in favor of affordable housing in every county and I would argue that we don’t have enough of it, especially in Montgomery County where land prices are high. But I’m having a little trouble seeing the nexus between the development of office buildings, shopping centers and warehouses — with the payment of fees for the benefit of affordable housing. I’d like to gently point out that commercial development provides the County with a strong job base. The farther out we build these types of facilities, the shorter the distance becomes for employees to commute from their homes to work. Seems to me that would be helpful to reducing the flow of traffic and be more environmentally sensitive to emissions and the consumption of gasoline.
Of course, our governments routinely use taxes of various kinds for uses that don’t necessarily relate to the item being taxed. This would just be another case, no different from the state’s recent suggestion to raid the transportation fund to close budget deficits not related to building roads. My personal feeling would be to reduce spending instead of raising taxes. After all, no one I know gets to spend more than they earn. Wouldn’t it be nice if our governments would start spending our money, like it was their own?
Roger M. Lebbin
Position: President, Mid-Atlantic Cos. of Rockville, a land development and luxury-home building company.
Education: Bachelor’s degree, economics, Carnegie Mellon University; master’s in business administration, University of Michigan.
Organizations: Maryland-National Capital Building Industry Association.
Awards: America’s Best Builder, 2006, National Association of Home Builders; Builder of the Year, 2006, 2005, 2004, 2002, 2000, 1999, Maryland-National Capital Building Industry Association.
Residence: Bethesda.
Hobbies: Golf, water skiing, snow skiing, playing the trumpet, scuba diving, snorkeling.
