Northstone - Custom Home Builders in the Houston Area

Northstone in the News - 7/22/2005

Houston Business Journal - "Houston's Strong Market is Magnet to Builders"

By Christine Hall

Residential builders and developers from the far corners of the world - and closer to home - are making their way to Houston. They're buying land, designing projects and going into the business of buying and selling new homes. Or they're buying already established home-building companies.

"We have moved quicker than can be imagined," says Fatih Zirih, vice president of Atlas Group, a major developer and builder in Turkey and other countries, including Senegal, Algeria and Morocco. The local branch of the company is in design stages of its first project in Houston, a high-end 17- or 18-unit townhome development on more than 1 acre at 6234 Fairdale Lane.

The company established its Houston headquarters office less than a year ago, moving its three principals here - Zirih, a civil engineer with extensive construction management experience, and Bertug Senar and Inci Akpinar, both architects.

Already, in addition to its project here, Atlas is branching out to build a high school gymnasium in Oklahoma City and "looking at high-rise construction possibilities" in Florida, Zirih says.

Long-term, Atlas, which has international experience in reinforced concrete construction, plans to target the high-rise market.

"Here the economy and market is strong. There are so many oil companies and finance companies that money moves quicker than in other areas," Zirih says. "But the high-rise market is new."

Among other newcomers is Alism Development Inc. with some principals from Nigeria, which is building townhomes in the Bellaire area.

STARTING FROM SCRATCH

Homegrown new builders throughout the country are also putting down Houston roots.

Brothers Jeff and Rich Stone, both graduates of Brigham Young University in Utah, decided to start from the ground up when they founded Northstone Builders LP, a design build custom home builder, in 2003.

Jeff Stone, president, was the first to arrive in Houston, and worked with other companies, including David Weekley Homes, before deciding to go out on his own. In 2004, he convinced his brother, who was working on Wall Street, to join him as chief financial officer.

The two formed what Rich Stone calls a "conservative business plan," in order to get the company rolling.

"We got a friendly bank and a very generous father," he says. "We didn't walk into this and throw down money expecting to operate at a loss for a while. Instead, we used our money to build one house and took the profit from that one and rolled it into the next house."

The brothers say their strategy for entering the market was to offer a product that was between a production home and the high custom builders.

"There is big business for national production home companies and build-on-your-lot programs," says Jeff Stone. "However, many are stringent about what is required, such as only using their plans or designs."

A growing population and inexpensive home pricing in Houston signaled green lights for Stone.

"Houston has lots of construction and is a fast growth market," he says.

"Compared with other markets, Houston is great for home builders - there is no union labor, in fact, there is cheap labor, you can build 12 months out of the year and there is tons of land available," Rich Stone adds.

Building in Houston is relatively easy if builders follow codes and mandates, Jeff Stone says.

However, there are areas where it can be a problem.

"There are pockets of Houston that are a little more difficult, such as the villages, which have their own municipalities," he says.

Northstone Builders has plans to expand in the Houston area as well as the state over the next five years.

Jeff Stone says he would like to see his company grow in the manner of David Weekley.

"He has a fantastic operation," he says. If we could mimic his system and operations with a different product, it would be great."

LAND PURCHASE

Other companies, firmly established in other areas, have seen Houston as an attractive market.

Among them is Denver-based M.D.C Holdings Inc., which builds homes under the Richmond American Homes brand. M.D.C. entered the Houston market, its second in Texas, in 2003.

At the time, the company was already the largest home builder in Colorado and a top builder in Virginia, Arizona and Nevada.

"Richmond American is continuing with its expansion into Texas with our entry into Houston, which has proven to be a strong market," David Mandarich, M.D.C.'s president and COO said at the time. "We are seeking to benefit from the positive economic forces driving growth in the Houston market."

The Richmond American product fit into the Houston market, says David Sprouse, division president for the company in Houston.

Approximately 75 percent of the new home permits issued in Houston fell into Richmond American's demographic of $110,000 to $170,000.

"The combination is what drew us into the market," Sprouse says.

The company is currently active in 13 subdivisions around Houston, including Canyon Lakes, North Gate, Shadow Creek Ranch and Summerwood.

"Houston has been great and very welcoming to us," Sprouse says. "It is also not any more or less competitive than other markets we work in."

In fact, the company was recently awarded a Greater Houston Builders Association PRISM Award for its product design in the $100,000 to $150,000 price point.

ACQUISITION

Red Bank, N.J.-based K. Hovnanian Homes took a different route to getting established in Houston.

The company came onto the scene in late 2002 following its acquisition of Parkside Homes.

At the time, Parkside controlled 2,200 lots in neighborhoods around Houston and was expected to close on 300 homes in 2003.

The next year, Hovnanian acquired Brighton Homes, including its luxury division, Parkwood Homes.

"Although we will run our two Houston acquisitions as separate operating divisions, we intend to leverage their combined strengths," Ara Hovnanian, president and CEO, said at the time. "We are confident that we will achieve greater efficiencies and cost savings in our relationships with regional subcontractors and suppliers due to our increased market position, similar to the benefits we have achieved in our other markets."

The company's homes are built under the three Houston brands in subdivisions including Lakeville and Eldridge Court.

Despite its "newcomer" status, Hovnanian quickly established a large presence. According to the Houston Business Journal's Largest Houston-Area Home Builders list, it had 2004 gross local revenue of $258.7 million and closed on 1,588 homes that year, up from 2003 numbers of $228 million gross revenue and 1,218 home closings.