Two

Image courtesy of John Burns Real Estate Consulting

Builders best weapon to offset the risk of the two nemeses is running a business that’s as light and agile on borrowed capital as possible, and as efficient and competent at deploying that upfront capital in the right places at the right moment.

With intensifying pressure on pricing due to “higher-for-longer” interest rates, the tools homebuilders have to continue to build affordably involve stepping up operational excellence to source lots on a land-light fast-turn basis, design and produce product that stands out among would-be buyers, give them the buyer experience they demand, and – increasingly – value-engineer their offerings to meet buyers’ budget limitations.

Especially at a time, large national public homebuilders have doubled-down on market share gains as a business strategy, smaller local and regional operators need both balance-sheet agility and operational and executional excellence to offset competitive disadvantages in local markets.

Core competencies – trusted relationships with land sellers and developers, exceptional product design, a nimble asset-light balance sheet, high velocity, right-the-first-time construction cycles, and high-touch customer focus can set privately-owned homebuilders – become a smaller private firm’s super power and growth engine.

How?

  • They build closer, sustainable win-win relationships with land seller and development partners
  • They stay closer to the needs, wants, and pocketbooks of potential homebuyers and renters
  • They can recruit and retain more purpose-driven, loyal, and entrepreneurial talent
  • They can thrive in times of slimmer margins by keeping builder-of-preference status with trade, manufacturing, and materials distribution channel partners
  • They can keep debt costs to a minimum by driving revenue back into funding continued growth options

We are having calls every day with new clients that are seeing their access to traditional financing dry-up, says Brad David, Executive VP of development and construction at Snap.Build, a partner of The Builder’s Daily. “Our opinion is that this will only continue. The private lending space is rapidly growing and we feel extremely well positioned with our platform to capitalize on that growth.”

David says that the Snap.Build team is seeing private builders begin to evolve in use of technologies to improve the build-cycle process, increase inventory turns through velocity, and optimize use of project and operational finance to pivot for growth as they prepare and harden themselves for a “higher-for-longer and tighter” credit and interest rate regime.

We have discussions around tech with all of our builder and developer clients,” says David. “Builders that have technology implemented in their businesses are drawn to our platform for the obvious reasons. Where we really see the light go on is when we talk with builders that have been reluctant to implement technology around their payables and overall capital management. We give them the opportunity to have access to best-in-class technology and software without increasing their overhead and capital outlay.”

Once operators integrate those technologies on the finance life-cycle part of operations, what David and the Snap.Build team observe is that the operators gain time back to double-down on their focus where they tend to drive the most value into the end-to-end build-cycle.

By combining our technology platform with construction funding and managing those processes on behalf of builders, our builders are able to focus on their core competences,” says David. “In Snap.Build, they have a lender that can match their ability to build more efficiently and quickly turn more product. Our builders are also able to negotiate better pricing and credit terms based on how quickly and efficiently we pay on their behalf.”

As the two nemeses rear their heads in the upcoming months, smaller, entrepreneurial operators need every tool they can lay their hands on to navigate a trickier, narrower, gauntlet in 2024 and beyond. The opportunity to put best-of-breed financial and construction management technologies together with access to on-demand capital gives some operators a leg-up in agility.

The challenges smaller builders face with the Big Publics will always be there,” says David.  “The publics are well funded and well managed, so smaller builders have to find any opportunity to level the playing field. Technology is certainly one of the key ways that they can do that. That speaks to the power of our platform and what we offer builders. We are giving them access to capital markets they would not have otherwise and a technology solution that is truly powerful.”

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