Builder's limited land purchases keep it ahead during downturn

RYLAND LANDS ON TOP

June 28, 1992|By Ellen James Martin | Ellen James Martin,Staff Writer

From the ninth floor of the Ryland Group's new bottle-glass green headquarters in Columbia, Roger Schipke's office overlooks verdant swaths of suburban land -- perfect sites, it would seem, for one of the nation's top three home builders.

But Ryland owns little such land, and that makes Mr. Schipke very happy. The 55-year-old chairman takes pride in how few building lots Ryland owns in Columbia or in its two dozen other U.S. markets. Indeed, he attributes Ryland's financial health to its disinclination to buy land.

"Buying land at the wrong price at the wrong time can kill you," says Mr. Schipke, the ebullient former head of General Electric Co.'s large-appliance division in Louisville, Ky., who was hand picked to head Ryland by his predecessor, Ted Peck.

To be sure, times have not been easy for Ryland during the downturn in residential real estate.

With buyers of new homes in retreat, the company's net income skidded nearly 65 percent last year, to $6.7 million. That continued a decline that began in 1990, when profits reached $19 million -- a $38 million tumble from 1989. Ryland actually dipped into the red during the first quarter of last year, something that had never happened in its 25-year-history.

"Last year was the worst year for the industry since 1945," says Mr. Schipke, a tall man with an ever-present smile who left General Electric after 29 years because "it was clear I was never going to become chairman."

Although Ryland felt the affects of the weakened real estate market, its main rival in the region, Virginia-based NVR LP, fared far worse. Overwhelmed by a debt of $605.4 million compared with $480.7 million in assets, NVR -- owner of both Ryan and NVHomes -- filed for Chapter 11 bankruptcy protection in April after working out a debt-for-equity swap in exchange for fresh financing from its bondholders.

A key difference between the two builders was that NVR was a heavy buyer of land at the height of the inflated 1980s market, while Ryland took a different route.

"Ryland just isn't a land buyer. It has taken an approach to home building that keeps it out of trouble," says James F. Wilson, a San Francisco-based analyst who tracks the company for Montgomery Securities.

The reluctance to hold land (in all but the California markets where Ryland considers it essential to do business) may be nothing new for Ryland since Roger Schipke took the chairman's swivel chair in December 1990. Still, Mr. Schipke has definitely moved the company and its 2,900 employees in new directions.

He has retargeted Ryland's M. J. Brock Homes subsidiary, the Los Angeles-based builder of upscale homes, toward the broader and potentially more lucrative middle-income market. He has spun off Ryland's modular housing subsidiary -- now known as Regional Building Systems -- on the basis that itdidn't mesh with the company's central goals. And he has rapidly expanded the portfolio of mortgages that Ryland services to $11 billion. The goal is to continue positioning the company's financial services arm -- first designed to serve as a mortgage issuer for Ryland's home buyers -- to create a counterbalance to the cyclical swings of home construction.

"A mortgage servicing portfolio is a very stable source of income," says Montgomery Securities' Mr. Wilson, noting that Ryland would have lostmoney every quarter last year had it not been for earnings from financial services.

Mr. Schipke is also drawing Ryland into fledgling overseas ventures through its year-old trading company. Last year, it built 1,300 homes in Israel, and this year it has forged joint-venture relationships with home-grown enterprises in Moscow and St. Petersburg, Russia, where models should begin going up beginning late this summer.

Analysts consider such international adventures bold moves butquestion their profit potential. Russians may want Ryland's homes, they reason, but where will they find the hard currency to buy? "It's just gravy if they get any earnings from their foreign ventures in the next couple of years," Mr. Wilson said.

"It's a small beginning," agrees Thurman W. Bretz, president of Ryland Trading Ltd. , who spends much time traveling the globe in search of markets where Ryland's predominantly wood and largely factory-built homes might sell well. Although Ryland's primary market is for traditional, middle-income homes geared to U.S. suburbs, it recently commissioned an architect to design an "Asian House," a "Caribbean House," a "Spanish House," and a "European House," in addition to designs for the uncertain Russian market.

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