Building a fortune anew
Even as capstones to spectacular comebacks go, this one is dazzling: Late last year, Virginia home-building mogul Dwight Schar laid out $70 million to buy the tony Palm Beach estate of Revlon Inc. CEO Ron Perelman and his actress wife, Ellen Barkin. It's the highest known price paid for a home in U.S. history and includes a 26,000-square-foot mansion, oceanfront and lakefront property, and furnishings worth millions. "He's bought a fabulous property--it's a classic Mediterranean-style house that had an open-checkbook renovation," says John Pinson, head of the local Realtors association. "There's really not another house like that."
Not bad for someone who, a decade ago, teetered on the edge. His big Washington-area home-building company, NVR, had been forced into bankruptcy, its stock price beaten down to just 31 cents, and Schar found himself in danger of losing control of his company. In the boom-and-bust home-building industry, NVR's woes were familiar: NVR had bought land--too much of it--and then found itself holding the bag when interest rates turned, land values sagged, and building slowed in the early 1990s. The company had also borrowed heavily to buy out a much bigger rival, Ryan Homes. After losing hundreds of millions of dollars, NVR threw in the towel with its 1992 Chapter 11 bankruptcy filing.
Today, as his new oceanfront villa attests, it's clear Schar and NVR are back. But while Schar may well have joined the South Florida glitterati, the story of NVR's resurgence is basically a conservative tale of patiently sticking to the knitting--downsizing risk while focusing on product quality and customer relations. As a result, in an era of spectacular business failures, NVR and its 4,400 employees have quietly pulled off one of its most impressive recoveries, operating in 11 states stretching from New York to Tennessee and the Carolinas.
Rebound. Two numbers may tell the story best. In October 1993, upon emerging from bankruptcy protection, NVR's stock price stood at $10.25. Last week, with NVR ensconced as the nation's eighth-largest home builder, the price sat near $800 on the American Stock Exchange, up 7,700 percent overall, or 44 percent annually. (Even at $800, the price isn't as airy as it might seem--NVR' S price-earnings ratio is just barely 12.)
Many executives have bragged about far less, but Schar, 63, shuns the spotlight and declined interview requests. His background is likewise modest. He grew up in Ohio, leaving home at 13 to work on a relative's farm. He paid his way through college by working the night shift at a pipefitting factory. He married his high school sweetheart (although they later divorced) and taught junior high school science after graduating from Ashland College in Ohio. He sold real estate after school and on weekends but gave up teaching after a few months to sell houses full time.
Today, Schar's good fortune has also allowed him to leave his mark outside the office. He's a part-owner of the National Football League's Washington Redskins, a significant charitable donor, and a power player in Republican politics. He was among the biggest fundraisers for President Bush's re-election effort, and he held a top spot on Bush's inaugural committee.
The centerpiece of NVR's recovery has been to retool how it handles the vital, but perilous, commodity of land. Homes need land to sit on, of course, but following its debacle of the early '90s, NVR now offloads the risk of holding property. The company depends on developers of raw land, who put in basic services like utilities and roads: Typically, only when an individual lot is ready for building and NVR already has lined up a buyer for the home to be built does NVR buy the property and put its own cash into the game. After taking title, NVR quickly builds the house, condominium, or townhome before flipping the property to the ultimate purchaser. Schar didn't invent this practice, called "optioning," but he has exploited it energetically. "What he really smelled out, and what most people didn't figure out in the building business, was to let someone else carry the land," says John T. Hazel Jr., a longtime Virginia developer and friend of Schar. "That's really the key to the whole NVR operation. Dwight was able to get back into the business without a heavy debt inventory. He could focus on producing a house."
Indeed, attention to quality has earned NVR above-average customer satisfaction scores in evaluations by J. D. Powers & Associates. That mindfulness also doesn't end after homeowners move in. While many buyers endure a nightmare with builders who disappear once the deal is done, NVR regularly contacts buyers after the sale to check if everything is OK. (The level of care and feeding isn't just a recent touch, either. Just before NVR filed for bankruptcy, company employees called thousands of customers to give them a heads-up and assurances projects would go forward.) "Their consistent level of product has always remained, regardless of what their financial situation has been," says Diane Cox Basheer, head of her own home-building company and an occasional competitor of Schar, whom she's known for more than 20 years.
Boom times. During its comeback, NVR has clearly benefited by riding one of the strongest housing booms in the nation's history. And in its Washington region home base, robust federal spending has heated the home market all the more. Nevertheless, Schar has also done a good job in another task straight from the classic marketing playbook, namely adapting to local conditions, says Victor Furnells, Washington-area director for the national home-building research firm Hanley Wood's market-intelligence division.
Because NVR operates in rapidly growing areas, it must deal with slow-growth rules imposed by localities straining under burgeoning traffic or full-to-the-brim schools. In one of them, Howard County, Md., NVR recently faced restrictions based on school enrollment. The company had planned to build single-family homes--which generate more school kids. But rather than pressure school enrollment, NVR switched gears and went for an "active adult community" instead, Furnells says. "It's smart thinking."
Home builders' biggest worry, of course, is always the next downturn, but there again, Schar has made a conservative play. While NVR does a good deal of its business in upscale homes, it has also balanced its portfolio with more modestly priced offerings. "So he's got two engines, and both of them are in good environments," says George Fulton, an industry marketing consultant. "Obviously, he's learned a lot."
He's made a lot, too. From 2000 to 2003, the latest year for which information is available, Schar harvested at least $173 million in compensation and gains from exercising stock options. In the past two years, he's landed in the top 5 of Forbes magazine's executive pay list. The weighty take-home has caused some grousing, as has steady insider selling of late, because of executives cashing in on NVR's stratospheric stock price. Still, the bottom-line results have been impressive. From 2000 to 2004, revenue grew at a 17 percent annual clip, while net income grew more than twice as fast, at a 35 percent annual rate.
Patience has indeed been a virtue for Schar.
This story appears in the March 28, 2005 print edition of U.S. News & World Report.