Small builders unite, gain clout

RALEIGH -- Just a few years ago, independent builders competed against each other to sell homes. Now they're banding together to stay in business.

Triangle builders have joined forces to buy large lots and wrangle discounts on building materials as competition increases from well-financed national home-building companies.

"It's a matter of survival for us," said Ward Russell, president of the Triangle Builders Guild, a consortium of 29 local builders. The guild assembled this year to strike deals with materials suppliers, aiming to get discounts similar to those offered to large companies that spend millions of dollars on materials, from framing lumber to bathtubs.

A second, smaller, organization, The Bedford Builder Group, was formed five years ago to buy 100 lots in the Bedford at Falls River development in North Raleigh. Now those lots have homes on them, and the group is buying a much bigger chunk of land, 470 lots in Cary's Amberly development. The purchase, worth about $43 million, is enough to keep the 12 members working for about three years, said Dan Tingen, a member of the group and president of the Home Builders Association of Raleigh-Wake County.

The number of businesses involved in the groups is relatively small. The Raleigh-Wake association has 676 builder members. But guild leaders expect membership to increase as builders fight for home sales in a market increasingly being controlled by national companies.

"We're competing with the nationals," said Russell, owner of Legacy Customs Homes in Raleigh. "They're more than capable of building the houses we build."

In 1988, national companies accounted for 18.1 percent of the 4,420 new homes sold in the Triangle. Ten years later, national companies built 31 percent of 8,454 homes sold, according to Market Opportunity Research Enterprises, a Rocky Mount firm that tracks residential sales.

Last year, national builders accounted for nearly 39 percent of 15,924 new homes sold in the Triangle, with a total value of $4 billion. Big companies are gaining market share, partly from discounts on materials such as shingles, studs and water heaters. The discounts lower larger companies' costs but typically aren't available to smaller companies, builders said.

Many of the biggest companies, such as Centex, which built 776 homes in the Triangle last year, Toll Bros. (202 homes) and Pulte (526 homes) are publicly-traded and have major financial clout. That allows them to make bulk lot purchases, which developers of large projects want to sell in big blocks, Tingen said. Developers selling hundreds of lots don't want to sell two or three at a time to a small builder; they want to sell them to the fewest number of buyers possible, Tingen said.

"The custom builders are being pushed out because they can't purchase large volumes of lots -- at any price," said Tingen, owner of Tingen Construction Co. of Raleigh.

Durham builder Dana Kelly is shutting his company, Kelly Construction, after 37 years because it's too difficult to find enough lots to keep building 15 to 20 homes a year.

"You just can't find a lot," Kelly said. "The big boys and real estate people have purchased it all."

Independent builders hope to reverse the trend by concentrating their purchasing power.

The members of the builders guild last year had sales volume of $390 million, about double the volume of the largest national builders active in the Triangle. So far, the guild has signed up 60 vendors, and members hope to get discounts of three to five percent in return for their business.

Mark Kirby, president of Dixon/Kirby Co. in Raleigh, said before the guild was formed "an opportunity for custom builders to come together in a noncompetitive environment was impossible. They were afraid of each other, wondering about trade secrets and who had a better idea, he said.

The guild "has allowed us to see our competitors as the national builders," Kirby said. "From a buying perspective, we're definitely following their model."