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Not content to let a far less than spectacular economy or the dog days of summer stand in its way, McKelvey Homes in St. Louis is on track to double its home sales this year and make significant headway in digging out of the worst housing downturn in generations.
“We are not sitting around waiting for the economy to improve,” said Jim Brennan, president of the company. Established in 1898, McKelvey Homes is the oldest residential builder in the area, and the family business was purchased by Brennan from the grandson of its founder.
McKelvey is also the only local builder that was able to increase its home sales in 2009, an achievement that Brennan attributes to an adherence to conservative business practices, an established reputation for quality and the ability to adapt quickly to changing demand in the marketplace.
McKelvey Homes increased its revenue last year to $16.9 million, up from $16 million in 2008, and rose from 11th to fourth place among the largest St. Louis builders during a period when more than half a dozen local builders disappeared from the scene, including two of the biggest.
Through June, the company this year sold 36 homes worth $17 million, already matching its performance for all of 2009. With some help from the home buyer tax credit, business was good this spring, according to Brennan, although he sells primarily to trade-up buyers, many of whom completed purchases even though they were not eligible for the tax incentive.
Roughly 100 homes a year were being sold when housing was at its peak.
Like just about everyone in the home building business, McKelvey has had to contend with a sharp decline in demand, and has rolled back its prices and rolled out incentives to bolster its sales. “We have been very aggressive and give people a reason to move now,” said Brennan.
Currently, buyers are being offered $20,000 in free options, which can also be taken off the base price of the home. The options include brick and stone exteriors, surround sound, coffered ceilings, hardwood flooring and a hybrid energy package.
In the St. Louis area, where temperatures and gas and electric prices can fluctuate markedly, McKelvey’s hybrid energy system enables consumers to go back and forth between the two utilities. The system is programmable, he said, and in one model was able to save 42% in energy costs.
To provide peace of mind to move-up buyers who are concerned that they won’t be able to sell their current home, McKelvey can provide a secured sale plan that will pay the interest, taxes and insurance on the existing home for up to six months in the event that it doesn’t close on time. “We have had quite a few people take advantage of it,” Brennan said, “but most sell their homes.”
To help expand its customer base and solidify its reputation for quality, McKelvey also will pay $1,000 to past customers who refer a buyer who is a friend or relative. The builder will also shave $10,000 off the sales price for repeat buyers.
At a time when consumers are pinching pennies, McKelvey has taken its larger bestseller — the Turnberry model — and redesigned it to yield the best possible value, including a modest reduction in size.
The resulting one-and-a-half-story Muirfield is now the builder’s most popular floor plan.
The home is 3,717 square feet, down from the Turnberry’s 4,015. Both homes feature standard hearth rooms, great rooms, bonus rooms and Jack and Jill baths. The larger home's name brands were also kept — including Kohler, Whirlpool appliances, Aristokraft cabinets and Silverline windows by Andersen.
“We were able to re-engineer the home and keep the same number of rooms while maintaining the character and functionality of the larger home,” said Brennan. This effort helped achieve a $40,000 reduction in the home’s retail price, which starts as low as $297,600.
As a result of its efforts to make the best of challenging times, Brennan said all of his sales managers are busy actively working with prospects.
McKelvey’s homes have open floor plans that are functional and designed with the help of professionals. “We really sweat the details,” he said, and buyers can customize.
Customers can also contribute to the design process. “We get a host of ideas from them,” he said. For instance, when buyers balked at the two-story great room in the company’s most popular two-story model, the Edinborough, the builder put a bonus room above it, which is now a step-up bonus room.
Despite the amount of attention lavished on the interior, Brennan said that curb appeal is what sells homes. “People buy homes on the exterior first,” he said. He can personally attest to that because he made the decision to buy his first home before he saw what was inside. “Exteriors must be very attractive,” he said.
Brennan also believes that having some homes in inventory is an inducement to buyers and he aims to keep one or two houses in various stages in each community. As the deadline for signing a sales contract to qualify for the home buyer tax credit neared at the end of April, McKelvey sold out in several locations, with people purchasing model homes. Sales trailers are now sitting in two locatioins, “and we are rushing to bring new displays on line.”
Adhering to the advice of business consultants such as Lee Evans, Brennan came into the housing downturn as reasonably prepared as possible given its magnitude. “We have been able to weather the storm,” he said. “There’s good times and times not as prosperous, so we planned for that.”
Brennan said that his business has also been able to draw the credit it needs to keep building by establishing long-term relationships with his banks, not being highly leveraged and having a strong balance sheet and good liquidity. “With that financial strength, they are confident in extending credit terms to us,” he said.
These days he is also buying lots from banks that took back property from builders who went out of business.
Meeting regularly with a solid, close-knit network of trade partners and suppliers, Brennan voiced confidence that he can keep coming up with the ideas he needs to draw more buyers by improving designs and controlling costs.
“Only through adversity do you really know your skill level,” he said. “For those who survive, it’s an opportunity to innovate and make the best of a difficult economy.”