U. S. Builder at Home in France : American Firm Finds Ready Market for Its Houses
When Disney executives announced intentions to build a Disneyland in Paris by 1991, Bruce Karatz, president and chief executive officer of Kaufman & Broad Development, wasn’t surprised.
“In my mind, there was no question that Paris would be selected,” he said a few days ago. Until the announcement in December, Disney had been debating between France and Spain as a site.
Kaufman & Broad, a Los Angeles-based company since moving in 1962 from Detroit (where it started in 1957), has been building homes in France for 15 years, its first foreign market.
California and France
It also built in Germany later, but decided to focus on France as it proved to be profitable every year. Since 1982, the firm has been building only in France and California. So far, there have been no apparent regrets.
Why should there be? As Karatz put it:
“Kaufman & Broad’s housing operations never earned as much money as they have since they started concentrating on the two markets, and we’re doing better and better all the time. This is the third record year for K&B;’s housing (divisions).” K&B; also had record profits in its other divisions. Besides developing real estate, K&B; provides shelter-related financial services and life insurance.
Kaufman & Broad-France is the third largest home builder in France and, in a rating issued in December by L’Expansion (a business publication similar to Forbes and Fortune), of the 50 companies with the best profit margins earned in France during 1984, K&B; ranked 45th, but there was no other builder on the list. Louis Vuitton (the luggage and handbag manufacturer) was first.
Acquired Company
Last year, K&B-France; and a newly acquired K&B; subsidiary, the 30-year-old French home-building firm, Bati-Service, completed about 1,600 homes in France--not bad, considering that the total for the development operation, including homes built in California but excluding joint ventures, was 3,314, an increase of 45% from the previous year.
Not bad, either, considering that the French economy in general might be described as comme ci, comme ca.
The other day, in a brief visit to Los Angeles, Guy Nafilyan, who has been chairman of K&B-France; since 1983, acknowledged that with interest rates at about 11.5% and inflation at 4.8%, the economy there is “not very strong.”
“But it’s not so bad,” he added, “and companies like K&B; that have good architecture and management are doing very well.”
Nafilyan is French. So are most of the 200 or so other K&B; employees working in France, which is one reason Karatz figures K&B; has been successful in understanding the market. “I’m the token American,” William Langford, president of the K&B; subsidiary, admitted when he was in Los Angeles with Nafilyan.
Karatz, who works in Los Angeles, worked for K&B; in France for four years, starting in 1976 as regional manager of housing operations in Marseilles and Lyon. K&B; is still building there, but by the end of the year, will concentrate entirely on Paris and the surrounding area.
Paris’ Importance
Karatz extols Paris as “the principal European market.” Without a doubt, he adds, “no marketplace over there is comparable.”
Nafilyan agreed. “We are 50 million people in France and of those, 10 million are around Paris.” Jacques de Peretti, president of Bati-Service, added, “Fifty per cent of the wealth in France is in Paris.”
“So Paris has a very large middle class and an extremely good economy. The economy is not so good in the rest of France, but it is always good in Paris,” Karatz said. “It is the capital of the country, and it is the business and population capital as well.
“It was the natural place for us to build, because you need people who are making money to buy homes, and you need a place that has a diversified economy, which Paris--like California--has. That’s one reason California has such a good housing market.”
Paris also has a strong move-up market. K&B; focuses on first-time buyers in California, but it works more with second-time buyers in France, although its new subsidiary, Bati-Service, builds higher-density units--town houses and duplexes--for new homeowners.
Price Comparisons
The average price of a K&B-France; home: the equivalent of about $150,000; of a Bati-Service unit, $65,000. The average price of a K&B; house in California is $110,000.
“If you look at L. A., New York or London, office buildings and homes in Paris are not very expensive,” Nafilyan noted. This is why the English are starting to build offices there again. They built many offices in the past, then sold their assets but are now returning, he added.
“There is no other American firm of any size . . . building there,” Karatz said. “Oh,” Langford added, “there is a former K&B; employee building homes in France, but he’s not a major force.”
Like the English, K&B-France; also went into the office market, completing three buildings during the past year, no larger than 50,000 square feet each, in Paris.
Insurance Companies
K&B-France; is working with insurance companies to develop more office buildings, but its specialty remains housing.
“We were the first home builders to sell houses to insurance companies,” Karatz said. “They buy our houses in quantity and then rent them out. We convinced about 20 insurance companies that houses are as good an investment as apartments, office buildings and shopping centers.”
After six years, insurance companies are involved in about 40% of K&B-France;’s activity. Few other companies in France have yet followed K&B;’s lead.
The houses seem to be good investments even as resales, judging by the classified ads that mention K&B.; “This means that sellers think the name K&B; gives value,” Karatz said. He couldn’t remember ever seeing an ad for a resale in California that mentioned the builder’s name, but the practice, naming K&B;, is quite common in France, he noted.
Master Bedrooms
When Frenchmen, or women, see such ads, what do they imagine in the houses? Better yet, what is a new K&B-France; house like? Wall-to-wall bedroom, as French films might suggest?
Nope. In fact, here is a surprise: Nafilyan claims that K&B; brought the master-bedroom suite idea to Paris. Before K&B-France;, there were bedrooms in Parisian homes, to be sure, but the master bedroom was the same size as the other bedrooms until K&B; came along, he said. In a K&B-France; home, the master bedroom is larger than the rest, and it has separate bath and sitting areas.
K&B-France; did something else that was different for homes in France. As Karatz explained it, “The French thought that you build a wall around yourself for protection. Then we came in and tore down the walls, and they discovered that was a wonderful way to know their neighbors.”
The CC&Rs; (covenants, codes and restrictions) in K&B-France; residential developments prohibit the construction of walls and fences except in backyards.
Extensive Landscaping
K&B-France; also installs extensive landscaping that gives its projects a sense of community, something like a French village. Nafilyan smiled, a touch of pride showing. “We’re very famous for this.”
In addition, K&B-France; includes some interior features expected by Californians but not always found in new homes in Europe: kitchen cabinets and appliances, closets and central heating.
Of course, there are differences between the houses K&B; builds in France and the ones they build in California.
“We don’t put bidets in houses in Riverside,” Karatz said with a chuckle.
Not Too Different
They also build more with masonry in France and more with wood in California.
“Otherwise,” Nafilyan said, “the homes in the two places aren’t that different.”
In the past, there were greater differences in size, Karatz noted, but in 1980, when K&B; was trying to figure out how to make homes in California more affordable, the firm decided to borrow from the French, who were accustomed to smaller spaces. Then K&B; tried to make up for size by installing amenities normally found then in expensive housing: vaulted ceilings, bay windows, stone treatments, atriums and more sliding glass doors.
Today, the average size of a K&B; home in California is between 1,100 and 1,200 square feet; in France, it is about 1,355 square feet.
In 1980, K&B; also borrowed the idea of landscaping from its French projects and started landscaping its front yards in California--”no matter how expensive the home,” Karatz said.
American Names
Something else K&B; borrowed from its French projects was a touch of French itself, naming one of its California projects Le House. In France, it named one project Beverly Hills; another, Park Avenue. For many years, the French thought of K&B-France; as a French company, but lately, more consider it as an American firm because of these names and K&B;’s marketing. A spokeswoman for the company explained the marketing strategy: “Being American is a positive point now. It’s associated with quality.”
No telling where the phrase “Buy now” originated, but it is used in Paris as much as it is in California and for more pressing reasons.
Said Nafilyan:
“All the (political) parties are saying that construction must be developed, and we are confident that we can grow this year, but you never know about elections.” National legislative and regional elections will be held in France on March 16. “So we try to explain (to home shoppers) that they should buy now.”
The price of a new home hasn’t changed there in two to three years, he said, “and the cost of land and construction hasn’t moved.” That’s a different story in California!
