SIR LAWRIE TRIES IT AGAIN : But This Time, the Briton Is Out to Lure Upscale Home Buyers Instead of Concentrating on Southern California’s First-Timers

It’s dark, and it’s late, and Sir Lawrie Barratt--knighted in 1981 at the recommendation of British Prime Minister Margaret Thatcher--has just finished dealing with that most mundane and irksome of Southern California problems: freeway traffic.

Clogged, snarled, creeping freeway traffic, to be specific; traffic slowed still further by a fog creeping in over Laguna Niguel from the Pacific.

Up on Niguel Summit, however, a two-story arch of pink, red and white balloons sways in a chilly breeze at the entrance to Sir Lawrie’s new subdivision, Belle Maison, and a violinist plays to the guests arriving in long white limousines for a private preview.

Farther up the hill, the tinkle of a piano drifts from under a plastic tent, where the tables are laid for 500 dinner guests. In black tie, sipping a gin and tonic, Sir Lawrie strolls through the crush of local movers and shakers around the bar.

It is a long way from Newcastle-upon-Tyne, the gritty English city where Lawrie Barratt, now 60, built his first home in the early 1950s. Barratt Development PLC is now the largest British home builder and at one time built an astonishing 14% of all new homes constructed in Britain.

But Barratt’s Irvine-based U.S. subsidiary has not performed up to expectations since opening in 1981, so the big plans Barratt once had for the U.S. market have been shelved.

Barratt’s problems haven’t scared off other foreign home builders from the Southern California market, including three other British builders and the French company Premier, which set up shop just recently. The Japanese also dabbled in the market in the early 1980s, according to the Building Industry Assn. of Orange County, but have since gone home.

In the last year, the company has tried a new tack to make Barratt American more profitable, a strategy that can be seen plainly in the two-story houses across the street from Barratt’s cocktail party. When completed, they will sell for $325,000 to $450,000, and they are by far the biggest and most expensive homes Barratt has ever built in the United States.

Barratt began in Southern California by building tiny 400-square-foot condominiums that cost $50,000. Seven of them would fit in the smallest house in Belle Maison.

At one time in the early 1980s, Barratt sold condos from models set up in local Sears stores. The company’s ads said: “You’ll find your new home between the lawn mowers and lingerie.”

Sears even sold a line of diminutive furniture and appliances to go with the condos.

Few U.S. builders had ever gone after first-time home buyers so aggressively or in such a mass-market way as Barratt. The company also built inexpensive single-family homes, though the small condos got most of the publicity. At one point, according to the company’s own publicity, a customer could buy one of the mini-condos in Simi Valley, Sunnymead or Fremont for as little as $52 a week, or less than some customers’ car payments.

Barratt, however, widely overestimated demand for the units in Southern California, real estate experts say. Potential buyers wound up staying in their more spacious apartments rather than plunking down their money for a Barratt condo.

“Americans, and Californians especially, have a much more optimistic outlook on life than the English,” said a real estate consultant familiar with Barratt. “And one of the things they’re most optimistic about is achieving a single-family, detached house.

“Barratt was frustrated in trying to sell a lot of those tiny little bandboxes.”

The problems weren’t just product related. Before long, the breezy Californians hired by Barratt began to clash with the more staid corporate culture of the British company.

The differences in style showed up in small things as well as large. Barratt American, for instance, refused to hire gardeners for its model homes and made its sales people mow the lawns. Some of the good ones were said to have walked out.

“I think there’s nothing wrong with sales personnel doing everything possible on the site to keep the models in good condition,” said Sir Lawrie. “I’d do the same thing myself if I walked in and saw something wrong.”

Meanwhile, things weren’t going that well back in Britain, either. In the summer of 1983, a TV program--a British show similar to “60 Minutes” called “World in Action”--alleged that Barratt’s building materials were unsafe and some of the company’s houses shoddily built. Before the flap had quieted down, the company had been dealt a crippling blow.

Here’s what had happened: Barratt had been trying to introduce timber-frame construction--long used in the United States--to British home building, which has favored brick.

A later “World in Action” program reported that the values of the homes built by Barratt were falling, which one British stock analyst termed “a bit naughty, since it was their first television program that had caused the values to fall.”

Barratt abandoned timber-frame construction in Britain and went back to masonry, but the damage was done.

Home sales for the entire company stayed relatively flat in 1984 at $888 million and in 1985 at $890 million. In 1986, revenues fell through the floor to $733 million. For the company’s 1987 fiscal year, which ended June 30, they dropped again to $714 million.

The television stories “had the effect of brainwashing our customers,” Sir Lawrie complained bitterly.

With big problems on its hands in Britain, Barratt’s ambitious plans for the United States began to shrink. No longer was Barratt going to be able to follow its announced strategy: Grab a big share of the California market and then move on to other Sunbelt states, getting bigger and bigger in the process.

Barratt pulled out of Northern California in 1983 and consolidated its six U.S. divisions into two. “The (TV) programs didn’t affect the U.S. operation directly, but it so constrained the whole group’s growth and progress that it caused us to retrench here,” said Mark L. Frazier, president of Barratt American.

The company focused on getting U.S. profits up to acceptable levels. Before the TV programs, the British parent company had profits each year--before paying taxes--equal to about 10% of sales. In the United States, where Barratt American’s sales last year were $150 million, the pre-tax profit margin is just 7%. With the switch to more expensive housing in the United States, Sir Lawrie said, the U.S. subsidiary will hit the 10% pre-tax profit level next year.

To get the margin up, Barratt is switching its marketing from first-time home buyers and going after more affluent buyers moving up to a bigger house. The British parent company has already done this; only about a third of the houses it builds now are inexpensive models designed for first-time buyers. That is down from as much as 75% a few years ago.

In Southern California, where land costs are skyrocketing and forcing builders’ expense upward, more than half of Barratt’s homes are still the less expensive--and hence less profitable--models. The company’s now-modest goal: To get the split to 50-50.

In the last year, Barratt American has built two subdivisions of the more expensive homes: Ventana in Mission Viejo and Windsor Country Estates in Encinitas. The houses have sold well.

Barratt Developments continues to recover, though British stock analysts wonder whether the company can ever regain its huge market in Britain as the number of houses Barratt sells has dropped each of the last four years.

The company is also building more expensive houses in Britain. About a year ago, what would once have been unthinkable happened: Margaret Thatcher herself bought a Barratt house.

Meanwhile, Barratt’s cocky image in the United States has assumed more modest proportions. Barratt used to blanket the area with TV ads featuring a Barratt helicopter soaring around Southern California, a type of campaign more often associated in the United States with soap and cereal rather than with the normally low-key home building industry.

Ranks 79th

At about the same time, Sir Lawrie told Business Week in 1983 that Barratt was shooting to be the biggest home builder in the United States by the late 1980s. It now ranks 79th. Still, Barratt built about 1,000 houses last year and will build more this year, Sir Lawrie said.

“The company had been a star-rated stock, selling at very high volume as a builder of affordable housing,” said stock analyst Paul Harrison of the Scottish brokerage Wood McKenzie & Co. Ltd. “Now they’ve had to reverse their strategy altogether.”

In place of all the hoopla, a more reserved image of Barratt has emerged, typified by the recent cocktail party at the Belle Maison subdivision, which local real estate experts said was one of the most lavish subdivision openings in Orange County.

“Now we go about promoting ourselves in a different way,” Sir Lawrie said as he waited for the arrival of America’s Cup winner Dennis Conner, the party’s guest star.

“This evening is a more typical example.”