PETER OCHS : KATHRYN G. THOMPSON : A Tale of Two Builders : Peter Ochs, Kathryn G. Thompson Share Their Insights

When Peter Ochs was graduated from Princeton University with a degree in finance, he wasn’t sure what he wanted to do. So, he headed to California and Stanford University’s graduate school of business, where he earned an MBA in finance and a job in the mergers and acquisitions department of American Standard Corp.

But it wasn’t long before Ochs was handling American Standard’s entry into real estate development--a task that teamed him in the early 1970s with a California home builder named William Lyon.

When American Standard and Lyon parted company in 1971, Ochs stayed with the newly formed William Lyon Co. and soon became its president. He left in 1981, in the midst of a housing industry depression, to form the Fieldstone Co.

Ochs was named national builder of the year in 1989 by Professional Builder magazine and last week was inducted into the California Building Industry Hall of Fame. In an interview with staff writer John O’Dell he discussed his unique management style, his thoughts about the industry, and his plans for his own future.

Being recognized in her industry has never been much of a problem for developer Kathryn G. Thompson. For one thing, the soft-spoken former real estate broker is one of the few women in the nation to head a major building firm. But Thompson, who last week became the first woman ever to be inducted into the California Building Industry Hall of Fame, has a lot more going for her than her unique position in a male-dominated industry.

The company she founded and leads as chairman and chief executive--Kathryn G. Thompson Development Co.--is know as a builder of quality affordable housing for first- and second-time buyers; it has been named one of the nation’s fastest-growing development firms by Professional Builder magazine and Thompson herself has been honored locally and nationally for her business acumen and her community involvement.

In an interview in her new offices in Aliso Viejo, Thompson shared with Times staff writer John O’Dell her philosophies about business and her thoughts about the building industry and its future.

OCHS:

Q. But first, the obligatory question: What does being elected to the hall of fame mean to you?

A. It makes me feel older than I am.

Q. And?

A. And it it is a great honor and I appreciate very much the peer recognition. That’s valuable to anyone in any business because they are the ones who understand most what the business is about.

Q. Not long ago builders bought land, built on it and moved on. Today, the builder often is also the community planner and sticks around for several years. What does this do to the relationship between developer and society.

A. I think a builder has a higher level of responsibility in a large planned development because he can often bring things to a city that the local staff isn’t aware of. A city’s planners are only operating within one city, but we operate in 20 communities and can bring in ideas from all over the place. We have an obligation to try to bring the best standards we can into these communities.

Q. That sounds like a plea for regional planning. Is that something you would like to see?

A. The local people have their own goals and objectives, and you have to work within that reality. But it is difficult at times to work that way. You might have a piece of land that is right in the middle of the urban core and should be built with high density to concentrate people where the schools and jobs and roads and sewers already are. You know that by building high density there you’ll need to build less way out on the fringes where people have a 90-minute commute. But the city says: “No, what we want is low density, high-priced detached housing.” And that’s what you have to give them. I tend to be leery of more layers of government, but we are so Balkanized in Southern California with all these small cities that do not have a regional perspective that we have to do something about it.

Q. There is a lot of talk that out of this building bust will come a major structural change in the industry--that the survivors will be big builders who do a lot of different things and an assortment of small, boutique builders who do one highly specialized thing. Does this sound right to you?

A. I don’t think we want to or need to become substantially bigger, but the basic premise of what you are saying could very well be what happens. The amounts of capital and staying power builders are going to need in the future will be just enormous.

Q. That means there will be fewer competitors in the market. Does that bode ill for the consumer in terms of price and selection?

A. That’s basic economics. If you assume this area will continue to grow, and every projection says it will, then we will need more housing. And if there are fewer builders, that is a significant constraint on supply and that puts pressure on prices.

Q. Are we seeing the end of the detached home as a major player in the Orange County new housing market?

A. No. People have been saying for 15 years that attached housing is the wave of the future, but nobody has figured out just how far in the future that is going to be. It will be very gradual.

Q. Then are we stuck with a severe differential between the price of homes offered in Orange County and the price of homes in areas surrounding Orange County?

A. Yes, we are. Orange County is and will continue to be a very desirable place to live, and problems of land availability and transportation will make it hard to create enough housing to relieve price pressures.

Q. Casting modesty aside, what is Peter Ochs’ contribution to the home-building industry?

A. I would like to think that it is Fieldstone’s contribution, in two broad areas--the way we manage the company and our relationship with the communities in which we build.

Q. What is different about the way you manage?

A. It relates to the way we value our people; the way we try to run the company by a set of well-understood core values; our attempt to be consistent in good times and bad, and our efforts to find new ways to manage more effectively and to try to bring all the people into the management process. We think we do some of these things well, and as best we can, we hope to provide a model for other builders to look at and follow--or at least to follow parts of. We look at our company more as a typical manufacturing company than as an asset-driven company. Many builders feel that if they have a piece of ground they must do something with it. And if times get bad and they have too many people they’ll fire them, and they’ll hire more when things get better. And they build a lot in good times and not as much when times are bad. We don’t look at it that way. We say we have a certain amount of product that we want to move through they system in a consistent and quality manner. We feel that provides the best long-term results for the company, its people and the consumer.

Q. How do you bring your employees into the management process?

A. Every person in this company is trained in understanding interpersonal relations, so they can better understand themselves and others, and in team problem solving. With that kind of training, we put together groups of field people to address issues and we trust them to come up with a solution and to implement it without input from top management.

Q. And what is the driving philosophy in your relationship with customers once they buy their homes?

A. We believe we have a responsibility to the communities in which we are building, and we’ve looked at a lot of ways of carrying out those responsibilities. One way is to just do a good job so when people drive by 10 years from now what they see is still an asset to the community. We also have a very active charitable giving program that is focused primarily on the communities that we build in throughout Southern California. That is a way we tangibly take a percentage of the profit we make and pour it back into the communities.

Q. For example?

A. Well, this year we will give more than $1.5 million to about 400 recipients through the Fieldstone Foundation. About half of our charitable dollars go to cultural and community needs and Christian ministries, and half go to humanitarian needs. And the largest part of that half goes to youth-oriented humanitarian needs. That could be a shelter for the homeless or a large, traditional program like the Boy Scouts America or Girl Scouts. It could also be an inpatient drug abuse program in a local hospital or a drug prevention program in the schools.

Q. You are 47 and have had 10 years at the head of your own company. For many people that would be just a start, but you already are talking about making some significant changes in your responsibilities. What’s on tap?

A. My goal is to stay on as a very active chairman of the board when I turn 50 but to relinquish the title and responsibilities of chief executive officer and turn those over to Keith Johnson, who currently is Fieldstone’s president.

Q. Why step aside so young?

A. I was influenced in this by people like Ernie Arbuckle, who was dean of Stanford Business School while I was there. Prior to that he was chairman of Wells Fargo Bank, and subsequently he became CEO and chairman of Saga Food Services. He believed in the concept of sequential careers--being repotted every so often. And as I observed people in business I sensed that many CEOs after 10 or 15 years in the job began to run out of gas. And I saw that a person in the job longer than that bottles up those below because they cannot aspire to that top position. So I decided to give the capable people here a challenge.

Q. And what will you be doing when you are no longer chief executive of Fieldstone?

A. That was the subject of long conversations and soul-searching discussions with my wife over the years. I have a great desire to work closely with her in the area of Christian philanthropy on a worldwide basis, and the only way I can free up time is to make a major change. This will be the opportunity to do that.

THOMPSON:Q. Being named to your industry’s hall of fame holds you out as a role model for others in the industry. What, in your opinion, got you voted in?

A. Well, I wasn’t on the committee, but I think you are selected because you are a responsible developer. By that I mean not only concerned about the quality of the product you produce but that you take good care of your employees and nurture them and that you are sensitive to the social aspects of the county you work in, the charitable, cultural and educational needs.

Q. What is your philosophy about employee relationships and why might it be different from other developers’?

A. Because most development companies are entrepreneurial, everyone probably has a slightly different approach to interacting with employees. Since I am a woman, I probably have a different style than most of my peers. But to me it means giving my employees the same entrepreneurial opportunities that I have had; giving them authority, responsibility and latitude to perform their tasks. I set policy with the management team, but we have policies, parameters and goals, so I don’t have to oversee every little detail. The greatest joy I get out of this business is seeing my employees succeed.

Q. Succeeding in your company, or after they leave you?

A. Both. I’ve seen people come through this company and go on to successes in other companies; two of my former employees have set up their own building companies in Texas, and almost all our management team has been elevated from within this company.

Q. You are a big supporter of the arts in Orange County. What other charitable activities are you involved in?

A. I was on the blue ribbon committee for the Orangewood Home (for abused children) 11 years ago and have continued on the Orangewood Foundation board since then as fund-raising chairman. We raised $8.5 million to build the home and we raise about $1.5 million to $2 million annually to keep things running. I also am involved with UCI on the board of trustees of the medical school for seven or eight years. . . .

Q. What’s the driving force behind that involvement?

A. Well, the community has been very good to me, and I feel very strongly that I should give back. It is the way I was brought up.

Q. Do you do your community work through a corporate program or as an individual?

A. I have always done things as an individual, but this year we are putting together a more structured process. We are inundated with requests, and we need a more formal way now of handling things.

Q. As one of the few women to head a building company, have you found that you attract other women who want to get into the businesses and seek you out because you are a woman?

A. I don’t really think so. We hire here on merit, and I haven’t seen any extraordinary number of women applicants for jobs here.

Q. This is the third significant building industry crunch you have been through since you started in this business. How have you been affected this time.

A. We had significant layoffs (35 employees out of 110), as we did in 1980. It is a painful thing, but when sales are off 20% and 30% you have to do it.

Q. You specialize in what by Orange County standards is affordable housing, in the $115,000 to $180,000 range. Can you and others keep building enough affordable housing to begin to meet the demand here?

A. When I started in the business in 1965, my average sales price was $18,000. Around 1974 prices were at $100,000 and now the median is around $250,000. When we were selling $18,000 homes we were selling primarily to one-income families. Today most sales are to two-income buyers. So there is more flexibility in what people can afford. And density will get higher to make things more affordable. That means there will be few detached homes that can qualify as entry-level housing and more attached homes on the market. But yes, things can be done to provide affordable homes.

Q. Density is a key because the more units you can put on an acre, the more you can spread out the costs and lower the retail prices. Do you find that local governments are becoming any more amenable to high-density projects to promote affordability?

A. Unfortunately, when you ask for a high-density project you usually have all the existing residents opposing it, and that means government will probably oppose. One thing we’ve looked at seriously is the single room occupancy or SRO type of hotel where you can accommodate the very-low-income people and the homeless. That has been very successful in San Diego, but it is a bit hard for most of the jurisdictions (in Orange County) to buy.

Q. You say “we’ve looked at” SRO developments. Is that a corporate we?

A. Yes. We’ve done a lot of research on this, met with local officials, been to San Diego several times to see why their program works. And quite frankly we see this as one solution, as a real viable solution. It works best when the residences are in a retail setting, and I’ve made that proposal to a couple of major shopping centers, but they look at me like I’m crazy.

Q. As a builder who has built all over Southern California in the last 20 years, do you see any need for a regional planning entity?

A. I believe there are many studies being done right now that look at that issue. The cities being formed now all have their own parochial interests, and I would guess that at some time there is going to have to be some kind of clearinghouse for major planning issues like air quality and transportation.

Q. Yes, but I want to pin you down. As a leader in your industry, an industry that tends to be quite conservative when it comes to government, is regional planning a concept you can support?

A. Well, I cringe when I think of another layer of government. But it is unfortunate that in a county as large and important as Orange County we don’t have one body concerned with planning. It would be nice if we had someone elected to oversee the whole county, like most major economic areas do. I guess I would look very seriously at some sort of regional body to help clear up some of these problems.

Q. Where do you see the Southland building industry heading in the future?

A. I don’t have a crystal ball, but there are some very obvious things happening. I think it is possible that as many as 75% of the builders that are around now won’t be in business by the end of 1992, either because they cannot get financing or because they opt to get out. I don’t see the business coming back from this recession like it did in 1980. There will be more mergers and maybe not the kind you usually think of--not two builders merging, but a builder and a products company, like an appliance firm or a lumber company. There are many major things happening in our industry all at one time. The credit crisis, the recession, new environmental concerns. Some people say only the big developers will survive, but it might be easier for a small builder to go out and find a loan to build a small development now than to get a loan for a huge planned community. There won’t be many new companies forming because you have to have an ongoing relationship with lenders to find money today. We also will be building smaller homes with more density and a lot fewer bells and whistles. We are going to be going back to basics.

Q. How far back? To the 1950s, when buyers didn’t get carpets or drapes or appliances or fences or landscaping when buying a house.?

A. We probably can’t go back that far--you couldn’t get a loan to build a project like that, for one thing. But we will be building homes with fewer amenities and simpler lines.

Q. What about the Kathryn Thompson Co.? Where is it heading in the next five years or so?

A. We plan to continue developing affordable housing in Orange County, and as that becomes more difficult to do, we will head into the Inland Empire.

Q. Do you anticipate a day when you are headquartered in Orange County but can no longer build here because of price constraints?

A. That’s very possible.