The Winners Are . . . : Brothers Akins Keep On Building Despite the Recession
While 1992 was one of the worst years on record for the Southern California home building industry, a few winners remain scattered among the bloodied and battered.
One of the more successful is Irvine-based Akins, a trio of privately owned companies whose founders--brothers Bruce and Carl Akins--prefer using only their surname for corporate identity.
But these days, Akins is all the identification that’s needed--the companies’ revenues have grown by nearly 50% since the recession began; six of the seven best-selling residential projects in Orange County last year were either built by or managed by an Akins company, and some of the most lavish and expensive custom homes in the county in recent years have been built by Akins’ custom home unit.
Michael Meyer, managing partner and real estate industry analyst for the Newport Beach regional office of the Kenneth Levanthal & Co. accounting firm, calls Akins “the primo example of a medium-sized company that has used its flexibility . . . to get through” the industrywide recession.
The Akins story--of forward planning, financial foresight and operational diversity--is one that illustrates what it takes to succeed in today’s profoundly changed building industry.
While Akins doesn’t reveal profits, President Bruce Akins said the group ended its 19th full year in business Dec. 31 with combined gross revenue of $166.2 million. That’s a record, more than double the $70.2 million of 1991 and represents a 45% gain from the $114.9 million in revenue the three companies posted at the height of the building boom in 1989.
Bruce Akins acknowledges that the company’s profits haven’t kept pace with revenue and are not at record levels; but then, almost no home builder’s are. Kaufman & Broad Home Corp. in Los Angeles, for example, reported net income of $28.2 million for its last fiscal year. That was up from 1991 but substantially below the record profit of $81.4 million the company reported in fiscal 1989.
The Akins companies’ strengths--the reasons they have had a relatively smooth run while so many other builders have faltered during Southern California’s three-year industry slump--are as varied as the companies that compose the group. But analyst Meyer’s “flexibility” is a good word to sum it up.
It helps describe the company’s management, which has adapted to a changing business environment, avoiding the old “buy land-build houses” policies that guaranteed success in the booming 1980s.
And flexibility describes the Akins’ operating style.
In today’s recession-ravaged economy, with land prices falling as much as 50% from 1989 levels and housing prices down 5% to 20%, many home builders are losing money trying to hang onto expensive land or by selling homes for less than it cost to build them.
But Akins is profiting.
The group’s three components are its tract-home, or merchant-builder company, Akins Homes; its contract construction and marketing unit, Akins Communities Inc., and its custom-home unit, Akins Construction Co. And it is the way the parts operate and interact that make Akins unique:
* Akins Homes’ longstanding practice of using joint venture partners who acquired the land has freed the tract-building member of the triumvirate from the need to pay for land no longer worth the original purchase price.
* Joint venture partnerships also gave Akins expertise in finding money without going into hock to the thrift industry, which in recent years has pulled out of real estate development.
* Operational flexibility honed on custom and contract building experiences has enabled the Akinses to quickly shift the focus of Akins Homes in a recessionary market. The company now offers meat-and-potatoes houses for first- and second-time buyers to complement the luxury homes that were its filet aux champignons in the high-flying ‘80s.
* The decision in the mid-1980s to start Akins Communities gave the established Akins name and reputation to a separate company that hired itself out to build tract housing and apartments for a flat fee under management contracts with land owners, banks, investment groups and even other developers. Akins was criticized in some circles for spreading itself too thin, but it is the contract building company that increasingly has filled the gap as revenue in the other two companies has fallen off in the recession. And contract building frees Akins of the risks of speculative building.
Akins Communities’ contract work--for which the company receives a small percentage of the total project cost--was responsible for the Akins group’s remarkable 1992, Bruce and Carl agree.
Of 15 projects in the group’s portfolio today, eight are being done by Akins Communities. And those projects--five apartment-to-condominium conversions and an apartment construction project for the Irvine Co. and two staff housing developments for UC Irvine--accounted for 66% of Akins’ 1992 revenue.
This year, contract construction and project management will account for at least 60% of the estimated $160 million in Akins group revenue, Bruce Akins said. And the total could go higher if several new deals that are being negotiated go through, he added.
The brothers won’t divulge their fees, but industry experts say the typical contract deal pays 3% to 5% of the total construction cost. Bruce Akins said that because profit margins have tumbled in the recession, the difference between income from no-risk contract jobs and profit from the sale of Akins homes “isn’t all that much.”
The Akins brothers started contract building in the mid-1980s after doing several unsolicited contract jobs for clients who had called out of the blue, Bruce Akins said.
“I guess they knew we had experience from our custom homes and joint ventures of working under contract for someone or being responsible to a partner and not just being out there by ourselves,” he said. “But it was really a happenstance that we got into it, although it didn’t take long for us to realize it was something we wanted to make part of our overall strategy.”
Because of the tremendous amount of raw land and partially completed residential projects foreclosed in the past year by various lenders and investors--or owned by the federal Resolution Trust Corp. after being seized from insolvent thrifts--the Akins brothers agree that contract work will continue to generate a substantial amount of the group’s revenue--and profit--for the next several years.
Akins Homes, the merchant building company, has seven projects in development, including one of the county’s best-selling single family detached projects, Brisa Ladera. Homes in that Rancho Santa Margarita development are priced from $175,000 to $225,000, and Akins agents sold 70 of them in 1992. In all, Akins Homes sold 309 units last year while Akins Communities sold 628 units, mainly Irvine Co. condo conversions.
“The Akins have a good image and they seem to take a lot of time and trouble to protect it by building products that are well-designed, well-built and that will sell well,” said Tim Hamilton, a Laguna Niguel residential marketing consultant.
Other Akins Homes projects range from $110,000 townhomes in Aliso Viejo to $425,000 luxury homes in Dove Canyon and Tustin Ranch.
Business has fallen off for the custom home company--which has built houses for dozens of the county’s wealthiest residents, including commercial and retail developer Henry Segerstrom and home-builder William Lyon, whose $12-million estate in Cota de Caza is Akins Construction Co.’s best-known work, much to Carl Akins’ chagrin.
“We lose a lot of potential business because of those high profile homes,” he said. “People see that ‘$12-million William Lyon estate’ and think we’re too expensive for them. But we’ve done a lot of 3,000 and 4,000-square-foot homes, too.”
A spurt of custom lot sales has occurred in the past year--coinciding with falling land prices and the opening of the Irvine Co.’s custom lot development in the Newport Coast planned community.
Because of that, Akins said, “we are seeing a nice increase in inquiries from people who have recently bought a custom lot.” It is too early to tell whether that will lead to a hike in business for the custom home unit, however.
The Akinses began doing custom homes shortly after they started their initial business, Akins Homes, in March, 1973, Bruce Akins said. The decision to form a separate company for custom work came in 1985.
“It was at the time that we sat down and looked at what we were doing and where we were going and decided that we needed to formalize our diversity,” he said.
The Akins brothers don’t claim to have foreseen the building bust that began in early 1990 or the general recession that followed in the middle of that year, but they happily acknowledge that their corporate planning in 1985 has stood them in good stead during the economic bloodletting.
And they say that they believe the days of seat-of-the pants management in the home-building industry are as outdated as the huge $500,000 executive homes that not too long ago were just about all the new-home shopper in Orange County could find.
“We are back to homes being sought as residences instead of investments . . . and we are seeing shoppers come back to look at our models five and six times where it used to be once or twice,” Carl Akins said.
For builders, that means that survival these days depends on providing a high-quality home at a recession-conscious price.
SMELL OF SUCCESS: Brothers in their 20s began building business that is industry leader two decades later. D5
Doing Well in Bad Times
Because of a healthy project management portfolio, 1992 was the best year in terms of gross revenue that the Akins companies have had since 1989, despite a housing market that was depressed last year because of a lingering soft economy. Revenue (In millions): 1989: $114.9 1990: $56.9 1991: $70.2 1992: $166.2* * Estimate
Homes Sold: 1989: 431 1990: 387 1991: 518 1992: 937* * Estimate
Akins at a Glance
Corporate headquarters: Irvine
Founded: March, 1973
Founder: Bruce and Carl Akins
History: Started by brothers Bruce and Carl; is considered to be a continuation of the family business begun in 1948 by their father, Ed Akins, who later headed Irvine Pacific, the home-building arm of the Irvine Co.
Company officials: Carl Akins, chairman; Bruce Akins, president
Divisions: Akins Homes, Akins Communities Inc. and Akins Construction Co.
Nature of business: Akins Homes does residential real estate planning, development and marketing; Akins Construction builds custom homes; Akins Communities builds, manages, markets and sells homes and apartments on behalf of landowners and other clients for a fee
Current projects: Rancho Veracruz, Mandevilla and Shadow Canyon apartment conversions and Malaga and Alicante detached homes in Tustin Ranch; Canyon Hills apartment conversions in Orange; Villa Point and Big Canyon apartment conversions in Newport Beach; University Hills condos and single family homes at UC Irvine; Sierra Vista apartments in Tustin; Brisa Ladera homes in Rancho Santa Margarita; Villas and Cantora townhomes in Aliso Viejo; Lakeridge homes in Dove Canyon; Summer Walk homes in Laguna Niguel
Employees: 100
1992 sales: $166.2 million
Projected 1993 sales: $160 million
Sources: Akins companies; Researched by JOHN O’DELL and DALLAS M. JACKSON / Los Angeles Times
