Surreal Estate : Builders Take Unusual Tacks to Reconstruct Business

On the sixth floor of Kaufman & Broad Home Corp.’s headquarters, ideas for survival begin in the “War Room.”

Inside, a life-size cutout of President Clinton wears a Kaufman & Broad T-shirt and baseball hat. Walls are plastered with the builder’s off-beat ads.

After brainstorming here, California’s largest home builder began an innovative $3.4-million television campaign this year featuring actor Tom Skerritt of the CBS series “Picket Fences.” And this week, the company will unveil the newest tool in its marketing arsenal--it will buy new furniture for its home buyers.

“This is the first time in our company where we’ve had a room like this--a den of ideas. Now, there is a lot more pressure to make these ideas work,” said Bruce Karatz, chairman of the Los Angeles-based company.

Kaufman & Broad is not alone. The pressure is on all of California’s beleaguered builders these days as they battle for survival in a shrinking market. From “war rooms” to “home stores” where buyers at local malls can shop floor plans, to having cartoon characters such as Howie the House hand out flyers, builders are finding themselves doing things they never thought they’d have to do.

There was a time when the living was easy for California’s home builders--their only pressure was to build faster. They constructed housing tracts, placed a few newspaper ads and then sat back and grinned as the buyers got in line.

But with a continuing slump in California home sales digging into their profits, builders are hustling in a hurry.

“Until this real estate depression, builders have acted like their customers were still the GIs coming home from World War II--everyone wants a house and you just have to sit and wait,” said Sanford Goodkin, a real estate consultant in Del Mar. “But now we’re seeing some very new things.”

This year, buyers are being bombarded with aggressive financing deals such as mortgages with no down payments or cut-rate deals during “midnight madness” sales. As developers attempt to bring homes to buyers, making home buying easy is the top priority.

“A lot of builders take a look at this marketplace and want to go hide until it’s over,” said Jeffrey Charney, vice president of marketing for Kaufman & Broad. “We’re trying to be aggressive. Buyers have been on the sidelines, they are still on the sidelines and we want to get them out into the game.”

Driven by the marketing might of Kaufman’s Karatz--he once erected a model home on the roof of a major Paris department store in an attempt to sell homes there--Kaufman is clearly the risk-taker among builders when it comes to marketing.

After a terrible first quarter, during which sales plummeted 12%, Karatz’s first step was to bring in a new advertising agency, Dailey & Associates of Los Angeles. Dailey, which had no builder clients, was known for a series of successful advertisements for Ford Motor Co.

Dailey wanted to help Kaufman--which already has 8% of the market here--build its brand image with a celebrity spokesman. After interviewing actor Alan Alda and others, Kaufman settled on Skerritt, who also happens to be the son of a building supply salesman.

In response to the ads, sales jumped dramatically. Some Fresno buyers, when asked how they heard about Kaufman & Broad, put down Skerritt as their “personal reference.”

“In an environment where so many builders are going out of business or in foreclosure or whatever--the consumers hear about this and it’s frightening,” said Noel Evans, an executive with Dailey. “We offer stability and continuity in a scary market.”

In California, other builders are trying to reach out to buyers--even those who might not have the financial muscle yet to buy.

Lewis Homes of Upland, Southern California’s fifth-largest builder, has opened a home store next door to the Mervyn’s in a Rancho Cucamonga mall.

“In a sense, we get people who are already pre-qualified--they are shopping, so they have some money and they are in the area,” said Randall Lewis, a company partner.

Inside the store, buyers can pick from homes in various locations and those with credit problems can work toward home buying with a counselor from Lewis’ “Homebuyers Club.” Buyers who don’t qualify for a mortgage can live in one of Lewis’ nearby apartment projects and get $100 a month, or up to $2,400, toward the purchase of any Lewis home.

“We’re trying to grow home buyers,” Lewis said.

In Newport Beach, the Irvine Co., Orange County’s largest landowner, has various techniques designed to boost interest in home buying. After home sales in the bankrupt county dropped nearly 30% in the first quarter, builders here began fighting back.

The company’s museum-like estate store, which has hand-painted wood-beam ceilings and displays books such as “Venetian Villas” and “Gardens of Tuscany,” attracts deep-pocketed shoppers in upscale Fashion Island Newport Beach.

“There’s a lot of people in a mall, so why not come to them?” said Rudy Svrcek, head of sales for the Irvine Co. “This tough real estate market is forcing builders to look for creative new, cost-effective ways to get their message out.”

To market its apartments and more entry-level homes, the Irvine Co. has even created its own cartoon characters, Pelican Man and Howie the House. Actors dressed as the characters can easily pass out 1,600 maps of housing developments and apartment locations each weekend at Fashion Island.

Taylor Woodrow Homes of Laguna Hills has opened its store in an Irvine mall next to a Vons grocery store in an attempt to attract buyers to a nearby development called Mahogany. Detailed models of each California Craftsman home--which will eventually carry price tags of more than $450,000--allows buyers to take the roof off and see the layouts for homes not yet built.

Kaufman & Broad, which has tried and abandoned the home store idea, is instead focusing on a new computer system that will be installed in kiosks at housing sites and in malls. Buyers will be able to enter information on their finances and housing needs and even custom design their homes, picking out wood floors or kitchen counter tops that suit their tastes.

“Home stores were not as effective as other things we are doing,” Charney said.

Surprisingly, builders in California, with its mall culture so ingrained, did not come up with the home store idea.

San Antonio-based Rayco, which now has more than 50% of the market for new homes there, is considered one of the pioneers of the home store.

It was the Texas real estate crash of 1987 that prompted Rayco to go retail.

“If the people won’t come to you, you go to the people,” said Buddy Goodwin, vice president in charge of sales and marketing for Rayco. Rayco opened four home stores in Texas malls in an attempt to whip up public interest.

“When times were really bad in Texas, we did a lot of things to survive--home stores were one way to generate traffic,” he said.

But now that the Texas market has recovered and buyers are back, the company is on to other things.

It has closed its mall stores in favor of a 16,000-square-foot home showroom in San Antonio. There, buyers can custom-design their homes, pick out the appliances or decide whether or not they want a fireplace in the living room or whitewashed oak kitchen cabinets.

“We learned from our real estate downturn,” Goodwin said. “We’re committed to our buyers now.”