Our Homes, Your Land
Sometimes I even amaze myself at the prescience of strategic thought I give birth to - here is a story where some production builders have launched a program focused on augmenting their offerings with a ‘build on your lot’ initiative …
Like our “Our Homes, Your Land”. I’m sure we all started and ended at the same place - where did all the land go, and how to get a project started quickly - in the Catskills, when families couldn’t find homes they wanted in the 2020-2022 era, some bought land thinking they would ‘just build’. However, to ‘just build’ is actually a very complex, time-consuming and risk-fraught exercise with lots of moving parts that are interdependent of each other but completely dependent on each other,
I remember reading through the Defendants deposition transcripts and hearing Baumann diminish the tools, relationships, shortcuts, strategies and expertise it takes to get a project off the ground, but in reality having an expert by your side connecting the dots, and synergizing and coordinating the surveyor, engineer, architect, building departments, banks, highway departments, board of healths, neighbors, etc….can turn an impossible task into a concierge level tango of efficiency.
We have seen a decrease in that type of business, for reasons I’m still contemplating around, but for a while there - I think it was 2022 and 2023 - it made up nearly 50% of our business, up from zero in 2020, to $4m in 2023. Saugerties, Stone Ridge, North Branch - all over we built our homes on their land. It was a boon to both parties.
The impact on the cash flow bottom line couldn’t be overstated - instead of putting out millions of borrowed dollars on contracted spec homes, the same number of contracted spec homes were paid in large part by the cash flow profits from the “Our homes your land” projects. In terms of just per net worth gain, this pivot from debt finance to cash flow finance to now cash finance has propelled us into the big leagues of sustainability.
It’s an interesting article because while these guys might be playing in a different sized pond, the idea just makes sense, and I got there first.
In terms of my relationship with debt, it’s been a evolving for decades. For 22 years, I carried as much liability as assets on my balance sheet as the profits thrown off by the company paid for a reasonable lifestyle, fully funded retirement, college savings, health insurance and employee benefits, but after that, there weren’t a lot of retained earnings. I didn’t mind the 4% interest rates on my commercial paper, and a lot of times I’d pay $80k-$150k a year in interest on my business activity, and when I went to sell a house, would more or less receive my profits back at closings, and maybe some of my own money, but most went to the bank to pay for the cost of the construction and land and improvements. I remember reading the bank’s quarterly earnings or yearly earnings in the local newspaper, and since it is a small bank, I could literally calculate my payments to them and its impact on their reported earnings.
In 2022, just months before things got really hairy with interest rates, I carried more debt on homes I was building than ever before by a large margin, because we had scaled to meet the Covid NYC outflow and were building a lot of homes. Most if not all the homes were in contract, with deposits paid, so while the risk was still real, as long as we finished the homes, the monetary goal was close at hand.
But lots of things could have went sideways - municipal, interest rates, deals going sideways, labor problems, supply chain problems, remote/hybrid work restrictions/reduction. 24 homes going at a time with me and two young women in the office. I remembering reading an article in 2022 about 'back to office' initiatives in NYC and I said to myself 'NOT YET PLEASE'.
Anyways, the moral of the story is that we exited that period with strong earnings, and then that was complimented by this ‘our homes, your land’ cash flow enhancement. And then prices kept rising on our spec home side of things, and all of sudden you look back at a harrowing period of your business life, and you’re rich. Head down so long, daily operational warfare daily you forget your building real wealth but one day the cash flow settles and the work flow slows and the constant hamster wheel of reinvestment wanes, and you’ve built true generational wealth - diversified and at work.
Anyways, back to debt. I used to be leveraged up to my eyeballs, and the bank, our local bank Jeff Bank, didn’t seem to mind since I literally have never been late once on a monthly bill and they kept a close eye on my sales and my prospects and as long as I kept selling, they kept lending. Same thing back in 2009 when banks pulling the rug out from under their clients was all the rage, this bank stayed by my side and helped me meet the moment. They did it again in 2020-2024.
I don’t mind debt, but now I’m debt averse. With my assets and cashflow, if I would leverage like I used to - at a 5 to 1, 10 to 1, 20 to 1 ratio - If I’d do that now I’d be buying buildings in Manhattan. But alas, that’s not for me. I use cash now, and wait to buy until the cash permits, or borrow very short-term as bridge lending as we await a sale. Maybe the next generation will leverage and parlay this gold nugget into the 9 digits, but for me, I think I left it all out of the field enough for one lifetime.
Sitting at The Roxy in Tribeca, waiting for happy hour to begin. I’m dying for a martini. Going to finish This Side of Paradise in this lobby - seems period-correct, as Fitzgerald was big fan of cutting loose in these very streets. I feel like I've been following him recently - NYC and Antibes - two of his haunts.
