00:00In 2023, mortgage rates spiked to levels not seen since 2008 and, despite coming down in
00:09recent months, remain higher than they've been in more than two decades.
00:13Home prices have also skyrocketed, up 30% nationally on average over the past four years,
00:19while real median household income has stagnated.
00:23Yet given a nationwide shortage of at least 4 million housing units, according to the
00:27National Association of Realtors, it's a great time to be a home builder.
00:32The health of the home building industry right now is probably as good as I've seen it in
00:37my 19 years of doing this.
00:39We are benefiting, and people who are homeowners in this country right now are benefiting from
00:45one of the biggest population shifts that we've seen in a very long time.
00:50I think there's like 9 million more millennials than there were Gen Xers, and then you add
00:55on the Gen Zs right there in the mix too, which I think the leading edge of Gen Z is
00:59like 27, 28 right now.
01:02So you have this amazing amount of demand for housing, and we just can't build them,
01:08the industry can't build them fast enough to meet the demand that's out there.
01:12This housing dilemma has allowed for smaller builders to thrive.
01:16Tom Bradbury is the executive chairman of the board of Smith Douglas Homes, based in
01:21Woodstock, Georgia, a company that since 2008 has built 304 communities in five states,
01:27and whose sales hit $765 million in 2023.
01:33Shares of Smith Douglas, which Bradbury took public on the New York Stock Exchange in January,
01:37are up 56% since then.
01:40The 80-year-old Bradbury, who still owns 88% of the stock, is now a billionaire.
01:46The first job I had was selling airplanes.
01:48And I did well at that, and in 1969 interest rates went up and it just stopped.
01:54So I said, well, I'm going to get in something stable like real estate.
01:59After selling his first house in 1975, Bradbury started Atlanta-based Colony Homes.
02:05I asked my dad, the first house I built, I said, Daddy, can you give me advice?
02:10And he said, son, if you watch the pennies, the dollars will take care of themselves.
02:16And even today, we have every month, close to 250 houses a month or so, we'll have one
02:24or two houses that cost to the penny what we said it would cost.
02:29And no other home builder has those strict controls.
02:32Well, Tom and I met in the late 80s.
02:36I went to work with Tom.
02:38And at that time, Tom was still overseeing all of the development activity and the development
02:43crews.
02:44So I just got to hear him live out loud that never give up, never quit.
02:49We can find a way always to get things done.
02:54As Colony Homes evolved, Bradbury took an interest in construction software.
02:58I started going to a seminar in Denver, Colorado.
03:03Lee Evans, who was at the time, was the dean of the building construction degree program
03:09at the University of Denver.
03:11The first meeting I went to, Lee was right in the process of the early stages of working
03:18with a programming company to computerize the home building process.
03:24I bought that software during that meeting and over the next year, implemented it, which
03:31gave me the ability to grow the business and still maintain the strict controls that we
03:39have today.
03:41Bradbury held on to Colony Homes for almost three decades before selling the company to
03:45KB Home in 2003 for $67 million.
03:50When Colony sold to KB, I really was pushing them to use the software because it was by
03:57far superior to what they had.
03:59But I had in the definitive agreement with KB that if they didn't use it, that I would
04:04get the software back.
04:07Five years later, when KB Home pulled out of Atlanta, Bradbury, who was frustrated they'd
04:12abandoned the market, started Smith Douglas Homes.
04:15Tom and I maintained a very close relationship through that time, but it was Tom's persistence
04:22more than anything else that brought me back.
04:26Since then, Smith Douglas has built 15,000 homes, mostly for lower to middle class buyers
04:32like autoworkers, teachers, and first responders, mainly in growth markets in the South, such
04:36as Nashville, Charlotte, and Raleigh.
04:39If you think about what differentiates Smith Douglas from their competitors and some of
04:44the other builders, public builders as well, I think it's being able to give people a home
04:51that's priced at or below the FHA limit and give them some optionality in the home.
04:59In July 2024, Forbes had the opportunity to visit Smith Douglas' build site in Cartersville,
05:07How long does it typically take to build these sort of communities that we're in?
05:11I'm seeing probably close to 50 houses right now, but how long does it take to build out
05:18these communities?
05:19Well, the length of time to build a community out depends on how large it is.
05:24But our average cycle time across the footprint is 59 days, and we've got to go to get that
05:34back down to 47 days.
05:38And Greg and I were in the home building business earlier.
05:41We sold a company called Colony Homes in 2003, and at that time, our cycle time was 46 days,
05:51which is unheard of in the industry.
05:54And that's how we get, you know, the contractors overhead is the same, no matter how much volume
06:00they do.
06:01So the more houses that they can do in a given period of time, the more profitable they are.
06:07And as a result, we are too.
06:10So we get good pricing from our trades, and we take good care of them.
06:14My passion is to get people in a home that otherwise can't do it.
06:21And it's been tough because since the pandemic, our costs have gone up 30%.
06:26And yet still, we are the low-cost, quality provider of housing with choice.
06:33Yeah, I've really enjoyed learning about Smith Douglas, learning about the software behind
06:40the Smith Douglas, what they call the RTM and the Smart Build Strategy.
06:45It's I think definitely a novel concept among what I've seen from the other public home
06:50builders.
06:51We own the software, and we can tailor it to do exactly what we want it to do.
06:54We have programmers in-house that can update it and make changes as we see fit.
06:59It's real-time data.
07:00It doesn't require an integration in the middle of the night or once a week.
07:05If there's a change made to the schedule right now, us as well as our trade partners can
07:09see it within a second.
07:13It's all real-time.
07:14Everybody sees the exact same set of data.
07:16There are competing software packages out there that have some of the collaboration,
07:20but not an end-to-end collaboration like Smith Douglas.
07:24That is the reason that they get these houses built faster than most of their competitors.
07:31In 2019, Greg Bennett was promoted from Chief Operating Officer to President and CEO of
07:37Smith Douglas Homes.
07:39Closing in on 50 years I've been in business, I know most of the operators.
07:43I've seen them.
07:44I know what tools they have.
07:46I can tell you Greg Bennett is the best operator in the space.
07:51We would like to have larger share in each of the markets we're in, but we want to do
08:00that in a manner that we grow efficiencies at the same time.
08:05That slower growth has allowed them to maintain a balance sheet that has more cash than it
08:10does debt, and they've been very prudent and, I would say, very careful in their use of
08:17debt as they've grown the business organically.
08:20We want to be the most efficient, the most operational, excellent company, not necessarily
08:27the biggest company out there.
08:29As long as the builders like Smith Douglas can find ways to make these homes affordable,
08:34we think the demand trends for the next, call it five to seven years, look pretty solid
08:39for this career.
08:40We never rest on our morals.
08:42We are always looking for what's better.
08:44Okay, yeah, we're here, but there's a way to get better, and we're constantly pushing
08:51that envelope to improve.
08:54You know, if you don't know where you're going, any road will get you there, but if you do
08:58know where you're going and you just show up every day and you look at every obstacle
09:03that comes your way as an opportunity and trick yourself into thinking you're having
09:07fun, you're going to get there.
Comments