Suburban Home-Building Pioneer
Looks to Remodel Its Game Plan

The biggest housing boom in U.S. history has brought many home builders double-digit earnings and revenue growth, enriching shareholders and allowing the biggest and best-known builders to leapfrog into the Fortune 500. The most noteworthy exception has been Levitt Corp., which runs the company widely considered the pioneer of the suburban home-building industry.

Levitt is the company behind Levittown, generally considered America's first suburb, a mass-produced collection of Cape Cods and ranch homes in New York and Pennsylvania that housed World War II veterans and their families looking to live the American dream. By the time the most famous Levitt, William, died in 1994, the company, created in 1929 under the name Levitt & Sons, had built and delivered more than 190,000 homes in 17 states, Puerto Rico, Canada, France and Spain.

But after an auspicious beginning, Levitt lost its way. From 1968 to 1997, the company was bought and sold four times, often to parent companies that used Levitt merely as a cash cow, failing to reinvent and limiting the company's ability to grow. "These parents never really wanted to use the business as an avenue of growth or spend a lot of time or effort to expand the company," says Rick Murray, an analyst at St. Petersburg, Fla., brokerage Raymond James & Associates.

It also relocated, perhaps prematurely, from the Northeast to Boca Raton, Fla., in the 1980s. That left the increasingly affluent Northeast wide open for numerous competitors including Hovnanian Enterprises Inc., of Red Bank, N.J., and luxury builder Toll Brothers Inc., based in Horsham, Pa. And even in its new home base of Florida, one of the hottest real-estate markets in the country, Levitt is just one of many players, widely known for putting up communities for the over-55 set, while Miami-based Lennar Corp. -- a behemoth in both Florida and the U.S. -- is growing by leaps and bounds while constructing everything from starter townhomes to mini-mansions.

Levitt is now trying to put those management disasters behind it and regain its footing. "Levitt has a great history and legacy, and in terms of real-estate companies, it's probably one of the very few that has name recognition on a national level," says Chief Executive Alan Levan, who is also the CEO of BankAtlantic Bancorp Inc., which bought Levitt in 1999 and spun it off last year as a stand-alone, public company based in Fort Lauderdale, Fla. "Now, we have the expertise and capital to re-establish the company as a national builder."

Maybe, but the company has a lot of catching up to do. First, there is the management issue. Can Mr. Levan run a bank and a builder simultaneously? Also, the industry has changed and is much rougher terrain for smaller companies. While Levitt was floundering during the 1990s, the home-building industry transformed itself from hundreds of regional mom-and-pop shops to an industry dominated by powerhouses that are increasingly gaining market share through organic growth. As they race one another to the top, the biggest builders have purchased hundreds of smaller builders across the country.

"Levitt is probably where most of the larger builders were five or six years ago," says Rick Anderson, spokesman for the Public Home Builders Council of America, which represents 14 of the largest publicly traded home builders.

Some analysts believe the company has a shot. "Levitt is ramping up for pretty substantial growth over the next five years and I think they're positioning themselves pretty well," Mr. Murray says. Levitt recently expanded into the Tennessee, Georgia and South Carolina markets and expects to deliver homes at three to four times its current pace over the next five years. Mr. Levan says Levitt plans to acquire one or two home builders each year, eventually even small public builders.

But a quick glance at Levitt's financial profile shows exactly how far it is from the top. Levitt currently has a market cap of $454.6 million, not even close to the $11 billion market cap of the nation's biggest, D.R. Horton Inc., of Fort Worth, Texas. It builds only 2,000 homes a year, compared with the more than 30,000 a year being built by the largest builders. For its second quarter ended June 30, the company reported a backlog of homes valued at $522.8 million, while giants Toll Brothers and Lennar, for example, ended their most recent quarters with backlogs valued at $6.43 billion and $8.1 billion, respectively.

In addition, Toll more than doubled its earnings at the end of its most recent quarter, while Lennar's earnings rose 50%. Levitt's earnings during the last quarter actually fell 56%. That was caused by Levitt's lack of land sales and also by a lack of inventory because of a faster-than-expected sellout at a number of communities. Levitt didn't have the resources to keep up the demand, Mr. Levan said.

It is currently in the midst of a strategic plan to deliberately slow home sales so the company can restructure itself to handle growth more efficiently. "With the kind of growth that we have had, prudent management dictates that you have to slow it down in order to catch your breath," Mr. Levan adds.

Analysts say many big home builders are struggling with inventory shortages and are forced to slow sales because demand outweighs their capacity to build. But Levitt's earnings plunge highlights just how much the company still needs to grow. "This issue isn't unique to Levitt, but bigger builders have a lot of other markets to pick up the slack," says home-building analyst Todd Vencil of BB&T Capital Markets in Richmond, Va. "It's just a function of Levitt being so small and relatively new in the market."

Some investors are uncomfortable with Mr. Levan's being a partner in an entirely different holding company, BFC Financial Corp., a company that also has a controlling stake in Levitt. They worry about a lack of focus and the potential for a conflict of interest. But despite Mr. Levan's various job titles and interests, his salary isn't a concern: While Robert Toll, the CEO of Toll Brothers, earned $31.7 million in total compensation last year and KB Home's Bruce Karatz earned $24 million, Mr. Levan earned $2.4 million from Levitt, BankAtlantic and BFC.

For now, Mr. Levan says he is just focused on leveraging the Levitt name. "With a company like Levitt, there's a huge responsibility to not only continue to grow but to also preserve the legacy."

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