looks like Mattamy is o.k. after all....from today's Star...
Mattamy Homes: Between Bricks and a hard place
As new home sales slip into a deep freeze, even Canada's No.1 house builder is having to remodel
January 17, 2009
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Tony Wong
BUSINESS REPORTER
Peter Gilgan shuffles a clump of paper on his large wooden desk. "These are all the bills," he jokes to a photographer.
As the largest house builder in Canada, Gilgan has taken proactive steps to avoid those looming bills as sales slow in the North American real estate market.
His company, Mattamy Homes, laid off 50 staff in November.
In a memo to employees, Gilgan called it "the most difficult and humbling" action he has had to take in his 30 years as a business leader.
"The housing market is certainly not going to be as buoyant as it was. There are different expectations today than expectations from a year or two ago," says the developer, sitting in his Oakville boardroom.
On a crisp January day, Gilgan, 58, is suffering from a cold, but he is genial when greeting guests for a rare interview. Despite the fact he's the CEO of the country's largest builder of detached homes, with more than 40 sales and construction sites up and running throughout North America and more than a billion dollars in annual sales, the chartered accountant has always preferred to remain behind the scenes.
But Mattamy's fortunes are in many ways symbolic of what is happening in Canada's softening real estate industry, especially because of its leadership position.
According to the latest figures from the Building Industry and Land Development Association, total new-home sales in the GTA for the first 11 months of 2008 were down by 35 per cent. For low-rise homes, which Mattamy builds, industry-wide sales were off by 39.1 per cent. New-home companies have slashed prices and given away free trips and cars to entice buyers. Taking a page from the beleaguered car industry, Mattamy introduced "employee pricing" at select American sites last year, extending the same discounts to the public as to their employees.
According to Gilgan's figures, his company is doing much better than the average builder, closing 4,031 homes in 2007 with $1.5 billion in revenue and "just under" 4,000 homes in 2008 with $1.4 billion in revenue. The company has some 1,000 full-time employees.
But all bets are off for this year.
"The scope of the economic change is way beyond anything I anticipated," Gilgan said in his memo.
One could argue that because of the company's size, as goes Mattamy, so goes the nation – or at least the fortunes of municipalities in the GTA. So far, a greater-than-expected drop in the real estate markets has taken a toll.
Over the past couple of months, Mattamy has consolidated administrative staff from across the GTA into its Oakville headquarters, and has also closed its Markham office.
"The decision reflects an anticipated further decline in volumes in our order book," says Gilgan. "The net result is that we will cease to operate as three distinct divisions in the GTA and will manage as one organization from one location."
Gilgan says that to move homes during the downturn, the company has been "aggressively re-pricing our products and addressing design and quality processes."
Meanwhile, concerns are mounting about the financial impact the housing downturn will have on home builders across the board. Mattamy expanded aggressively in the United States. The company has multiple sites in four states including Florida, which has become ground zero for the subprime crisis.
Gilgan insists Mattamy is actually in "better" shape than it has been in the past, despite the credit crunch that has crippled some developers.
"We continue to owe less money so I'll say things are better," he says. "I lament that there aren't more opportunities to invest."
He points out that ratings agency Standard & Poor's recently left his company's rating unchanged at BB.
"There aren't too many builders out there that can say the same thing," he says. "We require very little outside financing and we have a willingness of lenders who continue to lend to us."
(According to Standard & Poor's, a BB rating goes to a company with "marginal financial security characteristics. Positive attributes exist, but adverse financial conditions could lead to insufficient ability to meet financial commitments.")
In the U.S., meanwhile, sales are "starting to climb out of the basket," says Gilgan. "Sales were down significantly." They were, however, better in December, and January has been looking "positive," he says.
Sales in Canada have also dropped because of delays in getting some projects off the ground, Gilgan says. He blames a progressive tightening of requirements by municipal and regional governments that has made it difficult for developers to accurately predict when their land will be approved.
"As developers we're not expecting a handout, but we're hoping that government can help us to expedite land development in a cost-effective way."
Gilgan warns that delays in some GTA projects caused by red tape could mean more layoffs at Mattamy this year.
"Are we going to lay people off? Maybe. But it wouldn't necessarily be because of the economy or the market," he says. "If I can get my communities approved, then we'll have growth. If not, then we'll have shrinkage."
Growth, not retreat, has been the path of Mattamy for the last decade. Certainly last year, the company's 30th anniversary, should have been one of celebration for Gilgan, who has been the industry's poster boy for the last decade – for his success as well as his philanthropy.
Mattamy has won every conceivable builder's award, including a third J.D. Power award in 2008 for new home buyer satisfaction for the Greater Toronto Area. The year before that, Gilgan took home the prestigious Ernst & Young Canadian Entrepreneur of the Year title, taking his place among the Canadian business establishment.
In Oakville, the former home that he shared with his now ex-wife and eight children was the grandest symbol of success. Edgemere sold last summer for an estimated $35.5 million, the largest price for a single family home in the province.
But nothing is forever – at least in the development business. The new owners plan to tear down the 32,000-square-foot mansion that Gilgan built and replace it with 10 luxury condos.
"I put a lot of work into it, so for me it was my attempt at art, since I can't draw a stick man if you paid me. I put my artistic expression in my homes," says Gilgan, who remembers flying to France just to buy door hardware and crystal for the home.
"It was a lot of fun, and I got a lot of gratification out of it. But the new owners paid for it and they can certainly do what they want with it."
As the company heads into a downturn, Gilgan says he's looking at ways to improve the business and relationships with partners to lay the seeds for when things turn around.
"For over 13 years we have enjoyed the longest growth market cycle that anyone in the GTA can recall," he says. "It has gone on for so long that many in our industry may not even realize this is a cyclical business."
Under Gilgan's leadership, Mattamy has been a true innovator. The company is known for its "wide lot" brand, where the use of wider lots instead of the traditional long, narrow lots allows Mattamy to offer more interesting elevations and designs at more affordable prices.
And taking a page from car assembly lines, the company also has a division that builds homes in an indoor plant, avoiding weather delays.
"We have always tried to see everything from the customer's viewpoint," says Gilgan, explaining the company's success.
"And we'll continue to do that, even when times are tough. We've seen this story before."
