U.S. Home Corporation History

Company History:

U.S. Home Corporation is among the nation's top ten builders of single-family homes. It also develops and sells land and finished building sites to other builders and provides mortgage banking services to its customers. About a third of its homes are designed for first time buyers, a third are move-up, and a third are retirement and vacation homes. In addition to detached homes, U.S. Home also builds town houses, duplexes, and condominiums, although these are a very small percentage of its business.

The company was founded by Robert H. Winnerman in his home state of New Jersey and was incorporated in New Jersey as Accurate Construction Co. on April 27, 1954. The company became U.S. Home Corporation by merger on September 1, 1959. Headquartered at Perth Amboy, New Jersey, during its first decade the start-up company's projects were primarily confined to that state.

Then in 1969 Winnerman began to carry out his expansion plans after acquiring the necessary capital through a public stock offering. In February of 1969 U.S. Home offered 315,000 common shares and $4 million convertible debentures and that June joined the American Stock exchange. Winnerman attracted investors by proposing to develop a nationwide home-building company, in what was then a geographically divided market, which was to succeed with economies of scale.

The initial acquisition by U.S. Home was the acquisition of Imperial Homes and Rutenberg Homes owned by Charles and Arthur Rutenberg. Arthur Rutenberg became president of U.S. Homes and Charles became chair of the executive and finance committees of the board. U.S. Home began acquiring one home builder after another and many building suppliers, such as lumber and concrete companies as well. Winnerman offered stock in U.S. Home to builders in exchange for turning over their company ownership to him. By 1972, there were 23 companies under U.S. Home's control, and it had become the nation's largest home builder, a position it would hold through the mid-1980s.

Although Winnerman's argument, that economies of scale would make it more profitable than its competitors, did not prove entirely true, the company succeeded nevertheless by being in the right place at the right time. U.S. Home's national expansion strategy coincided with a significant growth in the housing market. Housing starts in 1971 were the greatest in 20 years, with levels surpassing for the first time those of the post-World War II boom.

That year shareholders voted to change the company's name from U.S. Home and Development Corp. to U.S. Home Corp. Five new directors were elected, and the number of common shares was increased from five to 15 million. In the early 1970s U.S. Home began to diversify by providing rental units, apartments, and some commercial developments.

One of the disadvantages of growing by acquisition was that the entrepreneurs who were bought out tended to still want to make their own decisions and did not fit well into the corporate mold. The consequence was a high rate of turnover of chief executives, which would consistently plague U.S. Home. The first of these executive changes involved Arthur Rutenberg, who had been 50 percent owner of Florida-based Imperial Homes Corp. and Rutenberg Homes, that state's largest "scattered lot" builder. These two companies had been U.S. Home's first major acquisition in 1969. Arthur Rutenberg subsequently became the president of U.S. Home for a short period, while Winnerman remained as chair. When Arthur resigned, Charles became president. Eventually, however, a power struggle developed between Charles and Winnerman, and in 1973 Winnerman was forced to resign, his shares in the company bought out. Under Charles Rutenberg's chairmanship headquarters were moved from New Jersey to Clearwater, Florida.

In 1972 Rutenberg decided to purchase 3H Building Corp. of Chicago, which, unfortunately, proved a bad buy. It lost $200,000 on sales in its first five months under U.S. Home ownership. As a result the new subsidiary was considerably cut down. Losses of 3H contributed to U.S. Home's deficit of $2.98 million for 1974, not only the company's first annual loss, but also the first quarterly downturn the company had sustained since going public. At the same time, there were other factors that contributed to this sudden decline from profits of $12.8 million in 1973. Most significant was the U.S. government's freeze on subsidized housing. This adversely effected U.S. Home's Communities Division, which built subsidized housing in New Jersey and Pennsylvania. Other concurrent problems included a slowdown in sales due to higher interest rates. Industry experts said U.S. Home should have secured more borrowing money ahead of time to forestall the ill effects of interest rate increases. Meanwhile, contributing to lower demand for new homes was the 1973 energy crisis, which prompted consumers to reconsider the commuting expenses of moving to new homes in the suburbs. To top it all off, prices of lumber and other building materials had jumped that year.

In 1977, Rutenberg left the company, having brought in Ben Harrison to serve as president. Harrison resigned in a policy dispute and was replaced as president by Guy Odom, who proceeded to double the size of the company. After Charles Rutenberg's resignation, Guy Odom also replaced him as chief executive officer. In February, 1979 the company moved its headquarters from Florida to Houston, Texas. Here again the company was well positioned to take advantage of the local housing boom, a consequence of the growth in the Texas oil industry. Soon it gained 20 percent of the Houston area market and earned nearly a third of its revenues locally, as the 1981-82 housing recession did not effect this city.

U.S. Home's strategy was to acquire land, develop its own lots, and build on speculation. U.S. Home's aggressive building policy worked well during the 1970s when a high rate of inflation encouraged property purchases as investments. The large purchases of land and its development into subdivided lots, however, made the selling of undeveloped land the main source of U.S. Home's profits for a time after 1980.

By the mid-1980s U.S. Home abandoned its strategy of trying to be in every major U.S. market and shifted to emphasizing profits. Instead of piling up debt, it sought to diversify in less capital-intensive ways. Earlier in the 1980s, it had begun seeking partners for joint-ventures in its successful retirement communities, of which it had six by 1981, primarily in Texas and Florida. In 1983 it joined the ranks of builders who were giving home buyers a special kind of mortgage insurance, which paid principal, interest, tax, and hazard insurance payments for as long as 12 months after the buyer loses his or her job. Around this time U.S. Home was the first homebuilder to use mortgage-backed bonds for financing.

In early 1983 U.S. Home went into the manufactured housing business when it acquired two firms: Brigadier Industries Corp., a manufacturer of mobile homes, for stock valued at $25.5 million, and Interstate Homes, a maker of modular homes. U.S. Home's revenues had topped the $1 billion mark for the first time in 1980. In 1983 sales peaked at $1.152 billion. This was also the year U.S. Home reached its peak in number of homes built--14,028 nationwide.

Odom had initially hoped that the mobile home business would increase marginal profits. However, the ventures ended up losing money, partially due to U.S. Home's initial lack of management experience in this field. His idea was to establish a network of dealers selling U.S. Homes mobile products exclusively. But the dealers preferred the traditional method of handling a broad line of mobile homes supplied by several manufacturers. The mobile home division reported increasing operating losses of $5 million in 1983, $9.7 million in 1984, and $15 million in 1985.

Business overall soured in 1984 when Odom erroneously predicted that interest rates would decline in the election year. While other builders held back, U.S. Home continued to build beyond sale orders. As interest rates went up slightly, new orders dropped by 30 percent in May. By August that year U.S. Home was stuck with 1,700 completed but unsold homes.

At the same time the company was dealt an especially severe blow in its own backyard, the Houston market. The national housing recession eventually came to affect Houston, and the recovery there lagged behind. More significantly, the Texas oil boom of the 1970s was over, as the price of oil fell and the industry declined. U.S. Home meanwhile had become too dependent on the Houston market, which had accounted for 40 percent of the company's total construction in 1982 with 4,975 new homes. Yet its hold on the Houston metropolitan area had been slipping as other large homebuilders began to enter the increasingly competitive Houston market. The rental sector also emerged as tough competition as a consequence of a 1981 municipal housing law that indirectly encouraged the building of rental units.

During the period between 1983 and 1985 the company had to resort to selling more than 3,000 of its slow moving inventory of homes to the syndicator, Equity Programs Investment Corp. (EPIC). The latter in turn rented out the houses, lowering the value of the neighborhoods, which prompted some home-owning neighbors to sue U.S. Home. This particularly hurt U.S. Home's reputation, since it relied heavily on customer referrals. It sold 2,286 houses at discounts to EPIC in 1984 for a loss of $1.5 million, contributing to a net loss for 1984 of $43.9 million on total sales of $1.1 billion. Another 250 of U.S. Home's projects had to be auctioned off. The company also implemented a program of offering home sales to rental tenants for interest rates 1 percent below the going market rate and accepting the last 12 months rent as part of the purchase price.

Following losses in two straight quarters and indications of a large deficit for the year, Odom resigned in 1984. He turned over his posts of chair and chief executive officer to George Matters, who had been president since 1980. Robert Strudler then became president.

Matters proceeded to cut costs and reduced overhead by about $70 million in 1985. Losses were reduced to $9 million, although sales also declined to $922 million, bringing the company down to second place among the nation's builders. To cut losses the company trimmed operations in several states. It closed operations in markets where business was weak and cut housing and land inventories in all of its markets. It began to withdraw from Amarillo, Texas; Birmingham, Alabama; Oklahoma City and Tulsa, Oklahoma; and Seattle. Chicago operations were reduced substantially. Consolidation eliminated 14 building divisions.

Matters failed, however, to go far enough to cut costs where it was most needed: in the mobile homes division and in the depressed Houston market. Twenty-three of U.S. Home's active subdivisions in Houston were losing money that year. Financial troubles contributed to another executive shakeup. Matters resigned as CEO, replaced by Robert Strudler. Isaac Heimbinder, who had been chief financial officer, took over Strudler's post as president. Matters had been criticized for failing to respond quickly enough to declining housing demand. Strudler and Heimbinder in turn proceeded to cut U.S. Home's Texas operations in half, reducing the number of subdivisions in which it was operating from 70 to 34. They also finally sold off the failing mobile home business.

The company immediately posted two consecutive profitable quarters and its stock went up at the end of 1986. In 1988, however, U.S. Homes ended a year profitably--for the first time since 1983--with a net income of $5 million on sales of $735 million. This reflected further progress in reducing general, administrative, and selling costs. The company continued to improve its cash flow in 1989, although profits and sales had declined even further to $1.24 million and $675.56 respectively, bringing it down to ninth place in the nation's industry. U.S. Home continued to streamline operations, deploying assets in strong markets in California, Florida, and Denver, while closing them in Albuquerque, Atlanta, and Charlotte and reducing them in Phoenix and Tucson.

Then in 1990 the housing industry entered a recession again, with the lowest level of housing starts since the early 1980s. By early 1991 home values were depressed as much as 30 percent in some areas. Other factors hurting the industry at this time included regulations affecting building suppliers of lumber and cement. Local zoning laws and building codes made housing more expensive as well. U.S. Home based its strategy, in facing these unfavorable conditions, on geographic diversity, low overhead, and low inventories, so as to better withstand the inevitable cycles of the housing industry. The company achieved the lowest number of completed unsold units in 15 years.

The national housing slump and a shortage of credit prompted U.S Home to take an $82.2 million write-off in the fourth quarter of 1990. This comprised provisions for discontinued operations, provisions relating to the disposition of excess land and housing inventories in markets where the company had reduced its operations, and litigation costs. It closed the year with an unprecedented $101.6 million loss. U.S. Home's difficulty in restructuring its debt was also representative of an overall lack of credit for the housing industry, although new house sales picked up again in early 1991.

By spring 1991 U.S Home had been unsuccessful for nearly a year in trying to get a group of 17 banks to restructure its $156 million debt, which had been renewed annually since 1973. In April it filed in a New York court for Chapter 11 bankruptcy protection from creditors. Its objective was to reorganize. At the same time U.S. Home secured $72 million of debtor-in-position financing from General Electric Capital Corp., using its unsecured projects as capital. The company was thus able to continue business as usual.

Despite remaining under bankruptcy protection, U.S. Home managed to increase sales for 1992 to $689.9 million up from $485.3. It completed 5,015 homes, up 39 percent from the previous year, which was the most it had built since 1989. Although the net loss for the year was still high at $21.35 million, this reflected reorganization charges of $50.7 million, and the company had an operating profit of $30 million.

In March 1993 U.S. Home submitted its reorganization plan, offering $165 million in new debt plus stock to settle $297 million in unsecured claims. The plan went into effect, and the company came out of bankruptcy that June upon the selling of $200 million in 10-year high-yield bonds. At the same time it gained additional working capital from another four-year loan from the GE Capital Corporation. The company also named six new directors to its 11-member board. When U.S. Home emerged from Chapter 11, all senior creditors were paid in full and shareholder value was significantly increased from shareholder value at the inception of the bankruptcy. The issuance of public debt simultaneously with the emergence from Chapter 11 is an unprecedented event. The company was able to accomplish this because of its excellent operating performance while in Chapter 11. In 1992 the company earned in excess of $29 million on a 39 percent increase in homes delivered. In 1993 the company's performance continued to improved--operating earnings for the first six months exceeded $17 million.

In mid-1993 U.S. Home was active in 26 metropolitan areas in Florida, California, Arizona, Maryland, Minnesota, New Jersey, Texas, Nevada, Virginia, and Colorado. Project sizes ranged from 50 to 1000 units, and the company was ranked the fourth-largest home builder in the country.

Principal Subsidiaries: U.S. Home Acceptance Corp.; U.S. Home Mortgage Corp.; USH II Corp.; U.S. Home Finance Corp.; U.S. Insurers, Inc.

Further Reading:

• Davis, Jo Ellen, "U.S. Home Pays a Big Price for a Turnaround," Business Week, November 25, 1985, pp. 114-118.
• Donahue, Gerry, "U.S. Home Corporation (Gearing Up for Recovery)," Builder, May 1992, p. 217.
• Klempin, Raymond, "A Surprising Shakeup at U.S. Home," Houston Business Journal, May 26, 1986, p. 1.
• "News of Realty: Acquisition Plan," New York Times, April 22, 1969, p. 74.
• Oneal, Michael and Robert Block, "A Sudden Departure from U.S. Home," Business Week, May 26, 1986, pp. 45-46.
• Somoza, Kelly F., "U.S. Home Corp. Announces Financial Results," Business Wire (BWRE), February 9, 1989.
• "U.S. Home: A Cozy Investment?" Business Week, March 30, 1987, p. 74.
• "U.S. Home's Big Mistake," Business Week, January 12, 1974, pp. 44-45.
• "U.S. Home Corp.: Chapter 11 Protection Ends as Reorganization Proceeds," Wall Street Journal, June 22, 1993, P. B4.
• "U.S. Home Files Plan of Reorganization, Posts 4th-Period Loss," Wall Street Journal, March 4, 1993, p. B5.
• "U.S. Home's Financial Roof Is Leaking," Business Week, September 17, 1984, pp. 118-121.
• "U.S. Home Gets Ruling on Loan," Wall Street Journal, May 16, 1991, p. B12.

Source: International Directory of Company Histories, Vol. 8. St. James Press, 1994.

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