7601 Lewinsville Road, Suite 300
McLean, Virginia 22102
Telephone: (703) 761-2000
Fax: (703) 761-2030
Web site: http://www.nvrinc.com
Incorporated: 1980 as NVHomes, Inc.
Sales: $4.3 billion (2004)
Stock Exchanges: American
Ticker Symbol: NVR
NAIC: 236110 Residential Building Construction; 236115 New Single-Family Housing Construction; 522310 Mortgage and Nonmortgage Loan Brokers
NVR Inc., is one of the largest homebuilders in the United States, with operations in 11 states, primarily in the East, and a large share of that business in the Washington, D.C., area. The company builds, sells, and finances new homes. Its homebuilding unit sells and constructs homes under the trade names Ryan Homes, NVHomes, Fox Ridge Homes, and Rymarc, while NVR Mortgage oversees a variety of financing programs as well as settlement and title services for buyers. Having weathered a rough patch in the 1990s that culminated in a bankruptcy filing, NVR had fully restructured and reemerged by the early 2000s. In 2004, the company reported solid gains that included revenues of $4.3 billion, a 17 percent increase over the previous year.
NVR's history is relatively short and tumultuous. The company was founded in 1980 as NVHomes, Inc., by Dwight C. Schar. Between 1973 and 1977 Schar served as vice-president and group manager of Ryan Homes, Inc.'s Washington, D.C., operations. From 1969 to 1973 Schar headed Ryan Homes's land acquisition and development efforts in Ohio, Kentucky, and Indiana. Like Ryan Homes, which was founded in 1948, NVHomes specialized in the construction of single-family homes primarily in the Washington, D.C., area.
By 1983 NVHomes achieved income in excess of $1 million from homebuilding operations on the East Coast. The company continued to grow quickly throughout the early 1980s, doubling its net income each year to nearly $14 million in 1986. In that year, concurrent with its initial public offering, NVHomes was reorganized into a limited partnership and was renamed NVH L.P.
A few months after becoming a limited partnership, NVH acquired a controlling interest in Ryan Homes, Inc. Before the end of 1987 NVH had acquired all of Ryan, making it a subsidiary of the newly formed NVRyan L.P. holding company. Profits continued to skyrocket in 1987 and 1988, with net incomes exceeding $21.5 and $33.5 million respectively. In 1989 the company shortened its name to NVR L.P.
As the company expanded in the 1980s, an organization evolved that was comprised of nearly 100 subsidiaries. By acquiring and establishing new subsidiaries, NVR was able to provide services relating to construction, land acquisition, home finance, investment advice, and other real estate development activities. Through its network of companies, NVR generated profits from almost every phase of the homebuilding and financing process. The company also branched out regionally, entering markets in Florida, California, Indiana, Kentucky, North Carolina, Ohio, Pennsylvania, and Virginia.
Contributing to the success of NVR and its subsidiaries in the 1980s were several factors that prompted housing industry growth in the early part of the decade. For instance, the demand for new homes in the United States rose significantly in the early and mid-1980s, bolstered by a generally strong U.S. economy. In addition, favorable tax laws pertaining to real estate investments, particularly limited partnerships, were enacted by the presidential administration of Ronald Reagan. These laws made it possible, for example, for limited partners to write off losses incurred from real estate investments against personal income. These developments, in concurrence with the deregulation of some lending institutions in the early 1980s, made it easy for NVR to obtain capital for expansion.
Despite strong growth and healthy profits through 1988, NVR began experiencing severe financial difficulties in 1989. By this time, the demand for new housing was beginning to decrease significantly as the economy fell into recession. In addition, changes in the tax code were making it more difficult for companies like NVR to obtain capital. For example, the Tax Reform of 1986 reduced, over time, the benefits derived from investing in real estate and limited partnerships. The result was over-built housing markets in many regions and the subsequent decrease in demand for new homes that continued through 1991.
Although NVR showed a net income of more than $30 million in 1989, the company was severely distressed going into 1990. The company's homebuilding and land development inventory grew from about $400 million in 1988 to over $600 million at the start of 1990. At the same time, revenues from NVR's construction and development activities plummeted from $1.15 billion in 1988 to about $0.9 billion in 1990 and $0.6 billion in 1991. In addition, as the development industry slowed, NVR's assets lost much of their market value. As a result of reduced asset values and operating revenues, NVR posted a net income loss of over $260 million in 1990.
In response to the dire market conditions of 1989 and 1990, NVR adopted a comprehensive business reorganization plan in 1990 that was designed to streamline its operations and reduce further losses. The major goals of the plan, which was implemented in 1990 and 1991, were to: restructure homebuilding operations into two product lines—moderately priced and upscale; reduce homebuilding activity and place all development companies under one management structure; exit all markets except those in the eight mid-Atlantic states in which NVR operated profitably; close several home manufacturing plants; consolidate some finance operations and increase mortgage offerings to customers other than NVR home buyers; and exit speculative land development businesses.
By 1991, NVR maintained two principal business segments: construction and marketing of homes, and financial services, which included both a mortgage and a savings bank. Home construction and marketing activities, NVR's chief source of revenue, was handled through its two primary development companies, Ryan Homes and NVHomes. Ryan Homes, which developed moderately priced single-family units, was responsible for most of NVR's construction activity. NVHomes, on the other hand, concentrated on move-up buyers that were able to purchase relatively high-priced homes yet could not afford custom-built units.
Ryan Homes offered a variety of basic home designs for condominiums, townhomes, and detached houses. In 1992, for instance, it built detached homes ranging from 1,000 to 3,350 square feet in size and from $54,000 to $479,000 in price. The largest homes, which were part of the "Ryan Classics" line, offered amenities such as libraries, sun rooms, cathedral ceilings, hardwood floors, and hot tubs. Although 55 percent of the homes Ryan built in 1992 were detached houses, 35 percent of its dwellings were townhomes. These units ranged from 900 to 2,300 square feet and averaged $127,000 in price. The few condominiums that Ryan built averaged about 1,000 square feet in size and cost an average of $88,200. Although most of its homes were built in the Washington, D.C., area, Ryan also operated in Pennsylvania, New York, North Carolina, and Delaware.
NVHomes developed significantly fewer homes than Ryan, although at a much greater price. For example, the average price of a NVHomes unit in 1992 was $289,100, compared to $137,600 for a Ryan Home development. Because NVHomes catered more heavily to move-up buyers, its homes usually offered four or more bedrooms and at least two and one-half bathrooms. Its larger homes, some priced at more than $600,000, offered luxury amenities such as extra fireplaces and bedrooms, finished basements, and garden rooms. About 30 percent and 12 percent of NVHomes units were townhomes and condominiums, respectively. The company built almost exclusively in the Washington, D.C., metropolitan area.
Both NVHomes and Ryan Homes employed innovative marketing and product delivery techniques to survive in the increasingly competitive market of the early 1990s. For instance, the operations began building homes as they were ordered, rather than by speculation. This was accomplished by first developing a model home in each community being developed. Customers could visit the model home, which also served as a sales center, and choose the floor plan and options that they would like to see integrated into their home. Customers also selected a site within the community. After the neighborhood was fully developed, the model home was also sold. In the case of townhomes and condominiums, construction began only after a significant number of the units in each building had been sold.
Besides building homes as they were ordered, NVR also began to reduce its exposure to risk by not actually purchasing home sites until a customer chose to build on the lot. Instead, after its reorganization, NVR purchased individual options to buy land that were exercised only after home buyers qualified for their mortgages. After the customer qualified, NVR would construct the house using on-site contractors. NVR was able to minimize costs, increase quality, and speed product delivery through its subsidiaries that premanufactured segments of the home in off-site facilities. The ready-made panels were delivered to the site where contractors, under the supervision of NVR representatives, assembled and finished the home. In 1992 NVR completed detached homes in an average of 86 days.
As a corporate entity NVR, Inc. provides various support functions for each of its sub-entities. These include essential managerial structures, vital human resource specialists, and an advanced information technology department, which all intertwine to provide a network of resources utilized by NVR, Inc. holdings.
NVR's second principal business activity, financial services, allowed the company to extract greater profits from its homebuilding operations and to generate revenues from unrelated activities. Financial services operations were divided into two functions: thrifts and mortgage banking. In accordance with its goal of streamlining operations and consolidating its finance operations, NVR established NVR Finance in August 1991. NVR Finance assumed all of the mortgage origination and servicing activities that were formerly conducted by several different divisions. In 1992 NVR Finance arranged financing for approximately 75 percent of NVR's home sales. While NVR's construction activities shrunk regionally, NVR Finance expanded its operations to serve several western states. It also sought to diversify by increasing its share of the retail mortgage market. NVR Finance also provided broker title insurance and title search services for NVR's homebuilding services as well as for third parties.
In the early 1990s NVR continued to operate a thrift institution that it acquired through RFS, one of its subsidiaries. RFS acquired Mclean Federal Savings and Loan Association by merger to form a wholly owned subsidiary called NVRSB. NVRSB provided checking, savings, and lending services, and concentrated on lending for home and automobile purchases as well as other consumer finance loans.
In addition to its thrift and mortgage banking operation, NVR was active in real estate investment trusts and mortgage backed securities operations in the late 1980s. These activities were curtailed following the reorganization plan of 1990.
Despite NVR's attempts to minimize losses by reorganizing and streamlining its operations, falling home prices combined with the continued low demand for new construction proceeded to place the company under severe financial stress in 1991 and 1992. In 1991 NVR built just 3,831 housing units, down almost 27 percent from 5,240 in 1990. Furthermore, total company assets continued to decline, from a peak of $2.4 billion in 1988 to less than $1.6 billion by 1991. Although net income losses decreased in 1991 to –$36.7 from –$260.5 million in 1990, NVR's cash flow was still insufficient to meet its obligations to creditors.
In 1992 NVR developed 10.4 percent more homes than it built in 1991. This increase resulted from an increase in new orders in late 1991 and 1992. The increase in orders, however, was partially offset by a further reduction in the average price of NVR's new homes, which fell from $200,000 in 1991 to $189,000 in 1992. NVR realized a jump in revenue of about 5.8 percent, or about $37 million. Even an improvement in sales and income in 1992 was not enough to buoy the company, however. Net income remained negative in 1992, at –$3 million, despite a 26 percent jump in gross revenue over 1991 to $818 million.
On April 6, 1992, NVR and some of its homebuilding subsidiaries filed for Chapter 11 bankruptcy. NVR Finance's mortgage banking subsidiaries also filed for bankruptcy later in the year. Moreover, the CFO of financial operations fled the country after embezzling funds from the company. Pursuant to its petition for bankruptcy, as well as its default on mostly all of its debts, NVR filed a joint plan of reorganization. The plan was designed to allow NVR to emerge from bankruptcy intact while minimizing losses incurred by NVR creditors.
In addition to problems related to bankruptcy, including claims and suits filed against NVR as a result of default, NVR was also burdened by litigation related to its homebuilding activities. During the 1980s NVR built about 20,000 townhomes and 2,500 condominiums that may have contained faulty fire retardant plywood in their roofs. In an effort to rectify the situation, NVR spent, as of 1993, about $10.8 million. It also planned to spend an additional $9.4 million in the future. As a result, NVR sued both the supplier of the plywood and NVR's insurer to recover these losses.
Despite bankruptcy proceedings in 1993, NVR continued to develop homes in the Northeast and to expand its financial services subsidiaries throughout selected regions in the United States. The company was ranked as the sixth-largest developer of single-family homes by Builder magazine.
By the late 1990s NVR had pulled itself out of bankruptcy, had new leadership and ownership, and was taking advantage of the huge economic upturn to develop its strengths. In March 2001 Forbes ranked NVR 11th among its Platinum 400 list of strong performers. Since 1996, the magazine reported, the builder had made huge gains in capital growth—in particular a massive 833 percent stock appreciation since 1996. The listing marked a change in Wall Street attitudes toward builders in general and NVR in particular. Construction had traditionally been regarded as too volatile an industry for its stocks to perform strongly over time. The building market was regarded as a place where maverick, risk-taking entrepreneurs worked in an environment too unsettled for long-term investment. NVR's performance on the Forbes list—which excluded such high-profile companies as Hewlett-Packard and IBM—changed that attitude almost overnight.
In 1997, NVR acquired Fox Ridge Homes, adding that competitor's name to its roster of brands and thereby establishing a presence in Nashville, Tennessee. Two years later the company added to its mortgage unit with the acquisition of First Republic Mortgage, which it retooled to exclusively serve NVR customers. Despite predictions of gloom from investment analysts anticipating a downturn in the construction market to parallel the downward slide of the rest of the economy in 2001, the housing boom continued into the 21st century. In 2001 the housing construction industry outperformed all other sectors of the economy in Dow Jones and Standard & Poor's industry groupings. In all lists NVR emerged as an industry leader. Gross revenue in 2001 topped $2.6 billion, with net income ROE coming to 79 percent, and the company's price to earnings ratio stood at 11.7. By 2003, revenues had reached $3.7 billion. At the same time, the company's compensation for its top officers tripled, making it the industry leader in payouts to executives as well. Company founder Dwight Schar remained NVR's chairman and retained a small interest in the company.
Ryan Homes, Inc.; NVHomes L.P.; NVR Mortgage Finance, Inc.; NVR Savings Bank; Ryan Mortgage Acceptance Corporation (RYMAC).
Homebuilding; Mortgage Banking.
Pulte Homes, Inc.; The Ryland Group Inc.; Beazer Homes USA Inc.; Champion Enterprises Inc.; Centex Corporation.
Lurz, Bill, "Builders Shine in Forbes Ranking," Professional Builder , March, 2001, p. 26.
Marcial, Gene, "A Low Ceiling at NVR?," Business Week , December 9, 2002, p. 138.
Richmond, Iris, "The Producers: A Bullish, High-Profile Performance by the Public Builders Positions Them to Pull Away from the Pack," Builder , May, 2002, p. 33.
Serwer, Andy, "A Balloon Bound to Burst," Fortune , June 10, 2002, p. 197.
—Dave Mote —update: Kenneth R. Shepherd