Kimball Hill Homes Exits Gracefully
In our latest interview we touched base with the Western Regional President of Kimball Hill Homes, Tom Jacobs. Jacobs has been with the builder for 18 years and has journeyed with the company on its rise to the national top 20 spot and now on its slow and graceful exit from the building industry.
Last April, Kimball Hill Homes filed chapter 11 intending to eventually make its way through our current economic landslide, but instead due mostly to the changing priorities of their banks, they will instead be closing their doors. “At this point, it’s not a matter of if, but when,” says Jacobs.
To their credit, they are not escaping the industry looking to only benefit themselves, but have sold all their properties, provided severance packages for their associates and have maintained a spotless reputation with their banking partners and others in the industry, “We are looking to leave the industry with as much class as we entered it with,” comments Jacobs.
They attribute their successful exit to being honest and open with the banks and knowing when to quit. Unlike many builders, they filed for bankruptcy while they still had money to work with and this has allowed for an orderly liquidation; allowing the banks to gets the best return possible considering the circumstances.
In hind site Jacobs says that when looking to cut your budget, go over your last proposal and cut that by another 20%, “You have to react earlier, than later.” Some of their best decisions were the properties they did not purchase. Many times after rejecting an opportunity and hearing of it going to another, Jacobs would use Tract-PIE to figure out how the builder planned to benefit from the venture. More often than not, their success was based on intuition and on unrealistic circumstances. “You need balance when running a business, you have to use realistic models. You can’t rely solely on intuition,” Jacobs warns.
Did they see the crisis coming? They say they were not so much surprised by the downfall, as much as by its depth and duration. Some of the signs were when “affordability was severely challenged,” saying, “You cannot do that and meet the consumers’ needs.” As the price of land began to soar, Jacobs said they had to question their steps, but as a builder, you cannot stay out of the game, you have to participate.
A growing concern was also felt as builders were becoming the developers as well and failing to partner with others to share the risk, echoing the mistakes of the 1980’s. “This is cyclical, but hopefully people will learn from their mistakes this time,” he encourages.
As far as government involvement is concerned, he believes the best route is to offer buyers low interest (3%) loans for an extended period of time to stabilize the economy and help clear the existing inventory of foreclosures.
For Jacobs, he would like to stay in the industry saying, “It’s not just a job for me, it’s a passion. I love helping people attain the American dream, that of owning a home.” That excitement coupled with the knowledge he carries, would, I believe, be an asset to any company.