Park Square Enterprises: Weathering the Storm

Construction
Written by Eric Slack
Thursday, 31 January 2008
Suresh Gupta leads this Central Florida homebuilder’s effort to stay ahead of the housing slump. Yes, Virginia, there is a housing crisis. But amazingly enough, the sun still comes up in the morning. For companies like Park Square Enterprises, an Orlando-based homebuilder, these certainly aren’t ideal market conditions. But that doesn’t mean CEO Suresh Gupta is ready to wave the white flag. Suresh Gupta, CEO “There is some inventory here that is a concern, but the number of closings every year has been the same,” said Gupta, noting the number of new housing starts has plummeted by 60%. “By keeping the number of closings higher than the number of starts, we will diminish the inventory we have, so by the end of the year we will be back to normal.” Silver lining The Commerce Department’s numbers on housing in 2007 were pretty dismal. Sales of new homes dropped more than 25%, the worst performance since Jimmy Carter’s last year in office. Prices rose by less than half a percentage point. In Park Square’s market, the Sunshine State had one foreclosure for every 273 households, according to an AP report. With Wall Street hit by billion dollar losses in subprime mortgages, recession fears are very real. The question for Park Square is how to create a successful operating strategy to deal with the current environment. The company has almost 25 years of experience dealing with the ups and downs of Central Florida’s housing market and has built every type of home from economy to luxury. Park Square knows its market, and as it saw the market shifting, the company naturally flowed with the tide. “We redesigned our product, meeting the needs for the first time home buyer,” said Gupta, noting first time buyers are generally looking for homes on single family lots with close proximity to employment areas. “They want a three- or four-bedroom house for below $200,000.” With many of Gupta’s competitors chasing the same business, he knows Park Square needs more than a shift in focus to maintain its position in the market. The Orlando Business Journal has ranked Park Square as one of the largest area homebuilders for years, and to keep that place intact, the company needs to illustrate a demonstrable distinction between a Park Square home and the other options out there. Gupta says the difference a Park Square home offers is obvious at first glance. “When you look at a cookie cutter from another builder, you can tell our house will give you more value on the outside,” he said. “And on the inside, we can give you more little extras than the national builders.” Gupta also discussed Park Square’s efforts to be a leader in building energy efficient homes. Although all the green bells and whistles added to a property can easily escalate cost, each house is built on a case-by-case basis. This allows the company to build an environmentally friendly home specifically tailored to the buyer. Extensive expertise Park Square has a fairly diverse portfolio. Although its focus shifted to first time homebuyers, Gupta believes second, move-up homes are still Park Square’s specialty. He said there are some strong subdivisions in the area, such as Water’s Edge at Lake Nona, just outside of Orlando International Airport, where home values haven’t dropped. “In fact, we’re raising prices on those homes. The buyer should feel a sense of urgency because prices won’t come down in an area like that,” Gupta said. “It is a good time to buy, and the buyer can be confident that we won’t drop prices and their value won’t diminish in the future.” About six months ago, the company also branched out into the Tampa market. Although everything is handled in the Orlando office, Tampa is only about an hour and a half southwest of the Orlando area and offers the company the opportunity to buy finished lots in another major market. “It has always been a very good market, like Orlando,” said Gupta. “It will be easy for us to react and treat it as an extension of the Orlando market.” The company also owns its own mortgage company, which acts as a lender. This gives the company an advantage, as it can offer lower rates, control its backlog, and get a clearer picture of whether or not a buyer is likely to qualify for a mortgage. In addition, Park Square knows its partnerships with developers, brokers, and banks are critically important. It is essentially an extension of a community development program. For example, Gupta knows his marketing efforts need to be tailored to local market conditions. Brokers know the local markets and can help Park Square adjust where needed to make its homes saleable. As for developers, Park Square worked with some of the same companies for more than a decade. These long-term relationships create an understanding that allows Park Square to get the best prices. Similarly, while bankers may be concerned about the current housing climate, Park Square has been transparent about cost-cutting moves and sharing information to help ease those concerns. As the company waits for the housing cycle to turn, it is making some tough choices. It eliminated some positions, but is also looking to invest in newer IT tools, an upgraded Web site, and possibly a VoIP system. The company is also exploring how to value engineer homes and build them at a lower cost. The company is also sticking with policies that have worked for more than two decades. Park Square doesn’t buy raw land that isn’t zoned. Instead the focus is on finished lots in areas with good schools, lighter traffic, and plenty of employment options. Gupta said the company put aside money in a war chest to allow it make some bargain purchases when the time is right. There is no magic spell to make the housing crisis disappear. But Gupta said now is the time to buy. A 30-year fixed rate mortgage is at 5.5 %, and prices are lower than two years ago. But with rising costs of construction, new homes will cost more to build, and consumers will pay the price. “These prices will not stay as they are. This is the best time to buy a house, and when you buy one of our homes, you are buying value,” said Gupta. “We are here for the long run, and we can offer buyers quality and endurance.”

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