Where do we go from here?
Schottenstein says there’s no hurry to expand M/I beyond its current markets.
"We feel there are phenomenal growth opportunities where we are right now," he says. "Our business has doubled in Tampa, and we’re doing great in Charlotte."
The company’s backlog is a healthy 2,321 homes with $567 million in contract value, according to Standard & Poor’s.
Schottenstein is also confident the company can increase its Columbus and Cincinnati sales. When it went public in 1993, financial experts advised Schottenstein not to play up its Columbus market, saying it was not a big factor in its growth potential.
"But because of our customer programs, we doubled our business in Columbus since we went public," Schottenstein says.
Going public gave M/I the opportunity to pursue rapid growth without relying on debt to provide needed capital.
"It was a more prudent and safer way to grow the business," Schottenstein says.
The company recently filed a plan with the SEC to restructure itself into a holding company whose operating assets for its regional markets will be owned and operated by five wholly owned limited liability companies. Operations will continue under the same trade names Horizon, M/I Homes and Showcase Homes and the restructuring will provide a framework for future growth. For example, one or more units could raise capital apart from the rest of the company. The plan also protects the company and each of its units from potential liabilities that arise by isolating them to the operating unit they are associated with.
The company’s target growth rate is 10 percent a year, and Schottenstein believes that can be achieved simply by doing more business in the cities where M/I is already building homes.
Expansion into other cities, he says, is fraught with more risks than the company cares to take.
"You don’t really know a market until you’re there," Schottenstein says. "You don’t know if you’ve hired the right people, the right subcontractors, and are in the right areas of the city."
Schottenstein says the company has been in its current markets for years and has overcome those hurdles.
"It’s just a more conservative and smarter approach to stay in our current markets," he says.
The biggest challenge M/I faces, especially in the Columbus market, is the dwindling amount of land available for development.
"All of us were justifiably disappointed when America West announced its departure from Columbus," Schottenstein says. "But to me, the moratoriums on building on the west side will hurt this city as much as America West leaving."
The moratorium covers Pickerington and areas of Hilliard and Columbus, and was initiated because of environmental concerns over the Big Darby Creek area, which holds some of the largest tracts of developable land.
Schottenstein agrees that Darby Creek needs to be protected, but also believes the city will die if its ability to grow is suddenly brought to a halt.
"You need to strike a balance," he says. "Slow, controlled growth is good for the city."
Schottenstein is confident the city’s leadership will find a way to work out the issues, and has taken an active role himself.
"We intend to get the story out in public," he says. "We — and other builders — are stepping up our own advocacy. We want to make certain that two, three or four years from now, there are enough locations for development."
But if the Big Darby Creek situation doesn’t change, Schottenstein says it won’t affect M/I’s plans to continue building on other available tracts of land in the Columbus area.
According to Standard & Poor’s, the company maintains a four-year supply of land, which is evenly balanced between lots owned and lots optioned.
Howard Burnett, a research analyst with Salomon Smith Barney in Columbus, says the experience of M/I Homes’ executives and the diversity of the homes it sells are among its leading strengths.
"M/I is in its second generation of management, they have a lot of experience," he says, adding that some neighborhoods’ resistance to adding new communities is a rising concern that Schottenstein needs to consider.
"Acquiring land is getting to be a big problem," he says, and the home building industry experienced a slowdown in the last year.
"Home builders experienced record years until 2002," says Burnett.
And with economic and political uncertainty still in the air, 2003 is not forecasted to be a record-setting year, despite historical lows in interest rates.
This is something that Schottenstein acknowledges. "There are record low interest rates, but not record-setting sales of new homes," he says.
Schottenstein lays the blame on low job growth in Columbus.
"The single most important factor that affects the housing market is job growth," he says. "Right now, unemployment is on the rise, and there’s not a lot of hiring going on."
Still, Schottenstein is confident that business — and the company’s stock value — will be strong this year.
"A lot of factors are out of our control," he says. "But if we do the right things, the stock value will follow. If we pay attention to our customers and the fundamentals, the stock price will take care of itself."
HOW TO REACH: M/I Schottenstein Homes Inc., (614) 418-8000 or www.mihomes.com.
