Broad Builds Up

Young Eli Broad, a bright, broke, freshly certified public accountant, closed what proved to be his most important deal in 1956: in exchange for free space in the small Detroit office of Builder Donald Kaufman, he agreed to do the contractor's bookkeeping. Broad quickly sensed that rich rewards awaited anyone who could bring order to the splintered, untidy, often wasteful world of home building. Within months, the accountant and the contractor formed Kaufman and Broad Building Co. and laid the foundation for one of the industry's fastest-growing giants.

Today the Los Angeles-based company, under 39-year-old Chairman Broad (rhymes with road), is the nation's second largest home builder, behind ITT Levitt. In the last five years, K. & B. sales jumped by a phenomenal average of 50% annually, to last year's $225 million. Last week the company reported that, partly as a result of acquisitions, after-tax profits in the year's first half jumped 92%, to $7,800,000.

From the start, the company aimed at the large, lower end of the housing market (buyers with incomes from $7,000 to $22,000). In 1957, the company's first homes were built without cellars or landscaping, but the price was alluring: $13,500. On the weekend that the models were opened in Detroit, the firm wrote $250,000 worth of orders, which was ten times the amount the partners had put up to start the firm.

In an industry in which most firms are local or regional, K. & B. reached well beyond Detroit, spreading to California, Phoenix and on to Chicago, New York and New Jersey. It pushed into Canada and France and last year began in Germany. Broad is exuberant about home-building potential in Europe, noting that "they are just where we were right after World War II."

Broad, who has been chief since Kaufman's retirement in 1965, knows relatively little about building a house and lets others make technical innovations and aesthetic improvements. He gives great autonomy to the company's local division heads, and many have become paper millionaires through the K. & B. stock-option plan. K. & B.'s homes look much like the repetitively designed houses put up by many other builders. Broad's main concern is mass producing and selling a product that happens to be housing but could just as easily be bed springs or toenail clippers. Says Broad: "We are a manufacturing company."

To keep the price of his housing down, Broad cuts costs in many ways. Unlike many builders, he believes that tying up money in long-term land holdings is wasteful and inefficient. K. & B. never buys property until it is ready to use it; usually within six to nine months of acquiring land, the company is selling houses on it. K. & B.'s size also allows Broad to save on material by buying preassembled units like doors and windows in large cut-rate lots.

As a publicly traded company, K. & B. can sell its own commercial paper instead of taking out more expensive bank loans. The company's stock has generally been a fast riser; anyone who bought $10 worth five years ago now has, after splits and dividends, an investment worth $540. Using stock, Broad last year acquired Baltimore's cash-rich Sun Life Insurance Co., which in the last six months has added $2,100,000 to K. & B. profits. Sun Life meshes well with K. & B., because it can sell a package of fire, theft and accident insurance to home buyers.

Ever the prudent accountant, Broad held back a few years ago when many firms went into the production of factory-constructed module homes and wound up struggling with many still unresolved technical problems. Instead, K. & B. turned to trailer-like mobile homes and last year sold 9,300 of them. In Broad's view, mobile-home production gives his company valuable--and profitable--experience. When the mass production of houses in factories becomes practical, K. & B. will be ready to exploit that development--without having wasted money on numerous false starts.

This file is automatically generated by a robot program, so reader's discretion is required.