The Drees Company, Inc.

211 Grandview Drive, Suite 300
Fort Mitchell, Kentucky 41017
U.S.A.
Telephone: (606)578-4200
Fax: (606)341-5854
Web site: http://www.dreeshomes.com

Private Company
Incorporated: 1928
Employees: 650
Sales: $515 million (2000)
NAIC: 23321 Single Family Housing Construction; 23322 Multifamily Housing Construction; 23332 Commercial and Institutional Building Construction

The Drees Company, Inc. is one of the largest home builders in the United States. In an industry made up principally of small local companies, Drees is one of several dozen big firms with operations in many markets. The company began as a modest home builder in northern Kentucky, then spread across the Ohio River to the Cincinnati metropolitan area. It became the biggest builder in Cincinnati while moving into other more distant geographical markets. It now builds homes or develops land in Dallas and Austin, Texas; Washington, D.C., Maryland, and Virginia; Raleigh, North Carolina; and in and around the Ohio cities of Cincinnati, Cleveland, and Dayton. Although most of its work is in residential building on land it owns, the company also builds and manages apartments and town homes, builds commercial property, and undertakes commercial renovation. Drees maintains its own architects and runs a computerized design center for its customers. Homes the company builds run the gamut from cheaply priced starter homes to luxurious upscale dwellings. The company is privately owned, with most of the stock in the hands of the Drees family. The CEO of the company is David Drees, grandson of founder Theodore Drees and eldest son of former CEO Ralph Drees.

Modest Beginnings

Theodore Drees emigrated from his native Germany as a young man, leaving in 1925 and settling at first in Brazil. A carpenter by trade, Drees was unmarried, and apparently left his homeland with only vague plans. He went to Brazil because of its lenient immigration laws and worked in the construction business there. But after three years he moved on to the United States. Drees had a friend who had friends in the Cincinnati area, and the two set off together on a six-week sea voyage to reach America. Drees settled in northern Kentucky, across the bordering Ohio River from Cincinnati. In 1928 he founded The Drees Co., a home-building company. The company built five homes its first year, and ten the second. The Drees Co. remained small under Theodore, building only about a dozen houses a year. Drees had married and had children, and the company did enough business to support the family. Drees also built up a reputation for quality work and meticulous craftsmanship.

It was not until the next generation of Dreeses entered the business that the company began to grow substantially. In 1958, The Drees Co. became a partnership between Theodore and his two sons, Richard and Ralph. The name of the company at that time changed to Drees Builders and Developers. Richard eventually left the business, but Ralph showed a great proclivity for building from the first. He joined the company full time in 1959, after he got out of the army. His father gave him a lot of autonomy, starting Ralph off with an 80-acre plot of land to develop on his own. With five employees, Ralph made plans, bought materials, supervised the building, and sold the resulting homes. In his first year, Ralph built and sold five houses, rivaling his father’s start. But within only a few years, he had far surpassed his father, building hundreds of units in a new subdivision. They were modest homes, selling for between $16,000 and $25,000. But sales were slower than Ralph would have liked. The reason turned out to be that school buses did not serve the subdivision, making it difficult for families to get their kids to school. Ralph’s remedy was to buy a bus and drive it himself. He moonlighted as a bus driver for more than three years, while Drees Builders continued to grow.

Ralph Drees clearly had the drive and ingenuity needed to expand the company. In 1967 his brother Richard left the partnership, and Ralph acquired 100 percent of the company. His father retired in 1968, and the company incorporated as The Drees Builders and Developers Inc. It was a private company, with stock going to Ralph Drees and his family, and to top executives. Under Ralph Drees’s management, the company grew at an impressive rate. Its annual sales passed $1 million in 1970, and by 1974 had reached $4.5 million. In 1975 the company changed its name to simply The Drees Company, Inc.

The Drees Co. was willing to diversify its product. After at first focusing on building single-family homes, the firm started an Investment Properties Division in 1972, later renamed the Commercial Division. This division built office buildings, apartment houses, banks, condominiums, strip malls, and restaurants. The company eventually owned and managed more than 1,500 rental apartments. In 1973 the firm began its first geographic expansion, seeking work in Cincinnati. Although only a river separated Drees’s northern Kentucky territory from urban Cincinnati, it was not easy to break into that market. Cincinnati builders had different ways of working, and Cincinnati customers wanted a different product. Drees finally split into North (Ohio) and South (Kentucky) divisions, because the two territories demanded different business practices. But the firm was ultimately successful in penetrating Cincinnati. By the end of the 1970s, sales stood at more than $20 million, and Drees was the fourth largest builder in the Cincinnati area.

Geographic Diversity on a Bigger Scale in the 1980s

Breaking into the Cincinnati market had been difficult for Drees. But the first serious obstacle to the company’s success came with a dire housing slump in the early 1980s. Housing starts declined dismally in the Cincinnati area, dropping as much as 70 percent for 1982. That year, Drees brought in only $15 million, and ended up in the red for the first time since the company’s founding. The next year was better. Drees built 254 houses around Cincinnati and brought in $22.5 million. But the housing market continued depressed through 1984. Drees struggled. Eventually, the company came up with a two-pronged plan. It increased its presence in its home market, continuing to buy, build, and advertise even as its competitors cut back and lay low. Then Drees began to build in a new and distant market: Dallas, Texas.

Ralph Drees prided himself on conservative fiscal management, yet he was not afraid to move boldly in other ways. With conditions so bad in Cincinnati, it looked like the firm would have to lay off valued workers. Rather than curtail the business, Drees decided to look for a more promising market. Drees told Business First-Louisville (July 9, 1990) that his thinking at the time was that “If we’re going to fail, let’s fail in a good market.” Ralph Drees and a trusted top executive took several trips to Dallas to make sure it was a good decision. The company began building homes there in 1984. The Dallas market was more upscale than Cincinnati and northern Kentucky. The homes Drees built there were larger and more complex, with many customized features, such as luxurious baths. Drees managed to do well in Dallas from the start, and by the early 1990s, it had become the firm’s biggest market.

The company learned a lot from its first geographical move, from northern Kentucky to Ohio, and then prospered in Texas. Further geographical expansion drove the company’s growth in the 1980s into the 1990s. After Dallas, Drees decided to move into the Washington, D.C. area. When that proved difficult at first, the company instead chose Atlanta, beginning work there in 1987. Within a year, Drees was building homes at six different developments around Atlanta. The next year, the company proceeded to Washington, D.C. The early 1980s housing slump seemed far behind as Drees built rapidly at the end of the decade. Sales for 1989 were around $135 million, compared with less than $23 million in 1984, the start of the company’s geographic expansion. It sold 950 single-family homes in 1989, almost a third of them in the Dallas market. The company also sold more than 450 apartment units and a small number of commercial buildings. Drees was the biggest home-builder in the Cincinnati area, with a market share of around 12 percent. This was twice the market share of its nearest competitor. The company also was becoming one of the bigger builders nationwide. By 1990 there were roughly 100,000 home builders in the United States, most of them small local companies. Drees was in the top 100 builders by sales by 1990, ranking 71st that year. The company retained a tight central management system, even though it moved into other distant markets. The firm’s headquarters remained in Fort Mitchell, Kentucky. Drees also kept its finances under control, always maintaining a low debt-to-equity ratio.

A National Presence in the 1990s

By the early 1990s, four of the five Drees children were working for their father’s company. The eldest son, David, became president of The Drees Co. in 1993. Ralph Drees retired in 1995. The company continued to expand into new markets when the opportunity arose. It moved into the Dayton, Ohio area in 1995. The company had been investigating the Raleigh-Durham, North Carolina market since the mid-1990s, and in 1997 Drees acquired North Carolina builder Charter Homes. The Dallas market continued to be its most successful, contributing a large percentage of the company’s sales. In 1997, which proved a record year for the firm, sales topped $300 million, a 20 percent increase over the previous year.

Company Perspectives:

Drees Mission Statement: To create superior homes and communities that provide our customers with choice, value and satisfaction. To conduct all activities with honesty, integrity and fairness. To keep a long term perspective, emphasizing business opportunities that provide personal pride and corporate growth. To demand continual improvement of ourselves and our processes.

Not only had the company diversified geographically, but it built a wide variety of products. Especially in Cincinnati, Drees made a broad range of dwellings. At first it had made, principally, so-called starter homes, designed for people buying their first house. Increasingly, Drees built more upscale houses, meant as “move-up” homes for people with growing budgets. The company also built town homes designed for empty-nest-ers—couples who no longer needed a large house once their children were grown. Drees ran a realty company in Cincinnati and managed more than 1,500 apartments. Drees’s hallmark in Cincinnati was customization. It offered around 40 different floor plans, which could be customized with thousands of options.

Drees had grown mostly by diversifying its product and moving into new markets. In the late 1990s, it began to make key acquisitions of other builders. In 1998 Drees bought an Austin, Texas building company called Palmer Homes. Drees already had a strong presence in Dallas, where it had been entrenched since the mid-1980s. Buying Palmer gave Drees automatic entry into Austin, saving the many start-up costs associated with moving into a new market. Taking on Palmer caused overall sales to balloon. Drees brought in about $400 million in 1998, again almost a 20 percent increase over the year before. By 1999, Drees ranked as the 40th largest builder in the United States, according to statistics compiled by Professional Builder, an industry journal.

Over the next two years, Drees worked to accomplish two things. It focused on its Dayton, Ohio market, and it set up a new division to market specifically to first-time home buyers. The first-time buyers unit was called Marquis Homes. It designed homes that sold for between $120,000 and $160,000. The company had marketed more aggressively to first-time home buyers earlier in its history, but by the late 1990s it had seen some of its market share slip. By 2000, the company was selling more homes than ever. It closed on 2,036 homes that year, up from 1,734 the previous year. Despite the new division’s focus on cheaper houses, the average sale price of a Drees home rose from $218,000 in 1999 to $237,000 in 2000. Total sales in 2000 were at $515 million.

In 2000 the firm made another major acquisition. It bought substantial assets of Zaring National Corp., another builder with a national presence. Zaring, based in Cincinnati, ranked 48th on the Professional Builders list of top companies. Its sales for 1999 were slightly more than $314 million. It built homes in Cincinnati and Dayton, Ohio, where Drees already operated, as well as in Raleigh and Charlotte, North Carolina, and in Indianapolis, Indiana; Louisville, Kentucky; and Nashville, Tennessee. The deal was a complicated one, since Drees did not want all of Zaring. Drees first acquired Zaring’s business in Raleigh, paying around $12 million for the division. The deal was completed some months later, when Drees acquired Zaring’s business in Nashville, Indianapolis, and Cincinnati. What was left of Zaring changed its name to First Cincinnati, Inc., while the Zaring units operated as a subsidiary of Drees, under the name Zaring Premier Homes. Drees estimated that its total sales would go up considerably after it swallowed Zaring, hoping to increase from around $515 million in 2000 to about $800 million in coming years.