The High Life

Wearing a brightly colored Hawaiian shirt, slacks and blue

blazer, Al Hoffman stands near Gov. Jeb Bush at The Ritz-Carlton Golf Resort at

Tiburón during a meeting of The Florida Council of 100, an

influential statewide business group chaired by Hoffman. As

Bush makes his way through the room shaking hands, Hoffman agrees to do a short

interview about WCI Communities, the company he created in 1995 after buying

the real estate arm of Westinghouse Electric and merging it with his Florida

Design Communities. A couple of days later, via cell phone on his way to the

airport, Hoffman talks about the company’s success.

The biggest revelation: When Hoffman began what would

eventually become WCI, he wanted to have a “nice little company” that brought

in around $100 million annually. Now, with a record-setting $1.11 billion in

sales last year, WCI ranks among the 20 largest homebuilders in the nation and

has become a publicly traded company.

Its story is one of how a Bonita Springs-based business took

a multimillion transaction, an exploding market and an eye for luxury to

position itself for success. And for the next chapter: How can WCI continue to

grow as a development and homebuilding giant?

Strategy for Success

An unparalleled living expe-rience. High-quality

construction. Environmentally sensitive. Commitment to the community. Those are

a few of the key phrases WCI uses to describe itself and its mission with its

30 communities, stretching from Marco Island to Palm Coast.

In its luxurious, leisure-oriented, master-planned

communities that serve affluent Florida homebuyers, WCI is the primary builder

of traditional single- and multi-family homes. Another major segment of income

comes from its development of luxury high-rise residences and community

amenities operations. The company, which employs nearly 3,000, also derives

income from ancillary businesses, including Prudential Florida WCI Realty, the

WCI Design Studio, and mortgage, title and property management services. Its

Florida land holdings include approximately 16,000 acres.

To find the company’s strategy for success, look back to

1984, when Hoffman and Don Ackerman formed a small development company with the

intent to purchase “community-sized” pieces of land to build and develop with

homes and amenities such as golf

courses, marinas and hotels. In 1995, the shareholders in their company,

Florida Design Communities, purchased the real estate division of Westinghouse

for nearly $600 million. The merger of those two companies allowed WCI to

position itself as the largest integrated developer and homebuilder in

Southwest Florida, principally serving the retirement and luxury second-home

markets.

“That’s what our company has been built upon,” says

president Jerry Starkey, who is set to eventually become chief executive

officer. According to the prospectus filed with the company’s initial public

offering in March, Hoffman could step down as early as the end of 2002.

Although no specific date has been set, it’ll be “sooner rather than later,”

says Hoffman. “I don’t know if I’ll ever be ready to get out of it [the chief

executive officer role], but Jerry’s certainly ready to get into it.”

Company projections did not call for WCI to reach

billion-dollar revenue until 2003 or 2004. “The strategic vision was to have

the platform in place—the best communities in the best location, and combine

the very best from both companies from a management team standpoint and grow

that business,” Starkey says.

Wealthy retirees and second homebuyers comprise two-thirds

of WCI’s sales. The company sells about 2,500 homes a year—nearly 2,000

traditional single-family homes that average $338,000, and 500 high-rise luxury

condominiums averaging $1.8 million. The company boasts one of the highest

average sales prices in the industry—$528,000.

Eighty percent of revenue comes from the homebuilding

division, with the rest from WCI’s amenities operation (around 7.5 percent) and

real estate services division (about 7.5 percent) followed by land sales and

joint ventures. “We’ve focused on growing the pie,” Starkey says. “Over the

years, we’ve shifted from being a seller of land to consuming most of our land

internally through homebuilding and condo high-rise operations.”

That transition has been interesting to watch, says Janet

Watermeier, executive director of the Lee County Economic Development Office

and a former Westinghouse employee. Watermeier left the company in 1995, just

after the sale announcement. “We felt like we were the child that was going to

make money for the company if they could sell us off. We weren’t their core

business,” she says. “It’s a very different company today.”

The key, Watermeier and others say, was mixing the assets of

Westinghouse with the building talent of Florida Design Communities. “When we

were Westinghouse, I remember a year when we had $300 million [in revenue].

That was an important number for us,” she says. “I don’t think in those days we

were thinking of getting to [a billion]. But I think that Al Hoffman always

intended to take it public.”

In fact, those intentions became clear in March 1996, when

Forbes reported that Hoffman was thinking about merging the real estate arm of

Westinghouse and Florida Design Communities and having a public offering by

year-end. But the company wasn’t ready until 2001, and WCI filed its initial

public offering on Sept. 8. Three days later, the terrorist attacks sent a wave

of uncertainty over the financial markets, causing WCI to reconsider its

timing. Eight months after announcing its intention to go public (compared to

the usual one or two months), WCI hit the New York Stock Exchange with its

stock priced at $19 a share.

Beneficiaries of New Wealth

Sitting at a large conference table in WCI’s headquarters

off U.S. 41, Starkey opens a binder containing charts and statistics about the

company’s growing target market. Nearly 82 million people will turn 50 over the

next 20 years, he says, and “we benefit from the aging of the baby boom

generation.”

WCI also is eyeing predictions that grandparents and parents

of baby boomers will be passing along more than $11 trillion in the next 15

years. “The beneficiaries of that are our target market. That is fueling demand

for all products, especially second homes, retirement homes and luxury products

in general,” Starkey says.

Affluent American households are the other segment. Last

year, there were about 20 million households with incomes over $100,000 and net

worth in excess of a half-million, Starkey says. That figure is expected to

grow to 35 million by the end of 2005.

Although WCI plans to venture into other retirement-heavy

states with affluent populations outside of Florida, such as Arizona,

California and the Carolinas, future growth doesn’t depend on moving out of

state, he says. “Florida will be the No. 1 market for our target market for the

next 15 years,” he says.

Although development and homebuilding opportunities will be

plentiful in Florida for the next one to five years, WCI is wise not to gamble

its future on one geographic area, says Mike Schroeder, president and chief

investment officer of Naples-based Wasmer, Schroeder and Co. “Florida is going

to continue to be a popular retirement destination second-home market,” he

says. “The million-dollar question is how well the communities handle the

growth. Hurdles like infrastructure, concurrency, environmental issues and

access to water potentially could slow growth, so they may want to look for other

areas of opportunity.”

WCI is financially strong, Schroeder says, and its stock has

done well, staying consistently in the $20s after going public. “Homebuilding

and real estate company stocks have done well this year—they’re one of the few

bright spots in the market,” he says.

Listening to Buyers

Most people think of wci as a golf-course developer. But a

new development in Palm Beach Gardens shows WCI will also

provide a lifestyle for those who don’t enjoy the game. With

no golf course, Evergrene focuses on more natural elements, from wildlife to

what Starkey describes as a “holistic intergenerational recreational facility

geared toward feeding the heart and the soul.” Evergrene’s clubhouse will have

activities geared toward adult education and after-school education for kids,

as well as a kitchen where community dinners can be held.

WCI’s affiliation with luxury hotels, in conjunction with

its high-rise condominium division, also has driven its success. The company

has duplicated the model Westinghouse developed in the ’70s by creating Pelican

Bay and Bay Colony near The Registry Resort and The Ritz-Carlton, Naples. WCI

has formed partnerships with hoteliers to develop communities adjacent to

hotels such as Tiburón at The Ritz-Carlton Golf Resort, Naples, the Hyatt

Regency Coconut Point Resort & Spa and The Ritz-Carlton, Sarasota.

The affiliation works because the customers are alike,

Starkey says. “We all focus on the customers’ needs and giving them a

world-class experience. So we’re philosophically aligned,” he says.

Visitors typically begin with a one-week vacation at one of

the hotels. The stay is eventually extended to two weeks; then vacationers try

a seasonal rental and use one of the golf courses that WCI has built in

conjunction with the hotel.

“Suddenly, one day they decide, ‘We’ve been coming here so

many years, why are we paying the Ritz $350 or $500 a night?’ They do the math

and say, ‘Let’s buy this condo.’ Before long, they’re spending more time here

and saying, ‘Why don’t we buy a home?’” Starkey says. “We see people evolve

from being a vacationer to a second-homeowner to a full-time homeowner to a

retiree. The real estate and lifestyle product they choose will depend on where

they are in their life cycle. We’ve just observed the patterns and behavior of

the buyers. At some point the light went off and it seemed to make sense.”

Partly as a result, WCI’s high-rise business has grown

dramatically, to half of its homebuilding revenue. George Page has been in the