Editor’s note: The 10-year run up in real estate values has been one of the most remarkable wealth creators in history. Everyone seems in on the action: first-time home buyers, Realtors, mortgage brokers, office builders, small investors and large corporations. This three-part series focuses on who’s taking a piece of the nation’s real estate riches. (See Part 1: Agents, homeowners capitalize on home-price gains and Part 3: Billionaires make real estate look easy.)
Chad Dreier, CEO of the publicly traded home builder Ryland Group, earned an estimated $18.2 million last year when considering base pay, bonus and other compensation, according to the company’s proxy statement. Ryland Group (NYSE: RYL) clocked $3.4 billion in revenue and $242 million in net income for 2003, and its stock currently trades in the $90 a share range.
Dreier, along with a gaggle of other home builder CEOs from such heavyweights as KB Homes and Pulte, are among the highest paid executives in the nation. Their compensation, and their companies’ outstanding earnings successes are the classic example of who’s getting rich from real estate–really rich.
The decade-long increase in real estate values has been one of the most remarkable wealth creators in history. Not only have everyday homeowners and real estate agents capitalized on this wealth, but huge, stockholder-owned corporations have also benefited.
The median price of existing single-family homes climbed from $20,100 in 1968 to $190,100 in August 2004. The price of new single-family homes increased from $24,700 in 1968 to $208,900 in August 2004. These 700 to 800 percent gains have created tremendous wealth for home building, mortgage lending and other real estate corporations, and their executives.
Approximately 1.09 million new homes were sold in 2003, setting a record for a third consecutive year. Construction spending continues to climb this year, and the possibility of yet another record-setting year for new home sales is on the horizon, setting the stage for another round of seven- and eight-figure industry incomes.
Consider KB Home CEO Bruce Karatz, who ranked in 108th place in Forbes’ list of highest paid CEOs this year. In 2003, Karatz made an estimated $18.8 million, including base pay, bonus, restricted stock awards, long-term incentive payouts and all other compensation, according to the company’s proxy statement. The company reported $5.9 billion in revenue and $371 million in net income for 2003.
KB Home’s stock (NYSE: KBH) has increased from under $20 a share in 2000 to more than $80 a share today. Its market capitalization is an estimated $3.3 billion.
The company delivered 27,331 homes in the U.S. and France last year. Since its inception in 1957, KB Home has expanded its operating divisions into Arizona, California, Colorado, Georgia, Illinois, Indiana, Nevada, New Mexico, North Carolina, South Carolina and Texas. Its majority-owned subsidiary Kaufman & Broad S.A. is a home builder in France.
KB Home continues to thrive this year. During the first nine months of 2004, the company delivered 21,361 homes, up 16 percent from the 18,457 delivered in the first nine months of 2003. Total revenues for the first three quarters of 2004 reached $4.67 billion, up 17 percent from $3.98 billion in the first three quarters of 2003. The company’s construction operating margin improved 150 basis points to 10.3 percent for the nine months ended Aug. 31, 2004, and fueled a 27 percent increase in net income to $294.2 million from $232 million for the nine months ended Aug. 31, 2003. Diluted earnings per share for the first three quarters of 2004 set a new Company record of $6.98, advancing 27 percent from the prior record of $5.51 per share in the same period of 2003.
Source: U.S. Census Bureau
The growth at rival home builder Pulte Homes has been just as huge. The company reported $9 billion in revenue and $625 million in net income for 2003. Pulte’s stock (NYSE: PHM) has climbed from under $10 a share in 2000 to $60 a share this year. The company’s market capitalization is $7.8 billion, according to Reuters data.
Pulte Homes Chairman William Pulte earned an estimated $6 million for 2003, including his base pay, bonus, and other compensation. Pulte CEO Richard Dugas, Jr., earned an estimated $6.3 million in base pay, bonus and other compensation, according to a proxy statement.
Pulte Homes was formed more than 50 years ago. The company boasts building more than 370,000 homes since its inception and also operates a national mortgage company, Pulte Mortgage. It has operations in 44 U.S. markets in 27 states, and also has international home-building operations in Mexico, Puerto Rico and Argentina.
Pulte reported 8,480 housing-unit settlements in the second quarter of this year, compared with 7,112 in the second quarter of 2003. The average sales price of a Pulte-built home increased from $259,000 in the second quarter of 2003 to $282,000 in the second quarter of 2004.
Pulte reported total revenue of $2.52 billion in the period ending June 30, 2004, compared with $2.04 billion for the period ending March 31, 2004. And gross profit was at $736 million in the second quarter, compared with $226.5 million in the first quarter.
While the large home builder companies are picture-perfect examples of how much money can be made from real estate, they represent just one piece of the industry. Others reaping the benefits of the decade-long housing boom include home loan lenders and real estate brokerage franchisor Cendant Corp.
Cendant Chairman Henry Silverman was ranked this year by Forbes as the fourth highest-paid CEO in the nation. Silverman had a base salary of $3.35 million and received a bonus of about $13.8 million in 2003. He is Cendant’s largest shareholder, with 41.6 million beneficially owned shares of stock and unexercised stock options worth about $287 million.
Silverman’s massive compensation plan was downsized in August after lawyers representing the Leonard Loventhal Account, a Cendant shareholder, filed a complaint alleging that Cendant’s directors unlawfully refused Loventhal’s request to inspect certain Cendant books and records. The amendment to Silverman’s contract announced in August provides that the term of his employment agreement is reduced five years, from Dec. 31, 2012, to Dec. 31, 2007, and provides that any potential severance payment to Silverman be reduced “to no more than 2.99 times the prior year’s compensation.” The contract also specifies that a portion of Silverman’s bonus will be based on earnings growth targets; and reduces the term of the cash compensation of Silverman’s post-employment consulting contract to a period of five years.
Mega-corporation Cendant is the parent company of Century 21, Coldwell Banker and ERA franchise corporations and of NRT Inc., the largest real estate brokerage company in the country.
Revenue from real estate franchise, brokerage and relocation operations at Cendant Corp. jumped 31 percent from the second quarter of 2003 to the second quarter of 2004, rising to $1.81 billion. Meanwhile, its mortgage services segment, which includes mortgage and settlement services, saw second-quarter revenues slip 13 percent, from $394 million to $344 million from the second quarter of 2003 to the second quarter of this year.
Cendant stock (NYSE: CD) has been trading between $18 and $25 over the past year. The company’s market capitalization is $23.17 billion.
Mortgage lenders also have been reveling in the real estate wealth over the last few years. Perhaps the greatest growth story is Countrywide Financial, which has aggressively expanded and formed new joint venture partnerships with real estate brokerages in the wake of a slower mortgage refinance volume.
At the end of August, Countrywide had funded $237 billion in loans for all of 2004, according to its monthly operations data. The company’s second-quarter net earnings jumped 83 percent to $700 million from $383 million during the same quarter the previous year.
Over the last year, Countrywide shares (NYSE: CFC) have traded at a low of $20 and a high of $39 per share. With the exception of a few dips in stock value, Countrywide shares increased from between $5 and $10 in 2000, to between $35 and $40 this week. Countrywide’s market capitalization is $22.3 billion.
Angelo Mozilo, chairman and CEO of home loan heavyweight Countrywide, in 2003 earned $22.63 million, including salary, bonuses and other compensation. The value of Mozilo’s exercised options during the fiscal year was $34.36 million. Stanford Kurland, president and COO of Countrywide, in 2003 earned $9.14 million, including salary, bonuses and other compensation. The value of Kurland’s exercised stock options during the 2003 fiscal year was $13.36 million.
Countrywide has five operating segments, including mortgage banking, capital markets, insurance, banking and global operations. The mortgage banking segment originates, purchases, securitizes and services mortgage loans in the United States.
Meanwhile, the head chief at rival mortgage lender Washington Mutual Kerry Killinger, in 2003 earned $4.84 million, including salary, bonuses and other compensation. The value of Killinger’s exercised options was $2.69 million.
Washington Mutual stock took a beating this summer when the company for a second time revised its financial outlook for the remainder of the year, stating it expects to make between $3.00 and $3.60 per diluted share. It had previously forecast $4.35 a share.
The company’s second-quarter earnings disappointed investors, and sparked one shareholder lawsuit. WaMu’s earnings fell 49 percent to $489 million in the second quarter, from $995 million during the same period in 2003. In the last year, its stock (NYSE: WM) has traded in the $36 to $46 range. Its market capitalization is $34.74 billion.
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