Epmark Perfects the 'Hamburger'

Since the late 1980s, Phil Fankhauser and partner Ed Bacome have led Dublin, Ohio-based Epcon Group through a series of design changes to an innovative pinwheel cluster four-plex, an affordable condominium product that might be the closest thing in real estate to the McDonald's hamburger. And it's aimed at the same demographic McDonald's originally targeted - baby boomers.

By the mid-1990s, when they launched the Epmark franchising network, the partners knew they had the perfect product. Today, they're proving it with 64 franchises in 21 states and 195 condo communities complete or under construction in 125 housing markets. Epmark had 2,200 closings worth $396 million in 2002 and projects 2,500 housing starts for 2003 by year-end and 5,000 in 2005.

The partners honed the product, and the systems and processes to build and market it, to the point where it's almost paint-by-numbers easy. In fact, 45% of franchisees had no building industry experience. They include attorneys, physicians, bankers, a former NFL player or two, and even well-known sales trainer Charles Clarke III (of bulls, owls, lambs and tigers fame), who also trains the Epmark sales force.

Everybody who sees it seems to want in on the action. And why not? Even franchisees without real estate experience say they hit Chuck Shinn's target financial ratios easily, with some bettering the 12% bottom line.

The condo communities are developed from scratch, 50 to 150 units per location, with a clubhouse and pool. Narrow, private roads curve around the four-plex buildings, which can be turned relative to the street, with exterior and trim materials altered to eliminate streetscape monotony or meet regional architectural preferences. The result: buildings that resemble single-family homes, each showing a one-unit elevation (with attached two-car garage) to the street.

Yet inside, the product is as standard as a General Motors car. A Chevrolet product line ("Classic") ranges from the two-bedroom, 1,260-square-foot Villa to the three-bedroom, 1,865-square-foot Chateau, with prices from $130,000 to $160,000 (in Columbus). An Oldsmobile line ("Cathedral") runs from the 1,338-square-foot, two-bedroom Abbey to the 1,750-square-foot, three-bedroom Canterbury, priced from $160,000 to $200,000.

"The Chateau has a 600-square-foot third bedroom tucked into the attic," Fankhauser says, "but in every other case these are ground-level condos for empty-nester baby boomers who want to sell their single-family home and the lawn mower along with it. It's a niche product, priced for Main Street, that fits in virtually every housing market in North America. We have franchisees who are buying second and third franchises in different cities."

Former Ryland Homes and Del Webb executive Tom Rothrauf now heads Epmark while Fankhauser works on four Epcon projects at a time in the Columbus market, perfecting more product innovations. "We now have 10 competitors in this market doing affordable condos," Fankhauser says, "so we have to get better every day. We developed a duplex version of the building this year to use on steep sites where the four-plex wouldn't fit."

Rothrauf cautions that Epmark, like other franchisers, screens candidates selectively. "They've got to get a $3 million line of credit to acquire land, entitle it and build," he says. "The lender will require 10% to 30% down, so that means about $600,000 upfront, as well as $150,000 for overhead. Our fees are a one-time $10,000 initiation fee and then a flat fee of $1,800 per unit."

Roger Thomas ran a True Value hardware store and animal-feed business in Marion, Ohio, before doing his first Epmark development in the mid-1990s. He made so much money that he took a franchise in Cobb County, Ga., north of Atlanta, where he could do multiple projects at once. He now has two under construction and engineering under way on a third. "We probably have the highest average sale price in the network at $215,000," Thomas says. "I dropped the ball this year and didn't have enough land in the pipeline, so we'll get only 60 closings by year-end, but we'll be back up to 100 next year."

Thomas calls demand for the product "bottomless. It really fits baby boomers. A lot of competitors try to copy our product and do it on their own, but they just don't seem to make it. There's one down the road from us. They've sold three. We've sold 50. And we hit Shinn's targets and a little bit more."

Larry Lindstrom, a former single-family builder in Salt Lake City, started building Epmark condos four years ago and closed his custom home business. "Too much variability," he says. "I had a hard time hitting Shinn's targets. The reason this works is that we make money on every aspect of the business, both land and product. I was doing 15 single-family houses a year. Now I do 80 to 90 homes. I've got a real production building business."