Expansion Model: Neumann Homes Inc. (No. 78)

Already a large, well-established builder in the Chicago suburbs, Neumann Homes is hitting the big city. The company jumped from No. 94 on the Giants list last year to 78 in 2002, and CEO Ken Neumann hopes its new venture into the city of Chicago will help catapult Neumann Homes even higher in years to come, as well as help him reach more personal goals.

“For the better part of 10 years, I’ve had a goal to be at a billion dollars in revenue by the time I turn 50, which happens to be in 2006,” says Neumann. “As you look at a plan like that and break it down further, you ask how you’re going to do that, sustain it and even grow beyond that. What product lines, what diversity and what geographic markets do we need to be in?”

Since starting the company in 1992, Neumann has sold largely starter and first move-up homes to buyers in suburban subdivisions, and with great success. Since 1997, Neumann has more than doubled its closings (to 1,096 in 2001) and nearly tripled its revenue (to $211 million). Part of the company’s aggressive strategy for future growth includes geographic diversification.

Strategic market analyses and planning indicated that metropolitan Denver would be a smart move for the Warrenville, Ill.-based company. This month it will open a 300-home, TND-style community in Westminster, Colo., north of Denver. Neumann has opened an office there, will open its design center in a few months and plans to do three more communities in that market. The company also has extended its Northeast Illinois division into southern Wisconsin.

The company’s most exciting move, says Neumann, is into the city of Chicago as well as its mature, inner-ring suburbs. In recent years, the city has experienced a housing boom, accounting for more than 17% of all unit permits issued in its six-county region last year. Neumann plans to open its first city-center project, NeuChicago West Town, this month, offering two single-family detached products on scattered sites, as well as townhomes and condominiums. The single-family product type is familiar, but the community’s three- and four-story plans and lot sizes averaging 2,160 square feet (which is the average size of a Neumann home in the suburbs) are quite a departure, says Neumann.

The price point is different, too. Whereas the company’s average suburban home prices in 2001 ranged from $140,000 for starters to $210,000 for second move-ups, this single-family line aimed at city-dwelling couples, families and single professionals starts in the high $400,000s.

“For a good part of last year it was a search-and-understand mission,” says Jim Raymond, the Central division manager. “We decided what we wanted to do, and then we made efforts to acquire various properties in the city and surrounding suburbs in an effort to provide housing opportunities consistent with our mission.”

The move to the city with single-family homes was a natural. “Number one, there are so few single-family opportunities available, so if you can find the lots, you’ve got a pretty good supply of purchasers,” Raymond says. “Number two, it’s our forte. We know how to produce that kind of housing.”

So far, Neumann says, they’ve hit few snags, thanks partially to meticulous planning, which is a cornerstone of the 1998 National Housing Quality Award-winning company. “You’ll see us going into it slowly,” says Neumann, who thinks they’ll still have to “pay the ‘dumb tax’ that you go through as you expand a business like this.”

Neumann says his other expansion efforts will include eight major cities within the next five years as well as a greater diversification of product type. “Five years from now you’ll see us across the whole housing spectrum, from high-rises to midrises to detached single-family, townhouses and active-adult. With our long-term, 20-year vision, we have to diversify across all product lines as we continue to grow.”