Building on the Bust

Staying in that sandbox was a key reason for Rottlund’s establishing its David Bernard division in 1997. Named after the two Rotter brothers, David Bernard was established to carve out a competitive niche by focusing on building within Minneapolis, St. Paul, and fully developed first-ring suburbs. Rottlund was betting that rising gasoline costs and changing demographics would make city living more attractive. While the Rottlund Homes division focuses on construction of undeveloped land in the suburbs, David Bernard primarily develops projects on small urban infill sites and formerly contaminated “brownfield” locations. A prime example of this is the high-profile development being built on the site of a former scrap-metal processing plant along the Mississippi River just south of downtown St. Paul.

Thinking Forward

During its entire history, Rottlund has made only one acquisition: In 1996, it bought a small homebuilder in New Jersey, with the idea of entering that market. (Rottlund departed Jersey not long after.) But the firm is strongly considering taking that route again.

“We are positioning ourselves to take advantage of opportunities that may exist during this downturn,” Stutz says. “And that would come in the form of potential acquisitions of other builders to provide growth for our company as well as looking at land opportunities that may exist in all of the divisions in which we build. One of the things we have done successfully as a company is we have always been in a position to take advantage of opportunities, and that has come through very conservative management of the company and aversion to risk.”

A strategy that Rottlund began to pursue about three years ago was entering the “age-qualified,” or “55-plus,” housing market. Because of the current market overall, Rottlund has temporarily scaled back its share of the category, from 25 percent of its offerings in 2005 to 10 percent in 2006. But building in this category will continue to be a key company and industry-wide strategy as the market rebounds. By developing what Rotter and his peers call “life-cycle” housing, builders hope to eliminate the cyclical nature of the housing market by designing multiple types of products moving people from one type of home to another as they age: entry-level, move-up, condo, and 55-plus. (Rottlund currently has no plans to build assisted-living or other such facilities.)

One David Bernard project in the life-cycle category is Village in the Park. This St. Louis Park development comprises 274 homes, a mix of lofts, townhomes, condominiums for the 55-plus segment, and 15,000 square feet of commercial space. Rottlund uses commercial contractors to develop its retail space, has never dabbled in the commercial building market, and doesn’t intend to do so.

In August, Rottlund began a formal strategic planning project. Despite the downturn, the company remains well positioned in the Twin Cities, with up to three years’ supply of land equaling about 1,800 lots, some of which are zoned for multi-unit condo buildings.

“As the market rebounds and moves forward, we’ll continue to rebuild some of our staffing,” Rotter says. “We are going to continue to grow our company beyond our peak. We believe we can be a half-billion-dollar company. We would like to be in the top five in the markets that we are in.”

Rotter expects to achieve those goals in five to seven years. Rottlund is already number five in the Twin Cities by number of permits. In the Tampa metro area, including the two counties of Hillsborough and Pinellas, Rott-lund had 330 of 14,227 permitted units in 2006. In Hillsborough and Pinellas, Rottlund ranked number four, with a 2.3 percent market share. In the Des Moines market, Rottlund ranked sixth, with 2 percent market share, or 76 out of 3,881 permitted units.