Drees Elevates On-Your-Lot: A Blueprint For Business Resilience

In a quiet neighborhood in Nashville, the Allen family recently celebrated a unique milestone that beautifully intertwines the past, present, and future. It began with a decision that many families face — how to preserve the legacy of a beloved family home while meeting the needs of a new generation. The Allens, like many multigenerational families, chose to stay connected to their roots. They embarked on a journey with Drees Homes, tearing down the original house where the grandmother had raised her children and rebuilding a new, expansive home on the same cherished piece of land.

As part of Drees Homes' "Elevate By Drees Homes" initiative, the Allen family's story attests to the program's ability to transform sentimental family properties into modern, functional homes that can accommodate multiple generations. According to Sarah Petracco, Director of Communications & Social Media at Drees Homes, the moment the project was completed was captured perfectly—a photograph of the grandmother, gazing up at a framed image of the original house, a visual that speaks to the continuity and enduring value that "Elevate" brings to its clients. This story, with its heartwarming blend of nostalgia and forward-looking vision, exemplifies the unique opportunities Drees Homes is creating through its strategic pivot in a challenging housing market.

The Context

As the U.S. housing market grapples with high home prices, rising borrowing costs, and a scarce inventory, Drees Homes has taken a proactive approach to adapt and thrive. The "Elevate By Drees Homes" initiative, which offers semi-custom homes on clients' own lots, represents a significant shift in strategy, targeting a more discretionary, less price-sensitive buyer segment. The story of the Allen family is not just a personal success but a case in point for how Drees Homes is leveraging its nearly century-old legacy to build resilience in a volatile market.

A trifecta of challenges has buffeted market-rate new home businesses and their customers: high home prices, elevated borrowing costs, and a persistently low inventory of available homes. These factors, driven by under-building, inflationary pressures, and a stringent monetary policy by the Federal Reserve, have created a difficult environment for both buyers and builders.

Yet, amid these headwinds, some homebuilders, like Fort Mitchell, KY-based Drees Homes, have evolved strategies to maintain business resilience. Drees Homes’ latest initiative, "Elevate By Drees Homes," is a prime example of such adaptation, offering a semi-custom, "on your lot" construction model that caters to a less price-sensitive, more downturn-resistant market segment.

Advantages accrue to operators that can operate and execute well in a scattered-lot, infill, and more bespoke operational footprint by securing a more volatile and recession-resistant stream of homebuyers and a channel of land acquisition and development other homebuilder competitors are not paying much attention to right now.

The U.S. housing market has been under significant strain for over two years. A combination of chronic under-building, exacerbated by the pandemic, and a steep rise in costs due to inflation has left the market short of the homes needed to meet demand. Simultaneously, the Federal Reserve’s efforts to curb inflation by raising interest rates have made mortgage financing more expensive, further tightening the affordability squeeze for buyers.

Homebuilders, traditionally focused on producing high volumes of homes at competitive prices, have had to pivot. This pivot has generally taken two forms: First, by offering financial incentives like mortgage rate buy-downs and price discounts to keep first-time buyers in the market. Second, by shifting focus towards more affluent, discretionary buyers who are less sensitive to price increases and interest rates.

Drees Homes’ Pivot: An On-Your-Lot Strategy

Drees Homes, a company with nearly a century of experience, is leveraging its rich heritage and operational prowess to introduce "Elevate By Drees Homes." This initiative is not just a product offering but a strategic shift designed to capture a specific market segment — buyers who are looking for semi-custom homes on their own lots. By offering a more flexible building model outside of traditional subdivision environments, Drees aims to cater to buyers looking for unique, custom options without the higher costs associated with fully custom builds.

According to Dan Jones, Executive Vice President of Homebuilding Operations at Drees Homes, this initiative stems from the company’s long history of offering "on your lot" services. Over the last few years, Drees has strategically expanded this model from its original markets in Indianapolis and Nashville to other metro areas, including Cincinnati, Cleveland, Raleigh, Austin, and Dallas. As the company approached its centennial milestone, the decision was made to enhance and expand this service to reflect its growing importance within the company’s portfolio.

Operational Key To Success: Designated Management

One of the critical factors behind the success of the "Elevate" initiative is Drees Homes’ operational rigor. Jones explains that the company’s ability to scale this model successfully lies in its designated management structure. Each metro area offering "Elevate" services is managed by a dedicated general manager who operates with a level of autonomy akin to running a separate division. This ensures that the complexities of building on individual lots — from navigating septic issues to managing intricate permitting processes — do not burden the company’s core operations.

The key for Drees in managing Elevate in our divisions is designated management," Jones explains. We want to ensure that Drees Homes communities continue to perform without being bogged down by the Elevate [initiative]. Anything systematic we want the division to take care of… but anything that would bog down our core business of building in the communities, ... that goes to the designated management."

Mike Carey, General Manager for the Elevate brand in Nashville, further elaborates on this point, noting that many other builders have attempted to enter the "on your lot" market only to withdraw quickly due to the challenges involved. Drees Homes' success in this arena is largely attributed to its focused management and the ability to handle the unique demands of building on diverse plots of land, whether they are infill developments in established neighborhoods or new builds on expansive acreage.

Targeting a Discretionary Buyer Segment

The "Elevate" initiative is also strategically aligned with market realities. While the broader market for entry-level homes remains uncertain, Drees Homes focuses on a more discretionary buyer segment. These buyers often move into what they consider their "forever homes" and are less sensitive to price fluctuations and interest rates. They may be older, more affluent buyers looking to build on family land, purchase larger tracts, or develop in historic neighborhoods.

Carey highlighted a notable trend in Nashville, where "Elevate" has attracted a mix of buyers, including those seeking multi-generational living arrangements and others looking for the flexibility of building in specific school districts or within established communities. This flexibility has allowed Drees to capture a segment of the market that is often overlooked by larger production builders focused on volume rather than customization.

The pandemic changed the dynamic," Carey tells us. "We've buyers coming from California, New York, Chicago, Seattle, and they're coming here looking for larger tracts of land, maybe 15-30 acres. We're also starting to see more of the multi-generational [buyers like the Allen family above] that we have not really seen too much of up to this point, but we’ve done two in the last year."

Scalability and Market Potential

Looking forward, Drees Homes sees significant potential for growth within the "Elevate" model. The company currently builds between 20 and 35 homes per division annually through this initiative, with plans to nearly double that output by 2028. However, Jones cautioned that scalability hinges on two primary factors: expanding the team dedicated to "Elevate" and ensuring a steady supply of buildable lots. The latter is particularly challenging in today’s market, where land is scarce, and redevelopment opportunities are becoming increasingly important. With its outlier strategy and local know-how, Drees strategists feel the edge is theirs.

A benefit of Drees's on-your-lot approach versus other builders is that we can customize the elevation to fit into that community and look fantastic," says Jones. "People living in the community feel that we're fitting right in with the architecture there."

Drees Homes’ reputation for quality and deep relationships within local communities provides a competitive advantage. As Carey notes, the company’s credibility with local officials and its ability to navigate complex permitting processes are crucial to securing the lots needed for expansion. This, coupled with Drees’ ability to customize homes to fit within the architectural context of established neighborhoods, positions the company well for continued success.

These municipalities and cities know that we follow the rules," Carey says. "We build what we say we're going to build. So there’s a huge trust factor there with the Drees name."

The Take-Away

In an era of uncertainty and volatility, Drees Homes’ "Elevate" initiative offers a blueprint for resilience. By focusing on a discretionary buyer segment, leveraging its operational strengths, and strategically expanding its "on your lot" services, Drees Homes is weathering the storm and positioning itself for long-term success. As the housing market continues to evolve, the ability to offer flexible, semi-custom solutions will likely become an increasingly important differentiator for builders looking to thrive in challenging times.