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Acquisitions Clayton Homes Special Report

Special Report: Kevin Clayton Transforms Clayton Homes

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“Would you believe where we are after just three years,” Kevin Clayton, president and CEO of Clayton Homes, says about the company’s move into the site builder business.

It’s a business that Clayton is growing rapidly, and he just acquired Highland Homes in early May, a Florida home builder that is the ninth home builder acquired by Clayton in just three years.

It’s all part of an increasing emphasis on site built homes for the low and midprice market, notes Kevin Clayton.

“It’s a market that has an average price point of $318,000, Clayton says, “which is well under the national average of over $400,000.”

Clayton Homes, which runs its site builders under its Clayton Properties Group, a division of Clayton Home Building Group that is based in Maryville, Tennessee, is already ranked 18th on Builder Magazine’s Builder 100 list and rising fast.

Clayton Homes has been named “Builder of the year” for 2019. It’s an award that really pleases Kevin Clayton.

“To think we weren’t even in that business three years ago,” Clayton says proudly.

Clayton is looking to acquire more site builders, but notes they must meet four criteria.

“First, the owner must be willing to stay around and work,” Clayton says. “Second, they must have survived the last recession; third, they must focus on building low and midprice houses, and fourth, but not least, they must be customer focused and really care about the customer experience.”

Clayton Homes was founded in 1956, by Kevin Clayton’s father Jim Clayton, and Kevin Clayton has led the company since 1999, when he took over from his father.

Acquired by Berkshire Hathaway in 2003 for $1.7 billion, Clayton Homes has grown into a diverse builder offering traditional site built homes, modular homes, manufactured homes, tiny homes, college dormitories, military barracks and apartments.

Improvement in Manufactured Homes

Kevin Clayton is also positive about his manufactured homes business, which he emphasis use the same 30-year shingles as a traditional site built home.

“We don’t have metal roofs anymore,” Clayton says. “Our manufactured homes have a lifespan that’s the same as a site built home.”

Clayton is also building a new type of manufactured homes, for now dubbed New Class Homes, which meet Fannie Mae and Freddie Mac standards. By qualifying, borrowers have lower down payment requirements and lender fees. The homes qualify for a MH Advantage loan, and must be “designed to meet specific construction, architectural design and energy efficiency standards,” according to Fannie Mae.

The move dramatically reduces the amount of down payment borrowers have to come up with. MH Advantage loans require a 3 % down payment, down from 5% previously. In addition, Fannie Mae does not charge its 50-basis-point loan-level price adjustment for manufactured housing loans.

“New Class Homes represent only a couple of percent of our revenues right now,” Kevin Clayton says, but he sees lots of rooms for growth.

The overall manufactured home business is strong.

“The manufactured home business is up 6-7 percent this year,” Clayton says.

Clayton emphasized the environmental advantages manufactured homes, which produce far less waste than traditional site built homes.

“All our 42 facilities are ISO 14001 certified, which is all about environmental standards,” Clayton says.

ISO 14001 is the international standard that specifies requirements for an effective environmental management system.

Clayton has moved much of its supply chain in-house, building more of its own components.

“We build our own windows,” Clayton notes.

Why Consumers Buy Manufactured Homes

It’s a type of housing that opens home ownership to a broad range of consumers that are locked out of housing market as traditional home prices have skyrocketed.

“Fifty percent of people we help with a home would not qualify for Fannie Mae or Freddie Mac mortgages,” Clayton says.

A big part of that access to homes is the greatly lower price point. A manufactured home can be purchased for $69,000 and has an average cost of only $116,000 with land.

“In rural America there’s not a lot of apartment options,” Kevin Clayton notes. “Many of our customers have been living with family, and are looking for an affordable way to live on their own.”

Clayton especially notes the popularity of manufactured homes for five-acre ranches.

“Where there’s land, we shine!”

© 2019 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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Clayton Homes

Clayton Homes Launches Major TV Campaign

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According to a study by Home.com, seven out of ten non-home-owning Millenials think they will never be able to afford buying a home.

Berkshire Hathaway’s Clayton, one of the largest home builders in the nation, is clearly out to counter that notion. The home builder has launched a new television advertising campaign which takes aim at showcasing the modern prefab home and educating the public about the benefits of off-site construction.

With the average price of a new site-built home with land in 2018 nearing $400,000 according to the U.S. Census Bureau, prefab homes offer an attainable solution starting under $200,000 in most markets plus cost of land.

Called “Prefabulous”, the campaign is part of Clayton’s mission to elevate the manufactured housing industry and challenge the outdated myths that create misconceptions around this innovative, efficient construction method.

The commercial takes the viewer inside the set of a home building facility and follows a family through a beautiful Clayton Built® home as it’s being constructed, highlighting high-end features and modern design.

“Homes built off-site offer higher quality, more value and a smart solution to the affordable housing crisis in America,” said Kevin Clayton, CEO of Clayton. “This campaign was created to help more families realize they can attain a beautiful, quality home without sacrificing modern amenities. Off-site construction can make the dream of homeownership a reality by leveraging innovative building practices, automation and bulk purchasing power.”

Every Clayton Built® home is built inside an ISO 14001 certified facility, away from the damage and delays that can be caused by rain and seasonal weather. Construction cost savings are achieved by purchasing building material and name-brand appliances in bulk and utilizing economies of scale.

Off-site building efficiencies, production line like assembly and material recycling also aid in reducing the waste and cost of construction.

Off-site construction is uniquely positioned to provide access to quality housing at a variety of income levels. Available prefab home features:
• Permanent foundation with porch
• Open floor plan concept
• Upgraded all-wood cabinets and farmhouse sink
• ecobee3 lite smart thermostat and energy efficient appliances
• Wide plank flooring and drywall interior

“Clayton is uniquely positioned to bridge the affordability gap using both on-site and off-site home construction methods,” said Clayton. “Our goal as a company and industry is to democratize luxury and provide attainable homeownership for all families.”

© 2019 David Mazor


Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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Clayton Homes

Clayton Homes Jumps into Tiny Home Market

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Berkshire Hathaway’s Clayton, one of the largest home builders in America, is unveiling the Saltbox floor plan, the second addition to its Designer Series by Clayton Tiny Homes.

Clayton first introduced the Low Country, the first tiny home floor plan in the Designer Series, in person at the annual 2017 Berkshire Hathaway Shareholders meeting. Designed by renowned architect Jeffrey Dungan, the Saltbox is designed to be a perfect year-round permanent residence, vacation home, guest home, or accessory dwelling unit.

“We continue to push ourselves to design and innovate with our customers’ unique lifestyles in mind,” Clayton CEO Kevin Clayton said. “The Saltbox is the perfect tiny home for those looking to live simply, but luxuriously.

Built indoors to International Residential Code (IRC) building standards, the Saltbox home is a “tiny” modular home constructed to be permanently affixed to the homeowner’s property. The Clayton Built® tiny home possesses all the latest in modern home design, both inside and out. Ply Gem® French doors; a white Summit Appliance® range and refrigerator; and tall, 9’5″ ceilings in the bedroom provide a roomy living space inside. On the outside, the premium standing seam metal roof, stylish vertical shiplap wood siding with horizontal board and batten are combined to provide a high-quality exterior that are both stylish and built to last.

“We’ve packed a lot into this well-appointed 452-square-foot home,” Jim Greer, Clayton Tiny Homes Brand Manager, said. “But we know that size doesn’t matter when it comes to designing smart and luxurious spaces. From the 270-degree views to the quartz countertops, this is the home for comfort and style.”

The Saltbox also utilizes several features that allow it to be an efficient home. Energy-efficient Ply Gem® aluminum clad windows and doors as well as a space-saving tankless water heater give Saltbox owners ways to minimize utility consumption.

Though the floor plan is compact, homeowners of the Saltbox won’t have to sacrifice having friends over or entertaining. The home is designed to fit a dining room table that seats six, and a covered porch with large overhang means homeowners can utilize outdoor living spaces during different weather conditions.

© 2018 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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Clayton Homes

Clayton Homes Looking at Wichita Falls for New Facility

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With demand strong for mobile homes, Berkshire Hathaway’s Clayton Homes, the number one builder of mobile homes, is negotiating to open a plant in Wichita, Texas.

The new facility would be located at the site of the former ATCO building on Burkburnett Road.

If all goes as anticipated, the plant will add 200 jobs to the city.

Currently, Clayton Homes has eight plants in Texas that are all running at capacity.

Damage from September’s Hurricane Harvey has increased the need for modular homes in Texas.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Categories
Acquisitions Clayton Homes

Clayton Homes Acquires Fourth Site Builder

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Berkshire Hathaway’s Clayton Homes has acquired Oakwood Homes, Colorado’s largest privately held homebuilder and community developer, and the approximately 18,000 lots it owns and controls. The company is the fourth site builder that Clayton has acquired since 2015, and it currently owns homebuilding companies in Missouri, Tennessee and Georgia.

The deal closed on July 3, 2017.

“Oakwood Homes has an impressive history of homebuilding innovation, and practices a relentless commitment to quality and service for its customer base,” said Keith Holdbrooks, president of Clayton home building group. “Oakwood’s self-sustaining operating model, company culture and core values align well with Clayton’s, which is paramount when we acquire a company. We look forward to working together with Oakwood to improve the homebuyer experience while providing greater cost-saving opportunities for homebuyers.”

Founded in 1991 by CEO Pat Hamill, Oakwood Homes builds modern, distinct communities throughout Colorado and Utah that are recognized for their innovative designs, energy efficient homes and highly customizable building processes. The company sold 1,200 homes in 2016 alone, which represents a 20 percent increase from 2015. Oakwood Homes differentiates itself through its commitment to both customer and team-member experiences.

Clayton entered the site-built industry in 2015 through its Clayton Properties division in order to provide industry-leading homebuilding solutions and improve the experience of modern-day homebuyers. Since 2015, Clayton has increased its homebuilder portfolio by acquiring like-minded, innovative companies in strong growth markets, such as Summit Homes in Kansas City, Mo., Goodall Homes in Gallatin, Tenn., and Chafin Communities in Atlanta, Ga.

“After more than two decades of building beautifully functional new homes in Colorado and Utah as a privately held company, we are excited to join forces with Clayton,” said Pat Hamill. “This partnership is part of our strategic vision to continue our steady growth and to provide a very high standard of customer service for our loyal consumers, all while keeping our existing leadership team.”

In 2016, Clayton built more than 42,000 homes. Site built homes are an increasing focus as they have a higher price point than Clayton’s mobile home business.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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Clayton Homes

Clayton Homes Acquires Doyle Mobile Homes

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Clayton Homes, the nation’s largest builder of manufactured homes, has acquired retailer Doyle Mobile Homes.

Doyle Mobile Homes is a manufactured home dealer that exclusively sells the Clayton Homes brand and is located in Flemingsburg, Kentucky.

Started by the two Doyle brothers, Adrian and Russell, after they returned from military service in World War II, the enterprise originally focused on selling used cars until Russell Doyle noted that while buying used cars in North Carolina he was “quite often run off the smaller roads by these so called ‘House Trailers.’” Adrian Doyle went and purchased several 8-foot wide House Trailers and the company was on its way to becoming a manufactured home seller.

By 1975, Doyle Mobile Homes had become one of Clayton Homes’ top retailers, and they are one of only 7 Hall Of Fame dealers nationwide out of over 1,100 dealers.

CEO of Clayton Homes, Kevin Clayton, said. “We are so fortunate they have decided to join Clayton Homes. Their home center was inducted into the Hall of Fame in 2001 and their home center is achieving a 98 percent Customer Service Index score, which has rarely ever been done.”

In addition to manufactured homes, Doyle also sells underground storm shelters.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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Clayton Homes

Clayton Home Acquires Site-Built Home Builder in Tennessee

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Berkshire Hathaway’s manufactured home builder, Clayton Homes, has done a bolt-on acquisition.

Clayton Homes, the number one builder of manufactured homes, has acquired Goodall Homes, a builder of new single-family homes, townhomes and condominiums since 1983.

The Gallatin, Tennessee-based company is headed by Bob Goodall Jr., a graduate of Lambuth University, and a licensed real estate broker, residential contractor and commercial contractor since 1983.

The move continues to expand the Clayton Homes presence in the site-built home business. The company acquired Atlanta-area builder Chafin Communities in the fall 0f 2015.

According to the company, Goodall Homes has built thousands of new Single Family Homes, Townhomes, Courtyard Cottages, Condominiums, and Villas in the Nashville area. They have developed many residential neighborhoods in many Middle Tennessee locations.

The acquisition of Goodall Homes includes approximately 3,600 lots and 180 homes under construction in a five-county area in Middle Tennessee.

Goodall Homes closed 436 homes in 2015.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance

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Clayton Homes Warren Buffett

Warren Buffett Vigorously Defends Clayton Homes in Annual Shareholder Letter

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“The Best defense is a good offense,” is the old saying, that is exactly the approach Warren Buffett continues to take in defending Berkshire Hathaway’s mobile-home manufacturer Clayton Homes from those who say it preys on low-income home buyers.

It was less than a year ago that the company first came under attack, when with the force of a volcano, a Seattle Times and the Center for Public Integrity investigative report titled “The Mobile Home Trap” accused Clayton Homes of relying on “predatory sales practices, exorbitant fees, and interest rates…trapping many buyers in loans they can’t afford and in homes that are almost impossible to sell or refinance…”

Buffett’s immediately addressed the accusations head on at the 2015 Berkshire Hathaway annual meeting, when he said, “I make no apologies whatsoever about Clayton’s lending terms.”

Now, in his 2015 annual letter to shareholders, Buffett has a devoted one and a half pages to defending Clayton Homes from its detractors.

In a vigorous defense, Buffett wrote:

“Our retail outlets, employing simple language and large type, consistently inform home buyers of alternative sources for financing – most of it coming from local banks – and always secure acknowledgments from customers that this information has been received and read.”

In an unusual move, Buffett went so far as to include the actual form on page 119 of the 2015 annual report.

In the Same Boat as the Home Buyer

In defending Berkshire’s practices as a home seller and mortgage lender, Buffett points to Berkshire’s holding on to the mortgages it originates rather than selling them off in the broader market. Buffett notes that this adds risk to Berkshire, and that by holding on to the mortgages it is in the same boat as the home buyer. If a home buyer defaults on their mortgage it leaves Berkshire not only with a bad loan, but it also has to eat the costs associated with repossessing a used mobile home.

“At Clayton, our risk retention was, and is, 100%. When we originate a mortgage we keep it (leaving aside the few that qualify for a government guarantee). When we make mistakes in granting credit, we therefore pay a price – a hefty price that dwarfs any profit we realized upon the original sale of the home. Last year we had to foreclose on 8,444 manufactured-housing mortgages at a cost to us of $157 million. The average loan we made in 2015 was only $59,942, small potatoes for traditional mortgage lenders, but a daunting commitment for our many lower-income borrowers. Our buyer acquires a decent home – take a look at the home we will have on display at our annual meeting – requiring monthly principal-and-interest payments that average $522.

Some borrowers, of course, will lose their jobs, and there will be divorces and deaths. Others will get overextended on credit cards and mishandle their finances. We will lose money then, and our borrower will lose his down payment (though his mortgage payments during his time of occupancy may have been well under rental rates for comparable quarters). Nevertheless, despite the low FICO scores and income of our borrowers, their payment behavior during the Great Recession was far better than that prevailing in many mortgage pools populated by people earning multiples of our typical borrower’s income.”

Congress Weighs In

The Seattle Times report did not fall on deaf ears in the halls of Congress. In January, Representatives Maxine Waters, Michael Capuano, Emanuel Cleaver and Keith Ellison wrote a letter to the Justice Department and the Consumer Financial Protection Bureau calling for a probe of the company’s lending practices.

So far, there has been no action by the Justice Department or the Consumer Financial Protection Bureau, and in his annual letter Buffett forcefully touts what he feels is Berkshire’s outstanding record in regards to adhering to the regulations that govern mortgage lending.

“Let me talk about one subject of which I am particularly proud, that having to do with regulation. The Great Recession caused mortgage originators, servicers and packagers to come under intense scrutiny and to be assessed many billions of dollars in fines and penalties.

The scrutiny has certainly extended to Clayton, whose mortgage practices have been continuously reviewed and examined in respect to such items as originations, servicing, collections, advertising, compliance, and internal controls. At the federal level, we answer to the Federal Trade Commission, the Department of Housing and Urban Development and the Consumer Financial Protection Bureau. Dozens of states regulate us as well. During the past two years, indeed, various federal and state authorities (from 25 states) examined and reviewed Clayton and its mortgages on 65 occasions. The result? Our total fines during this period were $38,200 and our refunds to customers $704,678. Furthermore, though we had to foreclose on 2.64% of our manufactured-home mortgages last year, 95.4% of our borrowers were current on their payments at yearend, as they moved toward owning a debt-free home.”

While all has been quiet recently in regards to Clayton Homes, the fact that Buffett has devoted so much space in his annual letter to defending the company may mean that more tremors are coming, and issues related to Clayton Homes could erupt again in the future.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Categories
Acquisitions Clayton Homes

Clayton Homes in $50 million Deal to Acquire Chafin Communities

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Berkshire Hathaway’s Clayton Homes is acquiring Chafin Communities, a Georgia home builder that builds extensively in northeast Atlanta.

The roughly $50 million acquisition will give Clayton Homes 1,100 building lots.

Chafin Communities’ principals, brothers Eric and Daryl Chafin, are staying on board to head up the new division. The two began working in construction as teenagers and founded their first construction company in 1966. The company’s 25 employees will all become Clayton employees.

Chafin Communities has constructed over 4,500 homes to date, and in 2014 Chafin Builders LLC/Chafin Communities ranked #13 in the Atlanta’s TOP 20 Home Builders List, based on Homes closed in 2013.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.