Gilgan’s Island
Monday, May 19th, 2008
A factory to make houses? That’s the biggest thing that distinguishes Mattamy Homes. But it’s not the most important one — that would be Peter Gilgan, who found that accountancy just wasn’t detailed enough
From a country road in Milton, 50 kilometres west of downtown Toronto, the newest phase of Hawthorne Village looks like a typical subdivision. It has the sort of ye-olde name that suburban builders favour, but, of course, it looks nothing like a bucolic English town. It’s big houses, built close together on winding streets.
But look closer and you find something odd: There are no half-built homes, no wood-frame skeletons. You see either foundations or nearly finished houses that just need some bricks and a front porch. They appear to have sprouted overnight.
Which, in a way, they did.
On the western edge of the development looms a huge industrial building bearing the name Stelumar Advanced Manufacturing. They’re building houses in there–on an assembly line.
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Ten houses, in successively more complete states, sit in a row on a track of fat, broadly spaced steel rails that run the length of the plant. The assembly line moves once a day, spitting out a finished house through a large doorway onto a low, wide specialized truck. This happens at 4 a.m.–the best time to drive a house. After a journey of a kilometre or less, the new residence is placed on a foundation using hydraulic jacks.
On a bitterly cold day in February, one advantage of indoor home building is immediately clear: “Even if there’s a blizzard out there, we can stay on schedule,” says Stelumar president Ron Cauchi. Prefab insulated wall panels, windows and other components are stored inside, right beside the line. But they don’t take up much room, because Cauchi, formerly an executive in auto-parts manufacturing, needs only a two-day supply, relying on just-in-time delivery. “Like the auto industry, the real artistry is in the logistics,” Cauchi says.
This plant wasn’t Cauchi’s idea, however. Nor was it the brainchild of the stereotypical successful Canadian home builder–a skilled immigrant tradesman who grew the family business. As Cauchi says with a smile, “a lot of things in here were designed by an accountant.”
That accountant is Peter Gilgan, the founder, owner and CEO of Mattamy Homes Ltd., of which Stelumar is a subsidiary. Over the past three decades, Gilgan has grown Mattamy from a one-man operation to Canada’s largest home builder. He’s completed almost 100 developments, mostly around Toronto, and now has more than 1,000 permanent employees. The company, being private, does not release financial information. But if you multiply the more than 4,000 houses Mattamy sold last year by an average price of just over $200,000 (a low estimate), you get annual revenues of close to $1 billion.
Despite ominous signs that a U.S.-style housing slump could spread to Canada, Gilgan is, as always, in expansion mode. He has sunk tens of millions of dollars into Stelumar, which produced its first house last August. The goal is to build 250 the first year, and crank that up to 2,000 a year in several factories by 2015. “I’m in love with the idea,” Gilgan says. He’s also spreading out geographically: Mattamy has been building in Ottawa for the past two years, and is gearing up in Alberta and the U.S.
All this might sound impulsive; Gilgan is anything but. Chatting in his spotless corner office in a generic glass-and-steel office building in Oakville, west of Toronto, you quickly realize that this is a very smart guy who’s systematized almost every aspect of his business. Ask about his most successful innovation–widening and shortening lots to keep land costs down, yet making room for a wider house with more “curb appeal”–and Gilgan says, “It was a gut premise, vectored by a lot of focus groups.”
He may have a good business model. But is it wise for Gilgan to be aggressive right now? The man has been known to make mistakes. But every mistake only seems to make him stronger.
uilding isn’t in Gilgan’s blood, but suburbs are. His father was an electrical technician with the Canadian Standards Association, and his mom stayed home and raised seven kids in the west-end Toronto suburb of Etobicoke.
After high school, he went straight into a chartered accountant program, and then articled with a small Toronto firm. He enjoyed visiting audit clients because it gave him an inside look at dozens of entrepreneurial businesses–convenience stores, independent movie theatres, department stores and the like. He was particularly drawn to home builders–”the old craftsman-builder guys,” as he puts it.
In late 1978, Gilgan took the plunge himself. He bought two lots on opposite corners in the wealthy suburb of Burlington, between Oakville and Hamilton. He spent the fall and winter building two large, elegant three-bedroom houses–or supervising and helping, at least. “I had no ’skill,’” he says with a smile, “but I made a terrific labourer.”
He also displayed an ability to absorb every detail of a project. He remembers the square footage of the houses–2,800–and the names of the people who bought them. “One couple, the McTavishes, lived there for 25 years,” he says. “They became my travel agents.”
Indeed, colleagues say that Gilgan can still zero in on a flaw, whether on-site or on a spreadsheet, within minutes, if not seconds. Brian McEnaney, a vice-president of construction at Mattamy, recalls Gilgan touring a subdivision under construction a few years ago. “We walked into the first house and went upstairs and he said, right away, that the walk-in closet wasn’t deep enough to hang clothes in without the door interfering with the hangers,” recalls McEnaney. “You have to realize that there was no door yet, no hangers, or even a hanger rod.”
After completing those first two houses in 1979, Gilgan found he’d made about 10% on his investment. So he kept going. He’d buy two or three lots at a time and custom-build homes on them, often spending 40 hours or more with a client before closing a sale. He also admits he got a little cocky. “I was a 29-year-old expert,” he says.
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The expert got slammed by his first real estate downturn in 1981, when rampant inflation pushed mortgage interest rates up to almost 20%. “By 1982, I was out of work,” says Gilgan. But he bounced back quickly, as he has several times since.
The custom homes he had been building were priced close to a then-hefty $300,000. But the top end of the market can be thin and fickle. So he went down-market, starting a small subdivision farther north in Burlington, with tract homes priced at around $60,000. Here he hit on one of the cornerstones of Mattamy’s subsequent success: “What if I tried to combine elements of the two?” In other words, build larger developments of lower-cost homes, “but make them more appealing to the eye than typical tract housing.”
Soon the real estate market started to recover as well, as interest rates headed back down. A 42-house development Gilgan built in 1983 on the Credit River in Mississauga, priced from $169,000 to $199,000, sold with lightning speed. “There is an element of timing in this business,” he says.
By the late 1980s, Mattamy had grown to include hundreds of employees, and had surpassed other key growth thresholds, such as the capacity to build more than one subdivision at once. Some of the projects were quite prestigious, like Glen Abbey, next to the Oakville golf course of that name, then the home of the Canadian Open. The detail man admits that he got a little cocky again. For one thing, although Gilgan put colleagues in charge of specific subdivisions, and atop company-wide functions such as administration, design, construction and customer care, he kept overly close tabs on all of them. “It was meeting after meeting,” he recalls. Nowadays, he says he tries a lot harder “to play editor, rather than author.”
Also, because Mattamy was doubling in size every couple of years or so, he was buying as much raw, undeveloped land as he could, still mostly west of Toronto, in Mississauga, Oakville and Burlington. “Fifty, 100 acres–whatever I could afford,” says Gilgan. But then, in the early 1990s, the housing market skidded into another recession. “I’ve still got a couple of pieces of land I bought in the ’80s,” he says with a chuckle. Lesson learned: “Know why you’re buying it.”
That downturn didn’t stop the relentless growth in population in the Toronto area, however, nor did it make land in and around the city cheap. Yet Gilgan figured there had to be a better way of coping with high land costs than what other suburban builders were doing at the time–narrowing lots and houses to fit more on a street, and moving the de rigueur double garages from the side of the houses to the front. Look down the streets of many 1980s and 1990s subdivisions, he says, “and all you see is a row of garage doors.”
Then, on a visit to the Los Angeles suburb of Orange County, Gilgan says, “I got religion.”
sable land in the hilly near-desert in and around Los Angeles is very pricey, but, instead of narrow lots, Gilgan saw that builders there had gone wide and short. “I didn’t Xerox the concept,” he says. “I was inspired by it.”
Back in the Toronto area, many new lots were still as deep as those of the 1960s and ’70s–say, 100 feet–but maybe half as wide–30 feet, or even less. If Gilgan could cut the length to 75 feet or so, he could increase the width to around 45 feet. That would create room for design features that he knew would appeal to buyers (because he’d focus-grouped them), such as a garage integrated into the side of the house, or a big old-fashioned front porch with a white picket railing.
Inside, a wider house needed shorter hallways, if it needed them at all: a saving of more space. Then and since, Gilgan has also pioneered or adopted dozens of other popular new-home elements, such as a family room right next to the kitchen, with an island between them to gather around (”ground zero,” as he calls it); a fireplace tucked into the wall (rather than thrust into the room); and a smaller laundry room on the second floor instead of on the main level (so you don’t have to carry laundry up and down stairs).
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Of course, reconfigured lot sizes required local land planning authorities to make some major changes to standard suburban layouts. In addition to wider lots, Gilgan also wanted to narrow streets and move houses closer to them–thereby preserving big backyards–and have a sidewalk on just one side, right against the curb.
Burlington, where Mattamy had become a major economic force, let him do it. The Orchard, a subdivision that Gilgan launched with 400 houses in 1996, was the first “full-on commitment,” as he puts it, to the new concept. “It just nailed people,” he says. His timing was also fortunate. The real estate market was shifting into a decade-long upswing.
Mattamy was back on the fast-growth track, and it was making Gilgan a very wealthy man. One sign of the success was his own house, the opposite of affordable tract housing (see “An exclusive listing,” page 79).
Raise the subject, however, and Gilgan’s immediate recall of just about any kind of detail vaporizes, and he gets awkward and embarrassed. He explains that he and his wife, Jennifer, the mother of their six boys and two girls (now aged 16 to 31), split up three years ago. The house got sold. Get the picture?
Part of that awkwardness may just be shyness. It’s only later, after the interview is over, while chit-chatting about cycling, that Gilgan mentions that he and eight friends rode from Vancouver to Toronto in nine days last summer and, oh yeah, they raised half a million dollars for the Hospital for Sick Children in Toronto. Seanna Dempsey, senior development officer with the SickKids Foundation, says that’s pretty much the manner in which Gilgan approached the hospital as well. “We were flabbergasted,” she says. “I’m amazed at how low-key he is.” The long-distance ride is now an annual event: the Mattamy Tour de Blue. (”Blue” because that’s the corporate colour. Mattamy, by the way, is named for Gilgan’s oldest children, Matt and Amy; Stelumar is a nod to their siblings Stephanie, Luke and Markus.)
Gilgan is higher profile under his own name in Oakville, the local YMCA being the biggest beneficiary. In 2006, he personally donated $1 million to the Y, capping a nine-year fundraising drive that he led. The campaign raised a total of $6 million for the Y’s 50th anniversary, and the renovated and expanded main local branch was renamed the Peter Gilgan Family Y. Mattamy also sponsors the home-building certificate program at George Brown College in Toronto.
So, is manufacturing of complete homes the innovation that will move Gilgan up into even bigger leagues? Make him into a nationwide force, and maybe even a continental one? You have to visit the factory. Even after you do, the answer may be more complicated than you think.
On a continent where the weather is often too hot, too cold or just too darn inhospitable for construction for most of the year, you wonder why no one besides Mattamy is assembling entire houses in the great indoors.
Touring the Stelumar factory in Milton with Ron Cauchi, it’s easy to play a game of Spot the Efficiency. The plant employs more than 100 workers split into two nine-hour shifts a day–rain, snow or shine. Just having everyone in one building helps. Labourers and tradespeople don’t have to shuttle between job sites, and they have regular shifts. Compared with conventional home building, the indoor set-up requires fewer pricey tradespeople such as electricians and plumbers, who can more easily supervise the lower-cost workers installing wiring, pipes and the like. With operations in one place, the quality of all aspects of the houses should also be more consistent.
Always on the lookout for improvements, Gilgan got the assembly-line idea in 1997, after touring a Saturn car plant in Tennessee with a group of U.S. home builders. General Motors established Saturn as an innovative, stand-alone subsidiary, and the builders were interested in how the plant dealt with manufacturing quality and employee relations. But Gilgan was impressed by the sheer efficiency of the operation–it kept parts in the plant for less than eight hours before using them. “When you’re looking for something, something else often comes out of it,” he says. Pilot projects began in a plant in nearby Cambridge. From 2004 to 2006, the plant assembled more than 600 houses with mostly complete exteriors, but not finished inside.
In addition to quality control, another goal of the factory is to meet every buyer’s target move-in dates–or at least get closer to them. That’s crucial to customer satisfaction, especially in the still-frenzied housing market in Toronto and many other cities. It takes about 16 to 20 weeks to build a house conventionally outdoors, and because of the huge backlog of orders that many builders have, the wait between signing a sales contract and moving in is typically much longer.
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Danny Ong, 30, and Madelyn Sesuca, 40, bought a four-bedroom home in Hawthorne Village in October, 2006, but they didn’t move in until this past January, long after their original move-in date. Yet they consider themselves lucky. Back in 2006, they waited in their car outside the Mattamy sales pavilion all night to be among the first to get a crack at a new release of lots the next morning. “It was so windy, so cold,” says Sesuca, “but the parking lot was full, and there were cars lined up on the street.”
The couple work as ticket agents at Toronto’s Pearson Airport. They were renting in the suburb of Mississauga before they moved, and the extra 2 1/2 months allowed them to save more money. But Sesuca says she’d “heard a lot of horror stories about other builders from co-workers.” Like the family who sold their previous house, then lived in a basement apartment for six months because of construction delays. When they finally moved in, their new home was riddled with problems, such as the absence of doors on the bathrooms.
Given competition like that, it’s no wonder Mattamy earned the No. 1 ranking for the Toronto area in consulting firm J.D. Power and Associates’ annual customer satisfaction survey of Canadian home builders for 2006 and ‘07. If the proportion of Mattamy’s factory-built homes climbs to 50% by 2015 as planned, it should be easier to stay on top.
There’s a big fly in the ointment, however: the bottom line. Factory assembly still isn’t any cheaper than building on-site. “It’s more about a controlled environment than cutting costs,” Cauchi admits.
ven before Mattamy started shipping houses from the factory, the most common complaint from buyers was that the company built by the detail man could be far too controlling. Gilgan has systematized much more than the construction process, and even some buyers who are happy with their homes think he’s gone overboard.
Gilgan likes to say that Mattamy builds neighbourhoods, not just houses. Accordingly, buyers go through several meet-and-greet sessions called Mattamy University, which explain how their home and subdivision were built, and introduce neighbours to one another.
Like most builders, Mattamy has several basic home models in its developments, but it offers a lot more variations of the basic design and the finishings of each of those models–everything from nine-foot ceilings to fancier baseboards. That can result in dozens of choices. Ong and Sesuca bought a 1,822-square-foot, two-storey model called the Mayberry II. The base price was $311,000, and the couple added $28,000 worth of upgrades, including a maple staircase, pot lights and a Jacuzzi. They anted up another $6,000 for a fourth bedroom, and $5,000 more for a premium lot in a quiet location. Total: $350,000.
The company operates design centres, where customers choose every interior design element–carpeting, cabinets, moulding, paint and so on. But suppose you want something else? Mattamy won’t, for example, let you buy your own ceramic tile or kitchen countertop somewhere else and then install it for you. You have to do that later yourself. Also, any change to the standard plan of a house costs money.
Some buyers feel as if they’ve been nickel-and-dimed. Peter Xavier, 43, a Toronto graphic designer who bought a Mattamy home in Mississauga with his wife, Rosie, in 2001, says it became absurd in some cases. He thought a landing on his stairway to the second floor would be too narrow, so he asked that a closet not be built there. That cost him $100. He didn’t want a wall that jutted between the kitchen and the family room. That change cost $900. “It seems like every time you turn around, they charge you,” he says with a chuckle.
Gilgan and Cauchi say the rationale is simple: There has to be some standardization to keep costs and base home prices down. As for charging for every change and extra, it’s fairer for everyone if buyers pay for the elements they choose.
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Indeed, many buyers, like Ong and Sesuca, say the trade-offs are worth it. Ong says the $311,000 base price for their home was far lower than Mattamy’s competitors were charging for similar models. Yes, some of those competitors include more finishings–or fancier ones–in the base price, but Ong still figures he got a good deal. The couple could have “paid $400,000, easy” for a similar home from a competing builder, he says. And he checked out prices of every item–for example, Mattamy charged $800 for a microwave hood fan, installed, versus $750 for a similar model at Sears that he would have had to install himself.
There’s also an overall look and feel to each of Mattamy’s subdivisions, in keeping with the theme for each one. Again, a lot of that is Gilgan. He loves features like big windows, wide front porches with white picket railings, and the idea of neighbours chatting with one another across narrow streets. But some customers, such as Xavier, find it all a bit corny. “We lived in Churchill Meadows,” he says. “There were no meadows to be found anywhere.”
Look around Hawthorne Village or other recent Mattamy subdivisions, and you’ll also see other more fundamental challenges. With land prices around Toronto and other cities still high, builders are doing everything they can to make more efficient use of it. So, many of Mattamy’s lots aren’t all that wide any more–Madelyn Sesuca and Danny Ong’s is just 36 feet wide, with about six feet of space between their house and the neighbours’.
Still, many environmentalists and other critics complain that single-family home builders such as Mattamy are swallowing up too much land and propelling sprawl. But Richard Harris, associate director of the school of geography and earth sciences at Hamilton’s McMaster University, says that “sprawl” can be a misnomer. “By and large, houses have gotten bigger, but lots have gotten smaller” over the past couple of decades, he says. A lot of new developments, including many of Mattamy’s, have “reasonable densities,” he says.
Gilgan shrugs and smiles. Ultimately, he has to respond to consumer demand. “I remember a lot of people in the 1980s saying that houses would get smaller,” he says. “But that just didn’t happen.”
In the 1990s, so-called new urbanism caused a stir in Toronto and other North American cities. That’s when Mattamy built part of a large development in Markham, north of Toronto, called Cornell Village. It has mostly townhouses, semi-detached or detached houses with garages in the rear, much like denser, century-old inner-city neighbourhoods. There are also more businesses and shops within walking distance than in other suburbs. But the concept hasn’t taken off, and it’s easy to understand why: The development is surrounded by a major city, and not every resident is going to live, work and shop entirely within the confines of the village.
Despite efforts to locate schools and some stores within walking distance in Hawthorne Village and other Mattamy neighbourhoods, you pretty well have to have a car to live in them. Here again, though, many experts say it’s hard to blame the home builder. It’s also the result of local and regional planning decisions. Larry Bourne, a professor of geography and planning at the University of Toronto, says he finds it absurd that Toronto and other cities don’t plan and build public transport systems before or along with new neighbourhoods.
From Hawthorne Village, there is no rapid-transit access to Toronto’s airport (so Ong and Sesuca drive 35 kilometres east to their jobs) or to other large employers in the area, such as the massive Royal Bank office complex just off Highway 401 in Mississauga. “It’s astonishing,” says Bourne. “The GO system [the Toronto-area commuter rail network] misses virtually every major destination.”
More immediately, Gilgan has to be at least concerned about the possibility that the U.S. housing debacle will spread to Canada. He’s certainly better positioned to handle a downturn than he was in the early 1980s and early ’90s. For one thing, he’s far more geographically diversified. He’s built more than 1,000 houses in Ottawa over the past two years, and he’s buying land in Calgary and Edmonton. In the U.S., Mattamy has already started building in Minneapolis, Charlotte, Phoenix and parts of Florida.
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So why doesn’t Gilgan take Mattamy public? It’s hard to imagine such an incontrol personality working for shareholders. He argues that being private can also help in winning the confidence of lenders. “If your skin is in the game, their skin is in the game,” he says.
Longer term, there are also demographic shifts to contend with. Phil Soper, CEO of Brookfield Asset Management Inc.’s Royal LePage residential real estate division, says that one of the most profound changes is the rise of single-women buyers. According to a Royal LePage survey, 37% of Canadian women who have never been married now own their own homes, up from 30% just a year ago. Other sources report there are also more three-generation families living under one roof.
Again, the experts aren’t saying anything that Gilgan doesn’t already know, and he’s started experimenting. In its High Park development in Mississauga, Mattamy introduced so-called Urban Walk-Ups–three-storey buildings with a home on each level. Within conventional detached houses, Gilgan is thinking that two master bedrooms will become more common–for three-generation families. “We have to provide affordable choices for people,” he says.
Some things are certain: Suburbs around Toronto and other cities will keep expanding, and Gilgan is going to keep building them, either in a factory or the old-fashioned way. No one in Canada is doing it any better.
An exclusive listing:
Mattamy Manor
Just how wealthy Mattamy Homes had made Peter Gilgan didn’t become clear until May, 2006, when his own family home in Oakville was put up for sale for $45 million, the highest asking price ever in Canada.
Edgemere Estate, as it’s named, has a very wide lot indeed: 1,000 feet of frontage on Lake Ontario–room for a baseball diamond, swimming pool, parking for 10 cars, a gazebo and a two-storey guest cottage. Inside the main house, there are nine bedrooms, 17 bathrooms, a spa and a 20-seat movie theatre. The home eventually sold last November for a nominal registered price of $2–an arrangement principals can make if they pay the land transfer tax on the real value.
