Larwin CEO Intends to Keep Firm ‘Local’

Mike Keston is something of an anomaly in the home-building business.

In an era marked by a trend toward ever larger, publicly held national home-building firms, Keston took a big national company with projects in 14 states and turned it into what he calls “a local firm--strictly a California builder.�

Keston--the owner, chairman and CEO of Encino-based Larwin Co.--is also a bit different from many builders in that his background provided little inkling that he would wind up owning a home-building company.

The son of a New York City policeman and department store sales clerk, Keston did not benefit from nepotism--as many do. Rather, he learned the business at Larwin and then bought the company.

Keston, 60, joined Larwin in 1970 as assistant to the president, or, in his words, “pretty much of a gofer.�

However, by the time Keston reached Larwin, he already had a few years as a civil engineer under his belt and he had received an MBA at the Wharton School in Philadelphia. He quickly rose through the ranks at Larwin, eventually becoming treasurer. In 1978 he bought Larwin from insurance giant CNA Financial Corp. and its parent, Loews Corp.

Since then, Keston estimates that Larwin has built 17,000 homes and apartments in California, generating revenues of $100 million to $150 million per year.

While Larwin ranks 18th among home builders in the state, according to an April survey by The Times, Keston considers Larwin very much a local company. And, he wants to keep it that way.

“When I bought the company, I decided to build only in California because home building is a very, very local business,� Keston explained. “It is very difficult to control projects that span the country and to know specifically what’s happening in each location.�

Keston--a former president of the Greater Los Angeles chapter of the Southern California Building Industry Assn.--says Larwin’s very local entrepreneurial bent gives it an edge over publicly held competitors.

“I think a company like ours will earn more money, generally, and have more control over its projects,� said Keston, who teaches at USC’s school of planning and urban development.

Profits of the biggest publicly held builders typically run about 4% to 6%, but private builders who keep their eye on the ball can usually do better, Keston said.

But competing against publicly held builders can be extremely tough, said Dee Zinke, a Calabasas-based executive officer of the Southern California Building Industry Assn.’s local chapter. Zinke describes Keston’s company as “one of the few larger builders that are still entrepreneurial in nature.�

“The public companies can operate on a very, very small margin if they have to, and to some extent they can sell at a loss in one market, assuming they can compensate for those losses in another geographic market. A private company can’t do that,� Zinke said.

Zinke also said private companies have to be very politically savvy to stay alive in today’s market. Keston is one of the best at that, she said, noting that Keston formerly was president of the building association’s political action committee, which contributes to the campaigns of political candidates.

“Mike was the most successful fund-raiser we ever had, which tells you something about his reputation in the industry,� Zinke said.

Keston believes an important part of the political process is holding community meetings early in the development process, a tack many developers have adopted in recent years.

“Probably 95% of the people who show up at these meetings are very responsible,� Keston said. “A lot of their comments are very good. But there are a small number of people who come out to heckle. They would be against anything.�

Not even the savviest developers can avoid opposition entirely, however, as illustrated by a 2,500-unit housing project called Del Sur that Larwin proposed in the early 1990s in Lancaster.

The Lancaster City Council approved the project, but not before the 880-acre proposal drew sharp criticism from residents of Antelope Acres, an area of homes on 2- to 5-acre lots near the proposed development site.

“We felt it was the wrong project in the wrong place at the wrong time,� said Michael Singer, a former member of the City Council and an organizer of the Antelope Acres homeowners.

Opponents’ objections included the density of homes and the project’s distance from existing development, which would have meant a sizable investment in roads and water and sewer lines to serve the area.

“It was a case of hopscotch development. It would have been seven to nine miles from the closest similar project,� Singer said. “We would have welcomed a density of one home per acre, but we didn’t want the urban density that Larwin proposed.� The density of Larwin’s project was slightly under three homes per acre.

Larwin has not yet developed the Del Sur project because the housing market declined in the Antelope Valley, but “we’re looking at starting it in about three years if the market continues to improve,� Keston said.

Larwin’s current projects range from homes priced at $300,000 in Castaic to $750,000 homes in San Jose. Its Southern California projects include Hillcrest Park in Castaic, Spanish Hills in Camarillo, and Carmel at Harborside in Oxnard.

The company builds 200 to 350 homes in an average year, although Keston said it built as many as 1,500 per year during the peak of the housing market in the late 1980s and as few as 50 to 75 a year during the recession of the early 1990s.

During lean times, Larwin concentrates on buying land--since prices are lower--and processing land for approvals so the firm is ready to build when the economy recovers.

“That’s another difference between a private and a public company,� Keston said. “A public company has to continue to build a certain amount to continue sales and earnings to satisfy Wall Street, whereas a private company can be very flexible. When the market is hot, we can jump in with two feet. When the market tapers off, we can gradually retreat.�

Keston points out that his company is a developer-builder and not a merchant builder, as most public builders are. A developer-builder buys land and gets it ready for home construction; merchant builders build homes on land that has been prepped by others.

All home building is risky, industry analysts say, but developer-builders face significantly greater risks, along with the potential for greater profits.

“Land development is much riskier than just building homes,� said Bob Bray, an analyst with The Meyers Group, a real estate consulting firm. “Land development means bringing the project through the planning process, and there’s no guarantee that the project will be approved. But even more than that, there are the grading risks.�

According to Keston, grading risks can throw a home builder’s budget entirely out of whack.

“Despite all of the testing you do, you never really know what you’re going to run into until you actually start grading,� Keston said.

Examples of problems are underground streams that have to be diverted or loose dirt that turns out to be be 25 feet deep instead of the 5 feet indicated by soils tests.

Despite the risks and obstacles, said analyst Bray, Larwin has weathered good times and bad in the Southern California housing market under Keston’s 20-year tenure, whereas many other builders have failed to survive.

“Mike’s a smart guy,� Bray said. “I’m sure he’d be the first to tell you he hasn’t guessed the market right every time, but he has guessed right more than he has guessed wrong.�