Homes Across The WaterAmy Borrus
Owning your own home: It's the American dream. Now, a northern Virginia company has found a way to package that dream and export it. Chadwick International Inc. sells modular homes--light fixtures and financing included--in emerging markets abroad.
For the parochial U.S. housing business, where even crossing the county line is a big deal, Chadwick is a true maverick. Exports aren't just a sideline for Chadwick; they're all it does. In its current fiscal year, the four-year-old startup expects revenues of $65 million, triple last year's--100% from exports of modular homes made in Florida and shipped from Jacksonville.
They're not just shipping to run-of-the-mill foreign markets, either. Tiny Chadwick operates in places that U.S. companies 10 times its size shy away from. It has upscale housing projects in various stages of completion in Algeria and the Ivory Coast. And the company says it is negotiating 30 more deals worth $560 million with developers from Argentina to Vietnam.
Where others see only political strife and currency risk, Chadwick sees opportunity. "Demand for housing in Africa, Asia, and Latin America is on the order of 100 million units," says Ronald M. "Mickey" Nocera, Chadwick's chairman and chief executive officer. "There's probably only enough money there to build about 5% of that. Still, even if we used every available U.S. manufacturing plant, we couldn't begin to meet that need."
Local homebuilders in many of Chadwick's best markets are no match for its product and expertise. "In many of these countries, the quality of local construction is pathetic, and they lack accoutrements that a U.S. builder can provide," such as double stainless-steel sinks, says Gary Collins, vice-president for international trade at NationsBank Corp., one of Chadwick's lenders. "It can take a local supplier up to two years to build a house, whereas Chadwick can deliver 100 houses in a few months."
CUSTOM TOUCHES. Chadwick has another edge: It designs single-family and duplex homes to local tastes and building codes. Then it has them constructed by a Florida manufacturer. For a developer in Islamic Algeria, for example, Chadwick designed stucco-walled units with interior rooms that can be closed off to allow women to move freely without being seen by men. Chadwick homes are shipped in two pieces on specially configured container ships and assembled by local crews that Chadwick trains and equips with all necessary tools. Once on site, the homes are finished, ready to move into, at a rate of six a day. The cost of the duplexes in Algeria: about $49,000, including freight.
Financing is the critical element in Chadwick's package. In many developing countries, prospective buyers--typically foreign-government agencies, banks, or private syndicates--lack cash and access to commercial markets. Chadwick generally arranges five-year financing from international money-center banks, 85% of which is often guaranteed by the U.S. Export-Import Bank. Ex-Im's participation cuts the interest cost--in some markets from 14% to as little as 7% or 8%. The buyer or foreign bank provides the remaining 15%. In a typical deal, the company agrees to supply 100 to 200 homes for $10 million.
Many U.S. banks that finance trade deals shun small transactions. So Chadwick takes care of the paperwork. It prepackages all the documents, from drafting the commercial contract to obtaining the bill of lading. "We hand the bank a finished product as well as arrange all the logistics, such as shipping and storage," says Chadwick President George S. Henderson Jr.
Chadwick's familiarity with the arcane details of trade-finance isn't surprising. Before starting up the company, Henderson spent 20 years at Ex-Im. His tenure included a stint as deputy of the claims division, where he saw close up how deals can turn sour. Chadwick's ties to Ex-Im don't end there. Three other senior officers are also alumni of the bank. Ex-Im, which is aggressively targeting small exporters, recently authorized a $3.5 million working-capital loan for Chadwick.
Bankers who have worked with Chadwick think the young company has a winning formula. "Financing will be the key to Chadwick's success," says Stephen S. Atallah, a vice-president in Societe Generale's export-trade finance group in New York. "The more difficult the market, the more valuable that is." Adds another bank executive who has worked with the company: "It would be nice if our big corporate customers knew the finance side as well as Chadwick does."
Even so, it took Chadwick three years to complete its first project, a $20 million contract to supply 412 homes to Algeria's Caisse Nationale D'Epargne et de Prevoyance, a government-owned savings bank. The project was financed by Citibank, with Ex-Im guaranteeing 85% of the loan.
Chadwick's involvement in Algeria was more by fluke than design. Nocera was an East Coast real estate developer who had never worked abroad before he co-founded Chadwick in 1991. He was mulling possible overseas ventures when an Algerian acquaintance offered to arrange a meeting with real estate contacts in Algiers. The meeting didn't lead to a deal, but Nocera stayed for three weeks. Every day, he toured the country with an interpreter and was astounded by the number of rusting, unfinished construction projects in a country with a housing shortage estimated at more than 2 million units.
SHAKEDOWNS. Breaking into the market was tough. Chadwick's financial acumen didn't count for much when it applied for permission to open an office in Algiers. "Every Sunday, I'd go to the central bank to see if the documents were in order, and every time, there were more questions," Henderson recalls. The authorities finally approved the request--2 1/2 years after Chadwick applied. Then there were the occasional not-so-subtle shakedowns by middlemen. "You have to say no, and if it comes up again, you have to be willing to walk away," says Nocera.
When it comes to doing business in the Middle East, "you can't be too anxious," says Nocera. "They have to feel comfortable with you." To build trust, Nocera always travels with framed photos of his family to show to prospective foreign partners.
The patient approach seems to be paying off. In June, Chadwick inked a third deal in Algeria, an $11.7 million contract to export 100 modular homes to a syndicate of wealthy Algerians who are paying cash up front.
But financing can be a big hurdle in poorer countries, particularly in those that aren't eligible for Ex-Im guarantees. Some big banks refuse to finance deals in countries that Ex-Im shuns. Others insist on high interest rates. To keep financing costs down for a project in Vietnam, which is off-limits for Ex-Im, Chadwick is putting together a consortium of banks that will each kick in a small portion of the loan in exchange for a lower rate. "It's very tough going," admits Henderson.
Given the financing constraints, some trade experts question the size of the market niche Chadwick is targeting. Countries where financing is easier to obtain tend to be more developed--and therefore not as hungry for foreign homebuilders. But if Chadwick can keep coming up with creative financial solutions--and manage its explosive growth--it could be an exporter to watch. "There's a lot more money out there than there are good deals," says Henderson. "We're going full-speed ahead." Anchors aweigh for Chadwick's U.S.S. American Dream.