Bright spot: Amid slump, KB Home sees some success in joint-branding venture with Martha Stewart.

Alittle touch of Martha Stewart seems to be a good thing for ailing KB Home amid a national housing market that has failed to rebound.

The homemaking maven and the Los Angeles-based homebuilder have broken ground on their latest co-branding endeavor, a 97-home tract in the Antelope Valley called Terreno Vista.

The Lancaster subdivision marks the second time the most recognized name in domestication and one of the country's largest homebuilders have teamed up in Southern California to build the homes, which feature such traditional touches as wainscoting, picture-frame molding and open shelving, as well as a wider variety of floor plan options.

Another development is under construction in the Riverside community of Perils, about 80 miles south of Los Angeles. And the duo is building seven other developments around the country since announcing the joint venture that started in 2005 with a Cary, N.C. subdivision--just outside of Raleigh.

The co-branded communities have provided a boon for the homebuilder in a time when many would-be homebuyers are sitting on the sidelines, squeezed by tightening lending standards and stubbornly high home prices--especially in Southern California--despite signs prices may fall.

"From a revenue standpoint, the Martha Stewart developments aren't going to help the company that much right now. But the profit margins they make on those homes really can help the bottom line," said Greg Gieber, an analyst with New York-based A.G. Edwards & Sons Inc.

"Martha Stewart has done more than lend her name to these communities. She's taken a very active role in designing them, so KB can command top dollar for them," he said.

While KB doesn't release specific numbers on its individual communities, the joint venture homes are larger than the homebuilder's standard unit and go for a premium that depends on the market.

KB Chief Executive Jeff Mezger said grand openings of the Martha Stewart homes attract more than 3,000, while a standard KB community grand opening draws only about 250.

"In just one year of this collaboration with Martha Stewart and her team, we have opened four successful communities and announced plans for five others," Mezger said in an e-mail to the Business Journal. "When a Martha Stewart community opens, we see traffic and sales increase in all other KB Home communities in that market."

Weak market

KB could use some good news. Last month, the company reported an 84 percent plunge in first quarter profit coupled with a 19 percent slide in sales. Deliveries, or completed construction, fell 16 percent amid a 5 percent slide in the average selling price for its models nationwide.

Gieber said that while the interest in the subdivisions is beneficial, their biggest benefit is the leverage they provide KB against competition in ultracompetitive commuter towns such as Lancaster, where margins are thin and sales are getting rarer.

Indeed, home sales in Lancaster slid 40 percent last month compared to the same time last year despite a 4.5 percent gain in the median price, according to Los Angeles County housing numbers provided by HomeData Corp., of Melville, N.Y.

"Think of these cities like a head of lettuce," Gieber said. "When lettuce starts to go bad, it starts on the outside and goes inward. It's the same with a real estate market--with the major metro district being the middle. The outer communities are the first to go sour."

Still, it's hardly clear that the communities will do much to lift the company as a whole. When all of the currently planned joint venture communities are completed, they will only total about 2,300 homes. By comparison, KB received nearly 8,000 orders for homes in the first quarter alone, even though that was down 12 percent from the same period last year.

However, Gieber said that with the joint venture a clear success, the company will likely capitalize on it by searching for other communities to place the developments--and he also said not to expect KB's competitors to copy the strategy.

"Who else would it work with?" he asked. "No one has the pull Martha Stewart does."

BY ALLEN P. ROBERTS JR.

Staff Reporter