Coming home: Bruce Karatz started as in-house counsel, but learned the business and turned what is now KB Home into an international market leader.

BRUCE Karatz, chairman and chief executive of KB Home, has been riding the U.S. housing boom to the top of the market. A 30-year veteran of one of the nation's largest homebuilders (formerly known as Kaufman & Broad), Karatz has spearheaded some outlandish marketing campaigns, including building a replica of the Simpsons' cartoon house near Las Vegas and putting a house on top of one of France's largest department stores. Karatz has expanded the giant developer's reach with acquisitions in Texas, Arizona, Nevada, Utah and New Mexico, and is pushing for dominance in the Southeast. He is now the second-highest paid CEO in Los Angeles, after Occidental Petroleum's Ray Irani, with total compensation last year of $23.8 million. Karatz stands out in other ways: He is a big Democratic campaign contributor, a devoted Harley-Davidson rider and routinely hobnobs with the rich and famous--this summer he was off St. Tropez aboard the yacht of Sean "P. Diddy" Combs, whom he met through friends.

Question: Do you think the Los Angeles real estate market is overheated?

Answer: No, it's not overheated. While the market has shown incredible price appreciation, there's still a shortage of housing for the population. The economy is generally on an upward bent, so that should bode well for continued housing demand and the supply side will never meet it. Now, if you ask me: Is it going to continue to appreciate at 25 percent to 30 percent a year? The answer is nothing does and housing won't be the exception. But this notion that somehow it's 1991 revisited, is, I think, unfounded. None of the factors that existed back then, and I was here then, exist today.

Q: KB Home, which was Kaufman & Broad in the early '90s, shifted its strategy because of that real estate downturn, correct?

A: A piece of what happened in 1991 is that builders would build "spec" homes. Meaning, you would start a group of homes, 40 or 50 at a time, and then go out and sell them. And no one was concerned about selling them. In fact, there was a notion that the later you waited, the more money you would receive, because in an appreciating price environment, the best time would be to deliver it just before you finished.

Q: What do you think of the economy?

A: It's doing better but moving slowly. I was never a great fan of the tax cuts. I think we're now learning that it was a short-term stimulus and what we need is some long-term development. I think it's basically sound.

Q: Where do you see the most growth?

A: We're going to continue to see California grow. We have laid the foundation for significant community growth in 2005 and 2006. The strongest area on a percentage basis is probably in the Southeast, where we're newer but growing quickly. Florida is going to be an important state for us.

Q: Who drives home sales?

A: If there's a couple, you can bet dollars to doughnuts that the woman is making the decision. Good sales agents know that when a couple walks in, you respect a man and you talk to the woman. And thank God. We love them.

Q: Tell me a little bit about when you were in France and how it changed your career.

A: I spent two years in Aix-en-Provence, near Marseille, and over five years in Paris. France was very special, I learned the language, learned the culture, learned the business, all at one time.

Q: How is it that KB Home ended up as a big builder in France?

A: France was always good from day one. France has major cities and a large middle class. So there were population bases like Paris, which really do not exist in any other European country outside of the U.K., where there already was a homebuilding industry. We're going to do almost 4,500 homes and condos this year, worth over $1 billion, in France.

Q: You made a big splash early on when an advertising executive suggested that you put a house at the top of a big department store in Paris.

A: It turned out to be the promotion of promotions. Five hundred thousand people went through the house in under five months. I was 33 or 32, so brash, naive really. I thought that while the promotion was fabulous, we would come up with an equally good idea the next year. And, of course, it's tough to duplicate that one.

Q: And someone else came up with that marketing idea.

A: Great ideas develop in very unusual ways. By the very nature of things, marketing people sometimes come up with off-the-wall ideas that are meritorious. You have to know when to seize it. I did the same thing in Manhattan and Las Vegas. Every one knows I like what appears on the surface to be a crazy idea.

Q: You started at KB Home as in-house counsel. But it doesn't sound like you wanted to be a lawyer.

A: I didn't want to be a lawyer. I had befriended the president of KB, Gene Rosenfeld. I went to see him. He said, "Bruce, cool your jets, you just got here." Literally a month later, I went back and told him, "Kick me out of here if you want to, I would understand. I want to get into the business." He sent me down to Orange County. I did that for two years and I got the call asking if I wanted to go to France. It happened very quickly.

Q: Did you think it was luck?

A: One thing in business is if you have the ambition and you work hard, there is no limit on what you can achieve in a very short period of time. You can practice law for 10 years and not feel that you've done much of anything. In business, you work at it for 10 years and you could end up running a big business in 10 years.

Q: Which presidential candidate do you think would be better for business?

A: I'm a supporter of John Kerry. In my opinion, either candidate is good for home building. I think there are other issues that distinguish the candidates. The economy, in many ways, is beyond the control of the White House, although there are certain policies that are important, like free trade.

Q: What do you think of Gov. Arnold Schwarzenegger?

A: I think the governor is doing a pretty good job. I was against the recall, but now that we're there, I think we're fortunate to have Schwarzenegger. The state's in the news, generally in a positive bent. I think he's hard working, smart and his celebrity is helpful for both him and for us.

Q: Who are you backing for mayor?

A: I'm supporting Bob Hertzberg. It's a loaded field, but I really went out on a limb because I think Bob is a special talent. He's someone I've known for a long, long time. For somebody who is as smart and as effective, to want to run for mayor, I say we owe it to try to get him elected. He is a go-getter who will do things to move Los Angeles along.

Q: How did you meet your wife, Sandra Lee, who is on the Food Network?

A: Our spokesperson for six or seven years was Tom Skerritt, the actor on "Picket Fences." He has a face everyone knows and his dad was a homebuilder. Then I saw him do an Advil commercial. I said, "Whoa, this is not our customer. This is our customer's father or grandfather, we have to get somebody younger." So our head of marketing said they had a woman who was doing performances for us in our studios. He brought her in and I met her and several months later, our paths crossed and that started the romance. And that was it. We've been married for three years.

Q: When did you first come to L.A.?

A: When I was 15 years old, a friend and I drove from Minneapolis, working along the way. We worked in national parks and picked strawberries outside of Portland, shucked clams in Long Beach, Wash., and finally made it to L.A. My grandfather helped us get a job at the Centinela Drive-In Movie Theater. We sold popcorn at night. We used to go out to the beach every day hoping to socialize. Driving along Sunset Boulevard with the palm trees waving and the convertibles, I said, "This is better than Minneapolis."

Bruce Karatz

Title: Chairman and Chief Executive

Company: KB Home

Born: Chicago, 1945

Education: B.A., Boston University; J.D., University of Southern California 

Career Turning Point: Being picked to head KB Home's office in France at the age of 32

Most Admired Person: His grandfather, a successful entrepreneur among those who sold the first audio motion picture equipment

Personal: Married to Sandra Lee, host of the Food Network's "Semi-Homemade Cooking"; two grown children from a previous marriage; three grandchildren 

Hobbies: Motorcycle riding, spending time with grandchildren, playing golf