Here Come the Hispanic Home Buyers

Few executives have had as varied a career as Henry Cisneros. He was the first Hispanic mayor of a major U.S. city (San Antonio). Later, he served as U.S. Housing & Urban Development Secretary under President Clinton and then as president of Hispanic broadcaster Univision Communications in the 1990s.

Today, operating once again out of his home base in San Antonio, Cisneros is chairman and CEO of American CityVista, a joint venture between himself and Los Angeles-based homebuilder KB Home. His plan, as he explained it to BusinessWeek Online, is to bring the economies of scale of a large suburban homebuilder into urban, often Hispanic, markets where housing demand is expected to surge. He recently spoke with BusinessWeek's Christopher Palmeri. Edited excerpts from their conversation follow:

Q: Is Corporate America really starting to notice Hispanic consumers?
A: I know the impact of this market from my time at Univision (UVN ). It's the fifth-most-watched network in the country. In some markets, like Los Angeles and Miami, it's the most watched. Companies are starting to recognize that this market is no longer a sideline, goodwill, or philanthropy, but a good business.

The auto industry is looking at a dramatic leveling of sales as the boomers reach their mid 50s and slow down their car buying. If you take the Hispanics out, you see flat to no growth. Add the Hispanics, and the car market grows 100,000 vehicles per year. You're seeing companies making decisions based on that.

Toyota is building a plant in San Antonio. They picked that location with the input of their marketing team because they wanted a bigger presence in states where Hispanics are a large part of the population. Hispanics will be the workers in the plant. Many, many other companies are making similar calculations. Every company wants to appeal to a demographic that is younger and with families that are larger.

Q: And that's true even in homebuilding?
A: Because of KB's footprint in the Southwest, almost everywhere the market is Hispanic. KB could become the builder of choice with the fastest-growing demographic in the U.S. Our mission is to take KB's suburban production capabilities and deploy them in central cities.

By definition, we have a close relationship with Hispanics. What we're finding is it's a huge opportunity because of the rate of household formation. It's the fastest growth in home ownership of any group in the U.S. Ten million new homes will be formed by end of the decade, half of those will be minority, and more than half of those will be Hispanic. That's almost 3 million new homes that can be sold to Hispanic households.

Q: What does it require to reach Hispanic consumers?
A: It means staffing with Spanish speakers [and] materials in Spanish, focusing on homeowner education, credit repair, and financial literacy. We built a community in San Antonio -- Lago Vista. No new homes had been built there in 40 years. People were skeptical.

We sold 280 homes in two years. The estimate at the outset was $80,000 to $90,000 per home. In fact, they're selling in the $150,000 range. They're requiring unique design, such as larger family space. There's a new open floor plan, where the kitchen is integrated with the living and dining area. So Momma can cook and watch the children who are playing or doing their homework.

It plays to Hispanic sensibilities, people staying closer together, the yards with facilities for outdoor barbecuing. Things that relate to the Hispanic lifestyle of socializing with extended family. We design for people's needs. With the Hispanic family they average more rooms. A lot of Hispanics want to stay near extended family, in old neighborhoods, near their church.

The most frequent thing I'll hear is, "Thank you for building homes in this part of town. I always wanted to live here, but there were no new homes. My mother is taking care of the children." It's just very common, family members taking care of each other.

Q: Isn't the reason that builders neglected these neighborhoods because the residents couldn't afford new homes?
A: We're working a lot with lenders. Now they pay attention to things like the way they count rental experience, they help people correct credit problems.

The Hispanic population is immensely hard-working. It's low-wage, but they have two, three, or four workers per household. In Southern California, 52% had at least three workers in the home. So the whole household functions as a middle-class unit. They may work as gardeners, but when you have three people working, they live like the middle class. It's a huge phenomenon.

Q: So immigration, from your perspective, is still a good thing for the U.S.?
A: It's going to be one of the saving graces of our country. Japan, like Germany, France, and Italy, is worried about the aging and homogeneity of their population. They are facing negative growth scenarios. Here in the U.S., we have this younger, hard-working population, whose best working years are still ahead.

Most Americans don't recognize what an asset this is. Most people think they are less educated. They speak with an accent, but they are a huge contribution to the country.

Q: But is there a danger America will actually have a class of citizens speaking only Spanish?
A: People learn English, the second generation. American culture is so powerful, from music, pop culture, and sports. That acculturation is very rapid in a generation or two. It's not unusual to find younger Hispanics completely acculturated by the second generation.

I concluded a long time ago [that] God gave us brains with a lot of capacity. When we learn English, we don't have to displace Spanish. There's a lot of capacity to add and not subtract, it's a net plus.

Q: What are your growth projections for American CityVista? How much do the homes cost, and what percentage of the buyers are Hispanic?
A: We've sold over 1,500 homes. With the communities we now have under construction, we'll sell 2,500 more. With those communities that are approved [but not yet under construction], 8,000 homes. In Texas, they run $90,000 to $150,000. In California, they start at $230,000. Our sales are probably 40% Hispanic.