Jeffrey Mezger says he loves a good challenge.

As the new chief executive of KB Home he's got more than a few the declining housing market, newly tightened lending standards prompted by the subprime meltdown and a tarnished corporate image.

"I've heard that where there are great challenges, there are also opportunities," said Mezger, who was interviewed in the boardroom of the company's Westwood headquarters. "We have plenty of the former, so hopefully that will lead to plenty of the latter."

After 13 years with KB Home, Mezger took the helm of the nation's fifth-largest home builder nearly six months ago when his predecessor and mentor, Bruce Karatz, retired amid a scandal over backdated stock options.

Since then, the Los Angeles company reported its first quarterly loss in more than five years though it rebounded slightly in the more recent quarter and has seen its stock of unsold homes remain at higher levels as Southern California and the nation remained mired in a housing slump.

But Mezger, who has 30 years in the industry, has a reputation of being the driving force behind KB's successful strategy of serving customized homes to the masses. And he hasn't been afraid to act.

He's shaken up the company's board, appointing Hilton Hotel Chief Executive Stephen Bollenbach as KB's first non-executive chairman. And while he's put the brakes on expansions into new geographic areas a hallmark of his tenure as chief operating officer during the housing boom he has pushed ahead with the company's higher end co-branded homes with homemaking maven Martha Stewart.

Still, with the company's stock trading at about $43 lately, far off its 52-week high of nearly $62, it's unclear how much time Wall Street will give the 51-year-old chief executive to turn things around.

"Jeff is still in a good situation," said Greg Gieber, an analyst with A.G. Edwards. "Any problems can still be blamed on the previous guy. But not for much longer."

Combating the Crunch

Mezger, a Chicago native, was tapped by the KB board in November to replace Karatz after the 61-year-old chief executive was determined by an internal investigation to have personally chosen the dates of options granted to him over a seven year period.

The announcement noted Mezger had no role in the scandal. The board chose a known quantity with a strong reputation not only in operations, but in strategic thinking.


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