Builders down, but not out

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Residential construction companies in survival mode

Residential construction companies have increasingly become an “endangered species” in the recessionary rainforest.

However, the prognosis for entry-level and move-up builders for 2010 is slightly more optimistic than the survival chances of the Sumatran tiger, Asian elephant and the Borneo orangutan.

Some companies have already left the forest to nurse wounds inflicted by cautious consumers and unwilling lenders. Last year, regional and national builders like Lennar Homes, Pulte Homes and Beazer Homes slipped away in the night, hoping to regroup, sell off surplus lots and lean their operations until demand in the Pikes Peak region rebounds.

Luxury builders might, like the Rhesus monkey, have to hang on and wrap their tails around a branch — into at least 2011 or 2012, pending the financial industry’s willingness to once again fund multi-million dollar homes, according to industry analysts at the National Housing and Building Association.

The signs of uninviting environmental conditions are everywhere.

Lennar and Pulte, for example, sold off or walked away from lots reserved for development. Some of that inventory has been picked up by smaller, local builders during the past 18 months, giving such one-time competitors a leg up in the fight to survive.

Gone, however, are multiple homes built on speculation. Even large local builders like Classic Homes are limiting speculative construction to one or two models, said Classic Cos. executive vice president Dan Winter.

“Lean and mean” has become a popular mantra. Most residential contractors are choosing to reduce lot inventories and secure a willing — and financially qualified — buyer before “taking down” groups of new lots.

One step at a time

Challenger Construction President Brian Bahr exemplifies today’s savvy but prudent residential builder.

Like a number of other local builders who didn’t get in over their heads financially, he has been able to capitalize on a down market.

“We’ll be interviewing for another full-time sales person this year,” said Bahr, who builds in eight neighborhoods throughout the city. “In fact, so far we’ve sold more (homes) during the first seven months of 2009 than in any previous year. We’ve got 40 contracts so far this year, with two more pending.”

He said his company also has benefited from several bank-owned distress deals and from John Laing abandoning dozens of its Gold Hill Mesa lots last year.

“What we’ve tried to do is to pick up land and get costs down so we could compete with short sales, foreclosures and existing homes,” he said. “Most lots are discounted 15 to 20 percent from the highs of two years ago.”

Bahr is building entry level homes at communities like Spring Creek and at Stetson Ridge Park, but he also is working on a home that will cost about $500,000 and another one close to $1 million.

“People still want new houses,” he said.

One Response to Builders down, but not out

  1. Well, dammit, if we just had a new rugby stadium, that would spur more residential construction! Maybe the HBA should “prime the pump” and build one soon!

    Dick Burns
    August 14, 2009 at 11:02 am