When asked how the events of 2008 have impacted the building industry, David Roewe, executive director of the Building Industry Association of Clark County, was succinct:
“It was the year that nobody wanted it to be,” he said.
Indeed, you couldn’t throw a rock this year without it landing on a builder who had seen better days.
Membership for the BIA dropped 8 percent this year as residential builders tightened budgets and some went out of business, Roewe said. The Southwest Washington Contractors Association saw a “significant increase” in residential builders bidding on public sector jobs, said Trent Rehfeldt, SWCA’s incoming president and chief executive officer of Vancouver-based Rehfeldt Construction Inc.
Builders who remain to grit their teeth through 2009 will likely be those who have diversified and aren’t buried under debt. But they will likely face a tight market with tougher financing restrictions, clients that are slower to spend and increased competition as some homebuilders cross over into remodeling, commercial, industrial and public projects.
“(2009) will be a pretty good year,” said Mark Philip, owner of Vancouver-based Philip Custom Homes. “Not a jump up and down and go on a cruise to Europe year, but positive.”
The trouble with financing
There’s no getting around the connection between changes in the overall building industry and financing troubles for residential real estate.
Jerry Nutter, president of Vancouver-based Nutter Corp., expects financing to be a challenge for commercial and industrial projects.
“Banking and financial institutions will be tougher to their lenders and that affects anybody building a house or commercial project,” Nutter said. “We’re going to make sure the rules get followed exactly, whereas in the last few years things could get lax because things could flow easy. We have to be a lot tougher on our contracts.”
“Financing has really changed our industry in a variety of ways,” Philip said of the residential side.
That’s especially the case for builders waiting for new homes to sell on multiple lots.
“Those are the guys giving back all the money they made in the last five years,” Philip said. “Generally builders can survive heavy (speculative) construction if they’re savvy. … (But) the land is the biggest alligator of them all.”
Overall, construction financing is harder to secure these days unless it involves conservative down payments and highly qualified buyers, Philip said.
“But all the other loans that make up what our (residential) business has been about for the last several years – those have changed dramatically,” he said.
The commercial side
In 2009, Nutter expects an industry-wide slowdown with more builders folding. Those remaining will likely be ones who “saved money and didn’t spend it – people doing a good job with a fair price” who don’t put their eggs one basket, he said.
“The people who aren’t diversified, that’s where you have a lot of issues,” Nutter said.
His company does commercial, public works and industrial projects, along with some residential work.
Rehfeldt expects 2009 to be a tight year with plenty of surprises.
“We have a good base of backlog on projects from 2008 that will spill into mid-2009, however we don’t know how things will progress in 2009,” he said. “We expect a reduction in speculative construction projects until at least the third or fourth quarter.”
Because of the expansive timeline of many non-residential projects, contractors such as Nutter expect to get a clearer view of the year when looking back on it.
“The best way to put it is that a year ago about 70 percent of our work was private work and 30 percent was public contracts,” said Lisa Schmidt, who handles internal company development and marketing at Nutter Corp.
Today the percentages are reversed, “which tells you where the dollars are,” she said.
“I wouldn’t say (it was) business as usual,” Nutter said. The company stayed busy, but had to work harder and shift focus to maintain that pace.
A natural course of events?
“The slowing down of the housing industry this year was to be expected,” said Philip, who has worked in the residential industry for more than 20 years.
“Really, it’s unfortunate, but we staved off a typical housing slump that should have occurred in 2000 or 2001. When the financing got so creative in the last few years it accelerated things and made the fall that much deeper.”
Roewe said the industry has changed significantly since 2006 when “everybody was a homebuilder” and “if you had a station wagon and a hammer you were a contractor.”
“Those that probably shouldn’t have been in business probably aren’t any more,” he said.
That includes those who weren’t doing quality work and quality craftsmen who lacked business savvy.
“It’s time for the law of the survival of the fittest,” Roewe said. “They’re becoming better business people, those that are left, because they have to turn a profit.”
Increased competition is an added challenge as residential builders put bids out for commercial and government projects.
“We have seen this in the past,” Rehfeldt said of the crossover. “Typically the market levels itself out, however it makes things a bit off kilter from what we are accustomed to until it does.”
Roewe expects markets to come back to normal by April with a new president in office and congressional action to encourage financial institutions to release funds.
He also expects legislation that will increase licensing requirements for contractors “so you can’t go bankrupt and start a new business the next day,” he said.
Because a remodel can be easier to finance, homeowners who might have considered building new a few years ago are more now likely to consider renovations. So much so that Philip expects home remodeling to comprise 30 percent of his upcoming work – it used to bring in 10 percent.
Once people get cozy again with the idea of building new homes they’re likely to be more frugal about it, Philip said.
As an example, he said, three years ago a family might have had enough financing to go 10 percent to 20 percent over budget on a new home.
“Somebody who wasn’t considering it might (have) put in a swimming pool,” Philip said. “Next go around, people under the same circumstances might say it’s an extravagance.”
2008 NEW PROJECTS OF NOTE IN SOUTHWEST WASHINGTON
Highway 99 Bridge, Salmon Creek, Ostrander Rock and Construction Co. Inc.
Washington State University Vancouver undergraduate classroom building, Triplett Wellman Construction
LEED-certified Cascade Square remodel, Vancouver, Redside Development
Washington State School for the Blind Kennedy Fitness Center, Vancouver, Corp Inc. Construction
Custom Manufacturing Facility, Woodland, Coyote Commercial Construction
Battle Ground Community Library, Fort Vancouver Regional Library District, Gold Metal Group
Hazel Ridge Townhomes, Hazel Dell, Persimmon Development Group
Heritage Plaza, Vancouver, RSV Construction Services Inc.
Agave Jeans headquarters, Ridgefield, RSV
LEED-certified Columbia Credit Union at Grand Central, Team Construction
Washougal Transfer Station, Larry O. Collins Inc.
MAJOR PROJECT THEMES:
• Conservation of financial and material resources
• Use of local and “green” materials
• Remodels instead of new construction
• Smaller building footprints
Charity Thompson can be reached at cthompson@vbjusa.com.
