Builders, developers take stock of market downturn

Whenever people, or companies for that matter, go through a traumatic experience, it is hoped that we come out of it somehow changed for the better.

We hope that our difficult times teach us something valuable to help us avoid such experiences in the future.

Builders and Realtors have certainly suffered during the past year so we felt it would be valuable to ask some of them what insights they have gained and lessons they have learned during 2009.

Their answers were interesting and enlightening.

"2009 gave Smykal Homes the time and perfect opportunity to carefully examine all of our new home product lines for even more efficiency and cost effectiveness," said Peggy Taheri, vice president of sales and marketing for Smykal Homes.

"We paid rapt attention to the marketplace and sought feedback from present and past clients.  We refined, retooled, and added new plans to our portfolio.  In a leap of faith during a difficult year in our industry, we built newly designed plans as spec homes in order to successfully compete with the resale market. It was an aggressive stance for 2009, but served our bottom line well. As an added bonus, we'll be able to start 2010 with a portfolio of fresh new plans that the sales staff is excited to promote."

At Lexington Homes, principals are looking to the future.

"Moving forward, the key to any community's success will be its location and value. In addition, the success of builders will be pinned on their understanding of the local real estate market, who their buyers are, what kind of homes they want to live in, and how much they're willing to pay for these homes. With this knowledge, builders will be able to maximize the perceived value of their communities within specific marketplaces and genres," explained Jeff Benach, co-principal of Lexington Homes.

Donald J. Smyczynski, president H&D Enterprises Group Inc. in Naperville will take with him this valuable bit of knowledge:

"The best place for a builder to be in the future is infill sites near transportation (train stations) and within walking distance to shopping and restaurants with prices appealing mostly to first-time buyers. These types of developments typically have about 70 percent first-time buyers along with single people and some move-down buyers who have lived in a particular town for years and do not want to move away."

Bob Lewandowski, partner with R. Franczak and Associates of Des Plaines, said, "First, in this climate it is very important to have a strong and solid reputation as a builder," Lewandowski explained. "I mean a builder that is not involved in a lawsuit or a problem with their customers, has a good reputation for customer service and quality construction.

"Next, one of our best attributes is that our communities are in great locations, and are transportation-oriented developments. I think that many of the failing projects or ones who have been lost to the banks have happened because they were marginal projects to begin with, in locations that people would wonder - why should I live there?" he said.

"We have also found that having a quality finished product that presents to a potential customer well is really an exceptional attribute," Lewandowski continued.

"Finally, we have found that the willingness to negotiate with people is important -- negotiate on price or upgrades whatever the reason to make the sale -- especially if it's a cash deal. Just sitting down and negotiating is a good thing, especially if it is a new product."

Chris Naatz, Midwest area director of marketing for Pulte Homes, has learned that "being a national, publicly held builder means a lot because people know that we have financial strength and that they are dealing with a well-established brand and that gives them a sense of confidence.

"As consumers, whenever we buy anything, we associate quality with the strength of the brand," he explained.

Naatz has also learned that there will always be a demand for new homes. "The American dream endures because it is deeply rooted. If people are not buying today, they are thinking about buying tomorrow so you can't focus just on the moment. You have to plan for the long-term because there is pent-up demand out there."

While planning for that future, Naatz said builders need to keep in mind that buyers don't always want to buy the biggest house they can afford. They need to constantly seek out new locations for communities and revise their plans. And since affordability is very high in the market now, they need to have the most attractive designs on the market in which they are competing.

Pulte has also learned that the ability to personalize a home is what helps new construction compete with existing homes, so they are allowing their buyers more choices.

Mark Thomas, president of Shodeen Residential, recently observed that "builders who were caught long on land with big balance sheets when the housing down-cycle hit are the ones that have suffered the most in the current economy."

"We, the builders, have learned to do more with less," said Andrew Konovodoff, president of Town and Country Homes. "Less people, more work. A lot of cross training was forced on all builders instead of them pursuing cross training as a matter of training protocol.

"I learned the value of being a cheerleader since associates in the business have worked for the last 41/2 years in a tough market environment and they are fighting to survive and it's my responsibility to make it a better place," he continued.

Konovodoff also admitted that it is a mistake for builders to overextend themselves in an effort to become the biggest in the shortest amount of time. "The race to the top ended as a race to get small.  Land control was king for many years. The more you had, the stronger you seemed. Then land values dropped dramatically and the race to dispose of land was on," he explained.

"We used words like impairment, mothball, and option walkaway, when we found out that downturns are not always two to three-year cycles. We thought the market would get better and when it didn't, some of us were not prepared," Konovodoff admitted. 

Finally, he said, "The consumer drives the market and builders need to understand what buyers want. The market changed to wanting efficient, value-based, affordable homes and we reacted to that instead of being proactive and getting ahead of the trend through surveying the buyer etc."

Thomas Molidor, president of Molidor Custom Builders, Inc. of Clarendon Hills, has learned some powerful lessons that he will take with him into the future.

"I've learned that if you're loyal to your suppliers and trades they will always be there for you. It's called common sense. Unfortunately, not following this basic philosophy has caused many builders to go out of business," he said.

"I've also learned that clients who constantly ask our trades to lower their price end up getting what they pay for. Our suppliers and trades have families too," Molidor continued. 

"I've learned that I am nothing without my superior trades and suppliers. That's why I call them teammates," he added. 

"Finally, I've learned that if you have a good product at a good price, it doesn't matter how bad the economy is. That's why we've been successful building the last two years," Molidor concluded.

Over at J. Lawrence Homes, President John Wozniak agrees that companies should value the human element.

"Relationships matter. Our employees, the people we have served as customers, the vendors, trades, mortgage companies and banks all have to work closely together to remain successful in a difficult environment. We are very focused on our relationships," Wozniak said. "We adjusted our products and pricing to the changing market. People continue to buy homes that best fit their life, not just for the investment. We offer the ability for customers to make the home their own at an affordable price."

J.P. Sanavaitis, owner of Northwest Construction of Forest Park, said, "I believe builders have learned to run leaner and to look at their operations as a whole, and not as independent parts - sales, construction, acquisition and development. Also, we know that potential homebuyers are in a bind. They are looking at smaller, more efficient units with the best quality and less frills."

The former executive vice president of the New West Realty Group Construction LLC, Sanavaitis has purchased the construction firm from New West Realty and relaunched it under this new name.

"Builders are multi-tasking their work force and integrating systems to combine the skills of the workers. Smart builders are removing the layers of management and having the project managers control the entire project from start to finish. Then, the project manager is the single source of knowledge and coordinates the team as one.

"Definitely there is no more staff. Now we do it ourselves. We look at deals that make sense today. Our costs have to be controlled more than ever. In reality we have to do good and proper business everyday just to stay in business. There is no room for error.

"In the future builders need to move slowly and make a plan. Follow your plan, but be flexible to change with the market. In short, be ready for the next trend. Do not be left standing waiting for the train to start. Get on board before, and help the train get started. Those who will succeed are making plans now, setting things in motion. A successful builder may be quietly doing planning and preparation work, but he is setting up the foundations for success. Others who are still in crisis mode will be six months to a year behind once things start to change."

LaRue Agresti, president of LaRue Design, Inc. of Geneva, had a colorful, but practical, response, "The phoenix from the ashes of the downturn will be an evolution to more sustainable and practical home designs and interior decorating materials."

"You can't control everything about your business and there is no point in beating yourself up about those things you can't control," said Alan Lev, president of Belgravia Group which builds condominiums in Chicago.

"Ours is a free marketplace system so no one builder can control the amount of overbuilding that is done in a market," Lev explained. "There is no one who can tell a builder, for instance, that he can't build on a piece of land because there is already too much competition.

"So the market has to correct itself as it is doing now," he continued. "There will be a day when we are building again, but I think that builders will have a longer memory about the potential risks after this recession.

"I sensed three years ago that something bad was coming. I could see the oversupply in the Chicago condo market so I tried more aggressive budgeting and I haven't started a new project in the last three years. We are still finishing up projects we started before that," Lev said.

"I think that rental properties have turned out to be less vulnerable to tough times and I will remember that in the future," he concluded.

"I am sorry for all of the builders, trades, suppliers, and all of their families that are no longer in business because of this recession," said John Hall Jr. of John Hall Homes. "Usually a recession clears up a lot of the bad; this one took a lot of the good, too!"

Mike Venetis, vice president of sales and marketing for Bigelow Homes based in Aurora, had some interesting insights.

"Whereas homebuyers, even just a couple of years ago, viewed the purchase of a foreclosed home a very risky venture that should only be attempted by a professional real estate investor, buyers now think they are not getting a good deal unless it is a foreclosed home that they are purchasing," he lamented.

Furthermore, he said, buyers assume that all sellers are desperate and therefore ask for the world when putting in an offer. 

Finally, he added, "many potential homebuyers don't realize that just because they were told by a mortgage lender a year or so ago that they qualify, (they) no longer qualify.  In fact, many buyers think that because many sellers are desperate to sell, it will somehow be easier for them to get a loan, as if the seller has some pull in the buyer getting a loan."

Diana Ivas, real estate broker associate with RE/MAX Elite in Hinsdale, said, "As a real estate broker working with many sellers trying to sell their homes at a very difficult time, we have learned that homes have to come on the market with realistic prices in comparison to what recently has sold.  2006 prices are no longer valid and wishing for that to return is just not going to happen. If you want to sell, your home has to look pristine and be priced at today's fair market value to get anything to happen. And with that said, patience is still the key!"