COVER- Survival of the fittest: Adapting, evolving, <i>thriving</i> in a rough housing market
The past 18 months haven't been pretty in the housing market. The mortgage crisis spawned ballooning listings, foreclosures, bank collapses, job losses– in a word, it's been rough. Rough for homeowners, rough for builders, rough for realtors. But as the dust clears– as a few signs emerge of better times ahead– the owners of these local businesses say they believe they're in prime position to help themselves and others take advantage of the new environment. From a builder who was forced to lay off all his employees and almost closed his doors to a group of realtors determined to shake up the status quo to a UVA grad who's found a way to squeeze some cash-flow from empty houses and burdensome mortgages, there's a lesson here for everyone: if you adapt, you can survive, even thrive. If you don't, well, you know that old Darwin theory...
Incredible shrinking builder
About halfway through 2008, Mike Sadler could see the writing on the wall. New home construction was stalled, and Sadler's company, Jefferson Area Builders, which had been clipping along at 20 new houses annually, had only two on the books for the remainder of the year.
"We didn't have any jobs coming," Sadler recalls. He waited, hoping things would turn around enough for him to retain his staff of 10, many of whom had worked for him for years, but by November, he was left without happy options.
"I gave them until the end of the year," says Sadler, who started the company in 1984. "It was a horrible decision to make."
He considered closing the business down entirely, but decided to hang on to his office space and keep the phones connected in the hope that they'd start ringing again.
"I've been through hard times before," he says, "but nothing like this."
With one employee agreeing to stay on, sans paycheck, Sadler sat back and waited. His gamble paid off.
"By the end of January, I decided we could make it," says Sadler, who says Jefferson Area Builders now has two new houses and six renovation projects underway.
How did Sadler avoid bankruptcy or closure when other formerly powerhouse companies, such as Church Hill Homes and Hauser Homes, were falling like flies?
"I didn't have any spec houses or land inventory," says Sadler, which meant "I could withdraw, reorganize and then come back. Other builders had too much inventory, they got too far extended. It did a lot of them in."
Vance Stallard, who had been a Jefferson Area Builders employee since 1994, is now a subcontractor who doesn't receive previously offered Jefferson Area Builders employee benefits– health insurance, cell phone, company vehicle. But with work picking up, Stallard's glad he stuck around.
"I feel some optimism," says Stallard. "We're getting jobs."
Other ways Sadler's saving: he's not advertising, but is instead relying on word of mouth and his reputation built over decades in the business. That reputation, says realtor Todd Hawkins, will help him through.
"A lot of people talk about the Golden Rule; Mike lives it." says Hawkins, who used Jefferson Area Builders for his own house.
Sadler says that while the company is leaner– he expects to do about $1.5 million in revenue this year, compared to the $5 million he'd previously expected annually– the future looks brighter than it did a year ago.
"We're just trying to conserve until we make it," he explains. Halfway through 2009, he says, "I feel really good about making it. My chest is not as tight."
Living inside a cash cow?
When big UVA weekends roll around– parents' weekend, graduation, homecoming– most people picture the crowds, the long lines at restaurants, the traffic. Sitting at home on Jefferson Park Avenue on one such weekend in 2004, Gordon Sutton was aware of all those things. But rather than feeling annoyed, he pictured something else, something he wanted more of: money in his pockets.
Sutton– a 2001 UVA grad who'd just returned to Charlottesville after living as a "ski bum" for three years in Wyoming– tested out his brainstorm: to offer his own recently purchased house for rent on such busy weekends, giving visitors to Charlottesville a comfortable place to stay and himself an easy additional income. By posting a listing online, he got several offers. Before long, he was arranging for friends to do the same thing.
Five years later– after earning an MBA using his concept as his main research project– Sutton's idea has become a full-blown company known as collegeweekends.com. He offers properties for rent not only in Charlottesville but in college towns across the country, including Tuscaloosa, Alabama; Gainesville, Florida; and Boulder, Colorado.
While the housing slump and general economic despair that's blanketed the country have been devastating to most home related businesses, for Sutton it's helped build demand.
"There are a lot of people that, unfortunately, are financially stresed with mortgage payments," says Sutton. "This is a really great option for these people to rent their property out."
The premise is simple. Sutton charges property owners an annual listing fee of $229. That gets photos and a description online. Visitors to the website can see the price, location, and which weekends the house is available, then contact the property owner directly. Prices typically range from $300 to $750 a night, depending on location and size. All properties are furnished, although some are primary residences requiring that occupants temporarily vacate, and some are second homes or condos that are vacant during most of the year.
Real estate agent and property manager Steven Braden says he learned about Collegeweekend.com two years ago and since then has listed not only his own Western Albemarle house but several of his rental properties.
"I've been totally pleased," says Braden, who says he and his wife were recently able to fund a getaway to New York City including gas, hotel, dinners, and even a Broadway show with the money they earned from renting their house that weekend.
Both Sutton and Braden say they had early concerns that renters might trash the house or otherwise disrespect the property. It hasn't happened, says Sutton.
"The majority of people are friends, family, and fans of University," Sutton explains. "They're coming back to have a good time but they're grateful to have a nice place to stay and have people entrust them to stay in places."
Feathering their own Nest now
When times were good in the real estate market, there was arguably no better career than real estate agent: bidding wars, way-above-assessment sale prices, and a virtually guaranteed six percent commission to be split between seller's and buyer's agents meant a sweet income for the hundreds that flocked to the profession in the early part of this decade looking to make their own hours and a pretty penny while doing so.
But those days are long gone, and they're not coming back, say the three founders of a new real estate firm launched in February, when foreclosures were skyrocketing and some were questioning whether there was any way out of the mess.
"We felt that the real estate industry was a little stale, not too progressive," says broker Jonathan Kauffman, who founded Nest Realty Group with fellow agents Keith Davis and Jim Duncan.
Kauffman, the firm's principal broker, says the three men realized that the future of real estate– as of most sales endeavors– is online, and they set out to create a website that was informative, functional, and able to put power into the hands of consumers.
While the Charlottesville Area Association of Realtors offers property searches by a variety of parameters including county, home price, or school district, the Nest Realty site goes further, allowing would-be buyers (or the simply nosy) to search by neighborhood and to get detailed information about the area surrounding each listing. That goes not only for Nest's own listings but for all the properties in the MLS.
"The consumer in 2009 wants information and knowledge," says Kauffman.
Davis, who worked in mortgage banking after college then earned an MBA in realty development, says the opportunity to build a new brand excites him– as does bucking the tendency of real estate firms to market agents along with– or even above– the properties they're trying to sell. He points to real estate signs featuring agents' faces and names as examples of this tendency. "
Duncan, an agent whose personal blog, realcentralva.com offers extensive and daily real estate analysis, says he's inspired by the approach he and his partners are taking. It extends to the firm's signs in yards, which boldly offer interior photos and have the price propped on top (the agent's name and phone number takes a smaller, lower position).
"It really goes back to, 'We're there to market the property and not ourselves," says Duncan.
But one long-time agent says he thinks those signs could be trouble. "Sometimes you change the price four times in a week," says Roger Voisinet. "It could be an administrative nightmare," he says. "They could end up being wrong."
Duncan and his new partners laugh off the concern.
"Even if things are moving that fast," Davis says, "we'll make sure the signs are changed."
Other ways Nest is differentiating: all agents will have a minimum of three years experience, and the firm is also marketing properties through new social networking mediums like Facebook and Twitter– something many traditional firms haven't yet embraced.
While Nest is seeking new ways to reach buyers and sellers, there's one way it remains similar to more traditional firms: commission. While flat-fee realty companies such as Assist-to-Sell have come into vogue in recent years offering marketing and closing services for as little as $1,000, Nest isn't straying from a commission structure, although Duncan says percentages will be negotiated individually for each client. He stresses that Nest will not allow dual-agency in which one agent represents buyer and seller. "Each side needs someone looking out for their needs only," he says.
"We're going to continue to set trends," says Kauffman. "We've got great ideas and a lot of tricks up our sleeve that we hope are going to help our clients over the next couple of years."
Sharing tough lessons
What do you do when you've gone through 18 months of housing market hell? If you're Marc Powell, former owner of Weather Hill Homes, you take the hard lessons you've learned and look for ways to spare other business owners the heartache and headache.
"There is a niche for individual builders who want to understand what I've been through, and what I can help them with," says Powell, who founded Powell Consulting Group after folding Weather Hill following a stormy year and a half of negotiation with banks over his unsold inventory.
Powell, who worked in real estate for 34 years, calls the sudden collapse of the housing market a "perfect storm" that left his company, one of the biggest, on the brink of bankruptcy. Weather Hill, as the developer of several new neighborhoods including Poplar Glen near UVA and Liberty Hall in western Albemarle, had contractual obligations to complete the developments, he explains, but when the builders who'd committed to the neighborhoods were unable to complete their projects because they couldn't find buyers, Powell says, Weather Hill was left holding undeveloped lots and didn't have the funds to move forward.
"We had to go to the banks to do 'workouts,'" he recalls, in which the bank either takes the properties back or allows them to be sold at a discount."
Unlike some other builders including Church Hill Homes, Weather Hill avoided bankruptcy, and when the process of closing down the company was complete, says Powell, "I moved forward and said to myself, what can I do in this community and share 34 years of real estate experience?"
These days, Powell says he's answering questions for clients about the foreclosure process, how to negotiate short sales, or, "If you have to do bankruptcy, what's the best approach?"
Not everyone calling Powell is in dire straights, however.
"A lot are coming because they still have money and want to know how to keep it," he says, recalling talks he had with one client whose property values had dropped.
"They had to accept taking a loss," he says. "Once they accepted taking a loss and had the bank join in, they will now live to fight another day."
Even with government incentives and rock-bottom interest rates, buying and selling a house isn't anywhere near as easy as it was a few years ago when even an unrefurbished 1950s rancher near downtown could spark a bidding war.
Realtor Julie Gee saw the frustration of one homeowner who couldn't sell two years ago. Gee stepped in to find a renter to get some money rolling in, and before long the calls were rolling in–- from other owners of empty houses. Before she knew it, she was managing 35 properties.
"I find the renters, check references, screen applicants, help them move in– not physically, but I give them all info they need," she says.
Gee, who gave her new company the easy-to-recall moniker Rent Your Home, says even if the Charlottesville market is rebounding, those moving here from other areas may not be able to buy until they unload their other house. That, she says, is building a higher demand for upscale single family homes that in previous years might have been hard to rent. In fact, she says, $1,700 a month is the average price for a four-bedroom house– enough to cover a fairly substantial mortgage. Of the 35 properties she's managing, she says, only three are vacant– and have been for less than three weeks. "They don't last very long," she says, and for that her clients are grateful.
"She does what she says she's going to do," says Dave Bowes, who uses Gee to manage a house he and wife Judy own in Ivy's West Leigh neighborhood. "She'll tell you what she needs to tell you, not what she thinks you want to hear," says Bowes, who has owned up to 15 houses at a time and currently has six across the country from Florida to California.
Knowing ahead of time what income can realistically be generated by a property is critical, says Bowes, who also praises Gee's ability to select high quality, affordable subcontractors to perform property management.
"Whenever we have to do major out-of-pocket repairs," Bowes says, "I feel comfortable when she comes back with quotes."
The one downside of Gee's booming business?
"I haven't taken a vacation," she says. "I went away last Christmas. That's it in the last two and a half years." She's not really complaining, though.
"I've had a hell of life of travel," she says, "so I don't mind. It's less stressful, easier for me not to. And the bottom line is I love my job."