Madison Business: Digging Out

As Parade builders shovel their way out of the recession, they describe dramatic shifts in the way they do business

Jennifer Acker, vice president of Acker Builders

Jennifer Acker, vice president of Acker Builders

Throughout Dane County’s construction boom of the past fifteen years, Acker Builders maintained a half dozen model homes at a time. Now they have two. In those heady times, the Ackers started work on up to forty-five homes a year. Since things began slipping in 2007—crashing in earnest in 2008 and 2009—that’s dropped to fifteen or twenty.

Jennifer Acker, whose father and grandfather founded the Waunakee company four decades ago, doesn’t mince words in describing how the recession pummeled her family’s business. “It was a big drop … a dramatic slowdown.”

But as the Parade of Homes, the area’s signature annual event for homebuilding and construction, approaches this month, things are looking better. At least a bit.

“I think we’re on the way up,” says Brian McKee, president of Madison’s Midwest Homes, which has a 2010 Parade home in Verona’s Scenic Ridge neighborhood. “We’re seeing more people going through the models and more people calling about lots.” McKee says interest is coming both from people who have been sitting on projects for a year or two and market newcomers.

“Things are improving,” agrees Perry Sanoy of Deerfield’s Sanoy Roofing & Construction, which makes its Parade debut this year in Deerfield’s Savannah Parks neighborhood. During the recession, Sanoy has relied on roofing jobs and, as a licensed real estate agent, sales of existing homes.

Stormy Weather

The downturn was “blindsiding,” says Mike Vilstrup, president of TimberLane Builders in Cross Plains, who has a modest 2010 Parade home in Verona’s Scenic Ridge neighborhood. “Nobody could have predicted it.”

Painful choices builders faced over the past two years included staff layoffs, forgoing model homes for sure projects with signed buyers, falling back on related work like remodeling and roofing and stomaching deep cuts in their profits to capture, with previously unheard of lowball bids, whatever work was out there.

It’s easy to see why. There were just 606 single-family and duplex home starts in Dane County in 2009, down from a peak of more than 2,500 in 2003. In the past two years, as foreclosures hit historic highs and sales stalled, homes sat on the local market an average of 7.5 months in 2009 and 8.5 months in 2008—nearly twice as long as in 2005, when the typical home sat on the market for 3.8 months. Federal tax credits that spurred sales helped bring down the average on-market time a bit in 2009.

And many firms have been permanently shuttered. MABA membership is currently down to 125 from a peak of 160 in 2006.

Acker says her firm weathered the downturn by sticking to a niche her father first targeted forty years ago—single-family homes priced today in the $250,000 to $800,000 range. “Not mansions,” she says. “We’ve never built the biggest Parade home. We’ve always been conservative.”

Justin Temple, vice president of Temple Construction, Inc., says while business has been down twenty to twenty five percent over the past two years it never completely halted. “We haven’t seen the faucets turned off. The market hasn’t gone away,” he says. “It’s just taken a step backward.”

Signs of Improvement

Last winter, builders were gloomy. But as spring took hold their outlook improved. Vilstrup had accepted an offer on his 2010 Parade home, and his monthly home showings as an agent were outpacing 2009 by tenfold. Local developers, he adds, were reporting a surge in interest in vacant lots and building permit issues were up. “I’m more optimistic,” he says.

Abe Degnan, president of Degnan Design Builders, Inc., in DeForest and current president of the Madison Area Builders Association, remains “guardedly optimistic” about the remainder of 2010 but is seeing some light. Federal homebuyer tax credits have helped. “Things are definitely no worse and possibly a little better than when we first spoke [in January].”

“We’ve seen a little bit of a surge,” agrees McKee, but he predicted 2010 growth will be “slow and gradual. We’re not going to see a spike.”

These local predictions are in line with the National Association of Homebuilders, whose chief economist in January predicted a thirty-eight percent increase in single-family home starts in 2010 over 2009. Still, everything is relative. Nationwide, the 610,000 homes on which construction is expected to begin in 2010 is far below the 1.7 million seen in 2005. The hole to be dug out of is a deep one, McKee says. “This has been a lower low spot than we have seen in many years.”

Middleton builder Loren Imhoff, a longtime Parade participant who is sitting out this year’s event due to the economy, says as the spring progressed he was able to intermittently call back some of the six staff carpenters he laid off in 2009, out of a total staff of sixteen. But he couldn’t offer them any long-term work. Contrast the current market to five years ago, a time when Imhoff says he was building three or four houses concurrently while performing at least one large remodel. This past year he built one or two at a time, “and we’re grateful for that.”

Lately Imhoff says he’s been doing remodels and smaller jobs like replacing windows and building decks and porches. That flexibility has made all the difference. “We’ve always been pretty diversified. We feel pretty good about what we’ve been able to do, to stave off a dire situation.”

Rethinking Luxury

For MABA, a non-profit trade organization founded in 1947, the worst may also be over. In 2009, as the economy hit bottom, the Parade of Homes drew just fourteen builders. This year’s twenty-eight—who are each allowed one Parade site—are in line with numbers seen between 2000 and 2008. Pointedly absent, though, are the massive luxury homes Imhoff and others contributed as recently as three years ago. In those events of the recent past, an opulent home in Madison’s Blackhawk neighborhood, built by Middleton’s Hart DeNoble Builders, topped out at 7,300 square feet, and some price tags soared above $1 million. Publicity at the time touted five-car garages, two-story-high foyers and twelve-foot ceilings. “Nobody has built a Parade home like that since 2007,” Degnan says.

In an era of tight credit, where it might be possible to secure financing for only one project at a time, builders say they can’t risk entering a home in the event that they’re not sure would sell quickly. Case in point: A 2005 Parade home Imhoff built in Oregon’s upscale Bergamont neighborhood notoriously sat on the market for four years.

These large-footprint homes, dubbed McMansions by eco-sensitive critics, came onto the Parade scene “really quickly,” says Temple, first topping 6,000 square feet around 2005. Then, “all of a sudden, that market came to a screeching halt.” This year, Temple Construction is responding to the downsized climate with a 5,300-square-foot home in Waunakee’s Southbridge neighborhood.

Says Degnan, this year’s Parade lineup features more family spaces than showplaces, affordable to “the broadest spectrum of buyers.”

But while they may not be spacious jaw-droppers, the 2010 Parade entries aren’t exactly shabby inside. Embracing another recent movement away from gargantuan great rooms and soaring entryways, today’s trendy house tilts toward being smaller yet loaded with high-quality features like wide-plank hardwood floors, granite countertops, audio systems, high-end appliances, built-ins and custom millwork.

The recession “really changed people’s perceptions of what they want in a house,” says Temple. “It’s not what they wanted two to three years ago. That’s what a bad economy does—it makes you step back.” Credit restrictions and general financial limitations are causing buyers to stick—tight—to their budgets. “They’re saying, ‘What can you build for me for this price and I’m not going over that,’” Acker says.

But with their more finite dollars, buyers are choosing quality over quantity in a way that wasn’t happening before the recession. “They’re saying. ‘I don’t want cheap cabinets and cheap flooring just so I can have a thousand more square feet in my house,’” says Temple.

Priced around $650,000, Acker’s 5,000-square-foot, amenity-packed New England cottage style Parade house in Waunakee’s Southbridge neighborhood is “what people are looking for now,” she says.

And unlike in the past, most Parade homes are already sold—a dramatic shift reflecting the stark reality of tighter bank credit, which leaves builders less able to build speculative model homes. As a result, many of the homes had signed buyers before construction even began. Financing is no longer a given for buyers or builders. In the past, Sanoy says, “I had a huge line of credit. I would go out and find a lot and close within a few days. If it looked like a viable project there were no questions asked, it was done.” Now the same process can take a month. “It’s totally different. There’s more red tape, more paperwork.”

Builders note that for buyers who have the money and good credit, now may be the time to act. As the economy improves their historically low prices will go back up. “We’re at the bottom. If people want to take advantage, now is the time,” Sanoy says.

It remains to be seen whether this is a watershed year, whether Dane County will ever see a return of the lavish Parade homes of the last decade. If, for instance, in future years that high-end segment of the market sees a local resurgence, so too will grander homes reappear in the Parade, says Degnan. “I think the Parade of Homes is going to mirror what is happening in the industry as a whole,” he adds. “If consumer demand returns to the larger and more expensive homes I think we will see that happening in the Parade.”

Find more information on the Parade, set for June 12–27 at five sites in Middleton, Verona, Waunakee, Deerfield and the town of Bristol, at maba.org.

Karyn Saemann is a Madison-based freelance writer.

Urban Renewal

DeAngelo Jackson and Charles Harris picked just about the worst time to start a commercial construction firm. Three recession-battered years after founding Urban Construction Administration in 2007, “We’re still here,” says Jackson. “We stuck it out. We’ve been strong for each other.”

Nationwide, commercial construction was down twenty-eight percent in 2009 and was expected to continue to decline in 2010 before beginning to pick up again in 2011, according to the economic forecasting firm IHS Global Insight. Here in Dane County, things were down, but not as sharply. According to Reed Construction Data, an Oak Brook, Illinois, firm that tracks industry trends down to the local level, Dane County saw $232 million in commercial construction in 2009. That’s down 4.6 percent from 2005, a year when many other economic indicators peaked and Dane County saw $243 million of commercial construction.

(The area’s housing drop-off was much more dramatic, Reed Construction Data figures show. In 2009 Dane County saw just $218 million in residential construction, a seventy-three percent decrease from $739 million in 2005.)

Now, they’re ready for the numbers to play in their favor, Jackson and Harris say. On a whiteboard in their tiny office in the Genesis Enterprise Center, a business incubator in south Madison, projects marked with a “yes” indicate a signed contract. Jackson, the firm’s president, and Harris, vice president, say they’re on track to realize $2 million in sales in 2010, four times their 2009 sales of $500,000.

“This is going to be a critical year,” Harris says. With credit still hard to come by, financing “is going to be the biggest hurdle.” The two say they survived the recession with the help of mentors, government programs for small and minority-owned businesses and by sometimes drawing from their own personal pocketbooks. They low-bid jobs just to get them, knowing “the profits wouldn’t be there,” Harris says.

Still, their recently completed work is impressive: a city of Madison fire station, apartments in the Allied Drive neighborhood, and the Urban League of Greater Madison’s striking new headquarters on South Park Street. They’ve also recently been certified by both the Wisconsin Housing and Economic Development Authority (WHEDA) and the state Department of Transportation to work on projects statewide, from low-income apartment buildings to bridges to rest stops.

Jackson, whose background is in masonry, says he would like to give back by mentoring other young minorities in commercial and residential construction, which he says is, in general, “a good-paying industry.”

– K.S.

Bites on the Bottom Line

Municipal taxes and fees have compounded residential construction woes. At the same time the economy was sinking, builders saw a historic increase in local permit and other fees. In some municipalities a building permit now costs twice as much as it did five years ago, says Michael Vilstrup of TimberLane Builders. And many code requirements have become more stringent, increasing the costs, which are passed on to buyers. – K.S.

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