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Published: 8/7/2011 - Updated: 9 months ago

Local builders' ranks thinned

Survivors of recession found ways to cope, innovate

BY JON CHAVEZ
BLADE BUSINESS WRITER

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Brian McCarthy, owner of McCarthy Builders Inc., has carved out a strong reputation since 1988 as local builder of villas and townhomes and a developer of popular subdivisions.

But his most recent developments, including the Riverbend subdivision in Wood County's Middleton Township near Perrysburg, were pre-made -- he acquired them out of receivership from other builder/developers who fell into the financial abyss over the last five years.

"When the slowdown hit, it was just like somebody shut off the faucet -- and it wasn't just here. It was everywhere," Mr. McCarthy said of the 2007-2009 recession that devastated the Toledo area's ranks of custom home builders.

Their numbers have shrunk to perhaps 60 from as many as 165 in 2005, said Jim Moline, a former president of the Home Builders Association of Greater Toledo Inc. The trade group said it does not have past membership numbers.

"I think there's some guys who are doing pretty well now, but that's partly because there's a lot less guys out there to compete with," he said.

National figures tell the same story. In 2001, membership in the National Association of Home Builders was 203,000. It has plunged by 43,000.

The local attrition stemmed from a slowdown in the new-home market that began in earnest in 2006, skidded nearly to a stop in 2007, and stagnated in 2008 and 2009.

Housing starts in 2009 were the fewest on record for the Toledo area's home-building industry, with home construction in the combined area of Lucas and Wood counties and Michigan's Bedford Township falling 40 percent from 2008 and averaging just 25 a month.

Tim Schlachter, a 20-year home-building veteran and 2005 president of the HBA, who was project manager for the Extreme Makeover: Home Edition house in Toledo's Trilby area, was among the builders who got out of the business at the start of 2009.

"The Extreme Makeover home was my last project. Not a bad way to go out," said Mr. Schlachter, who sold his half of Buckeye Real Estate Group to his partner, Mike White.

Last year the former builder became a loan officer for Fifth Third Mortgage.

Several local builders whose businesses survived the 2006-2009 doldrum said they did so in a variety of ways, including changing their business models and pursuing alternative work.

Most prepared for the downturn through a basic maneuver: keeping their debt extremely low.

Mr. Moline, of James E. Moline Customer Builders of Sylvania Township, was among those with low debt in 2006, having learned in the late 1970s and early '80s. "The best thing that ever happened to me was I went through the late Jimmy Carter and early Ronald Reagan times. I realized the party never lasts forever and I tried to keep my debt low and balance sheet high," he said.

"Bank clauses say they can come in and take everything. People thought, 'Well, that will never happen,' but it did," he said.

Another tactic was conservative borrowing. A bank offered him loans for a subdivision and an office complex as the recession began.

"They said, 'You're strong enough to do both,' but I didn't want to do that so I walked away from the office complex," Mr. Moline said. "Maybe that saved me. Who knows?"

Mr. McCarthy said he too was scaling back his Sylvania Township business in 2006. "Fortunately, when it all stopped we didn't have any debt. We were able to scale down our operations and weather it," he said. "At the time 90 percent of the homes we were doing were presold."

Other builders he knew, he said, had built homes without buyers and had purchased vacant land without customers, so they had a hard time paying off their debt when demand stopped suddenly, he explained.

Tom Bogdan, Jr., of Village Building Co. Ltd. in Sylvania Township, who is the current area Home Builders Association president, said he survived the recession on his reputation for quality work and customer service, which generated repeat business and referrals.

But he also began doing commercial work, renovating office buildings as a way to generate extra income.

Steve Melman, a National Home Builders Association economist, said Mr. Bogdan's renovation strategy was a common one for builders who survived the recession.

"Close to 60 percent of single-family builders have moved strongly into remodeling. Diversification is a way to survive," he said.

Todd Berman, of Berman Building Co. in Sylvania, who builds in the $200,000 range and up, was among those who diversified years ago into remodeling and renovations.

When the recession hit, he shifted into restoration projects and construction of vacation homes on lakes in southeast Michigan.

"We have built houses on Lake Diane, Devil's Lake, Clark Lake. Those have been great business for us," he said.

Mr. Melman, the economist, said another tactic builders have used to gain a competitive advantage is offering upgrades on appliances and other optional items at no charge. "Those are the kinds of things you could do without redesigning the whole home," he said.

Some builders paid closing costs to help first-time buyers afford new homes, some got rid of high-priced lots, and still others cut staffing.

"We had stories of generational builders laying off family members. It was awful," Mr. Melman said.

Bill Decker, of Decker Homes in Lambertville, was one who cut staff, to three from eight. Some of those laid off had worked for him more than 15 years, he said.

"We didn't do that right away. We made the cuts at the end of 2008, probably later than we should have but we didn't want to do it," he said. "Now we are surviving and we look forward to increased sales this year in the second half [of 2011]."

During the recession, Decker Homes also touted its energy-efficiency building techniques and focused on a full-service strategy, helping customers arrange appraisals and financing.

Michael Dean, of Michael Development Ltd. in Toledo, said he survived partly by focusing on building houses on contracts in the $500,000-and-up range.

"Even though there was more modest demand, there was demand there. That helped," he said.

Still, his sales dropped almost 50 percent by 2009, and he now figures he is doing only 65 percent of the business he was prior to the recession, which ended nationally in mid-2009.

A marketing strategy he said worked was participating in the HBA's annual Parade of Homes. His showcased houses were presold and finely furnished, allowing him to demonstrate his building abilities, he said.

Jerry Miller, vice president of Miller Diversified Inc., a Maumee commercial property developer, said the recession shut down most commercial work in the Toledo area.

To survive, his company sought work in Detroit and Houston.

"The work is out there, you just have to go a lot farther to get it," he said.

Subdivision developer and commercial builder Jim McGowan, of McGowan Properties of Toledo, said his survival strategy was restructuring his existing buildings and properties because no new building was occurring.

The recession prompted him to lower his rents in some places, and that let him refill many of his vacant commercial spaces.

He used the same strategy for his subdivisions where lots had gone unsold.

"It's a new world. Everything has lost 30 percent of its value. We've reestablished a whole new price range and pricing for our lots," Mr. McGowan said.

"We've got a lot of lookers now. We have people looking for new space."

But no one wants to pay prerecession prices. "If you were selling lots for $115,000 in 2005, they're probably now $65,000 and $70,000," he said.

Contact Jon Chavez at: jchavez@theblade.com or 419-724-6128.

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