After one of its longest and strongest expansions in modern times, the residential construction business is taking a well-earned breather. Housing starts this summer were down appreciably from 2005, perhaps not a surprise in a climate of skyrocketing energy costs, rising interest rates, and exploding international crises. New home sales were down; inventory of existing homes was up. For the first time in a very long while, some custom builders are reporting that clients are slower to sign on the dotted line. Except, that is, for the ones who are writing the biggest checks. At the top of the high end, where the rules that govern the rest of the market seemingly do not apply, the party is still going strong. According to builders who serve this privileged niche, the biggest, most expensive houses are bigger and more plentiful than ever. Is something waiting out there to trip up the high-end juggernaut, or can the good times roll forever?
New Canaan, Conn., custom builder Scott Hobbs is inclined to believe the latter. “Spec builders are nervous,” he says. “And if you don’t have quality land and quality stock, you’re very nervous.” But for his own clients, many of whom work in the upper reaches of Manhattan’s financial industry, the law of gravity seems to have been repealed. To give a sense of who he is dealing with, Hobbs refers to a list of the country’s leading hedge fund managers. “To make the list of the top 25, you have to be at $130 million,” he says. That’s annual income, in cash. And while the list contains only 25 names, a little bell-curve extrapolation suggests that many more are earning $80 million, $60 million, or $40 million in a year. Hobbs’ experience in the exclusive Wall Street bedroom communities of Fairfield County bears that out. Consequently, whatever the market at large is doing, the mood around his office is “pretty darn good.”
Does he anticipate anything that might change that? “Taxes are actually a huge issue,” Hobbs says. “The more you tax the wealthy, the less they spend on luxury goods.” The specter of terrorism also lurks in the background. The Sept. 11 attacks were aimed directly at New York’s financial center, so the threat is not at all abstract. And for those whose livelihoods depend on stable financial markets, Hobbs points out, “any uncertainty in the world is always bad.” With all the turbulence of recent years, though, “their tolerance level may have gone up.” A more immediate challenge for Hobbs stems from just how good business has been. “Everybody’s busy,” he says, including architects, the better subcontractors, and town planning boards. “Decisions, permitting, engineering—everything is taking longer. The lead time for getting a project going just takes forever.”
Down the coast in south Florida, Tom Murphy anticipates only growth for his trade in super houses. Of eight projects he has now under way, “Four of them are over $25 million construction cost. We see more of those than ever. There’s been a lot of money made in this country—and elsewhere.” Murphy’s clients include corporate CEOs, whose compensation has soared in recent years, business owners who have cashed in their chips, and jet setters from Latin America, Europe, and Asia. For clients sitting on $180 million, he explains, it’s no big deal to spend $10 million or $20 million on a house. “You spend cash, you put it away, and you’ve got a home forever.” Over the years, that logic has proven highly resistant to dips in the economy. “I’ve never seen that market negatively affected in three downturns in my career, going back to the 1970s.” Today, though, the houses are bigger. “I remember when 8,000 square feet was a big home,” says Murphy, whose biggest current residential project encloses 60,000 square feet of air-conditioned space. Business cycles, interest rates, and the stock market might affect clients a few rungs down the ladder, but “the stuff over $10 million doesn’t seem to be negatively affected. The [people with] real money, they usually won’t let any type of economic or business woe affect their lifestyle as far as housing goes. They’ll let the boats go or the airplane go, but the house sticks around.”
It may come as no surprise that an international market like Miami can support a thriving top-end business, but so can a more insular environment. Ryan Deppen works in the rarified skiing enclave of Telluride, Colo., where a sense of remove from the outside world only adds to the attraction. “People feel a little sheltered here,” Deppen says. It is a statement that might apply to high-end builders as well as their clients. “We’ve all heard about the housing bubble, and that just doesn’t affect us here. A lot of the economic factors we see around the country are not as much a factor in a resort like this.” Deppen is assistant project manager at Overly Construction, whose projects range “anywhere from 6,000 to 10,000 square feet, anywhere from $450 to $600 a square foot. There’s some higher-end stuff we’ve done, around $800.” And demand remains steady, through good times and bad. “This is money that just isn’t susceptible to the stock market,” Deppen says. “It’s been so busy. A lot of contractors are going into the business because there’s so much work.”
