Since this magazine initiated On Your Mind, the questions we’ve asked custom builders have ranged from the practical to the personal to the philosophical. In the current recession, though, as the industry’s focus narrows to matters of plain survival, we find our range of relevant questions narrowing as well: How bad is business where you are? When will it improve? How do you plan to hang on until then? Planning is a key part of every custom builder’s job, and rapid shifts in the economy have made planning both more important and more difficult than ever. As plans to increase revenue, to retire, even to maintain staffing fall by the wayside, what new plans are taking their place?
Solana Beach, Calif., custom builder Terry Wardell is one of the most optimistic people we know, but today his upbeat tone belies a sobering message. “Normally we would look at best-case scenarios,” he says, “and we are looking heavily at worst-case scenarios.” His company’s field crews are busy on projects begun in sunnier economic times, “but our sales backlog is negligible. People are calling, but we don’t know when the credit market is going to loosen, when people are going to feel comfortable taking those risks.” Wardell sympathizes with colleagues whose clients must borrow to build and builders who rely on credit to finance their operations. Even having secured a construction loan is little comfort in the current uncertain climate, he notes. “All of a sudden [a lender] can say, ‘We think you’re upside down, and we think you need to build more before we give you more money.’”
Few of Wardell’s clients borrow money to pay for his work, but those who must are hesitant to proceed. And after the beating investment portfolios have taken in the past year, even well-to-do clients are experiencing an inversion of the “wealth effect” we heard so much about when stocks were soaring. “I have clients who aren’t willing to pull the trigger,” he acknowledges. “Luckily, I was going full-bore when the crunch came along.”
Wardell is looking beyond those current projects, though, and huddling with his managers to formulate contingency plans. “We certainly are going to be emphasizing more of our maintenance and remodeling,” he says. “But those are affected also, and those managers, too, are trying to look into a crystal ball.” While they hope for a turnaround, he says, all of them are bracing for the most difficult of choices: “Will we have to pull our horns in quickly? Maybe. Are we preparing for that? Yes.” One of the few bright spots in the market—lower supplier and subcontractor pricing—presents its own puzzle. “A lot of things have become less expensive, so does that mean bigger margins or more sales?” he asks. “You have to decide how to play it.”
Boston custom builder Grant Rhode takes a clear-eyed and analytical view of current conditions. Business is “spotty,” he says. “We’ve had some nice projects that are taking us through this time now, but the commitment to build projects is less certain, and there’s some budget pressure.” Running a small company in a high-end market has certain advantages in hard times, Rhode observes. “It has its own little peculiar bubble. For those of us who do half a dozen to a dozen projects a year, it doesn’t take too many projects to have a pretty good year.”
But Rhode expects a relatively slow recovery and is planning accordingly. Over the past two years, he lost a couple of employees to attrition and held off refilling their positions. To keep the core of his team intact through even leaner times, Rhode has rewritten some job descriptions—including his own. The company’s six project supervisors, who had been overseeing jobs worth up to $2 million, are now swinging hammers, he says. “I’m reallocating them to projects that have budget for carpentry,” using them in lieu of subcontractors. He has resorted to this tactic before to get through slow periods, “but now it’s more of a program.” And the program includes the boss too. “I’m going to be more active on the project management front,” says Rhode, who may end up working not only harder than he had once planned, but longer. “My timetable for retirement may be extended by a couple of years,” he says.
