The news isn’t all bad, though. Melman says custom homes have gained a share of the overall housing market, rising from 21 percent in 2005 to 27 percent in 2007. And Urban Land Institute senior resident fellow John McIlwain feels those working in areas with up-and-coming economic engines might see relief sooner rather than later. “If the industry in your area is financial, I’d be concerned for a couple of years,” he says. “If it’s biotech or alternative energy, I’d be pretty optimistic.”
Taking Action Right on the heels of the “when” inquiry comes the “what” question. Custom builders are wondering what they can do at the moment to save their companies, keep as much of their staff as possible, and be in a position to recapture customers whenever the market does turn around. Luckily, they’re a creative bunch, used to solving difficult problems and figuring out alternative strategies. “We have to be nimble,” says Bruce Giffin of Giffin & Crane General Contractors in Santa Barbara, Calif. A couple of years ago, he and business partner Geoff Crane started a sister company called Projects by Giffin & Crane. This second business focuses on small remodeling projects that Giffin & Crane, which builds multimillion-dollar houses, wouldn’t normally take on. The current custom home market in Santa Barbara is much less active than it was in 2007 or early 2008. “Clients are postponing projects or wondering if this makes sense right now,” Giffin says. So he’s shifted many staff members over to Projects by G&C, which is still busy. “It’s keeping the company going,” he adds. “We’re getting back to our roots. The last five years was quite a party—now we’re getting back to taking care of people.”
McKinstry is pursuing a similar path. Like Giffin, he does have work, but he also has customers putting projects on hold or scaling back significantly. A year and a half ago he started letting architects and former clients know that he and his staff were available to handle small additions and remodels. “I saw this train wreck coming,” he says. In 2008 the revenue from these projects amounted to a healthy $1.5 million.
The small-projects concept works because it appeals to homeowners who don’t want to spend money on a huge remodel or new house right now but still want to update their properties. Just ask San Francisco’s Matarozzi/Pelsinger Builders, which also has created a separate division for smaller projects. “Many people are holding off but want to do a few things here and there,” reports Lawrence Motta, the company’s senior estimator. “Creating a new division for special projects enables us to streamline overhead and respond more quickly.” Along with bringing in revenue, it shores up Matarozzi/Pelsinger’s reputation for sterling customer service and gets its name out to more people.
A general shift to remodeling—not just small projects but larger ones as well—has helped plenty of custom builders keep their footing. “Our remodeling side has stayed fairly busy,” says Mark Gradison of Gradison Building Corp. in Indianapolis. But it’s not right for everyone. Builders without major renovation experience might be hurting themselves by trying to compete with remodelers. “Custom building and remodeling are such different industries,” says AIA’s Baker, who also directs the Remodeling Futures Program at Harvard University’s Joint Center for Housing Studies. “I’d think it would be hard for either side to cross over.” Creech agrees. “I’m not diversifying into remodeling,” he says. “A lot of people think it’s a close cousin to custom building, but it’s a completely different animal.”
Like Gradison, Randy Gardner of Gardner Woodwrights in North Kingstown, R.I., is anticipating a tilt to the remodeling side of his business. He and his crew are skilled cabinetmakers, so he decided to take advantage of their collective know-how and open up a cabinet shop. “We had been subbing out cabinet-work,” he says. “Now we can do our own, and we’ll also be able to do cabinetry for other builders and architects. That should help us out.” Geographic diversification is another tool some custom builders are using to their advantage. Hobbs Inc. of New Canaan, Conn., opened an office in the Hamptons a few years ago—an endeavor that took much time and effort. Now projects there account for 10 percent to 15 percent of the company’s business, and CEO Scott Hobbs is hoping that clients from the entertainment industry and international sector will help offset a slowdown in the finance-heavy Connecticut suburbs. Those who build commercial projects as well as residential enjoy another layer of insulation from the downturn, at least for now. “Our commercial team is doing better than ever,” says Eric Blaser of Seattle’s Charter Construction.
