Staying Afloat

Game Plan In addition to diversifying, the best custom builders are thinking about the future. Consumer trend experts nationwide believe high-end homeowners are becoming more aware of the way their homes impact their neighborhoods and the planet. “We’re watching the consumer move from a more ‘conspicuous consumption’ state of mind to more pragmatic pursuits,” says Robin Avni, senior director and home and garden consumer strategist at Iconoculture, a consumer research and strategy firm. “Ostentation is not going to be around for a while. It doesn’t mean the spend is halting—but it’s changing.” For years it seemed as though buyers just couldn’t get enough square footage, but now interest in smaller homes is steadily growing. AIA surveys conducted in 2007 and 2008 show that the average size of a house in the United States is declining—a startling reversal of the bigger-is-better trend of the early and mid-2000s. “Why heat a whole mansion when you can get away with heating a smaller house?” asks Pamela Danziger, president of Unity Marketing, which specializes in gaining insight into the luxury consumer.

Her point about heating bills can’t be ignored. Every construction industry professional should be studying green and energy-efficient building. It’s not just about feeling good and helping the planet anymore, although plenty of luxury consumers (and builders) do care about those things. Green building is about constructing high-quality houses that will last longer and perform better, and the general public understands this more deeply than ever before. “I’ve been hearing the builders who promote greener building are the ones who seem to be the most active,” says ULI’s McIlwain. Even if green systems and products ultimately don’t end up makingit into a project, clients still want to be able to talk about them with their builders. “The most important place where green is gaining momentum is in the thought process of the consumer,” Avni explains. “Now it’s part of the dialogue.”

Sarah Susanka, the author of the much-read Not So Big House books, agrees. “There’s a healthy group of people who want houses that respond to the current challenges,” she says. “They want energy efficiency. They want double-duty spaces, not extra square footage. They want houses that are comfortable, not showy. Those builders who get that are going to weather the storm.” Not only is she talking about green building and smaller houses, she’s also referring to just plain good, high-value design. Consumers who have lost money in the stock market are suddenly thinking more carefully about their expenditures. They might still have a lot to spend, but they’re going to want to make sure that whatever they buy is well-designed and worth the cost. “You’re less likely to get a whatever, anything-goes, cost-plus attitude,” says Gary Maynard of Holmes Hole Builders in Vineyard Haven, Mass. McIlwain thinks that, as smaller footprints become more desirable, the demand for design that makes people feel good and accommodates their lifestyles will inevitably rise. “How do you design a commodious house when you don’t have that extra 5,000 square feet to play with?” he asks. “That’s when design becomes extra important.”

As clients’ concern about value increases, competition for their attention is growing fiercer. Former spec-only builders have moved into the custom territory as the market for specs has dried up. And clients who once might have opted for a negotiated contract are now sending projects out to bid. It’s a frustrating situation for experienced custom builders who are giving realistic estimates, only to be undercut by shockingly low estimates from other builders. But some are fighting back by re-emphasizing what they do best in a more sophisticated manner. “We’ve adjusted our level of polish on our presentation and made it more digital,” says Motta of Matarozzi/Pelsinger. “We’ve updated our Web site. The electronic transfer of information is very important now.” They and many of their peers across the country have also remodeled their offices recently. The idea makes particular sense from a marketing standpoint: when potential customers arrive at an attractive, well-constructed workspace to meet with a builder, they gain confidence that their homes will end up the same way.

And just about every custom builder in the nation has taken a close look at the inner workings of his company to see where money can be saved. Often that revamping has resulted in layoffs. Sometimes just cutting back in other areas—maybe putting off a new truck purchase or finding cheaper office supplies—has been enough. Chip Gruver of Gruver–Cooley Corp. in Leesburg, Va., has joined the national custom builders’ buying group CB/USA. “We look at this as an opportunity to tighten up across the board and put new systems in place,” he says. “We joined CB/USA to be able to renegotiate prices for stock lumber and other materials.”

Glass-half-full builders have found some positive aspects to the slowdown. “On the projects we do have, we have excellent subcontractor response,” says Steve Narvaez of G.W. Shaver Construction in Basalt, Colo. “We used to have to beg them … I’ve never seen it like this before.” Some builders report finding subs more open to price negotiations, although that hasn’t been the case in areas where subs are still in demand. And many builders feel the slowdown is a necessary correction that will help improve the custom building business in the long term. “We as an industry had gotten very sloppy,” says Bill Smithers, CEO of CB/USA and a custom builder in Purcellville, Va. “When you can raise prices every six months, it covers up a lot of inefficiencies.”

Ultimately, the twists and turns of the financial and real estate markets are out of custom builders’ hands. But their handling of any projects they have, the internal processes of their companies, and their planning for the future are entirely within their control. Claude Comito of Nichols & Comito in Colorado Springs, Colo., feels he and his peers need to be as proactive as possible, and he’s absolutely right. “We have to take action,” he says. “We can’t just sit around and wait for the market to get better. We have to adapt. Those who are positioned to offer people what they want when it does turn around are the ones who will survive.”