In hindsight, we all knew it couldn’t last. The construction and real estate sector that carried the national economy on its back for so long would eventually need a breather, and by all accounts it is taking one. Production-home builders report that orders are down and cancellations are up. The hottest real estate markets have cooled dramatically, with average home prices in some areas falling for the first time in years. The picture thus far for custom builders, though, has been remarkably sunny. Like other luxury businesses, custom building and high-end remodeling have benefited from an economy that increasingly rewards the top tier. But when the middle part of the market takes a solid hit, one might expect the high end to feel at least something. Are custom builders experiencing any repercussions?
Only the faintest, says Los Angeles custom builder Jim Kweskin. “We’re busy,” he says. So busy, in fact that his company, Fort Hill Construction, recently mothballed its New York City operation. “Not because of lack of work,” Kweskin says. “The guys who were out in L.A. were just overloaded.” Aside from that, he says, it’s been business pretty much as usual—at least by the elevated standards of the past few years. The downturn in production and spec building might be putting a pinch on trade contractors, but Kweskin says he is not shopping around for bargains there. “We have a team of subcontractors we have worked with for many, many years,” and those relationships remain unchanged by conditions in the larger construction market. Slackening demand from production builders might eventually have some impact on the cost of construction materials, but apparently not yet. “The only thing that’s happening with materials is that they’re going up, exorbitantly,” says Kweskin, whose contract includes an escalator clause to cover cost increases that occur during construction.
The main evidence of down-market trouble that Kweskin sees is new builders in his own market. “All of a sudden, contractors who wouldn’t try to get jobs in our field come in and low-ball to try and get jobs that they normally wouldn’t go for,” he says. Well established in his niche, Kweskin is not troubled by competitors “who don’t know this market and don’t know how to do it.” His clients expect to have every aspect of their project taken care of for them. “Some of them don’t even want to know about it,” he says. “It requires an extremely high-end state of consciousness.” Very few of his potential clients take the risk of working with a builder untested in this market, and of those that do, “usually they’re sorry,” he says.
The clients in Nick Smaby’s Minnesota market are famously more humble than those on the West Coast, but his business is still quite healthy. “It’s not absolutely booming,” he says, “but it’s pretty good. I think remodeling is a little stronger for us. I suppose we could attribute that to the turndown in new construction, but it’s always hard to pinpoint it.” One clear benefit of the squeeze on Midwest production builders, though, is that Smaby is not chasing after trade contractors. “We are almost being inundated with inquiries from subs about projects to bid,” he says. “They’re literally knocking on our doors. Is it translating into lower prices? Maybe a little. We get very good value. If we ask them to sharpen their pencils a little bit, they seem to be very receptive.”
