Builders talk about liquidity, asset management
SAN DIEGO —Multi-family builders, hurting for capital and concerned with liquidity, gave a stark outlook for 2009 during a National Association of Home Builders (NAHB) conference held here last month. Four of five builders serving on a “State of the Industry” discussion panel said they’ve put the freeze on any new projects. The fifth, KB Home, is building smaller houses with simpler designs after customers place orders for them.
“Right now, getting started on apartment and condo projects is virtually impossible,” said Leonard Wood, founder of Wood Partners, a multi-family housing developer with operations in Washington, D.C.; the Southeast; Texas; the Southwest; and California. Wood said his firm is concentrating on refinancing its current construction loans and selling excess inventory.
Wood’s comments were echoed by several other builders who participated in the NAHB’s Pillars of the Industry conference, held at the Hotel Del Coronado from March 17 to 18. Aimed at multi-family builders, the two-day event drew nearly 200 building material suppliers, utility companies, engineering firms, bankers and other attendees.
Multi-family builders who spoke at the conference said they were focused on “right sizing” their firms, looking for new financing and preserving their liquidity. When asked to forecast a housing market bottom, Charles Brindell Jr., president and CEO of Trammell Crow Residential, predicted there would be “no improvement economically until the second half of 2010.”
“Instead of being focused on new products, we’re focused on asset management,” Brindell said. Trammell Crow does have 2,000 housing units “in the pipeline” along the East and West Coasts, according to Brindell. But, he added, “Our equity partners are asking us to push off our start dates by 12 months.”
Ronald Ratner, executive VP and director of Forest City Residential Group, said his firm has spent more than $1 billion in construction funds in fiscal 2008. “In 2009, I don’t think we’ll have any starts,” he said. Ratner’s worries centered around the rising unemployment rate.
“I don’t think we’re anywhere near bottom,” he said. “Major job layoffs are just starting to occur. We haven’t seen the impact of that yet.”
Connie Moore, president and CEO of BRE Properties, split her concerns between widening job losses and waning consumer confidence. The housing downturn will stop, the REIT executive said, “when people who are employed stop acting like they’re unemployed.”
In the absence of other sources of capital, multi-family builders said they’re turning to Fannie Mae and Freddie Mac to help complete their projects. Representatives from both agencies attended the conference.
KB Home president and CEO Jeff Mezger, the only single-family home builder on the March 18 panel discussion, said it’s still possible to make money in some markets—as long as you build a product that fits the income level of the local population. KB Home no longer aims for the “move-up” buyer, he said. Now it targets the first time home buyer looking for an affordable, energy-efficient home.
“[We’ve] got to lower the cost of the product to the consumer,” Mezger said, explaining how his Los Angeles-based firm is building smaller, value engineered homes.
Elaborating on those comments in a later interview with Home Channel News, Mezger also mentioned savings through “cost visibility,” a supply chain model that KB Home is adopting with its suppliers.
“We want to know the split between the labor and the building materials,” Mezger explained. “We may not buy the materials directly, but we’re interested in the suppliers’ costs. We want to remove some of the layers of distribution, and you can’t do that unless you know where [the materials] come from and what they cost.”