Builders talk about liquidity, asset management
SAN DIEGO -- A panel of multi-family builders during a National Association of Home Builders (NAHB) conference gave a stark outlook for 2009, saying they plan no new housing units starts this year because of liquidity issues.
“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 a panel discussion at the National Association of Home Builders’ Pillars of the Industry conference, held at San Diego's famous Hotel Del Coronado. Aimed at multi-family builders, the two-day event drew nearly 200 building material suppliers, utility companies, engineering firms, bankers and other attendees.
Four of the five multi-family builders on the State of the Industry panel said they planned to start no new units this year. Instead, most were “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 Co., 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.
Ronald Ratner, executive VP and director of Forest City Residential Group, said: “I don’t think we’re anywhere near bottom. Major job layoffs are just starting to occur. We haven’t seen the impact of that yet.”
Representatives of both Fannie Mae and Freddie Mac attended the first day of the conference. Multi-family builders said they are now turning to these agencies for financing in the absence of other sources of capital.
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 is now building smaller homes that are value engineered, he said, adding: “[We’ve] got to lower the cost of the product to the consumer.”
Elaborating on those comments in a later interview with Home Channel News, Mezger described “cost visibility” as a concept that KB Homes 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.”