Opportunities Abound for Local Home Builders - San Diego Business Journal
San Diego Business Journal
Family-owned GDC Construction Inc. in La Jolla, which builds custom homes, says many customers are opting to remodel homes they already own.
"It's still a pretty strong market, especially in the coastal areas. If you drive around La Jolla, there is a lot of construction," said Pancho Dewhurst, company vice president and a fourth-generation builder.
GDC employs 30 people. While the company doesn't post revenues, Dewhurst said they are "on par" with last year and up from 2006. The company has six construction sites.
"Most of our clients are cash clients," he said. "The jobs range from a few hundred thousand to $4 million."
"We're fortunate in that regard," Dewhurst said. "I know a lot of contractors out there that are hurting."
By NED RANDOLPH
San Diego Business Journal Staff
The falloff in housing prices and lack of land to build homes is signaling the end of an era for public builders and creating new opportunities for San Diego builders to reassert themselves, analysts and companies say.
"A lot of the big guys have left, like the Pultes, Centexes, D.R. Hortons, and KB Homes," said Russ Valone, chief executive officer of MarketPointe Realty Advisors, which tracks real estate trends. "It is a combination that the volumes aren't here the volumes in Southern California are down so dramatically the big companies have pulled the reins in and consolidated offices but some of them may have ended up leaving anyhow."
Of all land in the county, there are only 36,000 detached lots left in entitlements and 5,000 of those are being sold, Valone says.
Large builders need 300- to 500-home projects to sustain divisions here, says Paul Tryon, CEO with the Building Industry Association of San Diego County, a nonprofit trade group.
"As total production goes down, the pie gets smaller, and fewer companies that need that kind of volume can achieve it," he said. "There were 7,000 building permits issued last year. We'll do 4,000 this year. If you need 500 units, it's tough to do. There's room for one or two, not room for 12."
"A lot of the big guys have left, like the Pultes, Centexes, D.R. Hortons, and KB Homes," said Russ Valone, chief executive officer of MarketPointe Realty Advisors, which tracks real estate trends. "It is a combination that the volumes aren't here the volumes in Southern California are down so dramatically the big companies have pulled the reins in and consolidated offices but some of them may have ended up leaving anyhow."
Of all land in the county, there are only 36,000 detached lots left in entitlements and 5,000 of those are being sold, Valone says.
Large builders need 300- to 500-home projects to sustain divisions here, says Paul Tryon, CEO with the Building Industry Association of San Diego County, a nonprofit trade group.
"As total production goes down, the pie gets smaller, and fewer companies that need that kind of volume can achieve it," he said. "There were 7,000 building permits issued last year. We'll do 4,000 this year. If you need 500 units, it's tough to do. There's room for one or two, not room for 12."
Declining Revenues
D.R. Horton Inc. cut its local staff to a skeleton crew in May. In the six months that ended March 31, the builder reported revenues had fallen $837.6 million statewide.
Pulte Homes Inc. has closed its San Diego operations and says revenues in the first quarter of 2008 were down 34 percent in California. Home sales and prices were down 19 percent. The company said it had $104.6 million in land-related losses, and net new orders were down by 56 percent in the first quarter, according to regulatory filings.
"We have also closely evaluated and made significant reductions in employee headcount and overhead expenses," the company said.
Some public builders, including Lennar Homes and Brookfield Homes, are still here.
However, this marks the end of an era that started after the collapse of the savings and loan industry in the late 1980s and early '90s, which led to a credit crunch for local builders.
Public builders, on the other hand, could raise money on Wall Street, says Ure Kretowicz, chief executive officer of Cornerstone Communities Corp., a local builder.
"Our locals had a hard time finding capital, so a majority of control shifted from private to public," he said. "Publics grew exponentially, and privates grew arithmetically."
D.R. Horton Inc. cut its local staff to a skeleton crew in May. In the six months that ended March 31, the builder reported revenues had fallen $837.6 million statewide.
Pulte Homes Inc. has closed its San Diego operations and says revenues in the first quarter of 2008 were down 34 percent in California. Home sales and prices were down 19 percent. The company said it had $104.6 million in land-related losses, and net new orders were down by 56 percent in the first quarter, according to regulatory filings.
"We have also closely evaluated and made significant reductions in employee headcount and overhead expenses," the company said.
Some public builders, including Lennar Homes and Brookfield Homes, are still here.
However, this marks the end of an era that started after the collapse of the savings and loan industry in the late 1980s and early '90s, which led to a credit crunch for local builders.
Public builders, on the other hand, could raise money on Wall Street, says Ure Kretowicz, chief executive officer of Cornerstone Communities Corp., a local builder.
"Our locals had a hard time finding capital, so a majority of control shifted from private to public," he said. "Publics grew exponentially, and privates grew arithmetically."
Changing Landscape
Opportunities are converting back to private San Diego companies that have direct lending relationships with local banks, says Tryon, adding that when he arrived in the area 20 years ago, San Diego was largely dominated by local companies.
"That's a core change in our market. I believe the smaller San Diego-based companies will be the dominant share of residential construction activity for the next few years or long term," Tryon said.
Kretowicz expects 2,000 new houses to be built in the county in 2008, well below the average of 7,000 new homes a year in recent years.
Cornerstone will generate about $80 million in revenue well below its $100 million to $250 million a year average, says Kretowicz.
Opportunities are converting back to private San Diego companies that have direct lending relationships with local banks, says Tryon, adding that when he arrived in the area 20 years ago, San Diego was largely dominated by local companies.
"That's a core change in our market. I believe the smaller San Diego-based companies will be the dominant share of residential construction activity for the next few years or long term," Tryon said.
Kretowicz expects 2,000 new houses to be built in the county in 2008, well below the average of 7,000 new homes a year in recent years.
Cornerstone will generate about $80 million in revenue well below its $100 million to $250 million a year average, says Kretowicz.
Building Its Niche
Family-owned GDC Construction Inc. in La Jolla, which builds custom homes, says many customers are opting to remodel homes they already own.
"It's still a pretty strong market, especially in the coastal areas. If you drive around La Jolla, there is a lot of construction," said Pancho Dewhurst, company vice president and a fourth-generation builder.
GDC employs 30 people. While the company doesn't post revenues, Dewhurst said they are "on par" with last year and up from 2006. The company has six construction sites.
"Most of our clients are cash clients," he said. "The jobs range from a few hundred thousand to $4 million."
"We're fortunate in that regard," Dewhurst said. "I know a lot of contractors out there that are hurting."
