Building a Strong Foundation

August 12, 1991|By Ellen James Martin

SUMMARY

To survive the recession, local builders have slashed prices on new houses, laid off employees, reduced office space and asked for discounts from subcontractors and suppliers. Now, demand for new homes is starting to rise and contracts are slowly trickling in.

Baltimore area builders who have survived the recession are groping toward recovery. There's no indication that the heady building days of the mid to late 1980s will be back any time soon. But demand for new homes is rebounding and contracts are slowly beginning to come in.

Tony and Nancy Capitano felt the two big Williamsburg-style houses they'd built in Clarksville would sell at a profit -- if only they waited.

But as the recession dragged on, few people were looking for expensive, custom-built homes. And other custom-home builders -- slashing prices as much as $60,000 -- lured away the few potential buyers.

So, even though it hurt -- the Capitanos had spent $115,000 to carry the properties for months -- they resigned themselves to selling at a sacrifice. Early this year, they unloaded the homes at cost and forfeited about $60,000 in profits.

"When you see your cash dwindling and know the market is as dead as a stagnant pond, you don't have any choice but to act," said Mr. Capitano, 44. He likened the loss of $115,000 in carrying costs to "blood being drained out of a body."

The couple's small company, Capitano Custom Construction, is but one of the Baltimore-area homebuilding firms forced by the recession to adapt or go under. Local builders, like those throughout the nation, have grappled with the dual problems of a decline in housing demand and severe limitations on bank credit.

To survive, local builders have slashed prices on new houses. They also have taken drastic cost-cutting steps: laying off employees, reducing office space and demanding discounts from subcontractors and suppliers.

William J. Kerwin, for example, was forced to surrender part of his ownership in WJK Construction Group. Bruce Scherr scrapped plans for an upscale development, and focused on less expensive, inner-city housing.

"I've seen a lot of principals take off their coat and tie, roll up their sleeves, put on their work clothes and go out in the field," Mr. Scherr says. "I've also seen many contractors negotiating more successfully with [subcontractors] to lower prices and the subs agreeing, just to stay busy. And I've seen layoffs. Everybody has had to bite the bullet in some way."

The builders that have survived are groping toward recovery. There's no indication that the heady building days of the mid to late 1980s will be back any time soon. But demand for new homes is rebounding and contracts are slowly beginning to come in.

"It's never going to be the same -- that's for sure. But starting last March, with the end of the Persian Gulf war, interest rates started falling and buyers started coming out again," Mr. Capitano said.

Builders are cautious in their projections.

"We're definitely heading out of the recession, though we're not entirely there yet," says Mr. Scherr, a Baltimore builder-developer and president-elect of the Home Builders Association of Maryland.

For Capitano Custom Construction, recovery has translated into a rebound in contracts. The business now has six contracts in the pipeline, including a $600,000 brick Cape Cod with a cedar-shingled roof. That's all the work the company, which has only two full-time employees, can handle.

Surviving the recession hasn't been an easy matter for the Capitanos -- although they've been spared the worst. During the recession, many a small building firm has faced foreclosure or bankruptcy after finding itself starved of credit and unable to liquidate its property at a reasonable price.

Besides selling at a sacrifice the two Williamsburg homes located in its Clarksville subdivision of Eaglepoint Landing, the Capitanos have taken other drastic steps to keep their business out of jeopardy.

They cut their net profit margin on a $300,000 home from about $40,000 to $20,000. They started shopping very cautiously, pursuing discounts on building materials and subcontractors' services, saving about 6 percent in the process. They also cut what regular employees they had, a secretary and computer clerk, saving $50,000 a year in payroll and benefits.

These days, Mrs. Capitano does virtually all of the company's bookkeeping, not to mention helping design interiors for custom-home clients. Her husband has also pitched in, helping his subs start trim, hang doors, set cabinets, and do tile work for the homes the company builds.

To avoid the kind of debt that has plagued some builders, the Capitanos also have adjusted their lifestyle. They sold their 21-acre estate in Dayton for $1.2 million, moving into a smaller, renovated farmhouse that came with the property they bought to create Eaglepoint Landing. They also sold their white Mercedes and stopped using credit cards.

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