07-16-2007, 04:56 PM
North Port builders see grim future :shock:
By MICHAEL BRAGA and DEVONA WALKER
STAFF WRITERS
michael.braga@heraldtribune.com
devona.walker@heraldtribune.com
NORTH PORT -- Because of the dramatic downturn in the real estate market, home builders are now replacing scrub jays as the most endangered species in this once rapidly growing city.
Ignoring the laws of supply and demand, those builders churned out far more homes than were needed during the boom, and are now sitting on a voluminous supply that is becoming increasingly difficult to unload.
More than a dozen builders have either retreated from the market, shut down or are being hauled into court by subcontractors, vendors and home buyers for failing to complete construction or pay their bills.
For those home builders and subcontractors who continue to soldier on, the future does not look bright.
"We're in a recession," said Richard Gebing, who manages the North Port operation of Fort Myers-based Raymond Building Supply. "And this is not going to be a soft landing."
The fundamental problem facing North Port is the oversupply of homes choking the market.
One in 10 houses is for sale or embroiled in some stage of foreclosure. Builders themselves are holding more than 400 homes that they built on speculation, said Dennis Black, a Port Charlotte appraiser who recently completed an exhaustive study of the North Port housing market and who interviewed individual builders to collect his data.
"By their own admission, they are also sitting on as many as 500 vacant lots," he said.
Meanwhile, demand for homes in North Port is waning, and the once-brisk market for building lots has slowed to a standstill.
Sarasota County property records show that three of the largest home builders in the city -- Adams Homes, Holiday Homes and Windemere Homes -- combined to sell only 328 houses during the past 12 months -- about a third of the 900 they sold in the 12 months from July 2005 to June 2006.
At the same time, those three home builders have not bought a building lot since 2006.
"It's a ghost town for sure," said Marla Peters, the owner of Fort Myers-based DMI Construction. "I was driving though North Port the other day. It's a ghost town. There's a lot of downward pressure on new homes and existing homes."
Though builders took a long time to figure out that the only way to improve market conditions was to stop building, there are indications that they are getting the message.
Home builders applied for only 23 permits in May, the city's building department records show. That compares with a high of 609 in February 2006.
Flooding the market
More than 50 companies were building houses in North Port at the height of the boom, but county property records show that only half that number remain active today.
Some have quietly backed out of town, while others, including Grover Brothers and Webster Homes, face an ever-increasing number of liens filed by unpaid vendors and subcontractors.
Phones that once rang in the offices of these home builders have been disconnected.
Then there are Avalon Homes, Construction Compliance Inc.,, Jade Homes and Ideal Homes, builders that failed, leaving unfinished houses and overgrown building lots behind them. That is no small part of North Port's problems. CCI alone had hundreds of houses under construction in North Port.
Vendors and suppliers have gone to court to get paid. Disgruntled home buyers have sued to get out of their contracts.
The result is that home builders have been hit with 64 lawsuits during the past 18 months and have filed 30 of their own.
That is more than the 90 lawsuits filed by and against North Port home builders during the nine years from 1997 through 2005.
Greg Leach of Heron Cove Construction blames real estate investors for the problems builders are facing.
"I think the investors have treated us as builders quite inequitably," Leach said. "The investors have forced builders into bankruptcy."
Leach's own experience is that nine out of 10 investors are walking away from contractual obligations.
"After the economy came apart, people started losing interest," Leach said. "They kind of got themselves between a rock and a hard place. They were leveraging their equity and their primary residence to have a spec home built, just to get in on it, without realizing what goes up can come down, too, and it usually does.
"People should not have gotten into this situation with their rose-colored glasses on."
The shakeout
The demise of home builders in a firestorm of liens and lawsuits represents a classic shakeout, market watchers say.
"For two years after Hurricane Charley, everybody and their brother came to town to build houses," said Mark Hamsher, vice president of Hamsher Homes. "Now the market has stopped dead and we're stuck with all this inventory. What needs to happen is that all those home builders, who never should have come here, get weeded out."
Home builders intent on surviving are responding to the crisis in a variety of ways.
Most have already dropped prices and have slashed payroll, while forcing subcontractors to do the same.
Medallion Homes, which geared up to produce 100 homes per year during the boom and has sold only nine this year, has done all that.
But to entice people to buy, the company has gone a step further by offering to finance 15 percent of the purchase price through second mortgages that are interest-free for the first five years.
"At the end of the day, people are still coming to Florida," said Tony Almengual, Medallion's director of sales and marketing. "We want to make sure North Port gets looked at."
Though Darryl Denson, president of Sundance Construction, is building only one house at the moment, his company has remained active by offering to finish houses that other builders, such as CCI, have abandoned.
"It's a great opportunity to show that are still some honest home builders in North Port," Denson said.
At the same time, Denson is trying to keep his company afloat by expanding into commercial work and home remodeling. But he said plenty of other builders have the same idea and the competition is fierce.
"We used to be water-skiing in 2005. We're now treading water," Denson said.
Other builders and subcontractors say they have turned their attention to other areas of the state.
"The only thing that's holding this company together is that we're still selling in West Palm and Port St. Lucie," said Marge Weber, who manages the North Port operations of RJM Builders. "That's the only reason we're not closing our doors."
Brian McChesney, who manages the North Port operations for Paradise Air Conditioning, said that though he had to cut his staff from 13 to six, he has not had to cut further because he is still getting contracts from home builders in Punta Gorda.
"I know this sounds terrible, but Hurricane Charley was the best thing that could have happened to Punta Gorda," McChesney said. "The city did not get as overbuilt as North Port."
Light at the tunnel's end?
Gebing, of Raymond Building Supply, says the downturn is in the last of three phases.
The first was when speculators stopped buying and put their homes on the market, creating an oversupply.
The second phase was the result of the subprime mortgage meltdown. When companies that made loans to risky borrowers started going under, survivors tightened credit, knocking a whole layer of buyers out of the market, Gebing said.
The third, which has just started, is the foreclosure phase, in which homeowners abandon properties that they should never have bought in the first phase.
Once that phase is over, the real estate market can return to normal, Gebing said.
"But it will take years," he said.
In the meantime, the only thing builders and subcontractors can do is to keep scrambling for opportunities.
"I feel very sorry for the people that live here :shock: and don't know what to do -- and there are people who just don't know what to do," said John Wright, a self-employed painter.
"You have to put yourself out there. You have to have an entrepreneurial spirit. You have to promote yourself and switch things up. Nobody's going to give you anything. They will say, 'I'm sorry about your luck,' but that's about it.
"It sucks. But each day, you learn a new lesson."
By MICHAEL BRAGA and DEVONA WALKER
STAFF WRITERS
michael.braga@heraldtribune.com
devona.walker@heraldtribune.com
NORTH PORT -- Because of the dramatic downturn in the real estate market, home builders are now replacing scrub jays as the most endangered species in this once rapidly growing city.
Ignoring the laws of supply and demand, those builders churned out far more homes than were needed during the boom, and are now sitting on a voluminous supply that is becoming increasingly difficult to unload.
More than a dozen builders have either retreated from the market, shut down or are being hauled into court by subcontractors, vendors and home buyers for failing to complete construction or pay their bills.
For those home builders and subcontractors who continue to soldier on, the future does not look bright.
"We're in a recession," said Richard Gebing, who manages the North Port operation of Fort Myers-based Raymond Building Supply. "And this is not going to be a soft landing."
The fundamental problem facing North Port is the oversupply of homes choking the market.
One in 10 houses is for sale or embroiled in some stage of foreclosure. Builders themselves are holding more than 400 homes that they built on speculation, said Dennis Black, a Port Charlotte appraiser who recently completed an exhaustive study of the North Port housing market and who interviewed individual builders to collect his data.
"By their own admission, they are also sitting on as many as 500 vacant lots," he said.
Meanwhile, demand for homes in North Port is waning, and the once-brisk market for building lots has slowed to a standstill.
Sarasota County property records show that three of the largest home builders in the city -- Adams Homes, Holiday Homes and Windemere Homes -- combined to sell only 328 houses during the past 12 months -- about a third of the 900 they sold in the 12 months from July 2005 to June 2006.
At the same time, those three home builders have not bought a building lot since 2006.
"It's a ghost town for sure," said Marla Peters, the owner of Fort Myers-based DMI Construction. "I was driving though North Port the other day. It's a ghost town. There's a lot of downward pressure on new homes and existing homes."
Though builders took a long time to figure out that the only way to improve market conditions was to stop building, there are indications that they are getting the message.
Home builders applied for only 23 permits in May, the city's building department records show. That compares with a high of 609 in February 2006.
Flooding the market
More than 50 companies were building houses in North Port at the height of the boom, but county property records show that only half that number remain active today.
Some have quietly backed out of town, while others, including Grover Brothers and Webster Homes, face an ever-increasing number of liens filed by unpaid vendors and subcontractors.
Phones that once rang in the offices of these home builders have been disconnected.
Then there are Avalon Homes, Construction Compliance Inc.,, Jade Homes and Ideal Homes, builders that failed, leaving unfinished houses and overgrown building lots behind them. That is no small part of North Port's problems. CCI alone had hundreds of houses under construction in North Port.
Vendors and suppliers have gone to court to get paid. Disgruntled home buyers have sued to get out of their contracts.
The result is that home builders have been hit with 64 lawsuits during the past 18 months and have filed 30 of their own.
That is more than the 90 lawsuits filed by and against North Port home builders during the nine years from 1997 through 2005.
Greg Leach of Heron Cove Construction blames real estate investors for the problems builders are facing.
"I think the investors have treated us as builders quite inequitably," Leach said. "The investors have forced builders into bankruptcy."
Leach's own experience is that nine out of 10 investors are walking away from contractual obligations.
"After the economy came apart, people started losing interest," Leach said. "They kind of got themselves between a rock and a hard place. They were leveraging their equity and their primary residence to have a spec home built, just to get in on it, without realizing what goes up can come down, too, and it usually does.
"People should not have gotten into this situation with their rose-colored glasses on."
The shakeout
The demise of home builders in a firestorm of liens and lawsuits represents a classic shakeout, market watchers say.
"For two years after Hurricane Charley, everybody and their brother came to town to build houses," said Mark Hamsher, vice president of Hamsher Homes. "Now the market has stopped dead and we're stuck with all this inventory. What needs to happen is that all those home builders, who never should have come here, get weeded out."
Home builders intent on surviving are responding to the crisis in a variety of ways.
Most have already dropped prices and have slashed payroll, while forcing subcontractors to do the same.
Medallion Homes, which geared up to produce 100 homes per year during the boom and has sold only nine this year, has done all that.
But to entice people to buy, the company has gone a step further by offering to finance 15 percent of the purchase price through second mortgages that are interest-free for the first five years.
"At the end of the day, people are still coming to Florida," said Tony Almengual, Medallion's director of sales and marketing. "We want to make sure North Port gets looked at."
Though Darryl Denson, president of Sundance Construction, is building only one house at the moment, his company has remained active by offering to finish houses that other builders, such as CCI, have abandoned.
"It's a great opportunity to show that are still some honest home builders in North Port," Denson said.
At the same time, Denson is trying to keep his company afloat by expanding into commercial work and home remodeling. But he said plenty of other builders have the same idea and the competition is fierce.
"We used to be water-skiing in 2005. We're now treading water," Denson said.
Other builders and subcontractors say they have turned their attention to other areas of the state.
"The only thing that's holding this company together is that we're still selling in West Palm and Port St. Lucie," said Marge Weber, who manages the North Port operations of RJM Builders. "That's the only reason we're not closing our doors."
Brian McChesney, who manages the North Port operations for Paradise Air Conditioning, said that though he had to cut his staff from 13 to six, he has not had to cut further because he is still getting contracts from home builders in Punta Gorda.
"I know this sounds terrible, but Hurricane Charley was the best thing that could have happened to Punta Gorda," McChesney said. "The city did not get as overbuilt as North Port."
Light at the tunnel's end?
Gebing, of Raymond Building Supply, says the downturn is in the last of three phases.
The first was when speculators stopped buying and put their homes on the market, creating an oversupply.
The second phase was the result of the subprime mortgage meltdown. When companies that made loans to risky borrowers started going under, survivors tightened credit, knocking a whole layer of buyers out of the market, Gebing said.
The third, which has just started, is the foreclosure phase, in which homeowners abandon properties that they should never have bought in the first phase.
Once that phase is over, the real estate market can return to normal, Gebing said.
"But it will take years," he said.
In the meantime, the only thing builders and subcontractors can do is to keep scrambling for opportunities.
"I feel very sorry for the people that live here :shock: and don't know what to do -- and there are people who just don't know what to do," said John Wright, a self-employed painter.
"You have to put yourself out there. You have to have an entrepreneurial spirit. You have to promote yourself and switch things up. Nobody's going to give you anything. They will say, 'I'm sorry about your luck,' but that's about it.
"It sucks. But each day, you learn a new lesson."