Something More

As sales sank and cancellations crested last year, production builders insisted they could stem margin erosion by exacting concessions from their trade partners. And through the early months of 2007, suppliers confirmed that builders were pressuring them for price breaks; although, with some notable exceptions, that arm-twisting had yet to become as severe as anticipated. The flip side of this volatile housing market, however, is that it's presenting trade partners with opportunities to improve their positions with builders, according to several leading manufacturers exhibiting at the International Builders' Show (IBS) in Orlando, Fla., in February.

Exhibitors were buoyed by builders' cautious optimism about when buyer demand might rebound, the consensus being mid-2007. “They're whining, but not complaining,” is how the national accounts manager for one supplier of foundation materials describes builders' attitudes about current market conditions. And it's not like business has fallen off a cliff: Jeld-Wen, the Klamath Falls, Ore.–based millwork supplier, is set to put three new door plants on line.

But suppliers and contractors also report that some builders are taking a harder negotiating line, as typified by Lennar, which in January asked contractors to lower prices by between 5 percent and 20 percent. Those who refuse face being banned from bidding on that builder's work for at least six months. This threat—first reported in Southern California's Orange County Register—and others like it have forced trade partners to devise persuasive counterarguments to deflect builders away from price and towards “value.”

“The builders are smart enough to know that they need to create value, and they can't do that solely through price,” says Jeff Wagner, executive vice president of OSB for Nashville, Tenn.–based LP Building Products, the giant panel producer that in October reacted to the housing downturn by curtailing production at five plants and closing another. So when builders and contractors demand givebacks, LP directs them to products such as its Tech Shield radiant barrier and the tax credits builders can earn by installing it, says Wagner.

“We're going back to that four-letter word: S-E-L-L,” says Stephen McNally, vice president of marketing for Joplin, Mo.–based Tamko, echoing comments from other suppliers that are placing greater emphasis on training and supporting their outside sales teams.

The trick to winning builders' business in this latest down market, say suppliers, has been to offer alternatives that don't undermine the existing value of suppliers' products or services. For example, Bayport, Minn.–based Andersen Windows—which cut 440 jobs in December, in reaction to the slowdown in new-home construction—recently picked up business for the first time from Richmond American Homes in the Denver market, a gain that Andersen's vice president of sales Steve Mog attributes to his company's acquisition last summer of Silver Line Building Products, which put Andersen into the vinyl market. Andersen also added 54 sizes to its 200 Series of wood windows, which Mog says gives cost-conscious builders more choices.

What started out last year as a conversation solely about price reductions between Pulte Homes and Therma-Tru, the Maumee, Ohio-based millwork manufacturer, evolved in November into an exclusive three-year deal where Therma-Tru is supplying fiberglass entry doors to all of Pulte's communities nationwide. Carl Hedlund, Therma-Tru's president and CEO, is convinced that what separates winners from losers, especially when the business is slumping, is creativity. During IBS, his company had its biggest new-product launch to date, the centerpiece of which was “Tru-Defense,” a door system that can withstand 150 mile-per-hour winds, 8 inches of rainfall, and impacts up to 35 miles per hour. “This industry is looking for leadership,” Hedlund says, “and you can either cut your expenses to the bone, or you can make something happen.”

J. Ronald Terwilliger, chairman and CEO of Trammel Crow Residential, has donated $5 million to the Urban Land Institute to create a center for work-force housing. The new center will focus on private-sector workforce housing. The vision is for the seed money to pay for local ULI chapters to get into communities and advocate for workforce housing, educate politicians and developers, and testify at local hearings. Pilot efforts are underway in Atlanta, Southeast Florida, and Washington, D.C.—S. Zurier

It can be a home builder's or homeowner's worst nightmare. While working on a project, you hit a gas line, a sewer line, or a buried electric line. Your jobsite, or your home, instantly becomes an outpost of the local utility company and a safety risk. But a quick call to 811 could prevent such dangerous situations. The number was designated in April 2005 by the Federal Communications Commission as the national “Call before you dig” hotline. A call to 811 will connect someone to a call center, which will then notify local utilities, who will send crews to the proposed work site to mark the location of underground lines—all for free. Utility industry watchdog Common Ground Alliance and the Associated General Contractors of America have teamed up to promote use and awareness of 811. The service will be operational in late April, and a nationwide awareness campaign will kick off May 1, says CGA spokesperson Erika Andreasen. To learn more about 811, visit www.call811.com.—E. Butterfield

The Federal Highway Administration has awarded a $2 million contract to the American Institute of Architects (AIA) to study the benefits that well-designed community transportation projects bring to American communities. The study, which will be completed by July 2007, will measure how transportation projects of various types promote economic development; protect public health, safety, and the environment; and enhance the architectural design and planning of communities. The AIA is partnering with the University of Minnesota's Center for Transportation Studies to complete the research portion of the study.—N. F. Maynard

Piscataway, N.J.–based American Standard Cos. announced recently that it will separate its three businesses this year. Once the split is completed, American Standard will focus on its air-conditioning systems and will change the company's name to Trane. It will spin off its global vehicle control systems as a publicly traded company to be known as WABCO and will sell its American Standard bath and kitchen business. The company expects to complete the split by early fall of this year.—N.F.M.

Ever wonder how U.S. home prices match up against certain overseas markets? The 2006 Coldwell Banker Home Price Comparison Index does the math, using your basic 2,200-square-foot, single-family abode with four bedrooms, two-and-a-half baths, a family room, and a two-car garage as a benchmark. Houses fitting this profile in Amsterdam, Holland, are priced comparably to those in Bend, Ore. ($482,750), while residences in Dubai, United Arab Emirates, tend to go for the same asking price as those in Portland, Maine ($375,500). Warsaw, Poland parallels Atlanta ($322,210), and Sydney, Australia is on par with Bellevue, Wash. ($658,000). To do your own comparison shopping, visit http://hpci.coldwellbanker.com.—J. Sullivan

Looking for land to develop, SunCal Cos. of Irvine, Calif., along with investment firm D. E. Shaw group, based in New York, bought 57,000 acres west of Albuquerque, N.M., for $252 million. The Atrisco Land Grant, more than twice the size of Boston, was originally granted to Spanish settlers by King Charles II of Spain in 1692, 14 years before Albuquerque was founded. SunCal bought the land from Wetland Development Co., which was established in 1967 by the heirs of the original grantees to manage the property. SunCal, which bought all 800,000 shares of Wetland for $315 apiece, now plans to work with area leaders to design residential developments along with business and recreational spaces.—E.B.

LEED the Way

BASF home becomes first on East Coast to achieve LEED certification

A demonstration home in Paterson, N.J., by the chemical company BASF recently became the first house on the Eastern seaboard to receive an LEED-Platinum certification from the U.S. Green Building Council. The LEED designation means the house is 80 percent more energy efficient than the average home.

“We built this house to show builders that you can do a [near] zero-energy house for the same [money] as a typical home or for just a little more,” Jack Armstrong, manager of BASF's construction industry sector, said at the company's booth in February at the International Builders' Show.

Built largely with products featuring BASF ingredients, the house is not technically a true zero-energy house—meaning it does not produce as much energy as it uses—but it is 80 percent of the way there. And Armstrong says that's okay. “You don't have to get all the way to zero,” he explains. “Trying to get as close as you can is okay too.” Still, a tight shell and solar energy mean that the 2,500-square-foot house only costs $300 to cool and $600 to heat per year.

ENERGY MISER: This demonstration house costs $900 per year to heat and cool. It is 80 percent more efficient than the average home.

That's mainly due to the tightness of the home's shell. Its basement wall and first level are constructed of insulated concrete forms; the second level and roof are made from structural insulated panels; highly reflective metal tops the roof; and the exterior wall features a ½-inch of color-integrated cement coating. Building with these technologies may cost more, says Armstrong, but builders must also factor other benefits to get a true picture.

“You spend more money on the walls, but it allows you to save in other areas such as faster installation, less stress, [and] lower skill labor,” Armstrong notes. In addition, a [smaller] HVAC system further reduces cost. The house will be donated to a family with a physically challenged son late this year.

Citing the success of this home, BASF is working on a project in Philadelphia to revitalize an area called East Parkside. It involves more than 450 residential, commercial, and public buildings that will be built to LEED and Energy Star standards, Armstrong says. For more information on the house, go to www.betterhomebetterplanet.com. - Nigel F. Maynard

Or Not ...

Bank of America may not buy Countrywide after all.

Usually, where there's smoke, there's fire. But in the case of reports circulating the industry like wildfire in January, that Charlotte, N.C.–based Bank of America Corp. was in discussions to buy Calabasas, Calif.–based Countrywide Financial Corp., there was only smoke. Or so says Bank of America CEO Kenneth Lewis.

Speaking at a Citigroup Financial Services conference in New York on Jan. 31, Lewis downplayed a potential merger or acquisition.

“We have said, unequivocally, that our strategy is one of organic growth,” Lewis noted.

That Lewis commented at all on the rumors could be a sign that Bank of America is not seriously considering buying Countrywide, says Tony Avila, managing director for home building, building products, and real estate investment banking at JMP Securities in San Francisco.

“Usually when they're doing an acquisition, they don't comment on it either way,” says Avila.

Later at the conference, Lewis said the likelihood of Bank of America buying a U.S. bank this year is “pretty low,” according to a Reuters report.

But Bank of America has been a big acquirer of companies, and it's unlikely that they would change their stripes, says Avila.

“Their No. 1 growth engine has been acquisition, going back to how Nations Bank was formed,” he says. “They have been growing via acquisition, and I don't see any reason for them to stop.”

In fact, now could be the perfect time for such an acquisition, Aliva says.

“The mortgage guys are trading down and are somewhat depressed. But they have a fair amount of cash, and they could be a target,” he says.

Return from Exile

Post-Katrina housing thinks long-term.

Temporary housing has a way of becoming permanent, as evidenced by the fact that many South Florida residents still live in FEMA trailers more than a decade after Hurricane Andrew. An as-yet-unknown number of Katrina and Rita evacuees in Louisiana may sidestep that fate and return to their former neighborhoods now that a prototype for safer, more sustainable (and prettier) post-disaster housing has received federal funding.

The umbrella consortium Cypress Cottage Partners has received a $74.5 million grant through FEMA's Alternative Housing Pilot Program (AHPP), to rebuild four Louisiana neighborhoods. Infill projects will include New York designer Marianne Cusato's “Katrina Cottages,” as well as clusters of multifamily “carpet cottages” (which fit together like puzzle pieces for a density of up to 37 units per acre) designed by architect Andres Duany, principal of the Miami-based planning firm DPZ. Both prototypes feature panelized construction for easy assembly and are designed to withstand 220-mile-per-hour winds.

Redevelopment will focus not just on housing for displaced families, but also on long-term community building, says William Smith, CFO of Cypress Cottage Partners. Enclaves of new homes will be sited to facilitate access to education, health-care, and public transportation. The first residents deemed eligible by the state to occupy AHPP cottages will live rent-free for two years.

CYPRESS COTTAGE PARTNERS

“There is a significant economic revitalization component to this effort,” Smith says, forecasting that home building activity will create local construction jobs, spark repopulation, and serve as a catalyst for additional private reinvestment.

“We're looking to create a blueprint for how this type of program might be implemented in other disaster scenarios, including guidelines for the degree and nature of federal, state, and local government involvement,” Cusato says. “The fact that these homes are made from panelized systems means they can be stockpiled in a warehouse and ready for deployment anywhere when disaster strikes.” - Jenny Sullivan

Subprime Shrinking

Tougher underwriting standards cut some borrowers out.

In case the current housing market wasn't bad enough, builders should be ready for subprime mortgage underwriters to require higher credit scores or bigger down payments from borrowers—and a drastic reduction in the availability of stated-income loans.

“There are borrowers looking to purchase homes who, three months ago, could have qualified at any subprime outlet in the country,” says Ron Booth, senior vice president and national production manager of the subprime division of Nashville, Tenn.–based First Horizon Home Loans. “A lot of them can't qualify today.”

The biggest impact, he says, is in higher loan-to-value deals, where both credit scores and appraisals are being carefully scrutinized. Last year, many lenders would provide a 100 percent, full-documentation loan to a borrower with a credit score of 580, he says. Now, those loans require a score of about 620 to qualify.

Builders can help themselves by contacting lenders in advance to find out what kind of buyer profile is acceptable, says Richard W. Nirk, executive director of the National Association of Residential Construction Lenders.

It's to a builder's benefit to help a subprime buyer qualify, says Scott Baughman, sales and marketing director for Premier Homes, a starter-home builder in Pueblo, Colo., whether it's a lease-purchase program to help him improve his credit or helping him find a job. “We don't just roll over and say it doesn't work,” Baughman says. “We come up with creative ways. An on-site person would never think, ‘How can I help a person get a job?' [as a way to help a borrower qualify for a loan]. But in doing that, we accomplish our goals.” - Pat Curry