Credit: John Curry
Jaguar Boulevard is a long,lonely testament to what has happened to the housing market in Southwest Florida. Miles from even a traffic light, it slices through the subtropical scrubland of the eastern edges of Lehigh Acres. Yet there are new houses here, dozens and dozens of them, many of them owned by residents who work—but can’t afford to live—in Naples, one county to the south.
Atop one house, a trio of vultures sits, waiting for something nearby to take its last breath and die. The concrete block carcasses of the Southwest Florida housing market’s freefall are everywhere along the boulevard, just one of hundreds of roads like it in the Ft. Myers/Cape Coral market. For every neatly tended stucco ranch home, there are three or four that have been abandoned in some stage of construction. Some jobs got no further than the rough plumbing coming out of the ground before the money ran out and the builder walked away. Others are finished, sitting sadly on lots choked with weeds and strewn with trash.
This is the mess that builders in the market are dealing with and working against.
“It’s a great market long-term, but there’s a lot of pain to be suffered here,” says Jamie Pirrello, managing partner of Vision Homes USA in Ft. Myers. “We’ve been treading water. I never expected it to get this bad.”
Long, hard fall
And make no mistake, it is bad. In January 2001, 147 building permits were issued for single-family homes in Cape Coral. For the same month in 2005, there were 601. In January 2008, there were 18, and local builders were happy to see that many. A month earlier, there had been nine.
Credit: John Curry
“The farther you go when you bungee jump, the farther you have to spring back,” muses Bob Knight, vice president of Cape Coral–based Paul Homes and president of the Lee Building Industry Association. “It’s distasteful.”
Once touted as the hottest housing market in the country, Ft. Myers/Cape Coral has become “the epicenter in the nuclear attack” of builder bankruptcies, Knight says. Some, such as Levitt and Sons and America’s First Home, have been high-profile closings. Dozens of other smaller builders have simply locked the doors and left.
The impact on the builders who are still in the market has been painful and far-reaching. Aside from having to compete against thousands of foreclosures, short sales, and vacant spec houses, they are struggling to find subcontractors to complete the houses they do have under contract.
“These [bankrupt] builders are taking out suppliers and subs who can’t collect their money and go broke,” Knight says. At the height of the boom, he was building 40 houses a year in the $350,000 to $700,000 range. This year, he’ll be happy if he does 14.
The situation turned particularly dark in February when a construction superintendent for a local builder was jailed. Local news reports said he pulled a gun on a subcontractor who had been stiffed for payment on a window installation and showed up on the jobsite to pull them out.
Credit: John Curry
It’s also created a sizable—and understandable—skepticism on the part of prospective customers, who worry that the builder will shut down before their house is finished and leave them in the lurch.
“We make it a point that all clients get to meet with both owners of the company,” Knight says. “They can look us in the eye and get to know us. It gives them the confidence that we’re experts.”
He’s also spending a lot of time in the community, keeping a high profile. “Networking is very, very critical,” he says. “If you’re not seen at some of the functions, they assume you went out of business.”
Many builders, including Paul Homes, have added remodeling to their portfolio of services, often working with their previous buyers to upgrade their homes, hoping to hang on until the market improves. They’re also slashing prices on whatever spec houses they have left, trying to build up cash reserves to tide them over until the market starts to rebound.
“Cash will be king for awhile,” Knight notes. “You’ll force yourself to cut back. We’ve downsized the company. I had to reduce my overhead to meet the size of sales. I was profitable in 2007. In 2008, maybe we’ll break even, for which I’ll be happy.”
Opportunity from failure
There are glimmers of hope in all the upheaval. Labor costs are down, and land prices have returned to the pre-boom levels. At the height of the boom in 2005, basic, cleared quarter-acre lots in Cape Coral were selling for $85,000. Now, they’re available for $15,000. In Lehigh Acres, they’re under $10,000.
Credit: John Curry
That’s created an opportunity for first-time buyers and retirees of modest income who had been priced out of Southwest Florida for the past several years. Hansen Homes, a Cape Coral–based, family-owned builder, has turned heads in recent weeks with full-page ads for a new, three-bedroom, two-bath house, including the lot and all appliances, for $99,900. Other floor plans in its affordable series run from $119,900 to $179,900. With the spiraling land prices during the boom, none of those price points would have been possible.
Even now, it’s tough, but Hansen has hung on by sticking to the same business model it’s used since opening its doors in the early 1990s—low overhead, no inventory, and long relationships with subs and suppliers who give them competitive pricing.
“We are designed to survive hard times,” says sales manager Tracey Hansen, whose father, Paul, owns the company. “We’re not doing things that cost us money. We don’t have spec homes. We don’t have a model center.” The company will help buyers find lots, but doesn’t own any.
Hansen says she finds the current environment “refreshing” because the buyers are primary residents, not speculators. “It gets you excited again,” she says.
The best news for the builders left in the market is that the newcomers who swarmed there during the boom—who lacked solid business skills, undercut the legitimate builders, and helped fuel the housing frenzy—are gone.
Knight likened the market situation for builders in Ft. Myers to a redwood forest, which propagates through fire.
“The market here was very much like the forest,” he says. “The shrubbery was much too thick. Will [the fire] hurt? Yes. Your legs will get burned. But in the end, the forest is very clear. The survivor in the forest will be the strongest. It’s not easy, but it’s a good thing.”
Other stories in Field Report 2008: