Fulton Homes in Tempe, Ariz., is the latest builder to find shelter from the housing storm in remodeling.
The builder has been offering its remodeling service, through a company called Fulton Interiors, for about six weeks to owners who have purchased homes from the company over the past three decades. As demand for its new homes languishes—Fulton expects to close around 500 homes this year, versus 636 in 2007, 2,500 in 2005, and 1,500 in 2001—remodeling is putting to greater use a 30,000-square-foot design center that Fulton Homes opened 18 months ago. "It made sense to try to get more activity out of that," says Dennis Webb, Fulton's vice president of operations. "We have professional designers there who could be handling more."
Through mid-July, Fulton Interiors had contracted for about 20 projects. It offers financing through Fulton Homes' mortgage division (which has a joint-venture arrangement with Wells Fargo), although Webb says that most of Fulton's remodeling clients have been paying in cash or have their own financing in place.
There have always been design/build firms across the country that take on both home building and remodeling. But most specialize in custom projects, and few production builders have made this leap, even as their new-home construction activities slowed to a crawl. Remodeling, a $275 billion industry, is very different from home building: more detail-oriented and more hand-holding with customers. The industry is far more fragmented, too, and a remodeling business can be tough to sustain, even for large companies. Atlanta-based John Wieland Homes and Neighborhoods once offered the service, but sold its remodeling business two years ago, according to spokesman Brain Wallunas. Even Home Depot, which handles about 10,000 remodeling installations per day in North America and last year generated $3.5 billion from installation services, no longer views remodeling and repair as one of its key growth drivers, according to comments that Frank Blake, its CEO, made to analysts recently.
Still, a smattering of builders has made the plunge into remodeling, including Lifestyle Homes in Reno, Nev., and Hubble Homes in Iowa. Last December, John Cannon Homes, a luxury custom builder based in Tampa, Fla., that closes between 90 and 100 homes in a normal year, launched a remodeling program that, in the ensuing seven months, "has been working out extremely well," says T.J. Nutter, this builder's COO. (Remodeling is one of several new businesses that John Cannon Homes has expanded into during the downturn. It now also does commercial work, fixes up and maintains foreclosed homes, and operates a full-service interior design firm.)
To drum up interest in its remodeling services, John Cannon solicits past customers, and Nutter says his estimators go out on three appointments per week. Unlike most builders that get into remodeling, John Cannon Homes offers its services to anyone, although a client who didn't buy a house from the company has to be referred to its remodeling services by someone who did.
Nutter says his company hasn't needed to make many changes for remodeling. Its accounts receivables and payables are the same, and it's been using some of the same subcontractors that build its homes. (John Cannon is a certified, licensed Class A contractor in Florida, so it can build any kind of structure within the state.) "We interview the trades and take their temperature about doing remodeling," says Nutter. (The subs must be fully insured and follow OSHA's jobsite safety requirements.) He adds that the subs' contracts and draw schedules had to be adjusted for remodeling jobs.
The remodeling jobs that John Cannon Homes takes on include kitchens, baths, room additions, as well as smaller repair projects. In a year when its closings are expected to fall to 75 units and new-home sales have been off by more than 40 percent, Nutter says remodeling has proven to be "a reliable revenue stream" that is expected to produce between $3 million and $5 million in sales from 20 to 30 projects. He also says that remodeling "is here to stay" at John Cannon Homes, even when home building gets back on track.
Webb at Fulton Homes isn't sure yet whether his company will continue to offer remodeling services once the housing market recovers. "We're going to see how demand is," he says. But for now, Webb thinks that Fulton Interiors has some competitive advantages over other local remodeling companies. For one thing, Fulton Homes has been around for 30 years, so "everyone knows us." Customers with major remodeling jobs can come into the design center and "find everything they need" to complete the project, he says. Fulton Interiors also allow remodeling customers access to a password-protected Web site where they can view products and prices (the latter of which most remodelers usually don't post on their sites). Webb adds that his company "is trying to be as competitive as possible" with its pricing.
Fulton has a joint-venture agreement with a local remodeler, New Home Interiors, to which it refers customers for flooring and carpeting jobs. Fulton Interiors handles all other requests, which Webb says have ranged from full kitchens to smaller jobs like cabinet refacings and even installing doorknobs.
In the first wave of marketing for its remodeling services, Fulton Homes sent out about 1,000 direct mail pieces for Fulton Interiors to its homeowners, targeting those homes that were seven to nine years old because, explains Webb, "the owners have some equity in them, and we have real current [house] plans for them." He says that the company won't do another direct-mail campaign until it completes the projects it has already started. "We don't want to get too far ahead of ourselves."
John Caulfield is a senior editor for BUILDER magazine.