Once Ron Froehlich of Froehlich Signature Homes constructed only semi-custom and custom homes. Now the Bakersfield, Calif., builder builds almost everything but that. The housing market's crash essentially eliminated the custom home market in Bakersfield, forcing Froehlich’s operation to become more flexible than Gumby.
“Bakersfield is ground zero for the foreclosure market,” says Froehlich. “At one point we had more than 4,000 houses on the market. Nobody was building new homes. We didn’t have a choice but to diversify.” So he developed and built apartment buildings and office condominiums. He bought, rehabbed and resold foreclosures and begun dabbling in the starter home market.
“I’m working harder than I think I’ve worked in the last 10 years,” says Froehlich, who started Signature Homes in 1987 and built 15 to 25 houses a year before the downturn. “But you have to do what you have to do to survive.” Others might have pursued a different career or considered relocating, but not Froehlich. Building is what he does, and moving from the community where four generations of his family have lived since 1905 wasn’t even a consideration.
When the market began crashing in 2006, Froehlich looked to a large parcel of land that he owned. Zoned for multifamily and commercial, the parcel might be developed as a source of income, he thought. With the help of architects from The Evans Group, he developed a master plan for the land that included luxury apartments in the back and condominium offices in the front.
Construction on the 160-unit apartment complex, which is gated and has garages and a recreation center with a swimming pool and fitness facility, finished in 2008. It was well-received in the community, said Froehlich, who sold half his interest in the project and kept the rest to generate income for the company.
“The original idea when I laid this out was to keep them all (for income) but, unfortunately, with the market, we had to sell half of them. (The cash from the sale) was a godsend," he says. "It couldn’t have happened at a better time."
Froehlich also began developing the office portion of his land, building five buildings that could be divided into office condominiums of 2,000 to 2,500 square feet each. Again, he kept three of the buildings for revenue and sold off two. He just finished a sixth that he has leased long-term to a doctor.
He also has a second phase, that would include 20 buildings, on the boards. “But that’s going to take some time,” he says, given the slowing of the local office market.
So the former custom builder is diversifying again, this time to entry-level housing, by buying a handful of lots, model homes, and house plans from another builder who went out of business. “We are trying our hand at that,” Froehlich says. “It’s a whole different mindset.”
He admits that competing with foreclosures will be tough for his new venture. But he has a secret weapon: his apartment renters, who are also potential buyers.
Froehlich has also joined the foreclosure fray, in a way, buying sad-sack houses and fixing them up for sale, which is how he got started in home building 20 years ago. “It’s kinda rewarding,” he says. “They just destroy neighborhoods, so we roll in there and turn the grass green again and put a fresh coat of paint on them and fix them up.”
With the home-buying cycle in mind, Froehlich is working with The Evans Group to create a new product for the move-up buyer in the $400,000 to $500,000 price range, which keeps those home eligible for FHA loans.
Even as the housing market begins to recover, though, Froehlich plans to keep his commercial real estate ventures. He currently has a parcel of land that would work for a shopping center, he says.
“We’re going to stay diversified,” Froehlich declares. “We are not ever going to go back and have all our eggs in one bucket. That got a little dicey for us."
Teresa Burney is a senior editor at BUILDER and BIG BUILDER magazines.