In a good year, Tower Park Construction in Twinsburg, Ohio, builds about two dozen homes. But through mid-October 2008, Tower hadn’t started a house in two years. Like thousands of other builders anxiously waiting for their markets to recover, Tower is “holding on,” says owner Jeff Budzowski, by taking on remodeling and commercial construction projects.
“Builders who would have turned their noses up at certain kinds of work are getting into renovation, commercial, retail, and even limited-scope projects like decks,” says Chris Pattey, director of residential construction for the Salisbury, Md.–based architectural firm Becker Morgan Group. The St. Louis Post-Dispatch recently reported on one custom builder, Padgett Building and Remodeling in Swansea, Ill., which now gets 70 percent of its business from remodeling, versus 40 percent in previous years. And the same tale is being told in every corner of America’s hobbled housing industry.
“We’re doing a lot of remodeling,” says Budzowski. Those jobs have included adding garages and sunrooms and finishing basements, as well as a complete makeover of a house owned by a player for the Cleveland Browns football team. Budzowski’s previous background was in retail store development, and he has also attempted to expand Tower’s business into renovating shopping centers. “What we found is that there’s not a whole lot going on” in that sector, he says. But Tower has bid successfully on some industrial projects, including a $130,000 renovation for a local generator systems distributor. Tower expanded the distributor’s offices, added a showroom, and spruced up the service and conference areas.
Budzowski’s experience illustrates some of the advantages and limitations of diversification: Yes, it keeps cash flowing, but the jobs are generally smaller, the margins can be tighter, and builders must compete with everyone and his brother who are in the same boat they are. “The market for any kind of job is more crowded these days,” says Michelle Dashiell, who co-owns Joseph T. Dashiell Builders in Ocean City, Md., which last spring launched a sister company, Beach Transformations, to manage its renovation and commercial work.
It’s true that shifting into commercial construction or renovation is no guarantee of success, as both sectors have slumped recently. But with residential construction on its back, builders may have little choice but to diversify, observes San Diego–based architect Kevin deFreitas. “The market that has existed for the last 30 years doesn’t exist anymore,” he warns, “and won’t exist in the future.”
New divisions for business
Several builders whose companies have made the transition to other types of building say they expect such moves to outlast the housing recession. “We want to make an effort to restructure the company, because we definitely see the demand” for renovation, says Dashiell. Since her company started Beach Transformations, it has been fielding two to three referrals per week and has completed such projects as a $70,000 interior remodeling of a financial services office, a roof replacement on a condo complex, and even a deck installation.