Schuck & Sons Construction, which over 46 years as a framing contractor has helped build more than 100,000 homes in Arizona, will spend the next three or four months winding down its operations after its managers disclosed last week their intention to close the company.
MCA Financial Group is supervising the wind down of the Glendale, Ariz.-based contractor. Builder was unable to speak with John Boyd, MCA’s spokesperson who is fielding questions about the company, before press time. Last week the Arizona Republic quoted Morrie Aaron, MCA’s president and senior managing partner, who attributed the contractor’s demise to the severe decline in Phoenix’s home building activities.
Over the past several years, builders in Phoenix and most other housing markets around the country became increasingly aggressive about getting trade partners to lower their costs so builders could offer houses at significantly reduced prices to help them compete with foreclosed resales. But one of the inevitable consequences of those cost demands—especially on a company like Schuck & Sons, which was framing for several of this market’s larger builders—has been attrition among contractors that simply reached a breaking point at which they could no longer operate profitably.
Ironically, the timing of Schuck & Sons’ decision to close coincides with Greater Phoenix’s housing market beginning to show signs of life again. Permitting is on the rise, and the Arizona Business Journal reported last month that new-home sales in January, at 496 units, were up 49% over the same month in 2011.The Journal also noted that there is no longer an oversupply of houses at prices under $300,000.
Downtown Scottsdale—where there hasn't been an apartment built in a decade—is poised for a transformation as a result of the Downtown Infill Incentive Program passed in 2010. That program has spurred the submission of seven apartment projects and one condo project since November 2011. Each of these projects is going through the entitlement process and, if approved, would add 2,824 new apartments, 781 new condos, and thousands of square feet of new retail space mixed into the residential projects.
Robson Resort Communities, the Sun Lakes, Ariz.-based builder for which Schuck & Sons had been a contractor for 22 years, does not expect its construction to be disrupted by Schuck’s market exit. For one thing, building until recently has been modest because there aren’t many sales right now. “And framing has been especially competitive in recent years, so we’ve been using multiple framers on the same projects,” says Steve Soriano, Robson’s executive vice president.
Still, he says “it’s a terrible shame to lose one of the trades.” And now that market conditions are improving, finding qualified labor could become a bigger issue for local home builders going forward. “We’re already seeing [shortages] in certain trades,” says Chris Harrison, Robson’s vice president of construction.
Schuck & Sons has been 100% employee-owned since 1997. Even though its managers chose not to liquidate under Chapter 7 of the U.S. Bankruptcy Code, closing the business raises questions about what, if anything, past and present associates are entitled to for their ownership stakes.
In any bankruptcy or liquidation, court-sanctioned or not, employees are generally lowest on the totem pole when it comes to getting some remuneration for debt owed. For example, when Florida-based Mercedes Homes reorganized under Chapter 11 a few years ago, past and present employees, who owned 44% of Mercedes at the time, got nothing, whereas the majority stakeholders, the Buescher family, received 100% of the new stock issued by the company, which also had favorably renegotiated its bank debt through the reorganization process.
(That plan, though, didn’t take: Mercedes Homes recently closed its doors, although its managers reportedly are considering building and developing homes again under a new name and business entity.)
John Caulfield is senior editor for Builder magazine.
Learn more about markets featured in this article: Phoenix, AZ.
