2009 May Be Year to Build On
Friday, December 26, 2008 // San Francisco Chronicle
by Carolyn Said
Robert Freed vividly recalls the first house he saw under construction. When he was in the second grade, his parents built a home in Saratoga.
"There was a point in time when the foundation had been poured," he said. "I walked it with my grandmother and grandfather; they put coins in the corners of the foundation to bring us good luck. It was the first time I knew of such a tradition; I remember the experience being so wonderful."
These days, Freed has returned to his Bay Area roots as CEO of builder SummerHill Homes of Palo Alto, which has projects under way in San Jose, Palo Alto, Menlo Park, San Bruno, South San Francisco, Fremont and Union City. Its focus is infill development - using land within built-up areas - which he considers the right approach for the Bay Area. SummerHill projects range from smaller, single-family detached homes to condos, with density per acre ranging from "north of 30" to six units.
Freed joined SummerHill in September 2007 - just after the credit crunch really walloped the already-foundering real estate market.
"My timing could be considered either impeccable or unfortunate," he said dryly.
He sees his role as guiding the company through the turbulence and positioning it to emerge strong amid a shrunken field of competitors.
While the entire real estate market is reeling from the foreclosure crisis, plunging home prices, drastically tightened lending and this year's Wall Street meltdowns, home builders are among the most affected.
"It's been a brutal year for new-home builders, especially for private builders," said Patrick Duffy, principal of consulting firm Metro Intelligence Real Estate Advisors in Los Angeles. That's because private builders rely heavily on bank financing, which has been effectively shut off in recent months, he said. Public firms have more options, such as lines of credit and selling stock.
The industry's own trade group, the California Building Industry Association, said home building is in "dire straits." The pace of home sales in October, for instance, was "extraordinarily bad," it said, down 63 percent from a year earlier. New-home starts have plunged to record lows. CBIA projects that only 66,000 new homes and condos will be built in California this year, compared with 160,500 in 2006.
Duffy said SummerHill's saving grace likely is that it's owned by Marcus & Millichap, a national real estate investment brokerage from Encino (Los Angeles County). "I would think having Marcus & Millichap behind them would be analogous to having a public company behind them," he said. "That leverage probably helps."
Freed doesn't mince words when talking about the obstacles.
"This is definitely the most challenging and most severe downturn I've experienced," he said. "It gets tougher and tougher to secure financing. Revenues are clearly down. Absorption rates - the rate at which one sells - are clearly down. There are fewer buyers, and they're looking for what they perceive to be bargains at the expense of the seller. It's like daily hand-to-hand combat."
Like most of its competitors, SummerHill has had to reduce staff significantly, shrinking from about 125 positions to 80. At the same time, "We've taken the opportunity to hire some very senior people who became available to us because of the downturn," Freed said.
In another move to be ready to rebound once the market turns around, "We've made a conscious decision to maintain staffing levels in land acquisition and forward planning" - obtaining government approvals, for instance.