Putting on my play clothes after school to go work on my “fort” in the woods behind our house was the best part of my childhood. I’ve always wanted to build things – I would ask for nails for my birthday, preferably 16-penny.
Fast-forward to college, and it was fascinating. But I couldn’t wait to graduate and get to work – taking extra hours each semester and a couple stints of summer school. I was out early. As a business major, my courses centered around process, marketing, management and growth.
Looking back, I didn’t get what I needed most: a genuine understanding as to what to do when things go bad, really bad.
I’ve been self-employed since I was 19, and there have been plenty of cycles in the economy since that time.
I paid attention, I asked questions and I was certain I would never repeat the same mistakes of those who had failed during those ups and downs.
But no one seemed immune to the Great Recession.
One could argue that our local real estate, development and construction industries took it the hardest, not just in jobs lost – thousands – but also the number of failed enterprises, bruised relationships and slashed real estate values.
These days the company I founded with David Nathans in 1997 – originally Plantation Fine Homes, then Plantation Building Corp. and now PBC Design+Build with my current partner Kyle Henry – builds homes.
Unlike a traditional retail business, the margins for construction companies are narrow. Beyond consumer demand you’re relying heavily on strong management, a stable pool of skilled labor and limited movement in commodity pricing.
A few percentage points in the wrong direction, and you end up working for free.
Prior to 2009, it was understood that a change in market conditions would affect our business, but we believed we were well-prepared for a downturn, certainly nothing that couldn’t be managed.
Our assumption was flawed, as our overhead extended well beyond our gross profit and as real estate values reset. I learned that a bank can ask for more money against an existing loan to keep their ratios in balance.
Actually I learned a lot more than that in 2009 – new words like “compliance,” “forbearance” and “curtailment.” While I was fortunate to avoid words like “insolvency” and “bankruptcy,” I can fully articulate the differences between Chapters 9, 11 and 13.
I’m grateful to look back with relief, and our approach is dramatically different today than that of a decade ago.
Construction and real estate are very broad descriptors. Wilmington is a small town, and we spent years trying to be everything to everyone – commercial, development, multifamily, remodeling and custom homes.
Today PBC Design+Build is a custom homebuilder serving the Wilmington region. That’s it.
We are still presented with many opportunities to diversify, but by politely declining, it makes it that much easier to fine-tune our processes and concentrate on what we do well.
There hasn’t been a time in history where homes were ever more complex. It goes beyond government regulations and the building code. It means understanding how homes are built and what it takes to make sure a decision on day 14 doesn’t have a negative consequence that may not materialize until months (or even years) later.
I get asked daily about our local market, about interest rates. Like a bunch of others in the real estate business, I guess we’ve unceremoniously become somewhat of a bellwether. I predict the next correction won’t be as bad as the last because guys like me (hopefully) matured to the point of some restraint and constant reality checks – something I lacked more than a decade ago.
But there will be a correction, and for those who have prepared, the opportunities will continue to materialize, and others will not be as fortunate.
I don’t know exactly what will cause the next correction, but I can tell you what keeps me up at night: There are a lot of moving parts that touch the costs associated with construction.
Regulatory and environmental challenges, immigration, lack of truly skilled labor and an aging pool of business owners whose children aren’t necessarily going to follow in their parents’ footsteps.
Affordability is going to get worse as well, and it will become more noticeable as both interest rates and hard costs rise.
Homes are the very last consumer product that is completely handmade. I believe we’ll see more efficiencies in construction like those we see in Europe and Asia where walls are mass-produced and assembled like a kit.
You’ll still see housing built, but fading will be the thought, character and emotion that comes with the art of design and the talent of a tradesman.
Feeling completely safe or immune to the next set of challenges in the economy isn’t likely to occur, but we do enjoy a maturity that only comes from experience.
We step back more often than we like to retool or readjust one of our processes – it’s not perfect. It will never be perfect – but it will be great.
Dave Spetrino is president and founder of Wilmington-based PBC Design+Build.
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