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Feb.22 - Waiting for the Light to Change: Builders, Suppliers Rely on Patience, Resourcefulness

Waiting for the Light to Change: Builders, Suppliers Rely on Patience, Resourcefulness

By Ted Carter
TBJ Staff

Back in mid January, the audience at the Savannah Area Chamber of Commerce Outlook 2010 luncheon heard a prediction that Savannah would see the start of a sustained economy recovery in the third quarter.

But a significant qualifier accompanied the welcome news: home builders and construction supply businesses will probably have to wait for their rebound, according to Robert T. Sumichrast, dean of the University of Georgia’s Terry College of Business.

It’s true that “substantial price declines have made homes more affordable,” he said, adding that in 2010, “Home sales will help propel Georgia’s economy forward.”

But on the way to 2011, continued tight credit and builder concerns over a glut of foreclosed homes will decrease construction spending, Sumichrast predicted.

For Ray Gaster, a supplier of lumber and building materials, that means more to grin and bear after a year in which business dropped by 40 percent.

Gaster says his lone option is to pursue new lines of business while waiting for the light to change. “You try to figure out how to get more out of each house you supply,” said Gaster, whose Gaster Lumber and Hardware has locations in Savannah, Bloomingdale, Eulonia and Hardeeville, S.C.

Likewise, small Savannah builders like Whitlow Construction and larger ones like J.T. Turner Construction will join in the waiting, though both building companies agree with Dean Sumichrast that business should pick up by this time next year.

“Every forecast that we have received and researched has noted that the construction sector will be in recovery mode by 2011,” in the opinion of Tripp Turner, J.T. Turner’s director of business development.

“Our backlog of construction opportunities suggest that this will be true,” he adds.

To help ensure the rebound comes, said Turner, “we need to continue to encourage local citizens to select area contractors and local vendors for all their building needs.”

Jeff Whitlow, a custom homebuilder and renovator who owns Whitlow Construction along with wife Luann, said he thinks the construction picture “will improve some” this year. The improvement will come with more renewed confidence by buyers, he believes. 

“Now is a good time to move forward,” according to Whitlow, emphasizing he expects that buyers waiting for further price declines will see only higher prices later.

Current attractive prices all but ensure a better 2010 than 2009, according to Whitlow, who said his company, whose work includes estate homes at Telfair Plantation, has made it through the slump without any unsold inventory. “I’m the exception,” he said.

Whitlow Construction will continue with some custom home building and expects to team with a developer on spec home construction, he added, and said he also expects to further cement his company’s niche of new construction in Savannah’ historic district.

Meanwhile, Whitlow Construction expects to pay less for its materials, as does J.T. Turner Construction.

“Potential clients are presented with a prime opportunity to build and/or renovate at this time due to more economical material costs and labor costs,” according to Turner.

So far, lower costs of materials have not necessarily led to more business for suppliers, according to Gaster.

He said his inventory is about 40 percent of where it was at the height of the building boom at mid decade. And inventory is staying put longer, he noted.

“In the old days,” he typically kept a three-week supply of inventory, but  “nowadays I have more like a 45-day supply,” Gaster said.

With prices dropping and inventories not moving, a lot of saw mills and makers of Oriented Strand Board have shut down, according to Gaster.

Right now he’s getting about $6.50 a sheet for Oriented Strand Board, or OSB, a board of dried wood chips, glue and additives. Gaster said he’s accustomed to getting $10 to $12 a sheet.

The upside is the higher prices could return at the first sign of a rebound in home prices, he noted. “Any up tick should drive prices up sharply,” perhaps 30-50 percent.

What will drive up the prices?  Labor, steel and copper, he said.

Low construction labor costs “will only hold up so long,” Gaster said, adding he expects those costs “to incrementally pick up.”

And “what we’ll be watching closely is steel,” he said. “One bellwether is rebar,” referring to rods of re-enforced steel. The stick of steel rebar that sold for $15 a year ago is down to $5.”

Meanwhile, “copper and wiring is headed up,” he said, attributing the climb in copper prices to renewed construction activity in China.

He’s not expecting a boost from President Obama’s proposed “cash-for-caulkers” program that would give homeowners cash incentives to make their homes more energy efficient. In a different time the proposal would be sound. But with many homeowners owing more on their residences than the homes are worth, the proposal misses the mark, Gaster believes.

“They are out of touch,” he said of Obama administration policy makers. “People are not going to fix up a depreciating asset.”  Further, many people are struggling just to keep their homes, he adds.

Gaster has tried to wring more business out of the slumping building industry by adding to his offerings. Today you will see his workmen at job sites installing doors fireplaces and closet shelving. “This is going to enable us to grow our business” and increase the chances “at surviving,” he said.

Staying nimble and resourceful will also be a key goal of J.T. Turner Construction in the months ahead, agrees Turner. “Our company is versatile. Not only are we capable of doing a kitchen renovation, but we can also complete projects such as the LEED Certified ILA Pension and Welfare Offices or the renovation of the historic Espy House for Wesley Monumental Methodist Church.”

Stagnant commercial real estate development presents opportunities as well, Turner noted. “We understand that private commercial real estate and development will be more problematic during 2010, but within our region we see expansion in the areas of military, medical, ports authority work, and governmental project opportunities. We feel this is an opportunity to capitalize on the renovation of dated commercial building.”
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