Building a residential boom

Construction keeps driving economy

by Christopher Key

Historically, Whatcom County has led the rest of the nation into the economic septic tank and lagged behind when the rest of the nation clawed its way out. That didn’t happen during this last recession and the booming construction industry is one of the main reasons. Residential construction, in particular, is hotter than a firecracker lit at both ends.

John Perry grew up working for a neighbor who was an electrical contractor.

“I remember he had an aptitude for anything,” Perry said. “I wanted to be a home improvement contractor, but couldn’t get bonded at age 18.”

Perry Construction was founded on the East Coast in 1982.

“I discovered Whatcom County while on a cross country bicycle trip,” Perry said. “I moved the business here in 1991 and started remodeling older houses. I’ve always depended on word of mouth advertising along with an ad in the Yellow Pages to pull in some high end business.”

Church Street is a quiet cul de sac that runs off 30th Street south of Happy Valley. Perry built all the homes on the street over the past ten years. He’s now on the third home he has built for himself.

“I’ve held back a lot because I didn’t want to risk expansion,” Perry said. “We doubled sales last year and I’d like to keep it about the same.”

The company kept six employees busy last year and will probably pick up a few more as the season progresses.

“It’s tough finding good people,” Perry said. “It seems like there are fewer and fewer people who want to make a career out of construction.”

He finds that puzzling since it’s one of the better paying jobs in Whatcom County.

“Building custom homes is a great way to make a living if you can find the land,” Perry said. “I’d like to find another area like this and build out the street.”

The key to success for Perry is finding out what the customer wants and making sure that both he and the client are comfortable with the price.

“I’ve built homes for a lot of locals over the years,” he said. “Last year, though, I had three customers who came from out of the area, all retired.”

Perry specializes in medium to high end homes.

“With the price of land and lumber these days, I’m not sure there is such a thing as a low end home,” he said. “I’m doing about 25 percent remodels at this point.”

The toughest challenge for a contractor is the cost of insurance.

“That may be driving some people out of the business,” Perry said. “It’s driving a lot of general contractors into specialty areas. I might start bringing in subs under my license to cut costs.”

The construction boom, Perry believes, should carry through the 2010 Olympics in Vancouver.

“There may be a bit of a flat spot after the election when interest rates usually go up,” he said.

Permit and financing lag times are another challenge, along with the availability of land.

“It’s tough to find a lot under $50,000 anywhere,” Perry said. “I’ve never seen land prices go down.”

He is well aware of the role construction has played in the local economy.

“It’s just like any other job,” Perry said. “You try to make everybody happy and hope you can make a little money at the end. People think they can build their own homes, but it’s well worth having a professional on the job. I’ve always emphasized doing things right and going one step beyond. As a remodeler, I’ve seen a lot that was done wrong.”

Scotti Shannon is involved with construction both as a builder and a real estate agent.

“Shannon Construction is just my husband and I,” she said. “He had a drywall company and then we decided to build seven or eight years ago.”

Currently, they’re partnering with Ned Russell for a 15 home development at Sunset and East McLeod.

“That project will eventually extend to four phases and a total of 300 homes over the next several years,” Shannon said. “Some haven’t even been platted yet. We have eight homes under construction right now that will be priced from $239,000 to $265,000.”

She agrees that the dwindling supply of land is increasing demand and prices.

“The clustering requirements mandated by the county and the Growth Management Act means that a lot of homes are being built on what amounts to 5,000 to 5,500 square foot lots,” Shannon said. “Most people prefer more space than that and buyers are complaining, but there’s nothing we can do about it.”

Prior to undertaking the current project, Shannon Construction built a lot of homes in Sudden Valley where lot prices are more reasonable.

“We were selling them before we could get the drywall up,” Shannon said. “I think the construction boom is good for a couple more years. All those out-of-staters coming in will need houses even if interest rates go up after the election. As a real estate agent, I represent three builders and almost everyone we are selling to is from out of state. One Florida customer bought a house having only seen digital pictures of it on the Internet.”

She gets three to five calls a day from customers looking for land.

“There are a few lots in the city in the $35 to $40,000 range, but they don’t have services,” Shannon said. “Anything in the city with services is running $60 to $70,000. The cost of land is driving up the prices of homes. We can’t as a society live too close together. If we can’t get more land, only the rich will live here.”

Shannon Construction uses a core group of subcontractors who have been with them from the beginning.

“We supplement our core group with hourly workers we get through Everyday Staffing,” Shannon said. “It’s a juggling game. We work hard and it’s tough to find a labor force that will work that hard. It seems we usually get about 60 percent effort. We’ve considered going with subs entirely and letting them worry about the labor.”

The company is committed to hiring and buying locally.

“Getting money from lenders was the toughest challenge when we were starting out,” Shannon said. “Mom and Dad bought our first land for us, borrowing on their home equity. Now that we’re established, it’s easier to borrow and it got even better when I got my real estate license. That enables me to work with other builders, share subs, work with lenders and look for land together.”

She would like a bit more help from county and city lawmakers.

“We have to handle growth, so let’s work together rather than having rules dictated to us without our input,” Shannon said.

Moceri Construction signs have been seen around this area for 29 years. The company has built a reputation for high standards in which Paul Moceri takes great pride.

“In addition to custom homes, we do high end remodels and some commercial work,” he said. “We don’t solicit commercial business, but it seems to come by word of mouth. We’ve done a lot of bars and restaurants, like La Fiamma, Sheehan’s, Busara.”

Moceri keeps 15 carpenters busy year round by supplementing new construction with remodeling projects.

“New construction can be a bit of a roller coaster,” Moceri said. “Remodeling helps keep things steady. I could probably grow the business by 25 percent, but I don’t want the quality of our work to suffer. I don’t want to say no to customers, but I don’t want to overbook, either.”

The company has six office employees in addition to the construction crews.

“The phone rings all the time with people looking for work,” Moceri said. “But it’s not easy getting well rounded carpenters. I try to treat everyone with respect and pay them well. Employees are the heart and soul of this business. The first employee I ever hired is now a project manager with me. Some of my people have left to start their own businesses and I’ve hired them back as subs.”

He has successfully positioned the company to compete for top end, multifaceted projects.

“I try to bring together the best team for the project,” Moceri said. “Doing quality work for the price is more important than being the lowest bidder. Some people like one man shows. I think the team approach is better for construction.”

Moceri has become a good accountant along the way.

“Knowing your books is very important,” he said. “I always want to know exactly where I stand.”

At least half of his clientele is moving here from elsewhere.

“Bellingham is getting a reputation as a good place to live,” Moceri said. “It’s scary for people from out of town to hire someone they don’t know. I come out pretty well when they check my references. Most of my customers are more mature and can make decisions on a less emotional basis. They take the time to interview builders to see if there is a similar value base. If my style fits, we go ahead.”

He has no desire to compete in the low-end housing market.

“High end customers are not necessarily more demanding, but they’re usually smart,” Moceri said. “We’re all human; we’re all doing this together. I want it to be a good, fun experience for everyone. Our Web site is a good way for out of town people to judge our work.”

He agrees that rising interest rates following the election may cause the boom to taper off a bit.

“We’ve built projects mostly in Island, Skagit and Whatcom Counties,” Moceri said. “We haven’t been out to the San Juans for a while.”

The biggest houses are not necessarily his favorites.

“My goal is to capture the personality of the customer in the project,” Moceri said.

Technically, multifamily housing comes under the heading of commercial construction. For the purposes of this article, however, I thought it would not be complete without the input of at least one company involved in apartments and condos.

Brian Wellman and his partner George Zuck have been in the construction business for 26 years.

“We started as subs, doing framing and foundation work,” Wellman said. “Then we got into doing custom homes about 16 years ago. From there, we started taking on commercial projects.”

Wellman & Zuck has built well over a thousand units of multifamily housing.

“We did Sunset Pond, Canterbury Court and lots of projects up at Western,” Wellman said. “When multifamily started slowing down, we moved into other commercial projects. We built the Bellwether complex, schools, police stations. Right now we’re working on the Northwest Medical Clinic behind Jerry Chambers and a marine lab in Friday Harbor for the University of Washington. We just finished the Garden Homes on Northwest Avenue.”

One of the reasons he prefers multifamily over single-family projects is the unrealistic expectations of single family customers.

“With income property, the dollar volume is higher,” Wellman said. “We can get in and out quicker. It takes the same amount of time to do a 40 unit complex as it does to build a $600,000 home. The customers usually want the jobs done quickly so they can begin collecting rent.”

Insurance has become a huge factor for multifamily builders.

“It’s much worse for condos than for apartments,” Wellman said. “With apartments, you only have one owner. With condos, you have multiple owners and multiple attorneys. That can mean an additional $10,000 premium for a 40 unit complex.”

He speaks from experience, having just completed the first phase of the CentrePointe condos near Bellis Fair.

“It would be my guess that 90 percent of the contractors here don’t carry insurance for condo construction,” Wellman said. “The market, however, is the strongest I’ve ever seen. I think the insurance situation will get better. It will probably become more job specific.”

A new approach called the wrap policy helps cover subcontractors that often can’t get coverage for condo projects. It also means that a project has just one insurer rather than many. Insurance costs have now become a line item billed to the customer.

“Single family residential is booming because of low interest rates,” Wellman said. “But I’ve never seen commercial construction so slow. Government and private building is as slow as I can remember. It’s a scary time to be a commercial builder. Everybody and his brother are on the bid list for projects. He who makes the most mistakes wins.”

The most frustrating challenge for Wellman is the escalating cost of construction.

“Lumber has skyrocketed,” he said. “Sheet goods, plywood, went from $6.20 last June to $23 today. Copper has taken a 40 percent jump. Gas has gone way up. When all these things hit at once, the cost has to get passed on. The cost per square foot goes up. My biggest fear is fuel costs. Trucking costs affect everything we do. Not many years ago, we were building basic apartments for $60 to $65 a square foot. Now, it’s $77 and that was before a lot of the price jumps. There’s a lot of greed going on. I don’t know the solution. Some people seem to be jacking prices just because they can.”

Wellman speculated on the future of multifamily projects.

“It’s going to be tough to pencil out,” he said. “Land costs are so high that they’re affecting per unit prices, but rents are not going up in proportion. We may see a big dip in multifamily construction.”

Life may be a bed of roses for the single family residential contractors, but it may become a bed of nails for multifamily builders. Even with an expected increase in interest rates following this year’s election, that bed of roses seems sturdy enough for the time being. Now, if they were just making more land…