Steady as She Slows

For most of the past two-and-a-half years, Bill Varian has struggled to find workers for his remodeling projects, which are the mainstay of his business. The painters, stucco masons, concrete pourers and other workers have been in such demand that Varian was "begging them to show up on a job site."

But these days trade laborers are ringing him, saying they have the time and need the work-because Southwest Florida's residential real estate market is waning. "I'll use that as a pulse of what's going on there right now," says Varian, immediate past president of the Collier County Building Industry Association.

The time that many have predicted has arrived. The land rush, fueled by the region's population growth and investors with dollar signs in their eyes snapping up properties, has slowed. The trend has prompted such mammoth developers as Bonita Springs-based WCI Communities to halt construction

on projects and lay off employees after significant declines in orders for condos and single-family homes. WCI reported a nearly 70 percent loss in second-quarter revenues.

Moreover, it's having a ripple effect upon those connected to the building industry-designers, mortgage firms, advertising agencies and others.

The news is a mix of good and bad, though. Sales might be declining, but business boomed so much over the past couple of years that many orders are still being filled. Other companies are taking time to diversify to ensure that the current slowdown doesn't bite too huge of a chunk of their profits.

The reality is that the boom could not have sustained itself any longer, says Rich Halpern, principal of The Prince Group, which is marketing several communities in Cape Coral and Fort Myers. But he doesn't buy into others' "doom and gloom" outlook.

"I am shocked by how quickly people have forgotten. We had four years of what I call Disney real estate. Now we're back to what I call real real estate," he says.

What's been eliminated is the 20 percent to 30 percent acting as investors, says Halpern, founder and president of research firm Marketing Management Inc. "These were people who should not have been in the market. That created a false hypermarket that has now disappeared as quickly as it came."

A Screeching Halt?

Economist Hank Fishkind predicts that closings on new homes and resales this year in Southwest Florida will be off by 25 percent from last year. That drops the level of activity from extraordinary to good, he says.

"We're not in dire straits, but it's going to be a significant slowdown."

The Orlando-based economist attributes the bubble to excessive speculative building in the residential market. One cause is the low interest rates that made it easy to obtain financing for home purchases, followed by price increases, particularly in hotspots Cape Coral and Lehigh Acres.

Now higher interest rates and higher energy prices have sapped spending.

"Many urban markets have been subject to the same overbuilding," Fishkind says, especially with condominiums.

Nationally, construction spending dropped in May for the second straight month, according to U.S. Census figures released in July. Ken Simonson, chief economist for The Associated General Contractors of America, notes that as builders work through the backlog of unbuilt homes that they have already sold, private residential construction is likely to trail off further.

The slowdown definitely will have a trickle-down effect on mortgage firms, furniture companies, construction suppliers, subcontractors and others, although Michael Reitmann, executive vice president of the Lee Building Industry Association, isn't sure how significantly and for how long.

Mike Maxwell, partner in Maxwell & Hendry Valuation Services, started to notice differences late last year. One of the company's business segments-transactional work that includes sales and refinances-dropped off. He first saw the slowdown occurring in Cape Coral and Lehigh Acres, followed by other communities. "We definitely noticed a dramatic change in activity," says Maxwell, who has nine employees.

As prices quickly exceeded affordability in Lee County, Maxwell knew "this would eventually have to happen. It's inevitable the market has to pause." What was surprising was how fast it happened. "Buyers just dropped out. It was almost as if they were functioning as a single organism," he says.

Survival Tactics

The key to survival for Maxwell's Fort Myers-based firm and other companies is to diversify and offer a range of services to clients. Although sales and refinances are not as large a part of the business as they were last year or in 2004, other sectors, including estate and eminent domain work, remain strong, he says.

"The temptation that a lot of people fall into is when times are good, it's easy to grab onto that," while taking the focus off other segments of the business, he says.

Reitmann agrees, saying he expects to see firms refocusing and readjusting, placing more emphasis on remodeling, for example.

Interior design firm Holland Salley has one designer doing only remodeling work and another designer spending a great deal of time on those clients as that segment has experienced an uptick. Deborah Hamilton, president of the Naples-based company, says people who have inherited older condos on Gulf Shore Boulevard are among its clients.

An example of the changing times: The Prince Group expects to sell 100 homes this year compared to the heyday when it sold 380 in just six months in one community and 320 in four months in another community-without even placing an ad. During the past four years, its new-homes sales division reached more than $500 million in sales. Cobblestone on the Lake, for example, was sold out before Halpern even received a certificate of occupancy for the sales trailer.

The backlog is carrying businesses through the slowdown, but if it doesn't pick up soon, some might feel the pain. The "you build it, they will come" mindset, however, should stop, Halpern says.

That's why advertising and marketing firms anticipate increases in business. During the boom, projects sold out in a week or so with little need for advertising. Robyn Bonaquist, partner in Naples-based B-Squared Advertising, says that spending 1.5 percent to 3 percent of gross sales on advertising over the life of the project is the average, but some were getting away with only a fraction of that.

"I think the real estate slowdown is going to cause developers and builders across the board in South Florida to spend more money in advertising than they have spent in the last couple years," she says. "It's going to be back to business as usual."

In announcing its decision to delay the release of several of its high-rise condominiums, WCI Communities cited a 50 percent decline in orders during the first two months of the second quarter of 2006 from the same period in 2005. The company expects that 2006 orders will drop at least 20 percent below 2005 levels as the developer releases only three to five towers, compared to previous plans for 11 to 13 releases, according to a company statement.

The years 2004 and 2005 were an aberration, says John Jacobsen, president and CEO of Intergraphic Group, a marketing and communication company based in Cape Coral. Selling out developments required merely a sign, but now clients are realizing they need to invest more in advertising to boost those declining sales. In short, 2006 marks a return to normal. "[Developers] want to be one of the ones that remains standing," Jacobsen says, noting that some of his clients have increased their marketing budgets.

At least two local developers plan to maintain their current advertising and marketing budgets. Mary Briggs, Bonita Bay Group's corporate public relations director, says she recognizes that the consistent approach is different from others who either drastically cut or increase their budgets during a slowdown. "People panic," she says. But the company is keeping track of the numbers of homes sold, in case adjustments need to be made. "We are obviously watching," she says.

Stock Development is altering its campaign to include more product information and events that will showcase lifestyle amenities of the company's communities, says Lindsey Owen, Stock's director of marketing and public relations. Additionally, Stock plans to target market in Northern cities, such as Chicago, and in the United Kingdom, Owen says.

WCI Communities declined comment on its advertising and marketing plans.

Supply has outrun demand by a significant volume, and it takes time for a market to re-establish equilibrium, says Fishkind. He predicts that 2007 will be considerably weaker, followed by a recovery period in 2008 and strong growth in 2009.

"The good news for Southwest Florida is that growth tends to remain fairly strong," he says. "While I believe that growth is slowing, it still is at a fairly high level."

In the meantime, Varian is relishing the boon for his business and the available labor. Business has been growing on a yearly basis for 18 years, and he doesn't expect that to stop anytime soon with the increase in demand for remodeling. "[Homeowners are] staying where they're at; they're fixing up where they're at," he says.