A Slice of Local Life - Markets
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SECTION: Markets

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Contact Kim Phelan at (800) 388-0650 ext. 340.

A Slice of Local Life

By Kim Phelan

Article Date: 06-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.

CED Editor Kim Phelan visited with four businessmen in Savannah, Ga., who shared their perspectives about market conditions and their own strategies for survival.

Developer/Homebuilder Steve Hall, owner, Hallmark Homes and Landmark 24 Development:

A leading custom homebuilder for 25 years, Hall strategically shifted his business model in anticipation of the housing plummet.

“For the first time in the history of the company we now build starter homes as well as high end luxury homes – we’re the only company in the area that can build you a home for $140,000 and $4 million…It was definitely a strategic move – it struck me that we built the Hallmark name, everybody recognizes it; why don’t we take it to the masses? You don’t have to be a millionaire anymore to afford a Hallmark home.”

Problems that hit the Savannah market:
“Everybody started thinking [developing] is too easy, and of course the banks were loose with money. Doctors started becoming developers, pooling their money and buying tracks of land. So now the biggest problem we see in the market is not that we have too many homes to compete against; the problem is there are too many lots sitting on the ground that are poisoning the market. A lot of the land is bank owned, and many are developments that should never have been developed to start with. They were horrible locations with no strategic planning behind the development.
“What’s painfully obvious to me is the bankers were clueless about our industry; they knew nothing about it and just loaned money.”

What will fix the economy?
“Several prominent local homebuilders have filed for bankruptcy recently; we’re all holding on by a thread right now, but for several that thread’s about to break.

“The main way for it to get fixed is for the banks to go back to lending money to people who can afford to pay them back. We’ve got to get credit markets unfrozen.”

Is stimulus helping?
“No, that package is a joke. Nobody in the upper levels of government gave credit to the homebuilding industry that we’ve always deserved for being as large an economic driver as we’ve always been. When the housing bubble popped, the rest of the economy began to fall apart; they didn’t think that was going to happen. If they had, they would have protected it more than they did.

“The stimulus package for first-time homebuyers is a joke – people still can’t get the money upfront to buy the house; the only benefit is that they don’t have to pay it back, but I don’t know of a single person that will be assisted by that program at this point. They should have passed Sen. Isakson’s bill, give $15,000 to anybody who purchased a home, period, regardless of first-time status and regardless of new versus used home. Then you’d get rid of existing homes on the market. That would have freed people up to buy the new home that they want to buy.”

Positive opportunity
“We’re becoming more involved in the commercial real estate side – one form of real estate everybody still loves, including the banks, is medical. Doctors want to have their own surgery centers so they can make more money than they can at the hospital. We see the opportunity of that, and we also see the opportunity of assisted living facilities.”

Concrete contractor Tim Coleman, owner/CEO, Coastal Concrete: Coleman bought the company in March 2007, but in the five years he’s worked there, he single-handedly took it from $30 million annual sales to $80 million.

“Savannah has done better than most markets we serve. The Hilton Head and Myrtle Beach markets are much like Florida – residential housing has dropped 70 to 80 percent; Savannah dropped 40 to 50 percent, and it has somewhat stabilized.

“However, we were a 90 percent residential supplier of readymix concrete; residential housing was our mainstay. When that began to fall, it had a huge impact on us. In the last 24-month cycle we’ve gone from a 90/10 residential-to-commercial ratio, to 70/30 commercial over residential. We’ve changed with the environment. The question now is, ‘how long does commercial continue to hold up the economy?’

Strategic thinking
“When we began to look at the commercial sector and started bidding, all of a sudden we began to win jobs. So we shifted and have done very well. We budgeted survival numbers this year, but for the first quarter we were as much as 30 percent above budget.

Your outlook?
“I personally think we’ve hit the bottom and we’re starting to see some improvement; we’ll come out of the housing construction recession. We’re starting to see a lot of things being built now you didn’t see for a while. My personal opinion is the third and fourth quarters of 2009 will see a significant uptick. Things will start to improve after and even through the summer; the thing is, improvement off of what?!”

Relationships matter
“We partner with the right people, and we have great relationships. For example, our relationship with JCB and Low Country Machinery is a sound one. Every piece of heavy equipment I’ve ever bought has been a JCB. Why? No. 1, I have a great relationship; and the equipment is great. And when we’ve had problems, they’ve stood behind it 200 percent, not only the dealer but the manufacturer who stands behind the dealer.”

Robert Morris, director of external affairs, Georgia Ports Authority: Owned by the state of Georgia, the GPA is governed by a 12-member board, whose members are appointed to four-year staggered terms by the governor; the GPA’s executive director Doug Marchland reports to the chairman of the board rather than a politician, creating a wonderful hybrid of public and private models that has served the GPA well, said Morris.

“Staying ahead of the growth curve was our mantra for a long time; now it’s staying behind the chasm.”
Nevertheless, the GPA has persevered with its capital improvement projects, looking toward the future and an economic recovery. “We are continuing to invest in capital improvements and increasing our capacity, so when the economy does come back, we are ready with additional capacity. That has always been the name of the game: Keeping ahead of the growth curve.”

Four new rubber gantry, electric cranes (pictured) are the port’s newest features, a great addition to its 23 ship-to-shore cranes, says Morris, and part of the GPA’s preparation for the harbor deepening and widening project.

All the GPA’s cranes have been converted to electric, saving many billions of gallons of diesel fuel over 10 years.

Another expansion project at the GPA is the resurfacing and fortifying of the container yard (pictured), which is partially utilizing recycled materials that have been saved in piles for just this purpose.
Besides advocating for the deepening of the channel, GPA is also pushing for the extension of a major highway thoroughfare, the Jimmy Deloach Parkway, which had been intended to connect to the port, but instead just stopped when funding dried up 10 years ago.

Georgia state incentive programs to draw parts manufacturers (auto, tires) to the area has created a boon for GPA export activity, says Morris, and hence economic underpinning for the area, as well.

Patrick Graham, executive director,  Savannah International Airport:

Graham himself is a case study in prudent financial stewardship, paying cash for the airport’s expansion projects, keeping a neat $8 million balance in the bank, and steadily moving forward with planned improvements as scheduled. He has submitted a $4.2 million taxiway expansion/runway improvement project to the FAA, as well as a perimeter project to be built around a taxiway on the north side of the airport. He paid cash for an October 2007 parking deck, as well as a November 2008 terminal expansion that included five gates.

“We’re utilizing about 70 percent of our gate capacity, but I think that will go back up – we’re very seasonable, but this year I’m expecting a downturn of traffic.

“I kind of saw this coming and froze positions. We took a lot of actions last year. I felt something coming; traffic was not moving up, people were cutting back on travel. We’re now as slim as we can be.”

What’s it going to take to bring lasting recovery?
“I used to be in the forestry products business – I can tell you that housing has always led us into recessions and something has to be done to help housing to lead us out of it. The stimulus package has so much pork in it; as a taxpayer, it just burns me up. They don’t seem to be able to get anything done in Congress without pork.

“We expect to be down 10 to 12 percent this year and then a flat 2010. We’re right on top of the national average: Airports around the country are ranging from down 12 to 40 percent, and California is the worst.

“I anticipate an “L” recovery; it’ll go down and then coast for a while. I’m preparing for 2011.
“Meanwhile, we’re moving forward on our regularly scheduled and funded projects. We have a very detailed five-year capital plan, and we have a  two-year capital plan.

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Article Categories:  Economic Outlooks  »  Current Events  »  Management