Challenges at ‘Ground Zero’ for green building
NEW ORLEANS —The Big Easy has been characterized by some builders as “ground zero” for the green building movement.
The huge number of homes being renovated and rebuilt, coupled with a desire to help lower costs for poor residents, has made New Orleans a microcosm for green building nationwide and the primary battleground for numerous green points of view. The National Association of Home Builders saw fit to hold its annual green building conference in the Crescent City, and HCN trailed some of the biggest stakeholders in green building to gain insight on where, exactly, this movement is going.
Will Bradshaw, president of Green Coast Enterprises, a New Orleans green builder, characterized the city as a test tube for green building practices. That’s because, he explained, in the years preceding Hurricane Katrina, home building activity in New Orleans was somewhere in the range of 800 to 1,000 new homes per year. The hurricane wiped out more than 100,000 homes.
“New Orleans is ground zero for all of these issues coming together—sustainable building and affordable building,” he said. People are testing new concepts that have never been tried before, and learning innovative ways to build relationships with manufacturers and distributors to fill their widely varied needs.
One project from Green Coast Enterprises is an example. A multi-family development over looking the New Orleans fair grounds, the Arabella at Fortin Street uses a steel frame structure, described as a strong and yet recyclable option. To facilitate the innovative framing process, Green Coast formed a partnership with the Steel Framing Alliance, a Washington, D.C. group that advocates steel-frame building and has an office in nearby Mandeville, La. Other new touches include surfaces from the manufacturer EnviroGlas, based in Plano, Texas, which recycles glass bottles to create unique, durable countertop surfaces, among other products. Bradshaw has utilized a local distributor, Gulf Enterprises, to help secure green products and also cut down on some costs, in addition to working with plumbing supply company Ferguson.
New Orleans is a tough testing ground for the distribution of green products because of its location. Sergio Grado, owner of green building products retailer Green Builders Source in the Houston area knows this story well.
“Right now, still, most of the product is coming from the West Coast and the East Coast—these places that have been a little bit more entrenched in the distribution of green building products,” he said. “What’s happening now is that, with rising gas prices, what people are looking for is a way to find products that are closer to home.”
Grado said he’s worked hard to identify more localized manufacturers and recently added more local companies such as Houston-based Attic Breeze, a maker of solar- powered attic fans, and American Clay and Ultra-Touch Cotton insulation, both based in New Mexico. He also found Seisco, a manufacturer of tankless water heaters, based in Texas.
The New Orleans Home Builders Association most recently launched Crescent City Green, to help give builders a better guide of what products and materials to use in their homes. The guidelines focus on products that fall into affordable parameters. According to Jon Luther, executive vp of the association, “With the guide-lines, we’re saying if they want the Rolls-Royce of green homes, let’s make it accessible. But to those who just want the entrylevel green home, we need to make it accessible as well.”
Toni Wendel, a green builder with Olde World Builders and Remodelers of New Orleans, said she firmly believes green should start with the promise of saving homeowners money, something sorely needed in a city where the median income hovers around $30,000.
On a recent trip around some damaged areas of New Orleans with HCN, Wendel showed off two of her company’s green building projects in the communities of Gentilly and Lakeview.
“What green should be, what we want to show people green can be, is that you can have this, and it’s going to keep your costs down and it’s going to work for you within your budget,” Wendel said.
Wendel’s designs are traditional New Orleans, with many historic touches. The insides of one home include Southern Pine Council FSC-certified wood (the wood also is termite resistant—a necessity in New Orleans), Crane siding, Bosch Energy Star appliances, tankless water heaters and energy-efficient roofing by Decra. She said her designs put the greatest emphasis on products that are easy to maintain and fit into the budget of an average New Orleans resident. She eschewed some high-tech innovations, such as rooftop solar panels, as not feasible for the average New Orleans homeowner.
On another side of the green spectrum is Make It Right, the Brad Pitt-sponsored group that has tasked itself with rebuilding the Holy Cross neighborhood of the city’s Lower Ninth Ward.
All of the Make It Right Project’s 13 home designs are modern style with high-tech green innovations planned for the interiors. The price of actually building a Make It Right home is notably higher than the median home price in New Orleans (around $214,000) with some designs potentially reaching upwards of $ 300,000. The final price to residents is set to be largely subsidized by donations and other grants.
At a forum featuring Make it Right representatives at the NAHB National Green Building Conference, the group received some criticism. Peter Pfeiffer, an architect with Barley & Pfeiffer Architects of Austin, Texas, expressed doubt that an apparent lack of porch coverings and flat roofs on some designs, coupled with complex solar and water collecting systems, were workable for the average New Orleanian.
“This is of great concern,” he said. “I think it’s a shame, because this process that you went through seems as though it was so time-consuming, and after six months you came up with something so irrelevant.”
Charles Allen, president of the ninth ward’s Holy Cross Neighborhood Coalition, bristled at the criticism. “We in the community find them very relevant,” he replied.
All en discussed the process of securing grants for the green products used in the homes and arranging for training for local contractors on how to maintain the high-tech green addition, such as the solar power cells and rainwater collection systems. And, he said, the home plans were chosen by the residents themselves.
Whatever disagreements come to the surface out of the New Orleans green building experiment, its almost certain to prove as one of the biggest testing grounds for green construction the country has seen.
Restoration Hardware buyout gets green light
Corte Madera, Calif.-based Restoration Hardware received shareholder approval for a planned buyout by private equity group Catterton Partners for about $179 million, a deal that was challenged at several points by Sears Holdings.
The company said that more than 99 percent of votes cast by shareholders at a meeting held yesterday were in favor of the deal. Catterton will purchase Restoration Hardware’s outstanding shares for approximately $4.50 in cash.
The deal is expected to be completed by next week.
“We are pleased with the outcome of today’s vote and appreciate the strong support demonstrated by our shareholders,” said Gary Friedman, Restoration Hardware’s chairman, president and CEO.
Restoration Hardware also announced that it reached a preliminary agreement for the settlement of a shareholder complaint filed in the Superior Court of the State of California. The class action complaint was filed against Restoration Hardware, each of its directors, Catterton Partners and certain shareholders participating in the deal.
According to the settlement, Restoration Hardware will pay $3.7 million, approximately 10 cents to 13 cents a share, to shareholders involved in the complaint.
Board member Raymond Hemmig said that the lawsuit was without merit, but settling would expedite the merger agreement. The settlement is conditional on successfully closing the merger.
Top 500 Annual Industry Retail Scoreboard
The numbers are in and — no surprise — they reflect a challenging market.
For the first time since Home Channel News began compiling the Top 500 Scoreboard more than 20 years ago, home improvement retailers showed an overall decline in sales in 2007. On the positive side: hardware stores and farm and fleet retailers showed surprisingly strong sales results, boosted respectively by smaller projects around the home and big-time agriculture spending.
The worst housing downturn in recent memory has led to sub-par performances for several major retailers, dragging down overall sales of the Top 500 retailers to $251 billion — a 2.1 percent falloff from the list’s $256 billion posted the previous year.
In 2007, pro dealers were the hardest hit retailers on HCN’s Top 500 list, which also includes large home centers, hardware stores, farm suppliers and paint and floor covering retailers. Pro dealers, who cater to both new home builders and large remodelers, showed a 14.6 percent decline for the year, with Top 20 players like Builder’s FirstSource (No. 17), BMHC (No. 12) and 84 Lumber (No. 10) down 28.9 percent, 28.7 percent and 20.9 percent, respectively. Most notably, Ply Mart (No. 34) went out of business altogether.
On the other hand, hardware stores and farm and fleet retailers showed surprisingly strong sales results, boosted respectively by agriculture spending and smaller projects around the home. Overall, decliners led gainers. Just 162 companies on the list showed sales gains, while 281 showed sales declines. Compare those numbers to a good year — in 2004, for example, 404 companies showed gains, with just seven showing losses — and it brings the severity of the housing crisis into sharp focus.
“Almost certainly, the decline in these sales is a sympathetic reflection of the plunge in new home building, the steep decline in existing home sales, a slowdown in renovations and a drop in property values,” said James Glassman, managing director and senior policy strategist with JPMorgan Chase & Co. in New York.
“And 2008 sales comparisons could be worse than 2007 because activity late last year and early this year has been so abysmal. Home building remains weak, home prices are still falling and credit remains expensive and in short supply for housing.”
Two years ago, the weakness was concentrated in the industrial Midwest — places like Detroit and northern Ohio, with strong ties on the auto industry. But in 2007, the housing crisis spread to metro markets that had seen rapid price appreciation over the previous five years. The worst of these were California, Las Vegas, Phoenix and all of Florida, while Texas, the Pacific Northwest and parts of the Southwest have been somewhat more insulated.
“We’ve seen the biggest decline in the housing market since the Great Depression,” said Paul Hylbert, CEO of ProBuild Holdings (ranked 7th), which was down 16 percent in sales after an almost 30 percent increase the previous year. He said the “housing depression” has been the most pronounced in Florida, Arizona, Atlanta, Denver and Chicago because of the high incidence of exotic mortgages and subprime activity in the mid-2000s. Hylbert also pointed to deflation in wood prices from 2006 to 2007 as a driving factor in the sharp decline for LBM dealers.
Large home centers were basically flat (down 0.2 percent) for the year, but that doesn’t tell the whole story. No. 1-ranked Home Depot suffered its first-ever sales decline (2.1 percent), while the critical comp-store sales number was negative 6.7 percent. And to underscore what CEO Frank Blake called “a difficult year financially,” the retailer announced in May that it would close 15 underperforming stores — leading to the layoff of about 1,300 employees — and remove 50 future openings from the new store pipeline.
No. 2-ranked Lowe’s fared little better, with earnings down 9.5 percent and comp-store sales down 5.1 percent, while No. 5-ranked Sears suffered a 6.5 percent sales decline, with net income off almost 45 percent. “We need to come up with bigger and better ideas,” Sears chairman Edward Lampert said during the company’s annual meeting May 5, adding that he sees “no evidence” of a U.S. economic recovery in the near term.
There were, however, some bright spots on last year’s cloudy landscape. The farm & fleet segment — aided by the booming agricultural sector — showed a 12.9 percent increase, as markets like Iowa, Idaho, and parts of Ohio, Illinois and Indiana prospered because of soaring corn and wheat prices. This, in turn, led to increased sales of farm equipment and farm animal-related products and a generally better economic climate in those areas.
The jump in sales for these farm suppliers speaks volumes: No. 167 Valley Co-Ops in Jerome, Idaho, was up 66.7 percent; No. 219 C-A-L Stores in Idaho Falls, Idaho, was up 64.7 percent; No. 273 Agland Co-op in Canfield, Ohio, was up 31.9 percent; and No. 126 Farmers Cooperative Elevator in Arcadia, Iowa, was up 23.9 percent.
“Farmers have money, which is good for us in those markets, too,” said ProBuild’s Hylbert. “Of course, it’s not a large share of the business, but it does help offset what’s happening in the metro markets, which have been hardest hit.”
No. 11-ranked Tractor Supply — up 14.1 percent — opened 89 new stores in 2007, venturing into new markets like Louisiana and New Mexico. According to president and chairman Jim Wright, some of his company’s best-performing products involved the health and well-being of animals and pets, including pharmaceuticals and housing for agricultural animals, vaccinations, animal feed, and all price levels and brands of pet food.
“When you look at the categories that have performed well for Tractor Supply, it’s categories that aren’t really available in the hardware and home improvement channels,” said Wright, whose company now has 791 stores in 43 states. “The real markets we serve are not as impacted by housing, and our customers tend to be conservative in terms of taking on debt.”
Hardware store sales were also up (11.7 percent), which Do it Best president and CEO Bob Taylor attributes to homeowners focusing on smaller projects in the current economy. “When you look at the general hardware piece of it, in many cases, the members cater to more day-to-day care and maintenance,” said Taylor. “If people are staying closer to home, they’re investing in the home, so it’s more stable. We’re not talking about the major remodel — it’s the everyday activity.”
In fact, remodeling activity showed a decline in 2007 (4 percent), according to NAHB chief economist David Seiders, who estimated a 7 percent drop-off for 2008. Not quite as hard-hit as those catering to new home builders, retailers relying mainly on remodeling jobs experienced declines in the high single-digit range, according to Kermit Baker, director of the Remodeling Futures Program for Harvard University’s Joint Center for Housing Studies.
“The decline in the sales of existing homes has really taken the wind out of the remodeling market,” Baker said. “With housing prices declining, homeowners have less equity to tap into for renovations, and there’s enough uncertainty to give a lot of people pause as to whether to invest — even to sell — because they’re afraid they won’t get that money back.”
Baker believes the slide will continue this year as the commercial construction market — considered healthy in 2007 — is also slipping. “And with non-residential construction down, flooring stores (up 2.1 percent) and paint stores (down 0.6 percent) could fare even worse this year because they won’t have that market to fall back on,” he said.
Some companies have taken aggressive measures in response to these trying times. 84 Lumber announced the closing of nine stores in March and another 30 in April — bringing the total number of closures to 118 since April 2006. In other news, BMHC announced last month the intention of closing an undisclosed number of underperforming units and possibly cutting about 2,000 jobs.
Glassman, from JPMorgan Chase & Co.’s, believes we are beginning to see some positive signs, including the fact that subprime adjustable rate mortgages are being reset to lower levels, and that — in accordance with the government’s stimulus package — rebate checks began to go out April 28 and are starting to show up in retail sales.
“Most of the excess valuation in housing markets has been flushed out, with house price now back into alignment with income (affordability) that we had in 2003,” he said. “And the broad economy is looking more like it stalled last winter than falling into recession.”
Still, most experts agree, the housing market will probably not significantly improve until the early to middle part of next year. “I think the bottom is kind of in sight, and then we’ll possibly bump along for a couple of quarters as the financial markets begin to reset,” Hylbert said. “Maybe by mid-2009 we’ll start to see some things getting stronger. I hope it’s earlier, but there’s so much inventory, it will take awhile to absorb it.”