Real Estate

Struggling to survive in a recession

Homeowners cancel projects and opt for cheaper alternatives

General contractors, interior designers and architects may be the first people you call when you have a home-improvement project in the works. But, when money's tight, renovating your kitchen or adding that extra bedroom to your house are also likely the first expenses to get the axe.

Local home improvement professionals and business owners report drastically reduced revenues and a drop-off in business, thanks to a tough economic climate that has hit the housing industry particularly hard.

"It's been horrible. Among my colleagues in design and contractors that have been in business over 20 years, more than 50 percent are out of business," said Susan Davis, owner of Spectrum Fine Homes, a design, build and renovation firm based in Mountain View. "Our revenue has been cut in half. We've tried restructuring and doing everything short of laying people off."

In a study conducted by the Home Improvement Research Institute, consumer spending on home improvement fell 0.6 percent and product sales fell 8.3 percent in 2009. Though the study predicts an approximately 2 percent rise in spending in the next year, revenues aren't expected to reach 2008 levels until 2012.

Davis and others in the general contracting and design business attribute the decline in revenue to a variety of sources. Chris Donatelli, a general contractor based in San Jose, said he believes people are hesitant to take risks and borrow money in order to complete a larger project.

"There's a fear of, 'Am I going to have another job?' People are less willing to take risks," Donatelli said. "They're using their own money. Our job scope used to be $250,000, now it's $50,000."

Donatelli said his work has been dominated by smaller maintenance jobs such as fixing screens, doors and windows and cleaning gutters and filters. He's added a handyman service to his business to accommodate smaller requests from past clients, but has noticed reluctance by homeowners to even complete these projects, which will eventually cost them more money.

"People are deferring maintenance on their homes, which may eventually catch up with them," he said. "They should have taken care of these things before, and now it is more expensive."

Davis said that clients are opting for less expensive materials and choosing contractors and builders who charge less, which could result in jobs not done correctly.

"We've had to undo work because people didn't know what they were doing and were using cheap supplies. They're looking for the cheapest price rather than service or quality," she said. "You get what you pay for."

Pamela Pennington, founder and CEO of Pamela Pennington Studios, a full-service design practice in Palo Alto, said she didn't begin to feel the effects of the troubled economy until early this year, when long-term projects began wrapping up and new jobs did not come in.

"On the first of the year, it just dropped off the cliff. New jobs weren't coming in, (potential clients) were saying 'We're not going to go forward,' work that we thought we would have didn't materialize," Pennington said.

Pennington said that wealthier clients with money to spend are still going forward with projects, but cautiously.

"People are picking and choosing. They still want quality, but they're doing less," she said. "If they would normally have done three baths, now they'll only do one. They'll wait on accessorizing and furnishings. They're willing to not complete it until they can catch up."

Designers and contractors have had to make several changes in their business practices to stay afloat and address the needs of more cost-conscious clients.

"Our advertising and marketing is zero. We had 3,500 square feet and now we're down to 1,000 square feet," Davis said.

Others report negotiating their rent, reducing staff to part-time and trimming overhead costs.

But homeowners willing to go ahead with remodel and renovation projects might find themselves rewarded. Lower demand for products and services has resulted in bargains on furnishings, and designers have worked hard to present the most cost-effective plans to potential clients.

"We're careful about our expenditures and are trying to be more conservative. We've tried to be more efficient," Pennington said. "We try to do a lot for what the proposals are, and accommodate people's budgets and say, 'Here are areas you can help or do it yourself.'"

Jeanese Rowell, owner of Jeanese Rowell Design Inc. in Palo Alto, said that designers now are committed to finding the best deals for their clients, and that competition among them is fierce.

"It's very competitive if you're going to bid on a job. (Designers) are putting more effort into everything," Rowell said. "You have to know the best way possible (to be) affordable."

Rowell said she is inspired by the ways in which the industry has come together to survive.

"I go to the World Trade Market twice a year, and people there have really rallied behind the times," she said. "It's very inspiring."

Davis and Pennington said the green building movement has also enjoyed success in the past few years as some homeowners attempt to save money by making their homes more energy-efficient.

Though many in the home-improvement industry are not confident that their business will ever fully recover, some report signs of improvement. Bob Peterson, principal architect of Peterson Architects Inc. in Palo Alto, said that while work has been down 50 to 75 percent, he is seeing tentative, though not reliable, progress.

"We are seeing it looking up. The number of inquiries in the last six months is up but it's been very mixed," he said.

Pennington said her business is "coasting" for now, but isn't sure what lies ahead for the industry.

"If companies failed, they failed early. What's left can stay the course," she said. "We'll be ready when things pick up, and we'll see what happens on the first of the year."

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