Keeping the Housing Slump at Bay

By Brent Bowers
The New York Times
January 10, 2008

THE housing slump has exacted its toll on everyone from banks and Wall Street firms to builders and mortgage brokers. But there are the exceptions, the entrepreneurs who either have long experience in real estate or have carved out a special niche. So far, they have been able to ride out the worst.

HouseRaising of Charlotte, N.C., a custom builder that caters to the rich, is one of them. It makes sales on the Internet and often closes deals with prospective customers in a single day of “one-stop shopping” at one of its two design centers, where everything from doors to, literally, the kitchen sink is picked out.

Since mid-2006, when it began using a patented computerized system for overseeing every aspect of the building process, HouseRaising has completed 12 houses and has 30 more in the works, as well as a $16.3 million project to develop a residential community in Lake Norman, N.C., 20 miles north of Charlotte.

The company promises to complete all jobs on time, with no cost overruns. Last year, it doubled its work force to 35. “We are going to be successful no matter what the economy does, because of who we serve,” said Greg Wessling, HouseRaising’s chief executive.

Duffy Real Estate, a midsize firm with three locations in the upscale Main Line suburbs of Philadelphia, has also managed to keep the downturn in the real estate market at bay. In fact, it grew in the last year.

“Every time you go on the Internet, you read about the 10 worst cities for foreclosures, the subprime crisis, things that have no effect whatsoever on us,” said the firm’s founder, John Duffy Sr. “The real estate market is regionalized. I went into business in 1978, and prices in this area have never gone down.” Neither, he says, have his annual sales figures.

Mr. Duffy, 60 years old, said he increased his office staff last year to 9 from 8 and the number of his agents to 46 from 42. “We had a very good year,” he said. In fact, he said, he views the market downturn as a godsend because it is shaking out the “deadwood” of amateurs in the business and allowing him to grow.

Then there is Ellie Mae, a provider of Internet services to the mortgage industry in Pleasanton, Calif. Sig Anderman, co-founder of Ellie Mae, said revenue increased last year to $38 million, from $35 million in 2006, and profits were robust.

Mr. Anderman acknowledged that he had been making plans a year ago to increase his staff to 250 from 200 to accommodate what he expected to be a banner year for his company, which gives brokers quick online access to all the credit reports, title reports, appraisals and other documents that go into a closing. Instead, as the air seeped out of the housing bubble, he cut back to 164 employees. But even as his customer base stagnated, he refined his products, nudged up his prices and slashed costs.

“I’m amazed we’re doing as well as we are,” Mr. Anderman said. “We have a lot of irons in the fire. I think in the kind of turmoil we’re experiencing, there is always opportunity.”

Real estate experts generally expect the market to get worse before it gets better. But, said Joel Burslem, founder of the Future of Real Estate Marketing blog and a marketer for Inman News, “any crisis holds opportunities for entrepreneurs.”

The most obvious winners, he said, are experienced real estate professionals like Mr. Duffy, who can outmaneuver their upstart competitors. Investors, he said, are already exploiting depressed prices in some parts of the country and will continue to find bargains.

Moreover, Mr. Burslem said, with sales stagnating as buyer resistance grows, providers of video, syndication and other promotional services to the real estate industry will be in higher demand.

Mr. Duffy said the secret to his success was providing first-rate service and refusing to water down his core business with secondary money-making products like mortgage brokering and title searches. “I tell my agents to assume that every customer is their mother or father,” he said. “And I want every customer to know they can call me anytime if there’s any problem.”

As a result, he says, he has been able to keep his staff intact while larger firms nearby are laying off employees— in one case, the entire secretarial staff.

Also benefiting from the troubles in the housing market are remodelers, who for the last several years have devoted their skills to buying cheap houses, fixing them up and flipping them, Mr. Duffy said. The remodelers are now returning to their old line of work, displacing the less-skilled carpenters and painters who had filled the void.

Other winners, Mr. Duffy said, are small moving and storage companies that are getting business from cost-conscious consumers.

Mr. Wessling, 56, came to HouseRaising as a consultant after 33 years as a senior executive at the Lowe’s Companies, the home improvement chain. His assignment was to carry out the patented system that HouseRaising’s founder, Bob McLemore, a home builder, had developed over seven years.

But on Thanksgiving Day 2006, Mr. McLemore died unexpectedly of a heart attack, and Mr. Wessling was asked to take over.

Because HouseRaising deals only with wealthy customers who own their own lots, one of his first initiatives was to create a subsidiary, HouseRaising Realty, to help those who do not have a place to build.

In May 2007, the company opened an office in New Orleans, at Carollton and Canal Streets in a historic area, and built a design center nearby to match the existing one in Charlotte.

“We have replicas of everything we put into the house,” he said. “Every imaginable style of kitchen counter, molding, carpeting, roofing, stucco, handrail, window, stairs, you name it, are represented there. That really makes it a one-stop shop. All you have to do is spend one day with us. Nobody else does that.”

“We could work regionally throughout the country,” Mr. Wessling said. “But there is so much opportunity in the Carolinas and the Gulf.”

Mr. Anderman, 66, also sees a bright future for his company, though he does not expect the return of the triple-digit growth rates that Ellie Mae experienced in its early years at the turn of the century.

About 185,000 employees at 13,000 mortgage firms and banks use its software, roughly the same number as a year ago, he said, though the business-to-business real estate transactions on its site have declined slightly, to 35,000 a day from 38,000.

But last year, Ellie Mae reaped lavish returns on a product called Encompass Anywhere, a Web-based version of its software that is attractive to bigger brokerage firms because it is accessible from any computer and the firms do not have to maintain it. Though the cost is $60 a month per “seat” instead of $60 a year for use of the software not maintained by Ellie Mae, Encompass Anywhere has doubled the number of users to 16,000 since April 2005.

Perhaps the most aggressive move Mr. Anderman has taken to protect his bottom line is keeping a tight lid on expenses, including shifting 25 technology jobs to China, where quality-control workers monitor the company’s network at one-fifth the salary Americans command. That move alone saves $2 million a year, he said.

Mr. Anderman said he expected business to pick up late next year. “Mortgage brokers who are still around then will survive,” he said. “The buzzwords right now are ‘more scrutiny’ and ‘more efficiency.’ That is music to our ears because that is what we provide.”