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Out of the Ashes : A Family Portrait of Independent Home Builders' Struggle

September 01, 1996|JESUS SANCHEZ | TIMES STAFF WRITER

Amid the roar of tractors and the aroma of fresh-cut lumber, home builder Paul E. Griffin III surveyed his newest project with a mixture of excitement and anxiety.

The fifth-generation construction executive would soon start selling homes at his Park Lane development in Simi Valley, and the results could determine whether his fledgling company survives.

But more than just money is tied up in Park Lane. There's also family pride.

Only four years ago, the 40-year-old Griffin watched his father's company collapse into bankruptcy as Southland housing sales and prices plummeted. The Griffin name was even stripped from a UCLA building after the stricken company failed to fulfill a $5-million financial pledge to the university.

Now it's up to the younger Griffin to keep the family legacy alive. "This opening has got to work--we're going to do it," he said a few days before the project's opening late in July.

For Griffin and many other small and medium-sized home builders, this year looms as a crucial turning point after their ranks were devastated by the brutal real estate bust of the 1990s.

The slump affected builders of all sizes. But it took a disproportionate toll on companies like that of the Griffin family.

Hundreds of these firms disappeared after construction activity and new-home sales peaked at the tail end of the 1980s. Since then, the Southern California chapter of the California Building Industry Assn. has seen membership tumble by more than half, to about 1,400 this year.

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Descendants of the freewheeling entrepreneurs who originally shaped Southern California's suburban landscape, the small independents who survived the recession continue to find themselves on the losing side of an industry shakeout. Because of today's unstable housing recovery, many privately owned builders are struggling to find a role in a dramatically changed marketplace. Their intuition and local connections are often no match for the efficiency and deep pockets of the corporate builders that are gobbling up a larger share of the market.

"There are still some small builders, but they are at a huge disadvantage," said John Porter, a Newport Beach land broker. "They just have less resources, whether they be financial or managerial."

The independent builders suffered the most during the recession because not only did real estate values and sales plummet, but credit became almost nonexistent. As a result, the independents tended to lack the financial resources of corporate rivals to weather the recession.

"It was a three-way hit that really devastated a lot of small to medium-sized home builders," said real estate construction consultant Jeff Meyers of the Irvine-based Meyers Group.

The latest shakeout comes as the Southern California home-building industry, after falling behind and even hindering the regional economic recovery, finally appears to have begun a slow but steady recovery. Sales of new homes this spring and summer have been strong and money is more easily available to buy land and finance construction.

But construction activity and new-home sales are still only a fraction of what they were during the boom years of the late 1980s. Experts have been lowering their projections further because mortgage rates have risen much of this year.

Builders are expected to construct about 41,400 homes, condominiums and apartment units this year in Los Angeles, Riverside, San Bernardino, Orange, San Diego and Ventura counties, according to a forecast by the Real Estate Research Council of Southern California at Cal Poly Pomona. That construction activity will be about 14% higher than 1995's level but still far below the 162,000 units constructed in 1988--the most recent peak year before construction began to plummet.

That's only about two-thirds to three-quarters of the volume needed to help boost the economy, said David Hensley, a regional economist at Salomon Bros. He said the annual rate of construction needs to top about 60,000 in the Southland and 125,000 statewide before the economic benefits of home building and new-home buying spread to the rest of the economy. About 99,500 homes will be built statewide this year, according to construction analysts.

"I certainly think the worst is over and activity is stable," Hensley said. But "you are just still bumping along on the bottom."

Meanwhile, the independent builders face a new threat. Large out-of-state home builders have begun to infiltrate the California market, diversifying into the state just as big California builders are diversifying by focusing their own development efforts elsewhere.

In the last five years, for example, Los Angeles-based Kaufman & Broad Home Corp. has expanded into such fast-growing markets as Las Vegas, Denver, San Antonio and Phoenix. Those out-of-state markets now generate about half of Kaufman's nearly $2 billion in annual revenue.

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