There’s a perception that a cyclical downturn means a slowdown in business, and therefore a pullback in activity, among companies that don’t happen to specialize in distressed real estate. Construction and design firms wait in vain for projects, builders have nothing to build and so on.
However, this isn’t always the case. Some companies that have no dealings in distressed properties hold their own or even thrive amid the downturn—and in some cases, because of it.
Here, Real Estate New York spotlights five locally based companies that remain upbeat in spite of the Great Recession. For some, it means working that much harder to bring in steady business; for others, it’s about successfully establishing a niche. None would say these are the best of times, but all would agree that they’re making the best of them.
Sholom & Zuckerbot Realty.If you ask Sandy and Frank Zuckerbrot, Sholom & Zuckerbrot’s chairman and president, respectively, “doing well in the current environment” is not how they’d characterize their company’s current position. “We’re a 47-year-old company that’s firmly entrenched in the real estate community,” says Frank Zuckerbrot. “We’ve been through a number of cycles and we’re coming into this one prepared.”
That being said, the Zuckerbrots note the advantage of being well-established. “The aspect of longevity in a down market is parallel to a seasoned baseball team like the Yankees, or the Knicks of old,” Sandy Zuckerbrot says. “You have a roster of players that have played together for years and are successful together. Our team here is so well-oiled, we believe that in a down market, we get a greater share of the marketplace. When you have an up market, everybody throws bait in the pond and just keeps catching fish.”
Over the years, he says, the company has learned from each down cycle “how to anticipate it, for the most part, and how to deal with it when you’re in it.” Frank Zuckerbrot adds that during the peak of the current cycle, “We didn’t ramp up our business and bring a lot of new people in. We’ve maintained a very seasoned staff here. Our people average over 20 years.”
A few years earlier, some of the city’s larger commercial firms were seeking to establish themselves in S&Z’s home turf, the outer boroughs. “They were doing things in a very aggressive way and definitely picking up business,” Frank Zuckerbrot says. “Now they’re pulling back and were just continuing on our way.”
Lately, the company has taken some more space for its infrastructure and will be making some additional hires in retail, industrial and investment sales. Some of those hires will be due to “discontent with changes in the commission split” at a number of companies, says Frank Zuckerbrot.
One aspect S&Z is focusing on in the current climate is its management business. “We will take on certain strategic assignments,” Frank Zuckerbrot says. “It creates a steady cash flow, and it gives us an opportunity to improve on the operations of those assets” and thus make them more saleable when the time comes. “We definitely beef up at that end of the business, where there’s damage control.”
John Gallin & Son.One of the city’s oldest family-owned construction firms, John Gallin & Son specializes in office interiors, with a client list that includes the Durst Organization and Vornado Realty Trust, and has kept busy even in the current economy. The company has seen many economic rollercoasters in its 123-year history, and like Sholom & Zuckerbot, John Gallin counts on the seasoning of its team to manage the ups and downs.
“We have a reputation of being around for a long while, which gives us a stability that others may not have,” says president Mark Varian, the sixth generation of family leadership. “That along with reliability, which is as important to a client as the dollars involved. They just want to make sure someone’s going to be there.”
Varian says the company’s team is at its “optimum” level at present. “With their skill and their training, I think we’re in a perfect position to get through a period such as this,” he says. “Not only do they bring their skills to the construction process, but they also know how to keep and maintain a client.”
Those clients are “toeing a very difficult line,” Varian says. “Right now the dollars are so few and they have to do so much. So we do anything we can to relieve that stress by giving them a sense that we have control over a project—that the dates, which are usually pretty aggressive, will be made, and that their dollars are safe. They need that kind of feedback, not just on a day-to-day basis but also on an hour-to-hour basis.”
He acknowledges that providing this level of assurance has been “a task; it taxes our administrative people: reports that have to verify other reports and paperwork that has to be there in order for them to move on to the next phase of the process. It’s become a heavy responsibility, much more so than just doing the building.”
But Varian points out that many of the mechanisms that come into play here were developed in the normal course of optimizing the company’s level of client service, not as a response to the downturn. “In terms of the actual projects, times couldn’t be better for the client,” he says. “Because the number of projects has lessened, you have really quality trades performing efficiently, not only on our jobs but across the industry. From that standpoint, the client should have a high comfort level that the work is being done well and to a quality that they expect.”
Levien & Co.Ken Levien, founder and president of the project management firm that bears his name, says his firm is having a strong year thanks mostly to its emphasis on not-for-profit clients such as museums and schools. “Over the years I noticed that commercial work is extremely cyclical, while the not-for-profit sector generally builds from need,” says Levien, who’s been in the business for 35 years and founded his own company in 1992.
He notes that because not-for-profits’ decision-making process is different than that in the commercial sector, “they collect money during good times” which allows them to build during bad times. “They’re somewhat counter-cyclical. In the early 2000s, after the dot-com boom, I began noticing that we kept growing every year. This year we’re probably flat, but 2008 was easily our most positive year.”
Compared to commercial projects, not-for-profit builds often play out over a longer time horizon. “You may have a 10- or 15-year plan ahead of you,” says Levien. “Often the money has already been committed; many of the projects have city, state or federal money as well as grants.
In contrast to commercial projects, which are sometimes scrapped entirely when funding runs out, not-for-profit initiatives “may slow down, but they continue to move forward,” Levien says. “We currently have four private-school projects, each between $30 million and $120 million, and all of them are going ahead, albeit at a slower pace.”
And the not-for-profits often continue to be surprisingly successful with fund-raising even as the general economy sags. “We had one client, a museum, that had a project budgeted for $65 million,” Levien says. “They were concerned about fund-raising and were going to spend only $50 million now, leaving other pieces out until the economy improved. But lo and behold, they raised the entire amount in the past six months.”
Although Levien & Co. doesn’t actively seek out commercial work because it isn’t the company’s main focus, sometimes it comes forward unbidden, courtesy of nonprofits’ board members who ask for help on, say, an office buildout. “We are doing a couple of workout assignments where we’ve been brought in by joint venture partners and lenders to help them figure out how to make the best of a bad environment,” says Levien.
And while the A/E/C industry has seen its share of downsizing over the past year, Levien says, “Our entire staff is still intact. In fact, we added one person this year.”
VE Solutions Group. While value engineers such as VE Solutions are generally brought into major projects as a matter of course, it’s during lean periods that they demonstrate their, well, value. Business for VE Solutions is up this year, as the emphasis shifts from getting a project done at all costs to containing costs.
“The earlier we can come into the process, the better,” says Eugene Siterman, principal at VE Solutions. Getting in on the ground floor, so to speak, facilitates the value-engineering goal of trimming capital budgets and permanent operating costs by 10% to 20%.
A goal of VE is to trim expenses by emphasizing efficiency but not compromising the project. As such, the company reviews design documents and suggest improvements in construction or mechanical/electrical/plumbing systems to reduce costs, optimize output or boost sustainability.
Among VE’s projectts in recent years have been the Ritz-Carlton hotels in both Battery Park and Central, Terminal 4 at JFK International Airport and the Time Warner Center. On the latter, VE advocated the use of shared equipment within the 2.8-million-suqare-foot complex. That translated into a consolidated central heating and cooling plant reduced operating energy bills.
New World Home.Founded by two Skidmore College buddies in 2007, New World Home produces modular housing with historically-inspired designs and an eco-friendly emphasis. “The mission of the company is to provide a transformative way of building and distributing homes, because of the all the inefficiencies in the way homes are constructed and sold, and even in the way they’re bought,” says co-founder Tyler Schmetterer.
Schmetterer and co-founder Mark Jupiter offer buyers a minimum 50% energy consumption savings from day one. One of the duo’s builds in Atlanta recently earned LEED Platinum certification—without incorporating any renewable-energy sources.
“There are so many inefficiencies in the way houses are built these days that just re-thinking to come up with a more intelligent solution to some hundred-year-old issue goes a long way,” Schmetterer says. “It’s like coming out with the 2.0 version. The idea was to take away all of the mechanical systems that you can and still have fundamentally one of the greenest houses yet built in this country.”
To do this, New World’s founders spent about two years in research and development “to reverse-engineer how a code-built house is constructed and then reconstruct it through an engineering process that made each element of the home more efficient and easier to construct,” says Schmetterer.
Wiuth contracts in eight states, New World has gotten orders not only from individual buyers but also from developers looking to build multi-unit tracts. “It was always our intention to be a nationally distributed housing solution,” Schmetterer says. The company’s goal is to get the green premium for residential units down to 0%.