Grace Homes: The last production builder is hanging tough
When Grace Homes started out in 1997, the mission of the company was to provide affordable, entry-level housing, often to first-time buyers.
When the local housing market boomed and other affordable builders began building bigger, more expensive homes that brought a bigger profit margin to the builder, Grace Homes continued to build affordable homes in five Western Colorado counties.
As the housing market began to decline, Grace Homes has continued to not only build, but also to sell, affordable, entry-level homes. It hasn’t been easy.
“I’ve had to prove that we have a market for our new homes,” said Terry Lawrence, president of Grace Homes.
“In the fall of 2007, we saw the Montrose market seriously decline,” said Lawrence. “It felt the national slowdown first.”
Instead of adopting a wait-and-see approach, Lawrence began making plans to trim corporate debt, reevaluate floor plans, and consider ways to cut costs.
Sales in other parts of the Western Slope also began to stall, especially as 2008 progressed. The company saw a steady decline in the number of new contracts and also had a few prospective buyers terminate contracts that were already written.
“One thing that kept us going was that we had so much inventory under construction,” said Lawrence.
Grace Homes had partnered with several different banks to fund construction projects, but those banks began to cancel large project development loans in the middle of a project — not because Grace Homes wasn’t making its payments, but because of the general attitude of fear and assumption that new construction projects were too risky.
It may seem counterintuitive to continue looking for ways to maintain new construction even as the real estate market is flooded with repossessions, short sales and an excessive inventory. But Lawrence believes that if given a choice between a brand new home and a pre-existing home that needs painting, has a leaky roof or an iffy HVAC system, many buyers will choose the new homes; especially if they are offered at comparable prices.
“No matter what it takes, we will sell our product at a price that the market will pay,” said Lawrence, who estimates that the company has discounted prices 30 to 40 percent. He gives much of the credit to reduced materials costs and the cooperation of his loyal subcontractors.
“They’ve been willing to make the sacrifices on their income to keep this company going,” he said.
The tax credit for new homebuyers was a huge boon to Grace Homes. Danny Kuta, vice-president of sales with Grace Homes, estimates that 90 percent of their buyers in 2009 and 2010 took advantage of the program. The company has developed its own incentive program for new buyers.
“We’ve sacrificed all of our profit,” said Lawrence. “We’re sustaining operations by cash flow only.”
The company is also working to reduce corporate debt, lower costs, promote its products and provide homeowners with a good home buying experience.
“Our main focus is to make certain that a sustainable, profitable business remains,” explained Lawrence. “We want to be a family business that’s a blessing for people who are looking for affordable homes.”
Although some individual builders have gotten out of the construction industry to pursue other vocations, Grace Homes has no intention or desire to follow suit. It is a residential homebuilder and developer, whose employees are committed to remain in business, providing buyers with their first home, which often becomes a stepping stone to a more secure financial future.
The current state of banking is making that goal more difficult.
“There is no guarantee that banks will loan money beyond our current levels of financing,” said Lawrence, who credits First National Bank of the Rockies for having enough faith in him to continue lending even after other banks refused.
Unlike custom home builders who may be building for someone who has owned several homes in the past and is willing to wait while their dream home gets built to their exact specifications, Grace Homes markets to buyers who want a home immediately. Their buyers have a huge number of homes from which to choose, and if Grace Homes doesn’t have available inventory sitting empty and ready for occupancy, they won’t make the sale.
“We have to build what the market needs at the best price and we have to continue to get financing for spec homes,” said Lawrence, “Ninety percent of our sales have been speculative.”
In spite of the lingering uncertainty, Grace Homes will continue to build in its ongoing developments. They also plan on beginning construction at Halls Estate, a north area subdivision that will sit next to Brookwillow, the largest and most diverse development Grace Homes has built to date. At this point, much of their construction is self-funded.
“We’re actively looking for new sources of capital or equity,” said Lawrence. “We’re not planning on depending on banks beyond today’s practices.”
Halls Estate will eventually have 22 single-family homes and 24 townhomes. For now, Grace Homes is content work in small steps, and hopes to begin construction of the first two homes in the neighborhood within 30 days. The homes at Halls Estate will be single-family ranch style, starting at $160,000, and ranging between 1,100 and 1,300 square feet.
For more information about homes in a Grace Homes subdivision, contact Danny Kuta at 248-8523.