Housing downturn affects another layer of valley economy

[Beth n Rod 1,279]

Housing downturn affects another layer of valley economy

By JEFF JARDINE

The beating taken by the mortgage and real estate industry isn't limited to defaulting homeowners, lenders and starving real estate agents.The news focuses on how the valley leads the nation in foreclosure rates, but the trickledown effect has hit related businesses, industries and people as well.

It spread to the building services industry, where United Rentals has laid off

16 people in the past two months, Modesto stores manager Jim Nechwedowich said.

"The trickledown is always bigger than anything else," he said. "It's the guys who put in sprinkler systems, the driveway, the plumbers, the elec- tricians, the stucco guy."

And, of course, the folks who rent tools and equipment to those subcontractors.

"I've been in management a long time, and I've had to fire people," he said. "It's never bothered me because when you fire someone, it's because they've done something wrong. But this is the first time I've ever laid people off. It's not fun. It's not that they've done anything wrong. You just can't afford to keep them."

The pain has spread to another layer as well, as Albert and Nicole Ell of Modesto have experienced -- along with the 20 employees they've had to lay off from their cleaning services since summer.

The Ells opened A&N Cleaning Service in 2002, and it grew rapidly. They worked with contractors to do the final cleaning of new homes

as the buyers prepared to move in. They worked jobs from Modesto to Visalia.

The janitorial service portion of their business counts mortgage, construction and real estate offices as clients.

Three times in the past month, his crews have arrived at clients' businesses only to find they have closed -- no warning, no courtesy call -- stiffing him for more than $100,000 in income over the life of the contracts.

"We did Golden State (Real Estate & Mortgage)," Ell said. "We walked in and there was nothing there. To this day, they still owe us money."

A call to the mortgage company revealed that its number had been disconnected.

It's a dramatic and frustrating turnaround from the boom times on which they built their business.

"Lots of clients aren't staying in business," he said. "We're barely hanging on ourselves. Last year, our phones were ringing off the hook for estimates."

Other businesses have cut back janitorial services from five days a week to three or two.

And contractors who once called regularly as blocks of houses were completed -- sold or unsold -- have stopped calling, period, as sales have slowed dramatically.

"Now they call us only when they're going to sell a (single) house," he said.

The slowdown has been more like a meltdown.

"We had 31 (full-time) employees," said Ell, whose payroll had surpassed $30,000 a month. "We're now down to 11. We had to let four go last week. It was very heartbreaking."

The business was nearing the point where the Ells hoped to soon begin shopping for health plans that would provide at least some level of coverage for the employees, Ell said.

Now, benefits are out of the question. Albert, who manages the bookings while Nicole handles the finances and payroll, is back to doing some of the cleaning.

"I'd met him a couple of times," said Modesto attorney David Rockwell, whose law firm uses the Ells' service. "Once, when he was here supervising his employees; I talked to him once at the health club; and then (Dec. 19), when he was here sweeping the floors himself. Sometimes we focus on loss of needed government services, but this is one of the ripple effects on everyday people and small businesses that more people should know about.

"We don't think about all of the other things associated with (the housing bust) until you talk to someone like that."

Ell said his residential clientele has declined as well.

"People who are losing their jobs can't afford a cleaning service," he said.

When will the bleeding stop?

United Rentals' Nechwedowich believes his company, which has worked with local contractors who are still building commercially, will see things start to level off, if not improve, by the summer.

"I think our outlook is good in 2008," he said.

Ell, meanwhile, is taking a giant step backward as he begins his recovery.

"I'm going back to marketing next month," he said. "I'll start hitting the pavement again, trying to rebuild my business."

He knows it could be a while before he can say with some confidence that his business is truly cleaning up.

Jeff Jardine's column appears Sundays, Tuesdays and Thursdays in Local News. He can be reached at jjardine@modbee.com or 578-2383.

The Modesto Bee | Trickledown Pain

[Tmrrptr 164]

Many have not considered all the effects of the housing bubble, and credit crunch.

What shall become of a great part of an estimated 12 million undocumented workers in the service industries?

It shall be a factor we all will be concerned with...

[plainpainter 217]

The one thing I hate about this country is how our economy is solely based upon growth, growth, growth. The continent of America isn't getting bigger - we can't support exponential population growth forever and the new home construction and economy to go with it. Why can't we as a nation be happy with a steady state income? I guess the stock market would stop growing - and that wouldn't make people happy, boo hoo.

[John Doherty 126]

Guy has laid off 20 people since the summer and now says, I'm going back to marketing next month? WTF?

Who didn't see the housing bubble's break coming, it was all you could read about since mid 2005.

[Jeff 232]

I do hate seeing all the companies and workers in construction that arent working and with no end in sight. There were several good companies that just arent going to find any good work, its drying up for sure

[newlook 265]

Interesting article and unfortunately true. Spoke with my Crescoe (rental yard) rep today. Was looking for a D3 or D4 dozer ~ he took me in the yard and said take your pick. All equipment has been sitting there for approximately 2 months!

2005 was a banner year for us out here. 2006 was great also! 2007 was okay. We saw the wave come crashing down in early part of 2007 and decided to save, save and save. Good thing we did.

Prior to us taking an extended vacation since Oct. that lasted until Jan 1st, we purposely marketed and signed some big contracts to start in '08 vs. '07. Certainly we could of started these jobs in '07 when we signed but our rationale was to roll them over into '08.

Why did we do this? Well the reason is two-fold.

1. On one contract we are working a budget that is well into the 6 figure range. I have been price shopping (materials) over the holidays to get better pricing vs. what I was originally quoted in '07. In '07 vendors/distributors were pretty firm on their price for materials that we needed for this job. Today, these same vendors are negotiating big time with me in order for me to give them the business. The customer already agreed to my '07 prices mind you and now since we decided to hold off and wait until this year ('08) I am looking at an additional profit of between 7k-10k dollars for this job.

2. Though we will be working in '08 there will be MANY that will not due to the trickling effect stated above. This means that our name will be out there and we will be positioned to at least have a chance on bidding on other jobs due to our exposure.

I am sure there is a marketing term for what we are doing (Ken F ~ chime in here) but in laymens terms we "tapped" the brakes on our growth in late '07 and carried the "momentum" if you will by earning some good contracts for a early '08 start time!

Thats why I was at Crescoe today. Back in '07 a weekly rental for a D4 dozer was at $1,300 not including delivery fees. Today he gave me the same dozer for $880.00 and waived the delivery fee! Saved approx $420.00

[Doug Dahlke 114]

So many things are tied to core parts of the economy. In my area we are experiencing all the things listed above plus we have the drought to contend with. The same principles are applying.

Landscapers are hurt, pool companies, sprinkler system installs. nurseries, sod farms, pw companies, car washes, all the people that sell equipment and supplies to these companies, it goes on and on. Fuel prices are rising again and that will just make things worse.