Construction Informer

There were a rash of homebuilder financial reports, and delays of scheduled reports, last week.

Standard Pacific reported home building revenue down by 47 percent; Orleans Homebuilders had a 15 percent drop in revenue; and Toll Brothers reported second quarter sales off by 30 percent. Beazer Homes, enduring losses for at least three quarters in 2007 has spent a few months in the process of re-stating its financials for that year. Tarragon Corporation should be reporting something this week after taking out a 5-day extension on May 12. There was a report in August of last year regarding some questionable stock transactions by principles in the company. This one is probably just delaying the inevitable Chapter 11 for awhile.

Because of the heavy drops in new orders most players seem to view the bottom as yet to come. For example, Orleans’ new orders slumped by 40 percent and its CEO, Jeffery Orleans said the unfavorable market conditions are making it “too early to forecast any immediate rebound.”

Comstock Homebuilding came out with a report of net income for the first quarter of this year as it goes through some restructuring efforts primarily with J.P Morgan Ventures.

Even in the face of all this one analyst predicted most of the home builder stocks had already hit bottom and that “disciplined builders could outperform this year.” Perhaps Pulte Homes is one of those as it announced a quarterly dividend of four cents a share.

Staying above it all for most of the downtown has been Hamptons Luxury Homes, Inc. The company reported first quarter revenue growth of 182 percent and its fifth consecutive quarter of profitability. This week I’ll be talking with Hamptons’ CFO, Frank Dalene about green building and how he keeps things profitable in these challenging times.

Overall though at least one index shows most builders are not convinced things are getting better yet. The National Association of Homebuilders’ housing market index dropped to its lowest level ever. The index is arrived at from a survey of 400 residential developers across the U.S. The index was at 19 while anything higher than a 50 is positive.

The building permit report is due out this week so we’ll see if it is getting anywhere near that magic bottom number.

I’m still trying to get my mind around this one so if any of you have thoughts that might bring this into focus please feel encouraged to leave comments.

According to the Triangle Business Journal, and company press releases, the North Carolina-based utility company Progress Energy wants to pay builders and developers to build residences that meet Energy Star requirements. It also wants to pay builders to install efficiency equipment like solar water heating systems. It says that could amount to $1,000 per system.

For commercial and industrial construction the company intends to provide “custom financial incentives.” These efforts will allow commercial builders to recover some of the costs of using energy efficient measures in buildings and will also pay building owners to make their properties more energy efficient.

The company says this is all part of its plans to double the energy it saves through its efficiency efforts. This is to prevent the need to construct new power generation facilities. The other kinds of things it plans to do is upgrade power lines and remotely control customers’ air conditioners, strip heating, and electric water heaters during times of peak demand. Right now the company says participation in that program will be voluntary. Progress Energy serves 3.1 million customers in the Carolinas and Florida and received the Edison Electric Institute’s Edison Award in 2006 for its operational excellence.

Half the costs of these utility company initiatives will be born by the customers of Progress Energy if the whole scheme is approved by the appropriate utilities commissions. So let’s see. If I hire a contractor to build my house and include energy saving features the contractor will receive payback from the utility company and a portion of my bill from then on will help to fund that payback. Is this a convoluted way to fund energy efficiency, or am I missing out on new ways of thinking?

A simpler, and probably lower cost approach would be more like this: People pay contractors to build their houses to be as energy efficient as can be and then reap the rewards of lower utility bills throughout their expected lifetimes. Commercial and industrial building owners will have to do the same. The power company bears the cost of upgrading its infrastructure and does the typical thing and passes those additional costs on to the customers. Then, let customers reduce their energy use at peak times because it costs too much not to do otherwise. That way the utility company can focus on supplying the power and not controlling how much of it people use.

By the way, some of this is coming about because of state governments’ initiatives at lowering their states’ carbon footprints. So there is a better than even chance that government desires and mandates will creep into the mix. This is another stage being set where green mandates can develop and then all builders, and building owners, will be affected, not just the ones getting the utility provider paybacks.