Even in Downturn, Remodeling Contractors Still Nail Down Jobs

Blair O’Callaghan doesn’t have his name on residential developments all over the state.

But the 35-year-old contractor may well be the envy these days of builders with bigger names and broader reaches.

O’Callaghan is working. Every day.

He is a remodeling contractor, and when times get tough in the building trades, remodelers typically do better than their brethren.

“Remodeling has always been kind of counter-cyclical,” said Ben Bartolotto, research director for the Construction Industry Research Board in Burbank.

“It does well in good times and does a lot better than new-home building in bad times.”

Thus, in the 1981-82 recession, when the value of new-home and apartment construction in the state plummeted 24% the first year and fell a 23% the next year, remodeling permits sagged only slightly--off 6% in 1981 and down 3.5% in 1982.

As the Southland economy weakens, the research board is forecasting back-to-back record years for remodeling contracts in the state this year and in 1991.

That’s not to say that everything is as easy as it was in the boom years.

O’Callaghan had five employees a year ago and says he “rarely took a job for less than $25,000.”

A lot of his work was done in Newport Beach, where $200,000 remodeling jobs were not uncommon and he often would have to hire scores of subcontractors to do the jobs his own crew couldn’t handle.

Business was so good then that O’Callaghan, who doesn’t advertise--not even a Yellow Pages listing--had a six-month backlog of jobs.

Today, O’Callaghan Construction is Blair O’Callaghan and one helper.

Part of that is by design: He said he took half the year off to remodel his own home and to get married.

“Now I’m paying for that time off,” he said. “When I decided to cut back, I wasn’t planning for a recession. I lost contact with the market.”

But even without the comfort of a big backlog, and in the midst of a mild recession, O’Callaghan bubbles with optimism.

He is working two jobs--building a three-car garage and workshop for a neighbor in north Santa Ana and reconfiguring a Costa Mesa residence to turn a labyrinth of small rooms on one side of the house into an airy kitchen and two new bathrooms.

In his business reputation is the best marketing tool, and O’Callaghan says he is “very comfortable” with his.

Money is tighter and jobs sometimes are smaller, but O’Callaghan says he has “a lot of confidence in my ability to keep myself busy. . . . People always want to add on or fix up, and the desire gets stronger when they can’t move into a newer, bigger house.”

O’Callaghan is in the right place.

Although the once-blistering pace of homes sales in the Southland has slowed to a mere crawl, people are spending record amounts of money improving existing homes, according to building permit records.

For the first 10 months of this year, homeowners in Southern California counties spent nearly $1.6 billion on remodeling, up 4% from $1.53 billion for the same period last year.

For all of 1989, Californians spent $3.14 billion on remodeling projects for which they obtained building permits, with 57%, or $1.8 billion, of that amount spent in the six Southland counties. Los Angeles County led the pack with $1.16 billion, or 35%, of the state total.

For the first half of 1990, the U.S. Census Bureau reported recently, the Los Angeles-Long Beach market posted total remodeling permit value of $538.4 million. That was more than twice the $215-million value for the second-place market, which includes Washington and suburban Maryland and Virginia. San Diego County was in 11th place nationally, with $110.1 million in remodeling permits, followed closely by Orange County, with $110 million, the report said.

None of that comes as a surprise to O’Callaghan, who started his contracting business in 1980--after a five-year apprenticeship as a carpenter and just in time for the start of a major recession.

“I was just getting going when the last recession hit” in 1981-82, he said. “But I was really busy all through it. People were remodeling then because interest rates were so high they couldn’t afford a new house. So they decided to cash in some equity and fix up what they had while they waited for the market to improve.

“This time, though, people have money, and interest rates aren’t all that high. It’s just that people are real tentative about the economy. But the effect is about the same. They aren’t buying new houses, so they are fixing up their old ones.”

The challenges, as O’Callaghan sees them, are twofold: People are becoming a lot more cost-conscious as the economy worsens, which means jobs are getting smaller and profit margins thinner; and a lot of construction trades workers who have lost jobs with new-home builders are competing with established remodeling contractors.

Increasingly, he said, homeowners want to do some or all of the finishing work themselves. “Contractors like myself, guys who have been around for 10 or 15 years, are losing out to the neighbor who was a carpenter. So if you want the job, you have to lower your prices.”

On the up side, he said, “there are a lot of subcontractors looking for work who used to be booked solid for months and months. So they are lowering their prices, too. And that makes it easier to bid competitively.”

No Recession For Remodelers Although new construction is expected to drop by as much as 30% in 1990, remodeling will contiunue its growth of the past four years. Source: Construction industry Research Board