DARLENE FIRESTONE : Why Companies Move Away : Relocation Expert Says Living’s Easy but Profit Is Low
Darlene Firestone has been helping people find homes for all of her 21 years in business, the last six as founder and president of her own company, Premier Relocation Services Inc. The firm, with headquarters in Irvine, has 60 employees and branch offices in Connecticut, Chicago, Dallas and Overland Park, Kan.
Her national involvement in the residential real estate market gives Firestone a unique view of the situation in Orange County as the slump in construction and home sales enters its third year.
And as corporate relocation specialists, Firestone and her staff are privy, as few others are, to the reasons some businesses move to Orange County while others flee the area.
Firestone was born in Oklahoma but grew up in Southern California after her family moved to West Covina when she was 8. She graduated from college in 1969 and began her career in 1970. It took her that long to get started--even though armed with a double degree in English and sociology--because, she said: “I couldn’t find a job for 12 months.”
She finally landed one--as a receptionist with TI Home Transfer Service, a relocation firm then owned by Ticor Inc. in Los Angeles.
In 1977, Merrill Lynch Relocation Management Co. acquired TI Home Transfer. Firestone, by now a vice president stationed in New York, came along with the deal.
She stayed with Merrill Lynch as vice president of home sales operations, moved back to Southern California in 1982, and left the company in 1985 to start Premier.
The next year she sold an 80% interest in her firm to Weyerhaeuser Mortgage Co. but remained as president and chief executive.
In a recent interview with staff writer John O’Dell, Firestone discussed the local residential market and its impact on the changing face of Orange County.
Q. It has no bearing on anything, but why an office in Overland Park? It’s easy to see why you’re in Chicago, Connecticut and Dallas, but what’s in Kansas?
A. It’s a suburb of Kansas City, Missouri, so it’s a good central Midwest location. And it’s close to U.S. Sprint Communications, which is an important client to us.
Q. My layman’s understanding is that as a relocation specialist, you provide a service finding homes for business people who are transferred.
A. That’s how it used to be, in its very simplistic form. The problem today is you no longer have a traditional family unit, you have a variety of family structures. You have dual-career couples, dual-income couples. You have extended families, elder-care problems, day-care problems, or maybe it’s the wife being transferred and the husband is the trailing spouse who also needs a job. The dynamics of what (makes up) a relocating family are so dramatically different from 10 years ago. You now get deeply involved in the emotional part of the move . . . the trauma. But, yes, the job is also helping them sell their existing homes, and buy new homes.
Q. Do you typically work for upper management rather than the hourly workers?
A. Rarely are blue-collar workers given this benefit, primarily because they are mostly union, and not that many union people are moved. Secondly, a lot of companies don’t want to give any more benefits than they have to. So the people who get relocation assistance generally are in middle management and up.
Q. And that means that you work in the high end of the housing market?
A. Not really. The average price range we deal in nationally is $130,000 to $150,000. Here is it $250,000 to $300,000, and that’s not the upper end of the market in Orange County.
Q. Let’s look specifically at the real estate side of what you do. How has the market been acting in the years since you started your company?
A. Nationally, it has run the gamut from very hot, where you couldn’t put a sign out before you had four buyers bidding up the price, to being very depressed. Oklahoma, Texas and the rest of the oil belt has been depressed for several years. In California, it was always very hot until a year ago. You could always count on 15% to 20% annual appreciation rates.
Q. And how has the Orange County real estate market been the last few years for people relocating here?
A. It depends on where they are coming from. If they are coming from a lower-cost area, which is probably the case 80% of the time, it becomes difficult. They learn very quickly there will have to be trade-offs. If they want to be close in (to work), then there will be less house but no commute. If the house is more important and they don’t mind the commute, then they’ll go out to Riverside or wherever. You learn very quickly to work with the employee and the family to find out what they can afford, what makes sense for their lifestyle needs.
Q. You not only work for companies moving people here, but also for companies that are here and moving people to such places as New York and Colorado and Texas. So you’ve had a lot of opportunity to sample various regional markets. How depressed is the local residential market?
A. Everything is relative. The market in Southern California is slower than it was. And we have seen prices stabilize. If you bought a house a year ago and want to sell it now, you will definitely lose some money. But if you compare this market to other parts of the country--Boston, for example--then I’ll take a property in Orange County any day. That whole eastern quadrant has been very severely impacted for the past two years. They had the same conditions as we did, with housing prices rising rapidly by 15% to 25% a year, and then it just suddenly stopped, right after the stock market crash in October, 1987. And everything started going downhill.
Q. Are there similarities in the underlying economic structures that could create the same situation here?
A. My personal opinion is that California is more diversified. New York is still very much controlled by the financial markets. And in Massachusetts the economy has been built around high technology. But in California we have a much broader economic base. We have tourism and agriculture as well as manufacturing and high tech and finance. It is a very healthy diversification.
Q. Orange County still is very dependent on development and defense manufacturing. There is some concern that the county, with a shrinking manufacturing base, is losing some of its diversity. You deal with companies that are moving in and moving out, so who is it who wants to leave, and why?
A. Primarily it is companies in manufacturing, because of the cost of labor. But a lot of other kinds of companies are looking to move out too because of congestion, the very high cost of living and the expensive labor pool. We found in the past that it is difficult for local companies to recruit from out of state because of the high cost of living. If you are moving someone from Iowa into Orange County, they face some real culture shock. They can’t afford a house here, and the house they finally do get is on a postage-stamp lot, where they had five acres in Iowa. As a result, a lot of local companies have started thinking that if they can’t get people from out of state to come here, maybe it is time to think about moving to where the people are.
Q. The oil services industry has left the area, defense companies are talking about moving their manufacturing facilities out of the area and some computer companies have started manufacturing elsewhere. Are there other kinds of businesses besides manufacturing that no longer consider Orange County an amenable place?
A. I think we notice manufacturing the most because of the intensive labor use. Those companies require a lot of labor, and when they move it is really noticeable. In the service businesses you don’t have as much labor impact, so you don’t see it much. If an accounting company with 50 employees moved out, who’d notice? But when a manufacturer with 1,000 employees goes, that makes the papers. I hear most from manufacturing, but when you talk to other business people you hear some of the same things. We recently did a survey of companies around the country and found that cities like Atlanta, Dallas and Tampa are far more attractive than Southern California to a lot of companies, both for manufacturing and office services. And it is because of the cost of housing, the cost of labor and the quality and cost of lifestyle. And I find that when you talk to companies here that are moving out, you get some of the same reasons.
Q. And what happens to an area when some of its business base leaves?
A. I saw it in New York. A lot of large corporations left because they felt the infrastructure could no longer support them. They cited the cost of taxes, labor and housing. What happens is that they take all the middle-level workers, and you have no middle class left. Only the extremes--the rich and poor--are left living in the city, and the infrastructure is questionable. It is a frightening situation. And the concern I have most about this area is that we are overbuilding and not dealing with our infrastructure. Look at the fact that we have had a water problem for five years, and only now are we finally trying to do something about it. Look at the freeway system and the traffic and congestion. We end up destroying the reasons we chose to live here in the first place. And we compound it by the fact that it is very expensive to live here, and we almost squeeze out one whole segment of the population.
Q. On the other hand, this does still seem to be the place of choice for a lot of people.
Q. Given all the problems we’ve just discussed, why is that?
A. The weather, the lifestyle. Having lived on both coasts, I can say the adjustment to the East Coast was much more difficult because of weather and lifestyle. But you come back here after eight years and you immediately get into the lifestyle. It is very easy, we have less hassles, and where can you find weather like this in February? That’s one reason people stay. And in Orange County things are newer and cleaner, and a lot of people like that. If I ever had to decide to move the company out of here, it would be a painful decision.
Q. We hear horror stories of culture shock. The executive moving from a mansion on several acres in Ohio who moves here and can barely afford a tract home in Irvine. Is that the rule or the exception?
A. Boston, New York, Washington, San Francisco and Honolulu are the same or more expensive than Orange County. That’s it. Everything else is less expensive. So to make up the difference, employers have to offer mortgage subsidies, cost-of-living differentials, anything to try to keep employees as financially whole as possible when they move them here. But it is always with the understanding that the housing is different and that they will have a different lifestyle now. If you have a $300,000 home in New Hampshire with 4,600 square feet, four acres of land, a tennis court and 30-minute commute to Boston, well, you just are not going to find that in Southern California or in the Bay Area. Just forget it!
Q. What is the typical reaction in a case like that?
A. Some people turn down the move because they don’t want to live in California after they hear all the horror stories. But many look at it as an adventure, just not a permanent one. We’ve transferred people here from back East in our own company, and its surprising how quickly they get adjusted to the housing. It’s other things they miss. The seasons. Their friends. Once you become accustomed to what you can get in a house for the money you have, and once you’ve settled on a house, then it’s the other things that manifest themselves.
Q. In what markets is it hardest to sell a home today?
A. Boston, New Jersey, coastal metropolitan California and Washington, to a lesser degree.
Q. And the easiest places to sell?
A. Texas, because the market there has been on the bottom for several years, so realism has set in and people understand it. Plus, there are a lot of companies that have moved into Texas, and that has created some housing demand. And the Midwest is pretty stable. Also, Atlanta.
Q. Housing sales in the Southland are down tremendously, which means that a lot of people are sitting on their homes. So is there much available out there anymore for people coming into the area?
A. Finding housing if you are moving into Orange County is not difficult. But it is harder these days to find exactly what you want with the best possible price tag. We have seen the market open up in the last 30 days, however. Interest rates are down and sellers are more realistic about the prices they can ask. I also think that the (Gulf) War, the fact that we’ve started fighting, has gotten people off the dime, because they are no longer waiting around to see what will happen.
Q. Some say this is a great time to buy, others seem to be waiting for prices and interest rates to drop another notch or two. Where do you think we are?
A. I don’t think we’re going to come out of this slump anytime soon, but I don’t think it will get any worse. So, yes, this is the bottom, but we’re going to stay there for a while.
Q. What’s a while?
A. I think it will be nine to 12 months before things start picking up.
Q. When that happens, will prices appreciate as much as in the past?
A. Much slower than in past. The market won’t be as speculative. That’s just because at some point housing reaches the top and no one can afford it anymore.
Q. And we’re close?
A. It seems like it. It also has a lot to do with inflation and interest rates. If interest rates act like a policeman to keep inflation in check, as the Federal Reserve Board seems to want to do, then that will keep price inflation down. And the type of housing that is in demand is going to change. In the next decade, about 50% of the baby boom generation will turn 50, and we will shift our housing requirement to smaller units and to condominiums that need less maintenance.
Q. Chapman College economist James Doti maintains that we are in an era in which more people will move out of Orange County than will move in. That leaves the natural birthrate as the only source of population growth, and newborns don’t buy homes, so he predicts a tremendous drop in housing demand. Is that a credible theory from where you sit?
A. Yes, definitely. We talk to enough companies that are looking at moving out of the area to know that there is more interest in leaving than in moving here.
Q. Is it the employees or the owners who are revolting against congestion and housing costs?
A. We don’t hear that the problem is employees refusing to commute to work anymore. We hear from the bosses: that (profit) margins are slim and getting worse, and that labor is expensive because of housing and transportation. An alternative is to look to move outside of the area.
Q. Has the relocation business suffered in the current economic climate?
A. Actually, it has increased. That’s normal in a recession. We see a decline in individual moves but an increase in group relocations, because companies are consolidating and closing plants and shifting people back to headquarters.