In the midst of a major market slump, Coscan Construction finds the key to its success is in being small and flexible...
By Andrea Orr
How do you continue to grow in an industry like real estate where sales and property values have slumped so much that some people are walking away from their investments, rather than get saddled with mortgage payments on an overpriced condo?
Coscan Construction, which expects its 2007 revenues to be double 2005 levels, says the key is to stay relatively small and be flexible.
Coscan’s President Mike Neal says it was his resistance to excessive expansion during the real estate boom a few years ago that helped him manage in these more troubled times, even though he operates in South Florida — one of the regions hardest hit by the real estate slump.
Coscan, which specializes in multi-family, high-end condos in prime locations in Dade, Broward and Palm Beach counties in south Florida, typically works on five to seven projects at a time — each usually valued between $100 million and $200 million.
Neal says it is a manageable load that lets him retain personal oversight of most details.
“I think the downfall I’ve seen for many companies is becoming too large,” Neal says. “Once you become large, you give up a great deal in the qualitative part of the business as well as the ability to stay personally connected to your clients and employees. I can be personally involved in every deal we do.”
Those qualitative details, he maintains, are what give general contractors an edge when business gets tough. Neal says Coscan’s reputation has become one of its most valued assets in today’s competitive real estate environment.
“A few years ago, everybody’s phones were ringing off the hook. There were more opportunities than resources, but that has all stopped,” says Neal.
Now, with contractors chasing a shrinking number of projects, factors such as a proven track record for finishing projects on time, and with minimal flaws, are getting noticed.
Coscan adheres to standards of excellence on multiple fronts. Its construction safety record is among the best in the industry, with an incident rate of .28, compared to a national average of 6, Neal says.
The company also works hard to finish projects on time without sacrificing quality, Neal notes. Typically, fewer than 5 defects are discovered in its new apartments during walk-throughs — a rate Neal says is almost unheard of industrywide, and which he also credits to the company’s manageable size, which enables it to always work with a prequalified list of subcontractors.
“We will only do business with vendors who provide certain levels of quality,” he says.
“If I was asked to do a project in Jacksonville, Florida or Atlanta,” I would have to think about it,” says Neal. “I would not arbitrarily choose to work outside of our main territory.”
Cocsan’s revenues grew from less than $100 million in 2005 to $150 million in 2006, and a targeted $200 million in 2007. The company is now forecasting 2008 revenues of between $220 million and $240 million, although Neal acknowledges that the duration of the market slump remains a big uncertainty when trying to forecast the future.
Still, Neal says patches of real estate in the best locations will always see strong growth during even the roughest slumps.
“We are still seeing buyers for the super high-end ocean front properties,” he says.
As Coscan looks ahead and hopefully anticipates an end to the now two-year-old real estate slump, it is discovering another benefit of its compact size: an ability to be flexible and swiftly change course as needed.
Although Coscan has typically specialized in high-end condos, Neal says the company is increasingly open to building office, hospitality and mixed-use properties in non-beach front locations such as downtown Miami, and other growth areas within its market.
Those projects could offer more potential in the current environment, where close to a third of buyers of condos under construction are opting not to close. In certain particularly distressed south Florida real estate pockets, up to 80% of home buyers are walking away from their deposits, he says.
“There is going to be a continued demand for housing,” Neal reasons. “But while existing inventories are absorbed, we’ll be in a slow cycle on the residential side. I am not likely to see any new condo development until existing inventories are absorbed.”
The company’s strategy is to continue serving its existing client base who are large, well positioned developers with premier sites that should continue selling during the down cycle. At the same time, Coscan will selectively diversify its operations to include commercial office, hospitality and mixed use projects. Neal’s stategy to remain a smaller regional contractor has payed off during the current market downturn.
Remaining nimble and flexible has allowed it to capitalize on its current strengths and capitalize on new opportunities.
“I can make a decision on the spot. I don’t have to deal with a huge bureaucracy,” says Neal, who notes that in addition to maintaining its usual rate of volume, Coscan has to date not had to lay off any of its 200 employees.
But Neal is not ready to abandon condo work just yet, and says Coscan would still not turn down a new condo project in a prime location with the right client.
“Two years is a long recession, and we are coming up on two years,” says Neal. “We are trying to plan for the worst and hope for the best, stay fairly conservative and use this recession to focus internally, improve our processes and retain strong people.”