Bend's home-building uptick

Residential building at five-year high; commercial market still weak

By Elon Glucklich / The Bulletin / @EGlucklich

Published Nov 18, 2012 at 04:00AM

A decline in the number of homes for sale and low interest rates are driving new home building in Bend at a pace not seen in about five years.

However, commercial construction remains mired in a years-long slump.

The city of Bend issued 383 permits for single-family homes between January and October, a review of Community Development Department records shows. That's up 67 percent from the same time frame last year, and 174 percent from the bottom of the market in 2009.

The pace of sales at Hayden Homes tripled between the fourth quarter of 2011 and the first quarter of 2012, said Michelle Gregg, a broker with Hayden's real estate branch.

It's not a pre-recession pace, to be sure. The city issued 706 new home permits in the first 10 months of 2007.

But the 67 permits issued to Hayden Homes this year is up from 33 for the company between January and October of last year, 12 in 2010 and nine in 2009.

Gregg points to a shrinking housing inventory in Bend driving the uptick. Measured in months, inventory represents the amount of time, theoretically, it would take to sell all the remaining homes on the market in an area.

Single-family home inventory in Bend stood at two months in October, down from three or 3.5 months earlier this year, according to an analysis by Bratton Appraisal Group. Inventory was at 12 months in early 2009.

Real estate officials prefer a three-month inventory at the very minimum, said Jaynee Beck, principal broker at Duke Warner Real Estate, and preferably a bit higher. Realtors like to sell homes within about 90 days, she said, so an inventory of three months or more helps maintain that pace.

The Federal Reserve started slashing interest rates on 15- and 30-year mortgages in an effort to spur new home buying after the national real estate market collapsed in 2008.

Fifteen-year mortgage rates were at 2.87 percent last week, down from 6 to 6.5 percent throughout 2007. Thirty-year rates were at 3.54 percent, down from the 6.3 to 7 percent range in 2007.

Those rates are bringing new buyers to the market, said Chet Antonsen, owner of Group PacWest Homes in Bend. “That has created a lot of opportunities for people to buy,” Antonsen said.

Gregg said she has seen a return of buyers from out of town and those looking for second homes.

“A lot of these buyers I saw five years ago looking for homes on the high end” of the price range, Gregg said. When the market eroded, “they disappeared. But now some of them are back.”

Lower inventory means more sales for Monte Clouston, who runs Pinnacle Construction and Development in Bend.

Clouston is developing Brookland Park, a 22-lot subdivision in northeast Bend he bought out of foreclosure in late 2010.

Clouston has taken out permits for eight new homes at Brookland Park this year, up from four last year. Six of them have been issued since June.

“In the month of August, I sold a house a week,” Clouston said. “The pace is skyrocketing.”

One sale a week may not be much for big builders like Hayden Homes or Pahlisch Homes. Pahlisch has taken out 77 permits through Oct. 31, up from 28 last year and 13 in 2010.

But for Clouston and hundreds of other small developers across Central Oregon, the difference between eight homes and four is huge. He expects to close two additional sales by the end of the year, potentially bringing his 2012 building total up to 10.

“More building means more work for subcontractors, for sure,” he said. “It's a plus for the whole market.”

Commercial woes continue

The same can't be said of Bend's commercial and industrial markets.

While new home activity sparks optimism from residential builders, construction of new office buildings, stores, warehouses and industrial facilities has been largely nonexistent.

The city of Bend has issued two permits for new commercial and industrial buildings this year: one for the Oregon Department of Transportation building on North U.S. Highway 97, and one for the nearly completed Worthy Brewing facility in east Bend.

That's a contrast from the 68 new commercial and industrial permits issued in 2007, when massive projects were going up, like the Clear Choice Health Plans, now PacificSource, building on Northeast Connors Avenue and The Point at Shevlin Corporate Park office building on Southwest Simpson Avenue.

That year, 18 commercial projects each valued at $1 million or more were built in Bend.

Just nine such projects have gotten the go-ahead in the nearly four years since the start of 2009.

For a lot of businesses looking for office space, building new doesn't make sense with such a wide range of vacant space to choose from, said Brian Fratzke, principal broker with Fratzke Commercial Real Estate in Bend.

More than 21 percent of Bend's office space was vacant in the third quarter, according to a recent market analysis by Compass Commercial Real Estate Services.

But several commercial contractors said they are making up part of the losses from a series of school and medical building projects. They have also seen an uptick in commercial and industrial remodeling.

Some, like Kirby Nagelhout Construction Co., have looked outside Central Oregon to make up for the loss of high-dollar projects here.

Two of the company's biggest projects this year have been a park and office area in The Dalles, and an elementary school in Eagle Point, said Mike Taylor, the company's president.

A handful of projects won't match the frenetic growth that seemingly transformed whole areas of Bend in the early and mid-2000s and provided jobs for thousands.

Kirby Nagelhout employed about 200 construction workers in 2005, but it's down to about 60 today.

Despite the downturn, Taylor has secured work on 21 smaller remodel or addition jobs on Bend commercial buildings this year — projects like a remodel of the deli at Newport Avenue Market, and improvements on a conference room at Bend Research.

The remodel work is up from 11 such permits through the first 10 months of 2011, and 12 in 2010.

“The large projects bring a lot of revenue. They kind of anchor a company,” Taylor said. “But the smaller projects also get you out to more sites, having more contact with businesspeople around the area.”

That activity stands to benefit companies like Kirby Nagelhout and SunWest Builders, as the market inches toward a recovery here and across the country.

A decline in big projects led to a reduction of SunWest's workforce, company founder and president Steve Buettner said. SunWest went from 60 construction workers at the height of the market to 30 earlier this year. And, “from a revenue standpoint, (2012) was probably one of the slower years we've had,” Buettner said.

But he also started seeing an uptick in the spring. He's landed 10 commercial remodeling contracts this year, and got the Worthy Brewing job in April.

He's cautiously upped his workforce to about 40 on the strength of those jobs, and feels better about the company at the end of this year than he did at the end of 2011.

“We have more work going into 2013 than we did going into 2012,” Buettner said. “In the construction industry, you're always looking at your backlog for the next year ... So we're feeling fortunate with the workload we have.”

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