Anatomy of a downturn: Business owner details effects of building slump

Gordon Harbert goes over building trends in Mesa County in a presentation at the Business Incubator Center in Grand Junction. The former owner of a building materials business described how a drastic downturn in home construction affected his family operation. (Business Times photo by Phil Castle)

Gordon Harbert has faced a series of difficult decisions in the aftermath of a dramatic downturn in the construction industry.

Harbert laid off employees, closed a store and ultimately sold the building materials business his family started in Grand Junction more than 70 years ago.

While the housing market eventually will recover, the effects of the downturn continue to ripple through the economy with the loss of businesses and workers as well as reduced demand for the wide range of products that go into new homes, he said.

Harbert, for more than 20 years the owner of Harbert Lumber, now works as manager of market development for ProBuild. The change follows the acquisition by the national building materials supplier based in Denver of the assets of Harbert Lumber, including its operations along North Avenue in Grand Junction as well as its outlets in Aspen, Glenwood Springs and Steamboat Springs.

Harbert discussed trends in residential construction and his own experiences at a presentation at the Business Incubator Center in Grand Junction.

The number of building permits issued for single-family homes, a measure of the residential construction sector, has peaked and dropped over the decades in Mesa County and nationally, Harbert said.

In 1978, for example, 1,544 building permits were issued in Mesa County, while more than 1.4 million permits were issued nationally, he said.

Housing starts plummeted in Mesa County in the aftermath of the oil shale bust, dropping to just 42 in 1986. Nationally, though, housing starts remained comparatively high at nearly 1.2 million.

Building activity peaked again in Mesa County in 2005 with 1,525 single-family permits pulled, Harbert said. Nationwide, more than 1.7 million housing starts were reported.

The numbers have dropped every year since then, though, falling in 2010 to 347 permits in Mesa County and 417,000 permits nationwide, he added.

Harbert started working for Harbert Lumber in 1974 and purchased the company in 1990, the third generation of his family to oversee the business.

Harbert substantially expanded a single company with 24 employees and $4 million in annual sales to an operation which at its peak included nine companies with a total of 230 employees and $80 million in annual sales.

In 2007, Harbert acquired retail building materials outlets from BMC West Corp., including outlets in Glenwood Springs and Steamboat Springs as well as the business assets of an outlet in Aspen.

Business was good when home construction was brisk and residential prices quickly appreciated, he said. “You could just make stupid money.”

But Harbert said he also realized the trend couldn’t continue given the rapidly rising prices of homes and land along with the fact local housing markets were becoming overbuilt.

As construction activity in Western Colorado slowed in 2008 and 2009, Harbert was forced to downsize his operation, selling a truss manufacturing facility, closing a store in Edwards and laying off employees.

Meanwhile, the price of many building materials dropped, cutting into profit margins, even as the cost of running the business increased, he said.

After taking out loans to finance the expansion of his operation, Harbert said he became increasingly frustrated trying to work with his bank to get through the recession. Fees became “horrendous,” he said, and decisions were made elsewhere. “I’ll never get to meet the man behind the curtain making the decisions.”

After competing with ProBuild in the Grand Junction market since 2007, Harbert agreed to sell his company in a transaction that closed April 1. He said ProBuild had previously asked him four times to consider a sale, but he rejected those offers.

The deal benefitted both operations because Harbert Lumber enjoyed large shares in the markets it served and ProBuild had the capital to expand, Harbert said. ProBuild acquired outlets in the mountain resort towns in which the company didn’t previously enjoy a robust presence.

“ProBuild needed us as bad as we needed them,” Harbert said.

Now it’s a matter of integrating staffs that previously competed against one another while continuing to offer quality customer service, he said.

Eventually, the construction sector will recover, Harbert said. “Is the housing marketing going to come back? Absolutely, it’s going to come back.”

A number of indicators point to a measure of recovery, including increasing real estate sales and decreasing property foreclosures, he said.

At the same time, though, Harbert said a housing boom gone bust has cost millions of construction jobs nationally over the past five years as well as devastated a range of businesses that supply services and products for new homes — everything from drywall and wiring to carpeting and kitchen sinks. About 1,400 lumber yards have closed, he added.