Demand for new Coffey Park rebuilds slows, says key construction company APM Homes

John Allen is chief operating officer of Santa Rosa-based APM Homes, which had been building projects in and around the city for several years before the October 2017 fires.

An early player in the mass-rebuilding endeavor for the over 5,000 homes lost in the city, APM has upwards of 50 fire-lot speculative homes in the devastated Coffey Park northwest neighborhood under construction, and so far has completed another 45. Underway also are a couple each of rebuilds and spec homes in the northeast Fountaingrove area.

Allen also is assisting with the even more massive rebuild after the 2018 Camp Fire in Northern California.

Outside the burn zones in Santa Rosa, APM is starting construction on an 82-home subdivision on West Third Street, next to the Imwalle Gardens grocery store. The project, called The Gardens, was acquired from another developer and has entry-level to move-up homes ranging in size from 1,400–2,200 square feet. Model homes are set to be complete by fall.

In this interview, edited for clarity, Allen talks about why reconstruction is happening faster in certain areas than others. He's set to speak on the rebuild at the Business Journal's May 29 Building the North Bay conference in Santa Rosa.

What’s the pace of the rebuild?

It’s definitely a different atmosphere right now. When we first launched the rebuild, we had quite a bit of interest; we had quite a few folks signing up. That has somewhat tapered off now. Most folks have either hired a contractor or made the decision to sell or move on. We still are seeing some folks trickle in and inquire about the rebuild process. As far as being flooded with new rebuild clients, that’s not the case. It’s a very slow trickle.

We do have folks that are coming in and purchasing lots and having us build a home for them, so they’re not fire survivors. There are folks that purchase lots that are having us put a home on there for them, built from one of our plans.

We’re in the process of building out the lots that we purchased, and we were making those homes available for sale. Sales in Coffey Park have held pretty strong. The folks that we’re selling to in Coffey Park are not from Coffey Park. But due to the publicity that Coffey Park received after the tragedy, folks see that Coffey Park has a really strong sense of community connectedness. They can also take a look at what is currently available for new home construction.

The unique thing about Coffey Park is we’re building in a subdivision that was developed back in the late ’70s–’80s. And with that, you get a backyard for your children, you get some wider streets than normal. It’s new construction, but it’s a little bit different atmosphere.

Are they still from Sonoma County or elsewhere in the area?

They’re primarily from within Sonoma County. There’s a couple of outsiders that have come in.

What have you noticed about the pool of builders that are working with rebuilds?

Well, I can tell you that my counterparts — Gallaher, Synergy Group (by Christopherson), Christopherson (Builders), Tuxhorn (Homes), Shook & Waller; they’re all local builders here — right after the fire we all had communal discussions: What does this look like? How does this operate? I have really nothing but good things to say about my counterparts out there.

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(According to the city of Santa Rosa, 1,222 housing units were under construction in Santa Rosa as of May 17 on lots burned in October 2017, 315 are complete, 173 are permitted to build, and 265 are in permit review. Of the 2,673 parcels burned in Santa Rosa, 65% are actively in the permit process, according to the city.)

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They’re doing the right thing. They’re trying to be transparent. They’re trying to offer clear-cut pricing. They’re trying to get folks back in their homes.

For the local developers, this is a process that we had never been through or experienced: the insurance process, the direct contractual process. Previously, we sell homes, we get our money through escrow, versus insurance or combined insurance, mortgage or homeowners funds. It’s an extremely complicated process that we were able to dissect down, figure out a way that worked for each of us and take it to fruition.

For APM Homes, we haven’t really had any issues with (getting paid). Primarily, it’s just communication with the fire survivor, explaining the process to them, informing them of our pay points or our draw schedule, and assisting them with some of that back and forth between either a mortgage lender or an insurer.

For instance, some of the insurance companies or mortgage companies will require progress inspections based upon the draws. For us, we just make sure that we give advanced notice to the fire survivors, that way they can give advance notice to their entity, whether it be insurance or mortgage, and they can get their inspections done, and all that fun stuff.

We’ve been fairly lenient with them, but we’ve also been pretty liberal in our noticing with them: “Okay, we’re going to be getting ready to build for this, you guys are going to want to conduct anything.” Every company handles things a little differently. It’s a fairly small percentage that we have to deal with as far as making sure that they get their inspections and things like that.

You’ve mentioned you’re doing some projects up in Fountaingrove. Have you noticed a difference in pace of rebuilds, the pool of buyers and builders up there?

Big, big, big, big, big difference. Up in Fountaingrove, you don’t see the accelerated pace of the rebuild as you would in Coffey Park or Mark West. I think that’s in part due to the organizational efforts of the folks in the community. Coffey Park, it just kind of organically came together through Coffey Strong.

The fire survivors had to take ownership of their disaster. Through Coffey Strong, they were able to take ownership of it and work together as a group. Same thing over and Mark West and Larkfield through the block captain system. They were able to really organize themselves. Through that organization process, there was a lot of sharing of information.

Unfortunately, when you get up into Fountaingrove, there are block captain systems up there, but it seems like it’s pocketed, a little bit more segmented. And I think that’s slowed down the rebuild.

The other thing up in the Fountaingrove area is some of those folks were able to purchase other homes in other parts of Santa Rosa, Sonoma County. Some folks just vacated completely.

In other words, they had grown older in age, and they did not want to go through this process. Or they took this as an opportunity. “While I raised my kids here in Fountaingrove and the kids are out of the house, what do we need a 2,500- or 3,200-square-foot home that’s kind of empty (for)? So they decided to make that decision to sell and downsize.

How has moderation of housing price growth in Sonoma County affected demand for rebuilds versus new builds in the area?

The stuff that’s being built in Fountaingrove is not selling as fast as what is being built and sold in Coffey Park.

But as far a new construction, folks now have an opportunity to go to a subdivision or a planned community, within Sonoma County, whether it’s Rohnert Park, Santa Rosa, Petaluma. They can go through look at model homes and do that process, or they can come into a rebuild area and you talk about purchasing a lot, having a contractor build their home, getting one of the builders, like myself, who will build one of our plans on your lot. But it’s kind of two different dynamics, because it’s two different processes.

There’s also the financing component of both: purchasing a new home, going through the mortgage process, (versus) purchasing a lot and (getting) construction financing. As far as which one is driving one or the other, I don’t necessarily think it’s a fair comparison.

For instance, folks driving around looking for a new home: They’re going to be bopping in and out of subdivisions or they may see a new-home listing, like something that we listed in Coffey Park. Are they ready to move in today, in a couple months? Or is this something that they’ve got to do a property transfer.

Is there price competition between the rebuild areas and those outside?

Not really. If you look at our construction costs, folks that purchase their own lot and then hire us to put one of our plans on there, they do get some savings because they purchased that land. (But) if they’re buying one of our new homes in Coffey Park, we’ve purchased that land and built the home on it.

But it’s not such a significant cost savings because you’ve got to take into consideration the folks that are doing that either having to put up that money for the lot, get construction financing, (or) do the whole financing process from the get-go. The cost savings may not necessarily outweigh that financial burden.

So (for) those folks that are getting their prequal(ification) for their mortgage, if they’re having trouble getting there, where you have to (come up with) the large (amount of) $180,000-$200,000 to buy the lot, versus the $50,000-$100,000 down payment for a mortgage, it is a bit different financial scale there. Purchasing a lot, having us build a home on it, yeah, you get some savings there versus buying new. But if you’re in a financial pickle, then you would want to go the new (construction) route, because that cost savings is not going to outweigh what your initial capital is.

What is the outlook for home construction?

I would say our outlook right now is pretty strong, as long as we have a strong and vibrant job market, where folks are able to earn a decent wage.

You may have seen some articles about the supercommuters, those folks working down in Marin County, San Francisco, Alameda, even as far as Santa Clara. If you get on the freeway at about 4 in the morning, most likely a percentage of those folks on the freeway with you are heading down to Silicon Valley. They’re able to make those high wages down there, and then they’re able to come back up here and afford a home in Fountaingrove or in Coffey Park. They are essentially paying significantly less versus purchasing down there or trying to rent down there.

In that first-time homebuyer, second-home, upgrade-home market, we’re going to be doing fairly strong. But that is dependent upon how the job market and wages hold up. If home prices rise too quickly, then we can be pricing some of those buyers out. And pricing those buyers out can (lead to) the slowdown.

What do you see are some of the biggest opportunities for your company right now?

It really depends on what the market’s doing at the time and what demand is out there. There’s a definite need for housing within our community, so that’s why I say housing should stay strong. But it’s the type of housing that will get put up, whether those are going to be apartments, mixed-use commercial setups, multifamily or single-family.

One of our goals is to walk away from Coffey Park, knowing that (we) ourselves and that the other builders put our best foot forward to get that community rebuilt.

And I think our next challenge is work up on the hill, get Fountaingrove rebuilt. Same thing out in the county (unincorporated area), working out towards Mark West, getting all those housing types accounted for (in the rebuild). It as a goal to replace our lost housing stock.

How are you tackling challenges such as high construction costs?

It hasn’t been a challenge. We went out early on and secured pricing and labor. We have had to deal slightly with some changes in that materials and labor market, but it hasn’t drastically affected us.

The main challenge that we deal with is the emotional aspect of this rebuild process. You’re dealing with folks that have experienced a significant amount of trauma. It’s walking them through this process. You get all seven stages of grief with some of these folks, if not over the course of the rebuild then sometimes in one meeting.

While you’re doing that, you’re trying to explain the process, because 99% of the folks that lost their homes have never been through this. They never planned on remodeling. They never planned on building a home. It’s making sure that they get real and accurate information.

That’s not too challenging when you’re dealing one on one. But then, “Well, my cousin is a contractor in Oregon, and he came by for the weekend, and he said this, this and this.” Then you have to say, “OK, well, let’s start over again. Let me go through the process with you.” You may have to explain the same thing over and over again through the rebuild process.

It can feel challenging sometimes to provide a level of customer service and customer satisfaction. Given the circumstances that these folks have experienced — this trauma and this loss — I think it’s justified.

Have the new quirks with the building code and other requirements, such as solar panels and fire sprinklers, made it a challenge in explaining the process?

Yes. It’s not necessarily the new codes. We’re aware that battery backup for (doors on) garages is going to happen in July. We’re aware that (in) 2020, we’re going to have to do solar. It’s not the stuff that we foresee in the future. It’s the current codes and ordinances.

One of the comments that we received from a lot of fire survivors is, “Boy, I didn’t realize it was this tough to be a builder.” And the reason it’s so tough to be a builder is we have to go through all these processes. To the average Joe, a lot of the things that we are required to do don’t necessarily make sense. “I had a lawn in front of my house before the fire. Why can’t I have what I had before?” That is the water-use-efficiency codes.

Folks are questioning, “Well, my house didn’t have fire sprinklers, and fire sprinklers wouldn’t have helped in the fire anyways, so why do I have to put fire sprinklers on?” You have to explain all these codes and processes.

One of the hopes is that folks will become more aware of what the construction industry has to go through. Not necessarily give us slack, but hopefully (they will) take a little bit more engaged part in regulatory processes, philosophies, things of that nature. And that’s not just for the construction industry, but that’s talking about timber management, vegetation management, the zoning codes, things like that.

I think (Coffey Park block captain) Jeff Okrepkie said it best: It’s an opportunity for folks to have an open and honest discussion about policy, philosophy and implementation. That would really be a true silver lining to this tragedy, that folks could take a look at the way things are done, things are run, where some of those hurdles are.

Just because you may not know anything about an industry or a sector doesn’t mean you just want to throw your hands up and let it be. And that’s what it’s been, right from the fire. The construction industry — building construction, our civil engineering contractors, our architects, our engineers — the main focus of our mission was information. We had to give the fire survivors information to empower themselves, because without information, they’re pretty much powerless or they’re walking through this blind. Information has been a big key in the success of this operation.