Real estater's new twist: remodeling
| New York
Ten years ago, when Art Bartlett began the nationwide franchise for real estate agents known as Century 21, he wound up riding the crest of the property boom in the 1970s.
Today, Mr. Bartlett (now an uninvolved chairman emeritus at Century 21) is preparing to ride another boom - one that he reckons may last as long as the real estate boom, or longer, and offers even greater opportunities.
His new franchise, Mr. Build, International, is directed toward contractors in the remodeling business for both residential and commercial properties.
Home remodeling is a countercyclical industry -- one that contractors enter when home building dries up, as it has now. Thus more contractors are in remodeling at present, and more will entertain the notion of paying Mr. Build its $6,900 franchise fee.
But Mr. Bartlett views home remodeling as staying strong, instead of fading in a year or two, or whenever the home building industry revives. ''Housing is too expensive for people to move all the time and speculate,'' he argues. ''People will have to make do with their current homes and add rooms or build new kitchens.'' The result, of course, would be greater demand for home remodelers.
Mr. Bartlett, based in Santa Ana, Calif., says he will give the nation's many contractors the same service he gave to small real estate agents -- a single recognizable name, group advertising, and advice on marketing and finance.
That marketing technique helped Century 21 gather 5,000 franchisees within five years of its founding, enough to make the company go public. By late 1979, Mr. Bartlett was willing to sell the firm to Trans World Airlines Inc., which paid a handsome $90 million for it. Already a wealthy man from his stock sales, he was a millionaire many times over from his 34.6 percent share of the stock.
Like real estate agents, contractors form a fragmented universe, which Mr. Bartlett calculates at somewhere between 250,000 and 300,000 firms. Most of them are tiny, but added together, their business adds up to a $40 billion-a-year industry, according to the US Commerce Department. Bartlett figures it may be closer to the $70 billion to $75 billion range, since many contractors are unlicensed.
Since February, more than 250 Mr. Build franchises have been sold to small firms in California and Texas and the Cleveland, Chicago, and Washington areas. Five more areas will be tapped this summer.
''We are going for the person who wants to add a room onto his house or refinish the facade,'' he says. Large commercial contractors are not being sought, although Mr. Bartlett hesitates to leave them out. ''That might be downstream,'' he says.
One reason he sees remodeling as more fertile than real estate is that ''in real estate, we had tremendous competition from local, established realtors with several offices in town,'' Mr. Bartlett says. Contractors, he believes, have less public acceptance. In fact, he notes, they have image problems. Part of Mr. Build's goal is to project a better image - one consumers will trust.
Most important to establish that consumer confidence is the use of bonds by Mr. Build contractors. This, he says, will assure customers that jobs will be completed and sound.
Says Mr. Bartlett: ''People can pay a contractor half the bill up front. The contractor may disappear after a few days' work. There is no recourse. Or, if the contractor neglects to pay his subcontractors, the customer can be sued by the subcontractors, who can get damages.''
One service to be provided franchisees will be a discount program at local suppliers, once regional systems are developed. Also, standard contract forms will be offered as well as help with financing. A referral program will begin when the firm expands sufficiently, and Mr. Build will be given widespread advertising, including television commercials.
All this doesn't come cheap. Besides the purchase price, franchisees pay the organization 6 percent of their gross, as well as another 1 percent of the gross for bonding. Mr. Bartlett claims that a contractor's pretax earnings are hard to pin down, but they vary from 10 to 25 percent -- sufficient to pay his percentage off the top.
While leading consultants who deal with home builders maintain that a healthy profit margin for contractors is 15 percent, a recent survey of 1980 earnings showed poorer results, according to Michael Eckert, assistant director of business management for the National Association of Homebuilders, a trade group representing 114,000 contractors and buildings materials supplers.
Most of the 168 respondents to the association's survey reported single-digit profits. In fact, contractors with under $2 million in sales averaged only 2.9 percent pretax profit margins. Contractors with more than $25 million in sales reported the highest margins - an average of 6.3 percent, according to Mr. Eckert.
The total 7 percent of the gross that would go to Mr. Build doesn't go directly to his central organization, Mr. Bartlett says. It goes to the regional organizations of franchisees. He expects to sell up to 49 percent minority interest in a number of these centers, while he keeps majority control. They will pay the central corporation 15 percent of their gross.
In fact, he will not attempt to sell all his regional offices this time, as he did with Century 21. ''This time,'' he says, ''I want to maintain control.''
Does he expect to go public once the company has enough momentum? Mr. Bartlett insists he won't. He no longer needs the capital to grow.
Still, he is riding his new winner fast. His goal is 1,000 franchisees by year's end. Century 21's success spawned dozens of copycats. If Mr. Build is successful, the same thing may happen. Says Bartlett, ''They think selling franchises is how to make money. It's not. It's the service you give for the fee.''