NWA business execs reflect on five-year recovery

by The City Wire staff ([email protected]) 102 views 

It’s been five years since investment firm Lehman’s Brothers filed bankruptcy, sending the nation’s financial markets into chaos and taking the rest of the country with it. At the time, Northwest Arkansas had its own concerns with a huge excess supply of real estate on the market, corporate downsizing from Wal-Mart, local banking woes and rapidly rising unemployment.

While the stock market has made a solid recovery in the five years since the September 2008 crash, a recent survey by Pew Research found that the majority of consumers give the nation mixed results on the rebound of the broader economic metrics such as employment and income growth. Pew noted that the stock market recovery, while robust, doesn’t have the same impact on middle-income America as it does in higher net worth families.

The S&P 500 benchmark index stands about 35% higher than it did five years ago, but only 13% of households with net worths below $500,000 have personal money invested in stocks or mutual funds, outside of the 401(k) retirement plans, according to Pew.

In contrast, 59% of respondents in the Pew study said real estate values have partially recovered in the past five years. Rising real estate values helps consumer confidence overall, analysts said.

Pew reported consumers were more pessimistic about jobs and income, less than half of those surveyed said their job situation has only partially recovered.

The City Wire asked a few business professionals in Northwest Arkansas to reflect on the past five years and weigh in on four areas cited in the Pew study: Stock market, real estate, employment outlook and income growth.

One of the biggest employment and income drivers in Northwest Arkansas is retail trade around the Wal-Mart Stores Inc. ecosystem, an area that suffered after the crash in 2008 and the sluggish recovery that continued for the next couple of years.

Perhaps no one is more in tune with those local high net worth jobs than Cameron Smith, CEO of Cameron Smith & Associates in Rogers.

“Following the economic downturn of 2009, in the world of executive search, the strong have survived, some have prospered and some have worked to just stay in business,” Smith said.
“We were faced with the perfect storm. As the recession took hold, many of our client companies (suppliers) initiated a hiring freeze, downsized their workforce and delayed new expenditures. We were also inundated with hundreds of laid-off Wal-Mart associates who had nowhere else to turn,” Smith added.

He recalls having to revamp the strategy somewhat and seek some creative solutions in order to find displaced Wal-Mart professionals jobs with other retailers. Before that point, the executive search firm had mostly focused on supplier jobs.
“We also realized that companies were still interested in the best talent available and willing to trade up for executive positions. We were able to place professionals with Walgreens, Home Depot, Target and Dollar General,” Smith said.

Another valuable lesson for Smith was to diversify his business outside of Northwest Arkansas, which he says has been a key to its success in more recent years.

“If Vendorville works for Wal-Mart suppliers, then it has to work for other markets. We have more than doubled our business and sales in the past five years,” Smith said.

Brent Hanby, co-owner of Encore Flooring and Building Products in Springdale, saw first hand the impact the financial crisis had on consumers and local builders. He formerly was an officer of National Home Builders, a local company that sought bankruptcy in December 2009 after its credit lines were frozen and it could not collect from its own customers.

Hanby said for building suppliers the local housing market began to tumble in the spring of 2006, even before the meltdown in mortgage-backed securities and the implosion of the financial markets by 2008.

According to Paul Bynum, market analyst for MountData.com, the bottom in the local home prices didn’t occur until January 2011, some two years after the financial crisis on Wall Street. Bynum said the median home price hit a low $110,000 in January 2011. This past month that price had climbed back to $150,850, it’s highest level since 2008.

Hanby and partners took their expertise into the small business format when they formed Encore in May 2011. The Encore team began small and has been able to grow as the local home building market picked up steam the past two years. When he opened the building supply business in 2011, he hired 14 employees. Hanby said he added three more in April to give the firm a total of 34.

“Our outside and inside sales are growing as people in general feel better about investing in their homes, especially now that values are going up.” he added.

As a small business focused on serving the housing sector, Hanby said he’s excited to be located in Northwest Arkansas, an area that is attracting 23 people per day to the region.

“I believe that Northwest Arkansas will continue to outpace the national average for growth. We can now see why the population projections for Benton County to exceed Pulaski County by 2050 are actually coming to fruition,” Hanby said.

The one threat he sees for small business employers in the near term in the mandates from the Affordable Care Act.
“ObamaCare is the big concern for most all employers as of now and how that will affect expenses,” he said.

George Faucette, CEO of the local Coldwell Banker franchise, looks back at 2010 as the trough year for his business. He said the free fall started in mid-2009 and it hit bottom the next year.

“Since 2010 our sales volume has increased by approximately 60%, based on our 2013 year end projections,” Faucette said.
He said the local boom market did not rise as high as Las Vegas or Phoenix, but times were very good for real estate companies for several years heading up to the inventory excesses which peaked in 2007. It was that supply excess that was largely responsible for the free fall in prices which ensued. The credit crunch added another layer of hurt to the local industry and it further restricted buyer demand at a time when home supplies were at their highest levels.

Faucette said the past two years the local market has rebounded strongly and his own firm has grown sales volume almost two times faster than the overall Northwest Arkansas market. He points out the real estate brokerage business did not get any government bailout, and was forced to scrutinize its own balance sheets.

“During the boom we had concentrated on increasing our revenue and had not evaluated our operations with near a close enough eye. When the market began to fall there was little we could do to change that revenue slide, so the only choice we had was to look at our operations, and we looked at every aspect of it and acted on what we found,” Faucette said.

Faucette merged his operations with Harris McHaney in February 2010, giving Coldwell Banker the largest footprint in Northwest Arkansas. This strategic merger allowed the firm to reduce operational expenses by 40% by the synergies created. Faucette said the firm carried losses for a year or so, but has been able to erase them amid a stronger market since 2012.

He said profits are growing and more importantly the business is cash flowing at what he thinks is a sustainable rate.

The local banking sector coughed up huge losses relating to real estate investments gone sour and have continued to climb back much more slowly than the super large banks. Wall Street banks have been quite profitable for the past three years, fueled largely by cheap money and huge investment gains related to equity portfolios.

Community banks across Northwest Arkansas have muddled through heavy loan losses, heightened oversight and tepid loan demand and have just recently started to show signs of prosperity, albeit below historical levels.

“Our business at Signature Bank is $200 million less than we were at our peak. Our bank had several clients that had been very successful yet because of appraisals on their real estate holdings they were drained of their entire life savings. We battled for them and their businesses because of their extremely high character and history of success and integrity,” said Gary Head, CEO of Signature Bank.

He said the past few years have been rough as profits were largely set aside to bolster loan loss reserves as real estate values plunged. Those losses have largely been dealt with, but the overriding concern for Head and other community bankers continues to be the heightened regulation their industry has seen following the financial fiasco on Wall Street in September 2008.

“The American people have far more scrutiny and regulation over every aspect of our lives than ever before in the history of our country. This regulation has had a negative effect on all things we hold sacred; such as the value of your home, business, and the entire entrepreneurial spirit of the U.S.,” he said.

He too, is concerned about “Obamacare” and the costs on small businesses which are the last hold out on hiring.

Like Hanby, Head said he’s glad to running a business in Northwest Arkansas because of its resilient nature.