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35 Years of Real Estate and Construction

Author: Beth Galleto
January, 2010 Issue

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NorthBay biz looks at three real estate/construction businesses—Davidson & Bennett Realtors, Diego Bros. Company and Keegan & Coppin Company—that have seen 35 years of industry changes, advancements and trends.

 
White disco suits? Long sideburns? Anti-war protests? What do the 1970s mean to you? Whatever your preferred icon, this was a decade that also marked the beginning of the North Bay’s transformation from a sleepy suburban and agricultural area to a wealthy and vital segment of the Bay Area economy.
 
Those who started businesses during those years can explain it best. Here’s how the roller coaster of the last 35 years looks to the founders of three important North Bay real estate and construction companies.
 

Homegrown businesses

Wayne Davidson of Davidson & Bennett Realtors of Napa; Jack Diego of Diego Bros. Inc., a construction company in San Rafael; and James Keegan of Keegan and Coppin Company Inc., a commercial real estate company in Santa Rosa, were each born and raised in the place where they started their business. They all have roots here and had the head start of familiarity with people and places.

After graduating from Sacramento State, Davidson was drafted and spent two years in the Army. When he returned, he earned a real estate license and, in 1969, he started selling real estate for Gene Cufaude’s Select Properties. “A lot of local realtors started with Gene,” he says. “He was a great educator.”

In 1978, Davidson opened Davidson & Bennett Realtors in partnership with Richard T. Bennett. They started at 1817 Jefferson Street in Napa—and have been there ever since. “We bought the property from my mom and dad,” Davidson says. “I actually lived in it as a house. My two stepbrothers, my two brothers and myself slept upstairs, and my stepsister and parents lived downstairs. Now it’s an office.”

Interest rates hovered between 7 and 7.5 percent, and real estate values were climbing. “The market was such that you would tell people they might anticipate a 4 to 6 percent annual appreciation rate on their property. Values were going up at a good, steady pace.”

Were those the good old days? “The business was a lot more fun. All the local realtors knew each other. You used to be able to fill out a one-page sales contract by hand. Now it’s more detailed—and 100 times more paperwork. You have to make all types of disclosures. There are more regulations than there ever were.”

Davidson knew almost everyone in town, which made it easier getting started as a realtor. On the other hand, as a recent graduate, he had to earn people’s respect and trust before he started selling. Since Bennett was also new to the business, the two partners did whatever they could to find clients, including knocking on doors and handing out potholders reminding people to call them. “I’d been in business for six months and wasn’t working real hard. At the end of six months, I sold my first house for a list price of $15,000. I said, ‘I can do this.’ Before long, I was working very hard. I’ve been very active ever since,” he says.

“My plan was to work on whatever came my way, to be successful and to make a nice living. We worked hard and built this into a successful business. Over the years, we’ve had as many as 20 salespeople.” The partners also established a property management division to manage the rentals they owned. When they sold to clients, they could manage the clients’ rental properties. That division has grown with the rest of the business.

“My hopes were that two young college grads who liked to work hard would be able to work their entire careers in real estate, and that’s the way it turned out.” Bennett is now retired, but they still vacation together and have lunch once a week.

Brothers Jack and Jim Diego founded Diego Brothers Inc., a construction company whose work ranges from San Francisco to Sonoma County, in 1982. They started their business in San Rafael.

According to Jack, high interest rates at the time they started the company made it difficult to get substantial construction jobs. They struggled along by getting a lot of small jobs. The winter of 1982 brought major storms, adding to the difficulties of finding work.

The business was very small at first. “We started from square one and built our business through the quality of our work, by word of mouth. We were born and raised in Marin and had a pretty good network of people. We started with both my brother and I out in the field. In time, I came into the office and did administrative work and he stayed in the field. Today, we’re both in the office. We do everything from administration to bidding and project management.” Over the years, the business has grown to range between 12 and 30 employees.

The Diegos’ plans were modest. They hoped to be their own bosses, work together and make a decent living. In the early ’90s, they began to work on spec homes—homes designed to sell by investors—located from Tiburon to Novato.

Before starting their business, the two brothers worked for 12 years at Novato Builder’s Supply, so they’ve been working together for 39 years. “It’s like a marriage, give and take,” says Jack. “He’s the boss sometimes, and sometimes he lets me be the boss.”

James Keegan started his commercial real estate business in partnership with Al Coppin in 1976. “At that time, there was high unemployment, over 10 percent in Sonoma County. Very little commercial or industrial development was going on.”

He remembers that agriculture dominated Sonoma’s economy. There were only two large businesses, Optical Coating Laboratory Inc. and the Santa Rosa Shoe Company. They and the hospital were the area’s major employers.

The business was slow to start. Sales were mostly individuals purchasing from individual landowners. “We were doing a  lot of calling on individual tenants, single business owners. There wasn’t a lot of spec space for lease. We started going out and looking at the market to see what was needed.” He and his partner started working office and industrial properties, Keegan from the tenant and Coppin from the investment side. “It was a pretty rudimentary business, especially in this area. At the time, none of the capital markets recognized the North Bay as an investment area.”

Eventually, developers noticed the opportunity and began putting together quality business parks in the area. For example, “In Fountaingrove, Hewlett-Packard bought 200 acres to put in a campus. In 1978, we sold 1,200 acres of the Fountaingrove ranch in the city of Santa Rosa to Teachers Management & Investment of Newport Beach. Hewlett-Packard built two large buildings, which are now Agilent.”

Numerous industrial developments in the area were started at about this time. Keegan says building methods were various and not as controlled as they are now. There weren’t contractor CC&Rs (covenants, conditions and restrictions) until the 1980s.

Like Davidson and Diego, Keegan’s and Coppin’s hopes at the beginning were simple: “Our hopes were to make a living and feed our families. We wanted to carve out a spot for ourselves and make a decent living in our home areas.”

Building a business

The three fledgling businesses encountered and overcame their share of obstacles as the years went on. Burgeoning interest rates were one problem.

“We went through times when interest rates went from 7 percent to 22 percent,” says Davidson. “We had to be very creative. Not a lot of people could afford to buy a house. Sellers carried loans in hopes buyers could refinance and pay them off.”

One of the trends Davidson has seen over the years is that more and more locally owned offices merged with larger firms. Once, there were many small real estate companies in Napa. “We’re one of last surviving medium-sized real estate offices. We haven’t gone the way of the big franchises,” he says.

Davidson counts this as one of his achievements. “We opened a small office, just the two of us, and we were successful. Now we’re successfully competing with large franchises.” The words on the company website express this well: “Because Davidson & Bennett is independent, we have greater flexibility to make decisions and to take risks based on personal assessments. We are able to help our clients with swing loans, refinances, seconds, minor repairs and a number of other services to accomplish the client’s goal.”

Another trend is the increase in technology. In the 1970s, realtors received a book every week with a list of all properties for sale in Napa County. As the years advanced, fewer people bought the book—now, it no longer exists. Everyone prints new listings from the Internet. “We’re up to snuff on a daily basis as opposed to once a week.”

Over the years, Davidson has experienced the highs and lows of the residential real estate market. “When we got started, you could sell a $20,000 house with $2,000 down. The seller would carry a $2,000 second. The buyer could borrow locally and collect rent to cover the payment. As prices went up, it took more of a down payment. We reached a point where you couldn’t do it. Prices were out of control. People were buying based on what they thought the house would sell for in the future, not on what its potential income was,” he says.

“I just sold a house for $350,000 in our largest subdivision. A couple of years ago, it would have sold for $550,000. Houses that were selling for $25,000 to $30,000 when we started went up to $550,000. Now they’ve dropped to $350,000. Napa’s always been insulated because it’s such a wonderful place to live. Even when other areas suffered, Napa held its own. Now for the first time, we’re suffering like the rest of the country.”

He still feels optimistic, though. “It’s been tough on everyone, across the board,” he says, “but we’re all maintaining. We have to work harder and we don’t sell as many homes.” On the positive side, he says he’s now seeing signs of life in the low end of market. “People who didn’t think they could afford to live in Napa County discover they can.” He says that since Napa is such a desirable place to live, it will never suffer the market’s worst lows.

From Davidson’s point of view, his business hasn’t changed much over the years. “We’ve gotten bigger, gone from ourselves with one employee to a high of 20 realtors. We have 17 realtors and five employees now.”

Diego Bros. also overcame its share of obstacles along the way. One was discovering in 1984 that an employee was embezzling from the company. “She was sick one day, and I saw the bank statements. I saw checks made out to fictitious accounts and the check in hand to her.” The company settled with the employee out of court and received $100,000 in restitution for its total loss of $120,000.

A trend Jack has seen over the years is fewer building opportunities, ending in a lack of available land for speculative building. “The cost to build a home on some of these lots exceeds the value.”

Over the years, the company has done custom homes, remodels, spec homes for developers and commercial work, but its current focus is high-end custom homes and major remodels using green building standards. Jack says the brothers pride themselves on satisfying their customers. “We’ve built some pretty nice homes, really high-end custom homes for clients.”

Over the years, changes in the communication industry have also had major effects on the construction business. “When we started, it was nothing like it is today. We didn’t have computers, cell phones or faxes. Now the business is very fast, very sophisticated. Clients have more product knowledge.” This has both good and bad sides. “It’s difficult to educate them about why it’s not in their best interests to buy materials over the Internet. They get broken, chipped, outdated materials with no warranties. When we supply materials, they all have warranties.”

As the business has become much more sophisticated, more documentation has been required. A tremendous amount of emailing is needed to document everything, Jack says. “It’s not easy anymore.”

The current economy is one of the biggest obstacles the brothers have encountered. Jack says that since banks aren’t loaning, it’s crippling the building industry. “It’s impacted everyone. It trickled down to the guy with the corner restaurant. A lot of people are out of business, including suppliers and subcontractors we’ve worked with for years.”

Historically, winter is a slow time for contractors. Jack hopes that, by spring, we’ll see a turnaround. But he notes that architects and engineers aren’t busy yet. “By the time architects and engineers do the work, it’s usually a year before you get through the approval and planning processes.”

The brothers are managing, mostly with small remodels, bathrooms and kitchens. Even this is difficult, since homeowners have lost equity with which to finance the work.

Keegan also sees major recessions, like the one we’ve been going through recently, as his business’ biggest obstacles. “When they hit in an area like the North Bay, they’re amplified. We had serious recessions in the early ’80s and ’90s. It takes a while to climb out of big swings.”

He counts among his achievements the ability to expand in the market and be a good citizen. “The business has been able to employ a lot of people. It’s a good place to work and give back to the community. We encourage our employees to serve on boards and donate to the community, to make this a better place to live.” Starting with just two partners in an executive suite in the Eureka Federal Building, he and his partner built the business up to 88 employees and 12 partners. The company now has four offices, located in Santa Rosa, Petaluma, Napa and Larkspur.

Trends he’s seen include improvements in the quality of building. He feels newer buildings are more attractive and sensitive to the environment, a factor that helps in attracting large employers to the area.

“It’s been positive. In the mid ’80s and ’90s, there was a proliferation of telecom and high tech companies. A lot of them ended up going broke and leaving the area.

Better quality construction brought in a lot of competition. It made us work harder. We had to become more sophisticated as markets became more sophisticated. Our agents are constantly taking classes.”

Keegan feels that, over the years, the business has become more competitive and sophisticated. In addition, it’s more expensive to be in business. “The cost of everything has gone up—technology, insurance, employees and advertising. Like medical costs, everything goes up.”

Where are we going?

“We had to change with the times,” Davidson says. “Now everything is computer-oriented. We’re relying more on the Internet. Now we have to be really aware of clients’ needs. They’ll find out about the market as quickly as we do. We have to be on top of things.”

Looking at the future, Davidson seems wistful. “I think the market is going to be like it is right now for another year or 18 months. The low end is beginning to move, but the high end isn’t as active. We have to work our way up.”

But he does see room for hope. “Real estate is rebounding. Most of us believe the market has bottomed out. But it may be five or seven years before we’re back where we were. We’ll have a reasonably slow rate of appreciation. It’s healthier now than the years we experienced 40 to 50 percent annual appreciation. I don’t think we’ll see anything like those days again.”

One of the biggest changes for the Diego brothers is the new focus on green building. “On a regular basis, we take advanced training on green building,” says Jack. “We’re trying to focus on energy-saving homes using sustainable products. Within the last couple of years, we became certified green builders.”

Looking at the near future, though, Jack isn’t optimistic. “I don’t think it will ever be as crazy as before. Now there are regulations to keep things under control. Banks blew it apart by lending when they shouldn’t have. Now property values are dropping. It’s cheaper to buy a house than to build right now. We don’t have a very rosy outlook. We’ve taken advantage of the times to get more educated. We’re trying to reevaluate the business and figure out where we think it’s going. Right now, we don’t see real signs of recovery.”

Keegan has a more positive view. “Now we’re working our way out of this economy,” he says. “We have a problem getting through that. It’s deeper than others in the past and will take longer to get out, no question. Once we get through this economy, things will stabilize. The North Bay is always a great place to live. It attracts a lot of creative people, entrepreneurs. Not necessarily large businesses, but good quality; we’ll always attract medium and small business.”

Starting as young, local entrepreneurs, the founders of these three businesses have worked hard and managed to stay in business despite the obstacles. They’ve changed with the times, adapting to new requirements and technology. Currently, they’re going through a rough patch, but they’re facing hard times with their usual perseverance and determination. These businesses are among the North Bay’s treasures.


 

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