October 13, 2005

Prospering on Periphery of the Real Estate Boom


To say that Tom Blakeley has exquisite timing would be understatement. Two years ago, he founded American MoldGuard in Irvine, Calif., to sell a material that prevents mold from forming behind walls. He got the idea from the trouble he had selling his house after mold was found in the master bedroom and bathroom.

He was confident he had a winning product - more than $3 billion a year is spent on insurance and legal claims related to mold, Mr. Blakeley said - but he was not expecting the reaction he received. With sales quadrupling this year to a projected $2 million, he can barely keep up with orders.

"I started the business not because the market was hot, but because I saw a need for it," he said. "But I certainly have benefited from the overall trend."

With the boom in the housing market, it is not just the usual small businesses - contractors, real estate agencies, mortgage brokers and landscapers - that have benefited.

Several companies have been able to cash in, focusing on nooks and crannies of the market, from mold prevention to market research. Some are selling products and services aimed at new-home construction. Others are focusing on homeowners who cannot afford to move and are adding rooms or remodeling kitchens.

Take the founders of Outhouse, a Phoenix company that provides design services to home builders. Outhouse was formed five years ago by the heads of three businesses that offered complementary services, including computer-aided design, electronic-bidding systems, and sales and marketing displays. They kept running into each other while working for the same clients.

Thinking they could offer a more efficient service by working together, they merged. It was a good move, they say; in 18 months, they have increased their work force to 40 from 25, and this year they project revenue to grow 60 percent, to $4 million.

To cope with the expansion, Outhouse is streamlining. For example, work groups used to be organized according to client, with each team assigned to one customer. As a result, when a client ordered a lot of work, the designated team stayed busy. On the other hand, some teams were idle. Outhouse now puts teams to work on whatever projects need them.

Some entrepreneurs try to spot inefficiencies in the housing market. after first trying to become real estate agents themselves, Manuel Iraola and four partners recently started Homekeys in Miami, an online service allowing buyers and sellers to link up without using an agent.

"We discovered a lot of information was not readily available to consumers," Mr. Iraola said. And with housing prices skyrocketing, the market in South Florida seemed to be stacked against all but the wealthiest buyers. So Mr. Iraola and his partners decided to start a business that, he said, "could level the playing field."

They spent two and a half years developing the technology, raised more than $5 million from private investors, and, five months ago, opened for business. Homekeys lets sellers list their houses free on its Web site or for a $179 flat fee on the Multiple Listing Service database, provides tools for researching county property records and includes an automatic valuation tool for users to calculate a house's worth. The company serves 14 counties in South Florida, including the Palm Beach and Miami areas, with plans to expand beyond Florida to the Southwest and the Southeast.

Michael Huddy detected opportunity in government regulations. Mr. Huddy is the chief executive of the Barrier Technology Corporation in Watkins, Minn., a subsidiary of International Barrier Technology, which makes fire-resistant building materials used to treat wood. He has been doing a brisk business lately because owners of town houses, condominiums and other multifamily residences are required by most municipalities to use such products in their roofs.

Recently, he decided to build a plant that could process 50 million square feet of wood a year, more than five times his previous capacity. But Mr. Huddy said he would not have increased capacity so sharply if not for the feverish market. Revenue for 2005, he said, is expected to be about $12 million, more than double 2004.

As high prices dissuade some people from trading up to larger homes, their desire to make better use of their current space has become a cottage industry, with hordes of self-styled consultants helping to reorganize closets or remodel kitchens. Mark Loberg was so successful at fixing up garages that he created a national franchise chain.

Mr. Loberg started PremierGarage Systems in Phoenix six years ago to refurbish garages and put up shelving and other storage fixtures. But in 2002, after repeated requests from people interested in opening up similar businesses in other parts of the country, he decided to franchise his system.

Today, he makes and distributes the necessary equipment to franchisees, who charge customers $3,000 to $8,000 for the installation. With 58 franchisees in the United States and Canada, systemwide revenue is more than $25 million, he says. He declined to be more specific.

As flush as they are now, entrepreneurs seem to be taking to heart the warnings of Alan Greenspan, the Federal Reserve chairman, about the dangers of an overheated housing market.

"There have been times in the last 18 months when we've had to be cautious about what business we take," said Steve Evans, the marketing director of Outhouse. For instance, he said, the company has decided to decline work that does not fit into its specialty; it recently turned down a client who asked for architectural design work "because we don't have an architect on staff."

James Chung, chief executive of Reach Advisors, a three-year-old market-research and strategy firm in Boston, has taken a similar approach. He recently expanded the company's three areas of focus - resorts, sports and media - to include residential real estate development because of growing interest from clients.

He estimates that the new work has increased revenue by 30 percent. But, while he plans to add to his staff of four, "I'm not going to throw bodies at it," he said. "I want to make sure we grow rationally, not recklessly."

What happens when the party ends? Mr. Chung's wariness stems in large part from pondering that question.

"Real estate by its nature is boom and bust, and I don't want Reach Advisors to be a boom-and-bust business," he said, adding that much of his research focuses on "helping clients plan what to do over the next 5 to 10 years, after the boom ends."

Other business owners, however, are more sanguine, claiming that such concerns are not a factor.

"We didn't start this business because of the boom," said Mr. Blakeley of American MoldGuard. "And the need will continue if there's a bust."

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