Renovated Renovator

How a real estate company confronted their problems by being part of the solution

Charles Molineaux

April 17, 2008

This is the first in a three-part series on what local small businesses are doing to survive in the slowing economic conditions.

The extensively renovated 1940s brick ranch house on Brewer Boulevard in Sylvan Hills stands as a centerpiece of an almost urgent initiative to serve a changing and challenging real estate market.

"It was functionally obsolete. It needed major updating," recalls Chris Wall, founder and CEO of real estate company Atlanta Investing. "We've totally redone it, all new sheetrock, new interior layout, all new systems, new deck on the back, granite countertops ... very high end finishes."

The Brewer Boulevard house is an incredibly more involved renovation project than Wall used to do – before a sagging market, exploding home foreclosures and a shriveling supply of investment capital sent his company scrambling to find a new niche.

When Atlanta Investing used the re-done home as the anchor for a multi-property open house in March, the company was just a few months into its new incarnation as a home renovator, providing rehabilitated houses for low and moderate income homebuyers, frequently first timers. "There's definitely a market for this type of properties if they're done well," says Wall.  "It looks good."

But the picture was anything but good for Atlanta Investing in its formerly blockbuster previous business model.

Founded in 2002 by Wall and his brother Mike, it specialized in what Wall acknowledges was "basically" flipping. The company would buy foreclosed homes then turn around and sell them to investors seeking to renovate and resell, or to landlords seeking to renovate and turn the properties into rentals.  

"From 2002 through 2006 it was great. We grew. We did like $3 million in sales in 2003.  In 2006, we were up to $17.5 million. There were a lot of foreclosures [and there] were a lot of buyers for those foreclosures. We were expanding and things were very good."

So good that the Wall brothers made Inc. magazine's " Inc 500" list of the fastest growing companies. In 2006, Atlanta Investing even offered a subscription e-mail tutorial, "Learn How to Make Money with Real Estate Investing."

2006 would turn out to be the peak ... before the nosedive. While the rising numbers of home foreclosures meant more opportunities to buy distressed properties, those numbers finally hit a critical mass that killed opportunities to sell them.

"There was no financing for an investor to buy these properties," says Chris Wall, cringing. "The banks kept dropping the prices. There were no buyers. The sub-prime market tightened up so much that there was no way for the investors to resell them."

Virtually every source of credit for Atlanta Investing's bread and butter customers suddenly dried up. "The hard money lenders, the construction lenders, started taking back all these properties and they quit doing loans. The major lenders kept having foreclosures.  They took them to the market but there was nobody to buy them so the prices kept going down and down and down."

And down went the company's fortunes too.  Atlanta Investing slid all the way into the red, posting a net loss for 2007. Wall says he and his brother partner saw the writing on the wall. "And we said ‘we need to change.'"

The solution, they concluded, was to become part of the solution.
 
Wall says it was in mid-2007 when he read an article about intown Atlanta's severe dearth of work force housing – affordable homes for middle income workers – many of whom end up stuck in apartments or stuck in traffic on marathon daily commutes. "We just started thinking that this was a natural progression for us and we could potentially be a leader, helping revitalize these neighborhoods for owner-occupants and turn the tide of all these vacant properties and foreclosures hurting values, hurting the neighborhoods, causing more and more urban decay."

Enter "Community Home Investing," Atlanta Investing's new enterprise to reinvent its basic model. This time, the company is buying foreclosures and extensively renovating them for a new, underserved, constituency: low-to-moderate income working families. 

Unlike the Walls' previous customer base, this one does still have access to some funding through home ownership assistance programs, FHA loans and other incentives. Wall says he's been working with the United Way, the Atlanta police and fire foundations and the now-one-year old Home Atlanta initiative from the Atlanta Development Authority.

Their involvement is welcome. "It's wonderful to see that," says Clyde Anderson, Single Family Manager at the Atlanta Development Authority, which has partnered with Atlanta Investing since January. "To see someone who got into the business to flip homes now do this, see the value in some of these neighborhoods and want to uphold that value and contribute to the neighborhoods, I think that's a great thing."

Wall sees the need all right. "Pretty much the only options for those buyers are townhouses or junky foreclosures. It's very difficult to find a nice house in the $100,000 to $160,000 price range.  Our product is head and shoulders above anything that's available in these intown neighborhoods, basically Southwest Atlanta, West Atlanta, South Atlanta, along the I-20 corridor."

It's a new sales model for Atlanta Investing. Instead of a real estate middleman, it's becoming a developer itself with construction as the driver of its business. For its previous client base, Wall estimates the company would do construction on only one in five of its properties. Now it does construction on all of them.

The new formula actually offers a more profitable paradigm than the old. In its heyday, Wall figures Atlanta Investing was making five to 10 percent on each property sold and the margin will be higher in this new world, although it's much more work.

"It's also a new cultural model," he notes. "Typically with investors, things would move much quicker and it was a numbers game. If the numbers worked, the buyer would buy.  It would be a pretty quick transaction. It's definitely a longer process now, a new model to understand."

Ironically, the very same economic demons that created Atlanta Investing's troubles now serve to boost its new endeavor.

"It's much easier to get construction done at a good price," says Walls.  "We've got great construction teams and it's easier to get good subcontractors because there's less building going on. It's also very easy to find good properties to acquire."

"For all the bad, there is some good that comes out of it," Anderson agrees. "The foreclosure stock is up. It's definitely not your traditional market. It's a little rough for some people out there in the market, but it's still a great market for buyers. It's a perfect time to buy a house."

Wall sees Atlanta Investing as still in the early stages of its transition, currently ramping up to five or six properties under renovation at a time. That's a far cry from the 20 or so houses the company was turning every month in 2006. He's hoping to regain that volume in the next two years. "Our biggest challenge is overcoming the general feeling that the market is too scary to take the jump and buy a property. Even with the best property at the best price, there's still the fear that ‘I don't know if I want to buy,' because there's so much negative perception about real estate right now." 

Still, he says, his (new) market is out there. And the Brewer Boulevard house is now under contract.