Venture: Foreclosures keeping cleanup companies busy
Investors are waiting to see how the markets react to the first-ever downgrade of the U.S. credit rating, not to mention last week's dramatic stock selloff.
As the economy struggles to sail forward, the housing market has been a constant headwind. Foreclosures are big part of that. The foreclosure crisis has meant loss of billions of dollars, lives devastated, and neighborhoods perforated with vacant homes.
It's also meant boom times for some businesses, like the ones that clear out foreclosed houses, board them up and keep the grass cut.
A and D Properties in Chicago's South Shore neighborhood has a fleet of trucks and an army of workers. “This company started out of my car,” said Ananais Granger Jr., the company’s owner. But 20 years ago, he was just a guy who needed work.
“A friend of mine needed grass done. He had 13 yards,” Granger said.
Those yards were attached to 13 foreclosed homes. They led to more yards, then some general maintenance and repairs, and then, in 1999, a chance to bid on a contract directly with one of the country's biggest lenders, Fannie Mae.
“Fannie Mae really put us on the map,” Granger said.
Granger had to scale up fast, and he had to confront a flat-fee pricing model, where a job like a trash-out-getting rid of whatever the ex-homeowner left behind-might pay $600.
“If it was $25,000 worth of trash, you still got $600. [If it was $1,100 worth of trash: $600 But if it was $300 worth of trash, you got $600,” Granger said. “The margins were so low; you had to figure out a way to make money. We figured out that we had to come up with a volume-type program, where we could just do stuff faster than anybody else.”
The trick, he found, was specialization. Usually, you'd have one crew of guys for each location, mowing the lawn, boarding up the windows, hauling the trash, the whole deal –but that's inefficient. Nobody gets really good at any one task, and the transitions between tasks eat up time. Instead, Granger puts crews of specialists in the field.
“These guys change the locks, and they're gone-they're gonna get all the locks done. These other guys will clean the houses. This is all they do. You know what I'm saying, the other guys, they're boarding up: This is all they do.”
Granger has essentially brought an assembly line to the handling of foreclosed homes.
So here's what that assembly line sounds like at six in the morning: 40 trucks getting loaded and rolling out of Granger's massive two-bay garage on the 7300 block of South Exchange Avenue, a block from the South Shore Cultural Center. A and D's Executive Vice President, Deavay Tyler, explains how it works.
“We call this the runway. We load up the trucks up and down the streets. We make sure that everything's supplied right, we get the work assignments out there. And as soon as somebody gets that, they're gone.”
Just outside the door to the south bay, there's a guy directing traffic, getting most of the trucks out onto Exchange Avenue, so they have room to load up.
“Rock-that's Wendell Greene right here-he actually manages the whole runway. And makes sure that everything's supplied, making sure we've got all the right people here, he takes attendance,” Tyler said. “And then he gets 'em gone.”
By 7:30, Tyler says, they'll be scattered across dozens of sites. And until they load back in at the end of the day, there's pretty much nobody in this space, like on the afternoon Mr. Granger gives me a tour. There's a locked storage area with special equipment, including a $30,000 emergency generator, to keep A & D going during blackouts. (Granger's always thinking ahead.) And in one corner, ten skids of rock salt, left over from last winter.
“You know, we have to be prepared,” Granger said.
At the center of a complex, that is otherwise cool and dead quiet is a set of office built in the center. Upon entering, visitors can see about 20 employees work intently off twin computer monitors, while talking quietly into phones.
“This is not a call center. This is a management center. This is what it takes to manage our properties,” Granger said. “Not one person here is on a marketing call. There's work orders coming in, there's dispatch, there's billing. Every client has to have his own passcode, to see the pictures, the confirmation of the jobs that are coming in.”
Every job gets managed in real time, with a constant flood of photos coming from the field via email, to show clients what's being done.
Altogether, Granger says he's managing about 3,300 foreclosed properties. That's more than three times the number he was managing before the foreclosure crisis really got into gear –and at that time, his properties were spread out over a broader area.
“So, we went from a car with a lawnmower in the back to where we've got a little over a 100 folks, about 80 folks,” Granger said.
Granger's business is strong. He does Cook County for mortgage giant Freddie Mac, but he says he could take on a lot more work. In the Chicago area, there are more than five times as many foreclosed homes as there used to be. But as foreclosures were increasing, his share of the work got smaller. In September 2008, he got dumped by Fannie Mae.
“The thing that built me up, broke me down. Got a call on a Thursday…saying that as of the coming Monday we would not be getting any new work from them,” Granger said.
Granger knocked on the doors of other big institutions, with no luck. He's still knocking. The irony is: the explosion in foreclosures is actually the reason Granger's gotten snubbed. The big lenders realized they were about to own a lot more foreclosed properties than they'd ever imagined, and they decided to streamline their operations.
Instead of working with independent firms all over the country-like Granger's, they each identified a handful of national firms to manage the whole mess.
Industry watcher Guy Celeca, publisher of Inside Mortgage Finance, says there's nothing surprising about the trend.
“For any national servicer, for them to contract locally is a huge administrative burden. So there is a lot to be said for having a single point of contact and farming that out if at all possible,” Celaca said.
Granger's still got one big client: Freddie Mac. But they took away some of the territory he was covering for them too. His director of business development, Gary Harris, makes the pitch that this isn't just a business issue, but a moral one. After all, A&D is based on Chicago's South Side, which includes neighborhoods with some of the highest foreclosure rates in the country.
“You've got guys right here, with nothing to do, who want to work, and they can't get an opportunity to work on what may be their own cousin's house,” Harris said. “It's upsetting, man. It's upsetting.”
Later, when I was about to leave, Harris and Granger brought over a guy to drive the point home. Vincent Ricks is now deputy director of operations at A and D; 12 years ago, when Granger hired him, he was an ex-con in a work-release center.
"He had the reputation of giving people second chances. So, I called him, he came out to the work-release center. I had some tickets that needed to be straightened out-he stuck his neck out for me. [Paid like $1,700 worth of tickets, upfront.]," Ricks said.
Granger says he could hire a hundred more guys tomorrow, and double his workload. He's got the contacts, and he's already got the trucks –always thinking ahead. With his management system, he says he could expand exponentially.
The business is certainly out there.