Trickledown Pain

Housing downturn affects another layer of valley economy

01/06/2008 2:17 AM

01/06/2008 2:18 AM

The beating taken by the mortgage and real estate industry isn't limited to defaulting homeowners, lenders and starving real estate agents.

The news focuses on how the valley leads the nation in foreclosure rates, but the trickledown effect has hit related businesses, industries and people as well.

It spread to the building services industry, where United Rentals has laid off

16 people in the past two months, Modesto stores manager Jim Nechwedowich said.

"The trickledown is always bigger than anything else," he said. "It's the guys who put in sprinkler systems, the driveway, the plumbers, the elec- tricians, the stucco guy."

And, of course, the folks who rent tools and equipment to those subcontractors.

"I've been in management a long time, and I've had to fire people," he said. "It's never bothered me because when you fire someone, it's because they've done something wrong. But this is the first time I've ever laid people off. It's not fun. It's not that they've done anything wrong. You just can't afford to keep them."

The pain has spread to another layer as well, as Albert and Nicole Ell of Modesto have experienced -- along with the 20 employees they've had to lay off from their cleaning services since summer.

The Ells opened A&N Cleaning Service in 2002, and it grew rapidly. They worked with contractors to do the final cleaning of new homes

as the buyers prepared to move in. They worked jobs from Modesto to Visalia.

The janitorial service portion of their business counts mortgage, construction and real estate offices as clients.

Three times in the past month, his crews have arrived at clients' businesses only to find they have closed -- no warning, no courtesy call -- stiffing him for more than $100,000 in income over the life of the contracts.

"We did Golden State (Real Estate & Mortgage)," Ell said. "We walked in and there was nothing there. To this day, they still owe us money."

A call to the mortgage company revealed that its number had been disconnected.

It's a dramatic and frustrating turnaround from the boom times on which they built their business.

"Lots of clients aren't staying in business," he said. "We're barely hanging on ourselves. Last year, our phones were ringing off the hook for estimates."

Other businesses have cut back janitorial services from five days a week to three or two.

And contractors who once called regularly as blocks of houses were completed -- sold or unsold -- have stopped calling, period, as sales have slowed dramatically.

"Now they call us only when they're going to sell a (single) house," he said.

The slowdown has been more like a meltdown.

"We had 31 (full-time) employees," said Ell, whose payroll had surpassed $30,000 a month. "We're now down to 11. We had to let four go last week. It was very heartbreaking."

The business was nearing the point where the Ells hoped to soon begin shopping for health plans that would provide at least some level of coverage for the employees, Ell said.

Now, benefits are out of the question. Albert, who manages the bookings while Nicole handles the finances and payroll, is back to doing some of the cleaning.

"I'd met him a couple of times," said Modesto attorney David Rockwell, whose law firm uses the Ells' service. "Once, when he was here supervising his employees; I talked to him once at the health club; and then (Dec. 19), when he was here sweeping the floors himself. Sometimes we focus on loss of needed government services, but this is one of the ripple effects on everyday people and small businesses that more people should know about.

"We don't think about all of the other things associated with (the housing bust) until you talk to someone like that."

Ell said his residential clientele has declined as well.

"People who are losing their jobs can't afford a cleaning service," he said.

When will the bleeding stop?

United Rentals' Nechwedowich believes his company, which has worked with local contractors who are still building commercially, will see things start to level off, if not improve, by the summer.

"I think our outlook is good in 2008," he said.

Ell, meanwhile, is taking a giant step backward as he begins his recovery.

"I'm going back to marketing next month," he said. "I'll start hitting the pavement again, trying to rebuild my business."

He knows it could be a while before he can say with some confidence that his business is truly cleaning up.

Jeff Jardine's column appears Sundays, Tuesdays and Thursdays in Local News. He can be reached at jjardine@modbee.com or 578-2383.

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