The housing crisis wiped out half of the homebuilders in the U.S. This is the story of one that survived, but emerged from the recession to find both itself and its industry drastically changed. Ron Russell Sr. founded R. Russell Builders in 1956, and the company found success in converting large tracts of raw farmland in Chicago’s western suburbs into tidy subdivisions. His son, Ron Russell Jr., was at the helm of the family business when the crisis hit, and he’s charting a course for R. Russell Builders in a housing market that’s still chastened from the recession.
Transcript
WAILIN: In the fall of 2008, this was what was happening in the U.S. economy. Lehman Brothers had filed for bankruptcy. The government had authorized the $700 billion bailout of the financial industry. The stock market was in free fall. And the bottom had fallen out of the housing market, with property values collapsing and millions of homes falling into foreclosure.
RON RUSSELL, JR.: The most wrenching part of all of that is to see, you know, a family business that we’ve grown from very modest beginnings to something that was very strong and very healthy. At our peak in probably ‘05, we were doing over $18 million worth of revenue and to see that just go to zero is, is very difficult.
WAILIN: That’s Ron Russell Jr., the president and co-owner of R. Russell Builders, a company his father started in 1956. They’ve built nearly 1,200 homes in the last 60 years, mostly in the western suburbs of Chicago. Their tidy subdivisions embodied a certain version of the American dream — not just for homeowners, but for self-made entrepreneurs like the Russells.
RON JR.: I knew I wanted to build houses. It’s fun (laughs) and it’s enjoyable and it’s very rewarding, um, not just, you know, financially but just the satisfaction of building someone’s home that they’ll live in every day and enjoy and entrust their family to and will provide for a healthy atmosphere for them.
WAILIN: Those dreams turned to ash during the housing crisis. Between 2007 and 2012, the number of homebuilders in the U.S. fell by half. R. Russell Builders made it, but it carries wounds that are still raw, seven years after the official end of the recession. And it’s not the same company it was in 2006. This is a story of true business survival and what it means to find your way out of the dark. That’s coming up on The Distance, a podcast about long-running businesses. I’m Wailin Wong. The Distance is a production of Basecamp. The brand new Basecamp 3 helps small businesses owners stay in control of projects and reduce email clutter. Tasks, spur of the moment conversations with coworkers, status updates, reports, documents, and files all share one home. Check out Basecamp for yourself at basecamp.com/thedistance.
RON RUSSELL, SR.: I built, uh, my first house when I was between my first and second year of high school.
WAILIN: That’s Ron Russell Sr., who is 82 years old. His father built houses on the side and Ron would go with him, pounding nails and cutting wood for a dollar an hour. That first house he built on his own had two bedrooms and a one-car garage. His father gave him the lot.
RON SR.: After I got it built, I can’t believe but there was a couple that they didn’t want to buy it. They wanted to rent it and I got $500 a month rent for that, and that was uh, 1950 is when I built my first house.
WAILIN: After college, Ron Sr. taught high school wood shop for a few years, but left that career to build houses full time. He and his wife had five kids. Ron Junior was the fourth and the only son. All the children were expected to work at R. Russell Builders, although Ron Jr. was the one who really took to the business.
RON JR.: We have photos of me in concrete boots when I was six or seven. But uh (laughs) you know, the real expectancy was probably, you know, starting at 10 and definitely by the time I was 12. In fact, I can remember on my birthday—he said on my 12th birthday, “Well from now on, it’s no bed of roses.” (laughs) And uh so I didn’t know what that meant. There’s a little bit of nervousness (laughs) in my psyche I think after that, but I soon found out that, you know, I was expected to be, you know, working if I didn’t have a very good and valid reason for school or sports.
WAILIN: Ron Jr. built his first house in 1981, between his freshman and sophomore year of college. He graduated in 1984 and became business partners with his father a couple years after that. It was a good time to join R. Russell Builders. Sales were on the upswing and there was raw farmland available for new developments.
RON JR.: We immediately doubled in volume at that point and then picked up steam from there for sure. When I joined forces with my father and since then, we’ve really pursued a model of purchasing the raw land, developing the raw land and building every house in that subdivision ourselves. That’s worked very well because any money that’s available to be made from the land development we secured that as well.
RON SR.: I learned, early in the building business, that if I could buy land and make a subdivision, I could make money on the land as well as the house that we put on it, and that was a wonderful way that the Lord let us work for many years and made an awful lot of money.
WAILIN: The Russells found large tracts of open land in the western suburbs and built the kind of immaculate, uniform subdivisions that were in demand. When I drove out to the R. Russell Builders office, I passed alternating patches of cornfields and suburban strip malls until I got to a development called Campton Trails. It’s a 100-acre subdivision with 44 homes. Ron Jr. uses the basement of his Campton Trails model home as his office. The house has four bedrooms, four and a half baths, American cherry hardwood floors, intricate wood trim and three fireplaces, including a see-through one in the master bedroom.
RON JR.: We built homes across all different price points, um, multimillion dollar homes all the way down into, you know, the high 200s, um, but this home, originally the price tag was like 895. Uh, we have a price on it now of 750. But when you come in the door, what’s interesting is that post that you see, the wood in the inlay of that post is, uh, uh West African babinga. It comes from Kenya and um if you’ve heard of the artist Ansel Adams? The great black and white photographer, um, that wood actually came from a very famous photograph of his of three babinga trees in Kenya that had to be removed for a highway that the government was building, so that’s kind of neat and the rest is birdseye maple.
WAILIN: The model home is large and luxurious, and during the early 2000s, it seemed like there would be no end to the housing boom. R. Russell Builders was building almost a house a week and selling 35 to 40 houses in a year. Ron Sr. retired, more or less, in 2004. Around that time, the company stopped borrowing money, a decision that would provide a shred of a silver lining in the years to come.
RON SR.: One thing that we have done is only used our own money. And so when things get bad, and the houses aren’t selling, we don’t have to pay banks, uh, for the use of money and my son has done a wonderful job but hasn’t been able to sell a house for about four years.
RON JR.: We’re very conservative, maybe too conservative a company. We don’t use third-party financing any longer. That does limit our expandability or the business model that you might learn in business school to leverage to the hilt and go for the brass ring and, grow, grow, grow, um, but being a closely held private corporation, that’s not been our goal. Profitability is our goal with obviously an excellent product that, um, we love seeing families buy and live in, has been our goal.
WAILIN: But in 2006, Ron Jr. found himself with a lot of land and zero people wanting to buy a home.
RON JR.: Unfortunately in 2006, we had loaded up on quite a bit of land. In fact, we have nearly all the properties we still owned at that time, holding out hope that the day would change.
WAILIN: Ron Jr. is really hard on himself about what he could have done differently during the early years of the financial crisis. He blames himself for not trying to unload his inventory sooner, but he also knows that that kind of fire sale might have spelled disaster for the company.
RON JR.: I have such an aversion to selling something at a loss that I’m very bad at selling at a loss. I don’t have practice in that, and yet that’s where I find myself, if I wanted to sell any of the remaining homes that we do have or properties we do have, it would be at a loss and I haven’t quite learned how to do that well.
WAILIN: As the crisis deepened, Ron Jr. had to make tough decisions about personnel. Working with people is his favorite part of the business, whether it’s subcontractors, suppliers, customers or employees. This made the cutbacks especially tough. Today, he has just two workers. One is a bookkeeper and the other joined R. Russell Builders as a 16-year-old laborer and has now been with the company for 28 years.
RON JR.: We had at least three or four other people that had been with us for decades and for all of us to come together to the realization that you know, this isn’t working anymore, the numbers don’t uh work or add up, and having to help them find new employment and transition them into something that would provide for their families, that hurt, and that was difficult and it wasn’t done without tears.
WAILIN: R. Russell Builders tried building homes at lower price points, but found that they were constantly undercut by older homes being sold by Baby Boomers who had bought them in the 70s or 80s. Meanwhile, the company still owed taxes on its properties. It helped that R. Russell Builders was debt-free, but Ron Jr. needed to make money and his detached single family homes weren’t selling. He started looking at distressed properties. He bought some unfinished condos out of foreclosure, completed the interiors and sold those. He bought other single-family homes to rehab and resell, and dabbled in rentals too.
RON JR.: We’ve morphed into, for a time, a remodeling and kitchen and bath and basement remodels and uh porches and decks, you know, whatever it took to pay the, you know, the property tax bills that just keep on coming, they’re stubborn things. We’ve had to do what we’ve needed to. This last year has been very good and profitable, but it came because we bought something at someone else’s demise, you know, something out of foreclosure, and that’s what I foresee to be, um, the future for us, is we’ll have to pursue those distressed properties. To find those and build off of those is the only way I see to be profitable in this market, even still.
WAILIN: It’s not the future that the Russells envisioned for their family business. But the housing market isn’t the same as it was nine years ago, and neither is R. Russell Builders. Prices in the region have been slower to recover than Ron Jr; hoped they would be, and Illinois’ population is declining. Young people seem more cautious now and prefer to rent or buy smaller homes. Ron Jr. knows he has to adapt to this new reality, one where he might have to unload the properties he’s been sitting on at a loss and look into buying more distressed assets, or move away from the stately single-family homes that have defined the company since its founding.
RON JR.: Baby Boomers still are a large population boon and all the homes that they’ve owned, I’m one of them, are large and more quality featured than the type of homes that I see in demand in today’s market, so I think it’s different, as it should be and we should expect it to be and, uh, we need to morph and change to meet that market if, um, we’re to continue, yeah. It used to be you could purchase farmland at a reasonable rate, develop it, build the homes on it and be profitable, um, on the end. The cost of farmland has gone up since, the cost of building materials has gone up since, the cost of labor has gone up since, but the price of, the final price of the product has come down so there’s no incentive to do it the way we’ve done it for years and years, so we’re having to pick through and find the opportunities where they may lie. In fact, we do have a 12-home duplex development that all the final engineering papers are on my desk. So that’s what our next project likely will be.
WAILIN: The housing crisis and its aftermath have been a period of self-reflection for the Russells, especially Ron Jr. He knows it’s no small feat that R. Russell Builders is still standing after the recession wiped out half of the country’s homebuilding industry. The recession stripped everything bare and took the business back to basics. There’s been a kind of bittersweetness in that too. Not too far from the model home where Ron Jr. has his basement office, there’s a blue house that he remembers framing many years ago, just a one-off suburban home that’s not part of any subdivision. You can almost see it from the window. These days, he’s back to working with his hands again.
RON JR.: We have survived, and during the past 8, 9 years, ever since the burst of the housing bubble, we’ve been open and we’ve serviced our customers, our previous homeowners, stood behind our warranties, you know, and assisted those people. The best days I ever had is when I’m actually working with the tools. That’s almost therapeutic as compared to working at the office and pushing the enormous amount of paper and administrative necessities that go on in constructing a home. That’s definitely rewarding and because of the pullback and because of needing to economize, I get to use the tools a lot more often (laughs) so that is pleasurable.
WAILIN: The very fact of R. Russell Builders’ survival is a selling point for new customers. Ron Jr. keeps a running list at his desk of all the homes in the company’s 60-year history. It’s nearing 1,200 and he’s continuing to will that number forward.
RON JR.: It does give people confidence that this isn’t our first rodeo, the building of their home, that their home is built with some experience by people who not only have done it before but are familiar in how each trade is supposed to be done, proper methods and techniques and that corners aren’t being cut because we also live in and among our developments and our customers. They’re our neighbors. So we build our homes as though we’re going to put our family in them or knowing that they’re going to be our neighbors, so if you want to sleep well at night, you do a good job.
WAILIN: The Distance is produced by Shaun Hildner and me, Wailin Wong. Our illustrations are by Nate Otto. Big thanks to Bunny Mirrilees for her help with this story. If you like The Distance, you can show your support by subscribing on iTunes, Google Play Music or wherever you get your podcasts. Rating and reviewing us on iTunes also goes a long way towards getting us noticed so more people can discover the show. And you can always send suggestions for businesses to feature by emailing us at [email protected] or tweeting us @distancemag, that’s @distancemag. The Distance is a production of Basecamp, the app for helping small business owners stay in control of projects and reduce email clutter. Try the brand new Basecamp 3 for yourself at basecamp.com/thedistance.
