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Eastside Building Blocks

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  1. Finding A Groove – JayMarc Homes
  2. Built To Last – John Buchan Homes
  3. A Family Foundation – Village Life Homes

Whether it’s availability, competition, or record-setting prices, the challenges associated with buying a house on the Eastside are well-documented. But what is the environment like for homebuilders? To answer that question, we turned to three local companies with storied homebuilding histories to learn more about the opportunities, obstacles, and trends inherent in their industry.

Finding A Groove – JayMarc Homes

The Great Recession was a tough lesson — and a valuable learning time — for JayMarc Homes co-founder Marc Rousso

Marc and Jay

Marc Rousso and Jay Mezistrano
Photo: J Garner commercial photography

It’s not often that the foundation for a successful homebuilding business is laid using money earned playing Top 40 dance hits at parties and nightclubs. But such was the case for Jay Mezistrano and Marc Rousso, co-founders of JayMarc Homes, the Mercer Island-based homebuilder that employs nearly three dozen people, builds nearly two dozen homes per year, and has posted revenue between $50 million and $67 million annually over the past four years.

Thirty years ago, the pair were University of Washington students looking to earn money when they started J&M Musical Production, a DJ-services company whose flyers were ubiquitous in Seattle’s University District neighborhood — stapled to utility poles, tacked to community bulletin boards on campus, or papered in the common areas of fraternities and sorority houses.

Mezistrano purchased equipment and manned the turntables, while Rousso booked gigs and was the company’s point of contact. The partnership worked, and the business grew from one show, three or four nights per week, to up to four shows on Friday and Saturday nights.

“Our keys to success were that we were niche-oriented, resilient for fostering relationships and getting business, and we provided great customer service,” Rousso, 48, recalled.

When the pair sold the business in 1995 for $15,000, they invested that money toward the purchase of a rental property in South Seattle that was fairly inexpensive and in need of remodeling.

Once again, the business partners delegated responsibilities: Mezistrano handled the leases and managed the properties; Rousso found the properties and hired contractors to handle the remodels. Over the next five years, Mezistrano and Rousso acquired more than two dozen properties, all while holding down full-time jobs. Mezistrano helped manage his family’s furniture business, and Rousso sold real estate.

“The passion for the two of us was being entrepreneurs,” Rousso explained. “Buying rentals was our vehicle.”

Mercer Island Development

A JayMarc Homes development on Mercer Island. Courtesy JayMarc Homes.

By 2001, Mezistrano’s and Rousso’s interests were piqued less by finding rental properties, and more by finding developable properties, subdividing those parcels, and then selling them to builders. That year, the pair formed JayMarc Development and started small, much like their DJ business in college. The pair focused on a niche area (Renton, in this instance), and two- and three-lot transactions were followed by eight-lot transactions, which were followed by multiple 25- and 30-lot transactions, culminating in a 51-lot transaction.

The company did well until 2008, when, like many homebuilders, it ran into the buzz saw that was the Great Recession.

“The recession was tough for us as we learned the valuable lesson of respecting market cycles,” Rousso said. “We lost everything except our (own) homes and cars. It became a snowball effect where one builder didn’t close on a project, then another, and we were left with the remaining properties with no buyers.”

According to Rousso, the pair avoided bankruptcy by working “for the bank to liquidate all of our rentals (and) pay back the bank as much as possible. We were left with a multimillion-dollar debt, and we were able to create a program to repay it over 15 years. I can say that we have paid that bank in full.”

Still, Mezistrano and Rousso weren’t deterred. In 2010, two five-lot properties in Renton Highlands caught their attention. “These were projects that the big builders weren’t interested in,” Rousso explained. The pair raised $1.1 million (some of which came from selling their luxury SUVs) to acquire the parcels in November 2010, launching JayMarc Homes along the way.

What started with buying land in the Renton Highlands, then building homes that sold for about $360,000 and up, soon expanded to Newcastle, where their homes sold for $800,000 and more. Eventually, the company bought old homes in Bellevue and on Mercer Island, tore them down, and built new homes that sold for about $1.2 million at that time.

Clyde Hill

A JayMarc home in Clyde Hill
courtesy HD Estates

“This ultimately became our niche: building infill spec homes in the Bellevue and Mercer Island markets,” Rousso noted, adding that custom-home construction has almost doubled annually over the past several years.

Though the Great Recession was 10 years ago, building homes at a consistent pace — 18 to 24 per year — is more important to JayMarc Homes than growing the business apace of the Eastside’s booming residential housing market.

“We understand that growth comes with vulnerability to the market cycles,” Rousso said. “Since we already went through losing everything once, losing it again has weighed heavily on our minds.”

And while the progression of owning a DJ company in college to owning a major homebuilding company today might not seem natural, Rousso said three common threads run through both lines of business: Find a niche, be resilient in fostering relationships, and provide great customer service.

“Our methods were always the same as before,” he added. “Our goals have always been to become known as the most customer-centric home-builder because we feel that great customer service is synonymous with great companies.”

residential real estate questions for JayMarc Homes president Marc Rousso

Q: What is one of the biggest challenges facing residential homebuilders on the Eastside? 

A: Investors building homes with substandard workmanship that drives prices down. Local and national production-oriented builders putting up homes at a fast pace with no regard to quality or service.

Q: What is one Eastside homebuilding trend that has caught your attention?

A: Out-of-town builders who provide little to no support after (homebuyers) move into their homes. We hear all the time about poor quality and service. Because of the heated marketplace, we see builders overpromising and underdelivering.

Q: How competitive is it to find land and build homes on the Eastside?

A: Our competitors include local builders, but also out-of-town builders looking to capitalize on our market. D. R. Horton has started building infill. We constantly look for land-acquisition opportunities, which is a competitive advantage for us. One-hundred percent of the properties we buy are off-market.

Built To Last – John Buchan Homes

A second-generation homebuilder, Heather Dosch navigates Eastside trends and challenges

Heather and Kevin Dosch

Heather and Kevin Dosch
Photos courtesy John Buchan Homes

In 1961, John F. Buchan steered his artistic interests toward starting a business that would design and build single-family homes in the Puget Sound region.

Buchan started small, buying a single parcel, building a home on it, and selling that home. He used some of the profits to purchase more lots and build more homes. When he married in 1970, his wife, Gloria, worked as the company’s bookkeeper and interior design selections coordinator. At one point, John Buchan Homes was building 40 homes annually, yet still was operating out of the Buchan family’s home.

At its peak, the company, which eventually moved into traditional office space in Bellevue, employed 185 people and built nearly 200 homes per year. According to Heather Dosch, Buchan’s daughter, the company has built approximately 3,000 homes in the Puget Sound region for nearly 60 years.

“My dad was very growth-minded,” said Dosch, 44, who took over as company CEO in 2008 and runs the company alongside her husband, Kevin. “We had 14 people just in our architecture department alone, and six people in our interior design department. So, it was a really large company, a major player in construction around here.”

Indeed, the company’s revenue grew from $38 million in 1994 to $140 million in 1998.

That changed in 2008, when the Great Recession served as a gut-check to homebuilders in our area and throughout much of the United States, including her parents’ business.

John, 78, and Gloria, 74, retired a decade ago, and Dosch is leading the company with an entirely different business model in mind.

“The recession came along and helped — not in a very pretty way — bring about the vision that I had for the company, which was to be much more focused on custom homes and lower production levels,” Dosch explained. “When I took over, we had 128 employees, built about 120 homes per year. We now have 19 employees — 21 if you count my husband and myself. So, the company started small, got really big, and we brought it back down pretty small again. We are happy with where we are at.”

Dosch also prefers to limit the company’s market focus to West Bellevue, Clyde Hill, Issaquah, Medina, and Seattle — essentially, within a 10-mile radius of its headquarters along Northup Way, near Interstate 405 and State Route 520, in Bellevue.

“The focus is not necessarily on more units to produce, but just doing units that are closer to our offices — which means they are going to be a little bit higher-end,” Dosch said.

John Buchan Homes has experienced growth in custom-home construction, which comprises 50 percent of its business, and remodels, which grew 220 percent in 2018, and 825 percent over the last two years, according to Dosch. Infill construction is one opportunity that has piqued her interest. According to research completed by her company, more than 6,680 single-family homes in East Bellevue, West Bellevue, and Medina were built in 1980 or later.

“That’s sort of your infill availability for teardowns and building new,” Dosch noted.

Changing her father’s business model has paid off for Dosch, who saw the company’s revenue grow from $17 million annually between 2015 and 2017, to approximately $19.8 million last year. She expects revenue to reach $28 million in 2020. And while the company has scaled back its production, revenue is steady, and the business is profitable. In 2017, John Buchan Homes closed 11 custom-built homes at $960,000 apiece on average, and six spec homes at $1.79 million apiece on average. Last year, the company closed four custom-built homes at $1.2 million apiece on average, and four spec homes at $2.82 million apiece on average.

John Buchan Homes is a much leaner operation than it was when the company’s eponymous owner ran the business. But Dosch said she still hopes to grow the company another 30 percent by 2020. If that happens, it wouldn’t be at the expense of the company’s brand and reputation.

“One thing that really sets us apart from all the other builders is that we really are masters of art and comfort made possible,” Dosch said. “My dad’s name is on every one of these houses that we build, and it’s my responsibility to carry on that legacy. We don’t just do something for the bottom line; we do something because it’s something that stands the test of time, it’s going to look great, and it’s going to be something that really works well for our clients.”

3 residential real estate questions for John Buchan Homes CEO Heather Dosch

Q: What is one of the biggest challenges facing residential homebuilders on the Eastside? 

A: Permitting is the most ongoing frustration for us. You have codes, which are very prescribed. Yet, with almost every permit application, a different reviewer will have a different interpretation. There are a lot of inconsistencies in a world where there shouldn’t be. To have that process be so unpredictable is a challenge.

Q: What is one Eastside homebuilding trend that has caught your attention?

A: We’ve had an unusual spike in requests for saunas. More than half of our clients have wanted to put in saunas. I don’t know if it’s just a fluke, but 2018 was ‘The Year of The Sauna.’

Q: How competitive is it to find land and build homes on the Eastside?

A: There are a lot of competitors building on the Eastside. It’s tough, time-consuming, and extraordinarily frustrating. It gets tiring looking at a piece of property, placing offers, and having someone outbid you. We would love to do more boutique plats and land development. Those are very difficult to come by on the Eastside, and it’s a bit more of a gain for the national builders. The Eastside will continue to be a strong market.

A Family Foundation – Village Life Homes

Eastside opportunities abound for sibling homebuilders

Lisa Pugh and Katy McNaughton

Lisa Pugh and Katy McNaughton
Photos courtesy Village Life Homes

Homebuilding runs in the McNaughton family.

Thirty years ago, Mark McNaughton started out in the industry as a painter, eventually working his way into the fields of homebuilding, land development, and custom-home construction in the Puget Sound region with the help of his wife, Marna.

Bothell Home Village Life Homes

Village Life Homes develops houses on the Eastside, including in Bothell (pictured here and below).

In 2010, their children — Katy McNaughton, Nick McNaughton, and Lisa Pugh — started Lynnwood-based Village Life Homes, which has focused its construction on single-family homes in Bothell and Redmond.

“We really got into it because we grew up around it,” Pugh said. “Our parents built houses for over 30 years. It’s just something that we have lived and breathed for all of our lives. We enjoy being around it. We have a passion for it.”

Some people might have thought twice about starting a homebuilding business so soon after the Great Recession of 2008, and the siblings were no exception. Their parents’ development company, The McNaughton Group, scaled back its production of homes and even defaulted on several bank loans, according to Pugh.

“Our parents were definitely impacted by the recession. We watched our family go through the downturn, and we learned a lot from them,” Pugh, 33, explained. “But we saw it as an opportunity to get involved because there were a lot of good land deals, and we had relationships with private investors who were able to help us get started.”

“Land was really inexpensive,” Katy McNaughton, 36, agreed. “We had great private financing because the banks weren’t available at the time. And there were so many people who were looking for work. We just took advantage of all of that.”

But who was in a position to buy homes at the tail end of the Great Recession?

Lots of people, it turned out. McNaughton said sales were tough at first, and the market wasn’t as hot as it is today. But if you could build a home, she noted, you could sell it.

Bothell HouseOver the past eight-plus years, Village Life Homes has built more than 450 homes in 28 communities as far north as Stanwood, and as far east as Wenatchee. But the bulk of its development has centered on Bothell, Lynnwood, Mill Creek, and Redmond.

Village Life Homes will launch three new communities in Bothell this year. It also has assembled an 85-lot project in Bothell, and a 115-lot project in Snohomish.

The company closed 58 homes in 2018, and the siblings expect to close 74 homes in 2019. On average, the company’s homes in Bothell and Redmond are about 3,800 square feet and sell for about $1.2 million.

The company has grown, too — from 21 employees in 2010 to 39 employees today.

“You have to hit while real estate is hot sometimes,” Pugh said. “But our biggest goal right now is just to become a well-oiled machine, have a great team, continue to power through and make an impact on the community, and be a strong player.”

3 residential real estate questions for Village Life Homes co-founder and co-president Lisa Pugh

Q: What is one of the biggest challenges facing residential homebuilders on the Eastside?  

A: The costs have increased quite a bit. Even though home prices have increased, that doesn’t mean we are making more money. Prices will continue to go up until the urban growth boundary expands. As far as acquiring big parcels, those don’t really exist anymore. We are being pushed farther out.

Q: What is one Eastside homebuilding trend that has caught your attention?

A: One thing trending right now is the farmhouse style and painting a house all white. That was scary for us the first time we did it a year and a half ago. I think we will see more of that. Also, we are seeing a shift away from boxy, simple exteriors, which will only be in style for so long.

Q: How competitive is it to find land and build homes on the Eastside?

A: We always bid against national (homebuilders) who try to hit their numbers. But we have an experienced land acquisition team looking for opportunities and knocking on doors. That’s one of our competitive strengths. The big homebuilders just don’t have the capacity to be nimble. They don’t have their feet on the ground or their ear to the ground like we do because we are smaller.

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