Peter Rotelle: Surviving the recession.

Custom home builder Peter B. Rotelle, president and owner of Rotelle Development Co. (Bradley C Bower/Philadelphia Inquirer

It’s been nearly ten years since the start of the great recession — the recession that wiped out many a home builder. Not Peter B. Rotelle, who leads his family’s business, Rotelle Development Co.

“We revamped ourselves, I think, to take a step towards a more conservative business model in a risky business already,” Rotelle said during our Executive Q&A interview published in the Sunday business section of the Philadelphia Inquirer.

So, explain. Start with what happened before 2008.

I guess I can say it this way. I’ve always been conservative in business.  I’m in a risky business, land developer and home building.  So, my business demeanor has always been very conservative, because I’ve always hedged against the down market.  So, we made it through 2008 and we paid every bill.  It wasn’t peaches and cream, but we made it through, kept staff and we did it.

How did you do it?

Gosh, I would say a tremendous amount of conservative decisions in a half a decade prior to 2008, not getting caught up in the hype of having to feed the engine and grow ego. Probably ego is the big thing.  Check it at the door.  I watched a lot of companies my size double or triple, quadruple.  All of them disappeared.

And you did not?

Actually, we grew from 20 houses to 100 houses a year. Could we have gone to 200?  I’m sure, but it was a conscious decision not to.

Twenty houses to a hundred? That’s a lot too.

Oh, yeah, we experienced great growth. But, once again, conservative cash flow management, prudent decisions.  Someone in the land development business whom I respected at the time said, `Let me tell you: The best deal I’ve ever done is the deal I never did.’  That stuck with me.

That was just great because you get caught up in a bidding war and you end up buying something, forecasting out three to five years when it’s going to come online and get approved and ready to go.  You put the infrastructure in and borrow big money from the bank, and let’s say it’s a four-year build out.  You’re looking at almost close to a decade [before you get a return].  Who can predict that length of time for the economy. Economists are only right half the time.  So, how am I going to do that?

How did you know to walk away from? What kinds of deals did you leave behind?

Well, something that seemed as if it was a battle with the township, as far as the approval process going into litigation and drawing it out even further.

The price point, it was just rising too fast.  You buy a piece of ground for say $10,000 an acre and the next time it was $12,000 and then it was $15,000 and $20,000.  At some point, I looked at our inventory and I said, `We have enough inventory right now.  I don’t think we should be purchasing any more ground to put into land bank.’  And, thank goodness, we had a really good loan to value ratio on all of our assets.  So, when 2008 hit, we were not really crushed on one single project.  Probably half of it we owned and half we had debt on.  So, that’s pretty much not customary in our business.

How did you know what everyone else was doing?

I’m entrenched in the business. I’m passionate about it.  I was president of the Home Builders Association of Bucks and Montgomery Counties.  I know a tremendous amount of land developer and builders.  I’m part of a 20 Group.

What’s a 20-Group?

It’s a national group, sanctioned by the National Association of Home Builders.  We will get together and compare financials and notes.  We had the same chart of accounts.  So, we know exactly what our profit margins were against other people in the country.  Same industry, same size, but not in our geographical area.

All non-competitors?

Yes. We had a floating CFO and we’d put all of our financials on the same chart of accounts that we could compare apples-to-apples. Granted, there were market conditions that were particular to certain areas, but they’re easy to find and discount.  But, it was a great way to measure yourself against [similar] companies, and to figure out how you can better and get good ideas.

That’s really interesting.

So, through that, I was aware of what other organizations were doing as far as land acquisition. And, a lot of times, it was the land acquisition without money down, and then you’re banking on the rise in the ground.  You’re going to go ahead and improve it.  You’re going to increase the value by taking it through the approval process.  You may get gap financing for the next piece to put in there. Then, at the end when the music stops, the door knocks.  It’s the bank saying, `Hey, we’re looking for our money.’

Scary.  How do you develop a stomach for that?

Well, that’s a great question. I put together a board for my company back in the late 1900’s, early 2000’s. I was in my early 30’s, and probably when I was in my late 20’s.  I was doing multi-million dollar deals.  I put together what I thought was a highly decorated group of gentlemen from different disciplines.  No one with building experience, because I felt we were experts in that.  But, all with great minds, who had run their own companies with a different perspective.

So, I put together an advisory board of five.  So, if there were large decisions that I wanted wisdom on, we met quarterly.  I presented them financials and so on and so forth.  So, I think with the conservative nature of this business, I never really felt that I was stomaching a lot.

Things seemed to always work out.  I think I’d be a fool to believe that it’s just hard work.  There’s definitely luck, but you have to be in the game, and you have to create your luck and recognize it or opportunity.  We’ve had some tremendous things happen.  It doesn’t matter how intelligent you are or how articulate or how conservative, how savvy.  The chips fall your way, and I’m a big believer in being grateful for that, and recognizing that.  It kind of comes around and goes around.

So, when the recession hit in 2008, did you feel it immediately?

It was like a faucet.

What do you mean?

Humming along, music’s loud, everybody’s dancing and then there’s just a screeching halt. Sales just come to an end. Traffic dies.  There are no sales.  It just rips through the media, which then crushes consumer confidence.  If you think about it, there was a time before the recovery when it was absolutely a tremendous time to buy a home.  But consumer confidence was decimated, plus the lending institutions weren’t lending money.  It was a great time to buy.  It was the best time to buy.

If you had money.

If you had money and you weren’t upside down on your home.