Twin Cities HVAC agency Genz-Ryan exits house building

Jon Ryan says keeping his Twin Cities heating and cooling business on track this year has been like navigating an ocean liner through iceberg-strewn seas.

This spring there was more work than many companies could handle, but there was a shortage of labor and materials. Within months, interest rates doubled and housing collapsed.

Ryan is President and Owner of Genz-Ryan, a market leading HVAC company founded by his father more than 70 years ago. For years, the company’s bread and butter installed stoves and air conditioners in new homes.

No longer. He recently closed Genz-Ryan’s new construction department, destroying the work of 40 people. The company will focus on service and installations.

“It was like trying to turn the Titanic around,” he said, referring to the well-known ship that sank after hitting an iceberg. “Only about a third of what you can see is above water. What you can’t see worries me.”

After a pandemic-driven construction boom that left builders and their subcontractors overwhelmed and exhausted, a sudden contraction is transforming the industry.

“We are observing that many segments of the housing industry have exercised caution in response to the slowdown over the past several months,” said James Vagle, CEO of Housing First Minnesota.

The situation is particularly confusing for companies that were in business during the 2008 real estate crisis, which saw skilled workers flee to other industries. While they know the region still needs tens of thousands of new homes, they also know that demand can fluctuate quickly.

“Builders and trading partners are cautious as many have experienced construction cycle slowdowns before,” Vagle said. “The challenge is that demand for housing hasn’t gone away, it’s just on the sidelines. The builders know that at some point they will have to start up again in order to provide our region with much-needed living space.”

Of course, nobody expects the kind of real estate crash that triggered the Great Recession of 2008. This downturn was caused by bad debt and an oversupply of new homes, which is not the case today.

This recession happened before Ryan was in charge and about 90% of the company’s customers were homebuilders. Although they lost about two-thirds of their business, the company was less diversified than it is today, so exiting the newbuild business was not an option.

“Our business mix would not have allowed us to make that decision,” Ryan said. He added: “And I was a lot younger and had the energy to deal with a downturn.”

Today, Ryan says that because many people are spending so much more time in their homes, including teleworking, they are using their stove and air conditioner a lot more. These devices and their components require more maintenance and replacement.

And, he said, because people are staying longer, it makes a lot more sense to focus on servicing existing customers than it did during the last recession.

With fewer people moving, there were fewer sellers and even fewer buyers, but prices continue to rise. Last week, the S&P Case-Shiller Home Price Index showed that home prices in the Twin Cities were up more than 6% in September from the same time last year. This increase was lower than earlier this year, but was in line with historical averages.

It’s been a record-breaking spring for builders and many are still building homes bought earlier this year. More recently, building permits have fallen. According to new data released by Housing First Minnesota last week, builders collected half as many permits in November as they did a year earlier.

This shift has left many builders, subcontractors and their suppliers cautiously optimistic about 2023.

It is a paradox that the country’s largest construction companies and suppliers are looking for ways to control costs. Executives at Builders FirstSource, the Dallas-based leader in building products, recently told investors they are implementing what they call a “downturn playbook,” which includes freezing or cutting jobs.

Several listed homebuilders, including Pulte Homes, which has a strong presence in the Twin Cities, are canceling land purchase options and reducing development plans.

Michael Ramme, vice president of land acquisitions at Centra, a Coon Rapids-based developer, said there are opportunities for companies not obligated to shareholders to acquire land more cheaply than last summer, when national developers “slam on the brakes “. He said it’s getting easier to hire subcontractors.

“There are subs who need the work now, two years ago they didn’t even look at you,” Ramme said. “The luck has turned.”

For Genz-Ryan, this change of fortune forced a reckoning. Ryan said he made the decision to close the construction department even as it became easier to hire workers and source supplies.

The final straw, Ryan said, was realizing that so many homeowners are locked into the lowest mortgage rates in a generation. That means they are unlikely to move because they would have to contend with sharply higher interest rates if they bought again. These frozen homeowners could weigh on housing construction for years to come.

“It was really about rising interest rates, that changed everything,” Ryan said. “But I felt like this was the right time for us to make the decision.”

Some of those 40 employees who lost their jobs stayed with the company and were transferred to the service department, Ryan said. Others could quickly find other jobs.

As much as Ryan worried about his ability to keep crews busy during the housing crisis, he saw the decision as an opportunity to aggressively grow the service and replacement business.

He wants the company, known for advertising with the slogan “I love these guys,” to remain a local standout at a time when private equity firms are buying up heating and cooling companies and consolidating them under national brands .

Ryan said he is in the process of converting the former new construction showroom and selection center into the Jack Ryan Academy, named after his father. He will use this room to train workers.

The decision to eliminate his company’s new construction division was like a “stomach punch,” he said. But he added that given the ongoing challenges the industry is facing, it’s the right decision.

“The study of economics is the science of meeting unlimited needs with limited resources,” Ryan said. “It really boiled down to a handful of decisions.”

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