Palm Springs, Calif.—It’s been a tale of two cities for the FEI Group. For the association’s 50 MultiFamily Solutions members, whose customers are property managers and owners, business has been steady by virtue of home ownership on the decline. On the other hand, for the 50 Home Solutions members, who primarily service builders, business has been challenging to say the least. The common denominator: members in both divisions say FEI significantly helps their business. That was in illustration at the group’s national conference, held here Oct. 11 to 13 While most conventions have experienced sharp declines in attendance, Jay Smith, president of FEI Group, told FCNews there was 90% participation this year from MultiFamily Solutions, Home Solutions and KBx, its kitchen and bath division, members.
FEI Group is currently in growth mode. “We have added about 10 members in the past year,” Smith said There has also been organic growth where some members have acquired other companies. “But we have never set our sights on being a populous group; we just want the top guys. We still have voids in certain markets, but we will only fill them with the right fit.”
According to Graham Howerton, vice president, MultiFamily Solutions members are seeing very positive signs as it relates to vacancy rates. And with that, its customers are becoming financially healthy again through rent rate increases. “Those dollars are needed to re-invest in properties to turn vacant units or rehab buildings. Those dollars are back in the system again. So there is a positive outlook and real activity in the segment this year.” Howerton said couple this with the fact people are tired of living with family and friends. “The single-family decline was followed this time by a decline in multifamily. People moved in with friends and families. But it’s been two and a half years, and people have reached their limit.”
The difficulty in acquiring a mortgage also plays a role. “Many people are skeptical of going through the process,” he explained. “Many people don’t have cash for the down payment. And with home prices still going down, buying may simply not be the smart play.”
Given these dynamics, FEI is helping members in many ways:
1. The opportunity to share business practices across the entire network. “It’s an opportunity to learn from some of the best owners in the business,” Smith said.
As an example, Jerry Hosko, president of Redi Carpet, FEI Group’s largest member, told of a simple idea that added $100,000 to the bottom line: charging late fees to customers on their invoices “If you pay by this date (30 days net), it’s this price; if you don’t, the price is 1% more. And people will pay it. They will choose to go beyond the 30 days and pay the higher price.”
2. Benchmarking. Project MultiFacet allows members to see exactly where they are in and out of line when it comes to rent, employee costs, office supplies, margins, etc. It can serve as a total, comprehensive operating income statement. FEI Group is looking at participation from just about every member and the document should be available by late spring. It can even by sorted by business size, geography and more.
3. National accounts. FEI pursues national and regional property management companies on behalf of the group. “We go out and actively meet and create formal programs with these companies,” Howerton said. “The key is they can have one point of contact through FEI to service their entire portfolio in every market. Product, program and pricing are delivered uniformly throughout the group.”
4. Group purchases. “We are moving our supply program forward on base spec items in cushion, carpet, sheet vinyl and LVT,” Howerton said. “That is beneficial for both our members [pricing] and suppliers [volume].” FEI is also embarking on a program, still in its infancy, where it is taking much of the back office benefits it packages for members and delivering them downstream to Multi-Family Solutions member customers.
Nick Freadreacea, owner of The Flooring Gallery in Louiville, Ky., told FCNews property management is the most consistent part of the business right now. “People are not building; they are staying in their homes longer, and when their children graduate college, they are going into apartments. Vacancy rates are at an all-time low in apartments. So as soon as someone moves out, someone is ready to move in.”
When it comes to specific products, he said it’s “very entry-level carpet, sub-FHA, 20 ounce and under and a lot of LVT, which is replacing sheet vinyl because of longer life, less maintenance and ease of replacement.” He also cited Beaulieu as a company that has stepped up to the plate. “Beaulieu became very competitive in our market about a year and a half ago. It has the Magic Fresh story that apartment communities like—the differentiation. And its service has been excellent.”
Freadreacea, who also does business on the builder side—in fact, he was the 2010 Home Solutions member of the year—raved about FEI helping his business. “They address concerns better than anyone. They are a phone call away. We love the rebate program, they work out great deals with suppliers and have become a real power on the multifamily side. They also put together exceptional national deals.”
CMQ Floor Covering, Bristol, Pa., has been in business 26 years servicing the Philadelphia, Delaware and New Jersey area, the last four as a MultiFamily Solutions member. Arnie Cohen, controller, said one of the biggest benefits has been the concept of having more leverage, “appearing to be bigger than you really are.” He said the intensive flooding that plagued the Northeast this summer has helped business. “We have a cleaning division, which is super busy. People are trying to clean and get another turn instead of replace. That is becoming more prevalent.”
Ironically, his biggest challenge has not been the economy so much as competition. “The other sectors of the market are flat or down, so people who were doing builder and residential are coming into multifamily.
Then there are the issues of price and margin as a result of competition. And property managers always look for the best price. There is limited loyalty.” Cohen’s two best suppliers right now are Mohawk and Tarkett. “Mohawk is extremely responsive; they create opportunities for us. They will come to us with a product or price that will enable us to give our customer the benefit. You can’t ask for a better partner than that. In exchange, we try to give them the best opportunity to increase their business with us.
“Tarkett has given us a tremendous advantage in both product and price, “ he added. “Its FiberFloor product is the best in the industry for our purposes, and they have a created a program that allows us to minimize our inventory because of their delivery system. And their price structure has allowed us to create additional value for our customers.”
According to FEI Group’s Smith, generally speaking, there has been an uptick in resilient sheet goods overall, with Armstrong a big part of that, and LVT is growing exponentially. “We are putting more vinyl plank in living areas of apartments than ever. And we are seeing more fiberglass than felt. Carpet is being found in the bedrooms with resilient everywhere else. We are seeing growth in both triexta and PET. It’s been amazing how the dynamic is shifting from nylon to polyester. I was talking to one customer who has 15,000 units, and triexta is the only product he specifies because of the performance attributes.”
Home SolutionsHome Solutions members are dealing with the realities of the lowest number of home starts—under 300,000—since 1984.
“It’s jobs and foreclosures,” Smith said. “It’s hard to qualify for a mortgage. However, we have been at this rate for a long time, and our suppliers see 2013 and 2014 as looking pretty good.” Members have diversified into retail, commercial, cabinetry and other product lines. “They can operate at this level right now because they have gotten their costs in line. We have not lost a member on this side in a couple of years.”
Members benefit much in the same way as their MultiFamily Solutions brothers: Project Benchmark, group purchasing and the networking. One example that came out of this conference was the notion that today more than ever you must do things “the other guys” are not doing. Take Interior Resource Group in Denver and its Build for the Future philosophy. “There was a flooring company with a design center that left town,” Smith said. “They took over that space, rebuilt all the vignettes and created a beautiful design center. They took advantage of an opportunity to grow their business. It’s a ‘build it and they will come’ mentality.”