Nanci Porten had just settled into her chair at a Montgomery County Council meeting last Monday when someone handed her a nightmare.
It was legislation freezing home construction in the county in response to construction violations in Clarksburg. The paper was still warm, fresh out of the copier, and was promptly followed by news that County Executive Douglas M. Duncan (D) had slapped a moratorium on building while he and the council worked out what to do next. (Related article, Page D4)
The implications would become clear to Porten, a local townhouse developer, as she spent the rest of the week trying to keep her business on track.
She had 29 townhouses plotted and ready to be built in Rockville, and her carpenter was staffed up with craftsmen who would not take an unpaid holiday sitting down. They would want their money, or they would find another job. Her cement contractor had crews ready to begin pouring foundations; too much of a wait, and he would have to let them go. Her suppliers would want to know how long the roof trusses and floor beams would sit in the yard, taking up space and pushing back the payment schedule.
And then there was her banker, with interest on her company's construction loan adding up at a rate of slightly more than $17,307 per week.
"The risk in developing around here was always the market conditions. Now it's something totally different," said Porten, who will be allowed to continue work on one cluster of homes at her Potomac Corner project that are already under construction. Her project manager was turned down on Tuesday when he went to pick up building permits for a second group of townhouses.
Porten's experience last week was shared by dozens of developers and contractors in the county, where a hot real estate market has spawned a building boom, particularly in Clarksburg. County officials found earlier this year that hundreds of new homes in that area were too tall or too close to streets. When it was further discovered that a county planner had altered a site diagram to reflect what had been built, the ensuing public outcry prompted county officials to halt new building permits pending a review of local development procedures.
The council is expected to vote tomorrow on what type of review will take place before the county starts issuing building permits again.
While builders and developers are pressuring county officials to ease off what they call a hasty, overblown reaction, most are preparing for a delay of at least several weeks; others worry that the slowdown could stretch into the fall. As contractors schedule work elsewhere in the region, laborers look elsewhere for jobs and bankers lose trust in the county's process, the effects could extend out for years, builders and developers say.
"If this is a short time for agencies to check their thoughts and check their systems, the industry understands that. But anything longer, we have an awful lot of people and an awful lot of money, banks and laborers that depend on this business to keep moving," said David Flanagan, president of Elm Street Development, which has been building houses in Montgomery for 25 years and has a half-dozen projects in development. "We're going to feel this ripple for a while . . . What we expected to get approved or done in 2006 or 2007 could become a situation where instead of it being three years to get approved and built it could become a four-year processing time."
In the hours after the council meeting, Porten's phone was buzzing as she canvassed the people who were tied to her project, and whose work life had been thrown out of whack. More than five years in the planning, Potomac Corner risked becoming an expanse of nicely manicured dirt, yearning for cement, framework, siding and shingles.
"Maybe our contractors won't be there for us," when the project can move forward again, she said. "Maybe they will divert their crews to other counties. You can't thrust that level of uncertainty into a project when you have contracts and schedules and people expecting to move into homes. This whole thing is really terrible for a lot of people."
Porten's cement layer, Cuco and Sons Inc., is among them. Richard Cuco runs the Sterling company with about 50 employees, and he said even a short delay could force him to lay off as many as 15 people.
He did not warn his employees last week that layoffs might be coming. But he did tell them trouble was brewing, and he said he is ready to make some hard choices after tomorow's council meeting.
"I told them a situation was coming up, a bad situation, that we might have some changes in the company," he said. "They were astonished that something like this could happen so fast out of the blue. These guys are out there working hard every day."
Cuco will also have to find new work.
"I was pushing away work in the last few months in anticipation of some projects" in Montgomery County, he said. "Now I have to go back and find more work . . . It's almost like a recession."
While it may feel like one to Cuco, economists said there would not be any long-term effects on employment. A construction slowdown would not register as more than a blip in the area's economy.
"This won't upend the momentum in this economy," said Anirban Basu, an economist and chairman of Sage Policy Group Inc. in Baltimore. "For the people who are affected, particularly in the contracting business, the effects may feel more substantial than an economist might suggest. But it's hard to imagine the long-term effects will be devastating."
Workers can surely find work in other counties, he said, and when the moratorium is over, more work will be waiting.
But that is precisely the scenario that worries Joel King, president of King Carpentry Inc., which employs 200 carpenters and was scheduled to install wood framing in Porten's project. Good carpenters are tough to come by, especially during a building boom. If they aren't working six days a week, they will find another employer.
King said he has two choices: pay them for a full week's work when they may not perform a full week's work, or let them join a competitor. That would leave him with a shortage when the Montgomery County work resumes. .
"If I have to pay them for full time, even though I'm not using them full time, that affects the bottom line," King said. "When they are not working efficiently, they cost you money. A good carpenter gets 20 or 25 bucks an hour."
And then there's the bank.
Porten has a two-year revolving construction loan with M&T Bank. She is supposed to pay off the principal as she sells homes, pocketing the profit after each closing and sending the rest to the bank.
But as she is waiting to sell the houses, Porten has to pay the interest, which right now comes to $75,000 a month. The longer she waits to build, the longer before she sells, and the more interest she owes -- a bad dynamic at a time when interest rates are drifting higher.
While M&T Vice President Van Anderson acknowledged that it is profitable for banks in the short run, it is ultimately unhealthy. Projects become riskier, particularly if people buy existing homes or turn their sights to other parts of the region.
"A buyer could decide to go in a totally different direction," Anderson said. "They may not have the luxury of time."
And when the moratorium is lifted, Porten could be left staring at a lot of dirt.
"I ask myself: Will our guys be there with our cement?" she said.
Staff writer Dana Hedgpeth contributed to this report.