Tricia Esser – Economic Recovery Built to Last?
The Orange County Register
February 7, 2011
Memories of economic upheaval are too fresh for Tricia Esser to be unabashedly upbeat about business prospects.
So for now, the chief executive of KTGY architects in Irvine will largely let the track record speak to the optimism: an acquisition of an East Coast firm and the hiring of a dozen new employees.
“There’s been a marked, positive turnaround in the past few months,” Esser says.
The uptick in business that Esser is witnessing is no anomaly. The latest readings from my Big Orange Index, a compilation of three dozen economic markers of the local business climate, show Orange County on the mend.
The overall Big O index has now risen five consecutive quarters – after 10 straight drops, a 21/2-year wave of declines. Orange County’s economic winning streak resulted in a year-over-year gain in The Big O Index for 2010 of 7 percent – the fastest growth since mid-2004.
And the Big O shows that local economic gains are widespread. Five of the six industry slices that form the Big O were rising at year’s end – the third consecutive quarter with such a broad-based economic advance.
The real estate trade in which Esser works is clearly a leader of the turnabout. The Big O’s Property Index has risen five consecutive quarters after a painful downturn that created 14 straight drops in this local real estate index.
Why the reversal? Local homebuilders are finally restarting construction efforts – a boon to building designers such as Esser. Orange County apartments were filling up, too. And until recent interest rate spikes, the mortgage business had jumped out of a long slumber.
“Most of our clients are cautiously upbeat about 2011,” Esser says, “and very optimistic about 2012.”
Architects, in many ways, are the economic canary in the business-climate coal mine. Because these planners often work years in advance of projects seeing reality, when developers get antsy, the design work is the first to be shelved.
Esser recalls four years ago when her firm was pruning costs and laying off workers as other real estate crafts still basked in the late glow of the then-cooling boom.
People were saying to Esser, “What? You’re having a bad time?” she recalls. “Nobody believes you.”
But to her, “it was clear” trouble was ahead. For one, “How many years could we go without a dip?” And, two, clients were pulling back quickly.
KTGY was early but not alone. In four years, Orange County real estate and finance bosses pruned payrolls by one-third, or 70,000 jobs. And this property-related employment dip has yet to be stemmed.
Why the job cuts? By the Big O’s math, developers cut permits for new residential units by 54 percent in the past four years. Mortgage dollars lent fell 52 percent. Home sales? Down 44 percent.
KTGY survived, as Esser tells it, due to a fiscally conservative bent that offered breathing space in the downturn. Not that it was easy. Extra space in the three buildings KTGY owns was leased out. Cost cuts became routine, and roughly 100 workers were let go, approximately half the staff from peak to bottom.
“That’s the tough part of the job,” the CEO says.
Early last year, however, Esser felt a discernible increase in inquiries for new business. At the same time, she felt opportunity to grow the business to the East Coast. Last summer, KTGY acquired a Virginia architecture firm to realize a long-term dream of nationwide reach.
That acquisition diversifies KTGY’s cash flow, as real estate cycles often vary on the coasts. Also, many of KTGY’s West Coast clients are nationwide – if not global – in scope. East Coast offices let KTGY serve these customers’ widespread needs.
KTGY’s growth track has been rewarded with a business spurt strong enough to allow the hiring of 12 workers in recent months.
“It feels better,” Esser admits.
A mild uptick in business and a full-fledged recovery are two different things. Like many business executives, Esser still feels angst among her clients and the public.
That skittishness felt at KTGY is expressed in how clients want work done. Thrifty design is a frequent request – whether that cost consciousness takes the form of more affordable components or energy-saving thinking. Not to mention that clients insist that architects get less pay for, at best, the same level of work.
“It’s a market where, all the way through, it’s what the buyer will pay,” Esser says.
But not every new project is bare-bones. Several apartment developers, for example, seek spiffy looks and fancy amenities for their complexes. The logic? Economic skittishness nudged some who’d otherwise be homeowners into apartment living. These well-financed apartment dwellers expect more than just a place to sleep to call home.
Yet it is that kind of underlying anxiety that keeps Esser grounded. She knows that financial fears keep a lid on consumer spending and dampen the entire economy – and even raise questions about the viability of the recovery. Locally, the overall Big O index – while on its current five-quarter upswing – just posted its slowest quarterly advance in a year.
To Esser, the future comes down to one thing: “It’s all about confidence.”