News

Robert Putnam is co-founder with Michael Avila of the Michael Roberts Construction Co. of Campbell. Although the firm founded in 2001 focuses on residential projects, it also handles commercial developments. Revenue has dropped from $57 million in 2008 to $12.8 million in 2009, but Putnam said 2010 offers hope with an $80 million backlog of projects seeking public and private financing. Michael Roberts Construction was one of the few bright spots in 2009 when the firm avoided losing millions of dollars as well as its hard-earned reputation by “fixing” 2030 North Pacific in Santa Cruz, one of the many so-called “broken” condo projects scattered around the country.

How did you succeed in 2009?

I was the general contractor on 2030 North Pacific in Santa Cruz, and I was owed $3 million. I did the foreclosing on the 70-unit complex, and now we own it. I had not done it before. I just read a lot about loans and lien rights, and I had a good lawyer. I focused on this for months. I was sending and receiving 75 to 100 e-mails a day during the workout. I had to clean up everything — taxes, city fees, second mortgages. My main concern was that I owed the subcontractors $1.3 million. These people couldn’t make payroll. I was also worried about my reputation.

We could have gotten in line like everyone else, but 2030 North Pacific is a unique project in a great location. The rents are strong and the building will service debt, so we decided to work it out. As of September, the entire project was leased.

How do you plan to continue that success in 2010?

You need exit strategies with every project. If you can’t sell, you need to rent. If you can’t rent it out to cover the debt, you will have problems.

I’m actively pursuing deals that are half built to do workouts. I think you can buy them for 50 or 60 cents on the dollar. A lot of time these developers paid $2 million or $3 million an acre. Now they’re selling for less than what they bought it for. It’s a buyer’s market.

Things are different now. Before the owner would check the financial strength of our balance sheets and we rarely checked theirs. But you have to see their financials, and how much contingency they have.

There are a lot of broken condominium projects out there. A lot of them are in workout mode. We’re open to finishing projects not completed. We could even do it through equity partnerships.

Normally I wouldn’t pursue such projects — they’re too complicated and risky. Plus they’re not terribly lucrative. But it keeps the lights on.

We have troubled projects listed on a spreadsheet. We hear things from subs and we read and hear from bankers. We do go and check it out. But often the deal is so sour, there’s so much debt — far more than the property is worth and the subs are owed even more. There’s a 50-unit project in Berkeley that is so far upside down that the bank will have to foreclose.

We’re also self-performing work that in the good old days we would have subcontracted out.