Breaking the log jam | A Bowdoinham log home maker hopes by expanding now, it will flourish once the housing market rebounds
Dan McKenna, president of Hilltop Log and Timber Homes, admits that growing his company in the midst of an economic downslide seems risky — especially when that downslide includes the faltering housing market and your company sells homes. But as the stumbling housing market continues to claim its competitors, Hilltop is banking on the market’s upswing and positioning itself to take advantage of big growth.
For the past 25 years, Hilltop has manufactured log homes, from small seasonal cabins to spacious luxury vacation homes, in Maine and across the country.
From its headquarters in Bowdoinham, the company designs the buildings and manufactures the parts in what’s typically called a kit or a package, then ships the pieces to the job site to be assembled by a general contractor. In the past 10 years, the company increased the number of homes it sells in a year from 15 to 50, bolstered its revenues from $1.8 million to $3 million and snagged some big projects, including the 106 cabins at Point Lookout in Northport, the former corporate retreat of MBNA.
But the company, like others in the log home industry, is feeling the housing crunch. In September, Chestertown, N.Y.-based Lincoln Logs Ltd., a major player in the industry that had a dealer in Maine, filed for bankruptcy along with its subsidiary Snake River Log Homes. This year, Dostie’s Log Homes in Augusta, Moosecreek Log Homes in Turner and Northern Log Homes in Bangor all closed their doors.
The closure of these companies has opened up new opportunities for Hilltop. In the past three months, the company has added six new dealers — mostly real estate companies and builders that sell the Hilltop brand of log home — in several states, including Maryland, Connecticut and West Virginia, giving it a total of 12 dealers in 13 states across the country. And in August, Hilltop acquired Dostie’s property in Sidney for an undisclosed price, which includes a model log home, a garage, workshop and log-drying kiln building. Hilltop revamped the 5,780-square-foot model home, which will double as a sales office, and reopened it last month. Its location off I-95 has already attracted passing out-of-staters to stop and check out the model home. The company also has plans to offer new services for log home builders and owners starting in 2009.
“The reason we bought it is to expand our business,” says McKenna. “It’s visible from the highway, right off the exit, and we wanted to get more of the market share of people going to coastal areas or to northern Maine.” McKenna hopes the expansion will help the company double its sales and boost its revenue to between $4.5 and $6 million — “but that won’t happen this year, because of the economy,” he’s quick to add.
It’s a phrase likely on the lips of many builders. Nationally, 460,000 new homes were sold in August, an 11.5% drop from July and a 34.5% plunge from the number of sales in August 2007, according to the National Association of Home Builders.
The log home industry has fared somewhat better, thanks to its niche in the second home market, catering to vacationers and retirees, according to Jim Young, president of the National Association of Home Builder’s Log Homes Council. “People have saved up for a long time and been thinking about building for a long time, so they may go ahead with it even though the economy isn’t doing great,” he says. But even log home consumers have been hit by the current economic crisis, leading to a decrease in log home sales by about 25%-35%, prompting many companies to rein in their spending and curb expansion, according to Young.
But Hilltop is taking a gamble that, as other companies pull back or shut down altogether, its expansion efforts will give it a prime spot in the market once it rebounds. “Once the economy comes back, we’ll have a stronger household name and we’ll be a stronger force in the Northeast region,” McKenna says.
A more polished image
Since the mid-1980s, the log home has shed its image as a quaint, cramped hunting cabin and become a more popular choice for a custom luxury home. According to a report from the Log Home Living Institute in Chantilly, Va., log homes sales in the United States have jumped from about 15,000 annually in the mid-1980s to more than 26,000 in 2003, the most recent data available. The volume of sales of log home packages was more than $1.7 billion in 2003, and $46 million of that was in Maine, ranking the state 11th in dollar volume of log home material sales.
Dan McKenna and his wife, Cathy, got into the log home industry just as it started to grow. The couple founded Hilltop Log and Timber Homes in 1983 as a small general contractor, moving into the log home manufacturing business three years later by building their first log home on a hilltop in Randolph and using it as a model to sell other homes. In 1993, the couple purchased a tract of land on Route 125 in Bowdoinham and built a manufacturing facility and three model homes there that also function as the company’s headquarters.
Hilltop has 75 stock designs for log and timber homes that can be customized to suit a client’s needs. Though the houses vary in size and price, the average home is about 2,000 sq. ft., and the building materials package (which includes the logs but not interior fixtures or appliances) costs about $100,000, according to Cathy McKenna. Though it varies depending on the amenities the homeowner adds, the finished product usually costs about two-and-a-half to three times more than the materials package.
Using Western red cedar from Canada, Eastern white pine from Maine and New Hampshire, and Douglas fir from the West Coast, the company manufactures the pieces for the log and timber homes on site, cutting and numbering each piece before shipping them to their location to be put together by local builders. Besides standard log homes, the company also offers post and beam homes, traditional stick-built homes and structural insulated panel hybrid homes, popular for their energy efficiency.
The company’s latest move into Sidney will allow Hilltop to break into untapped markets. In the spring of 2009, Hilltop is also planning to open a retail log home supply store that will offer repair and replacement supplies to log home owners and builders — the first of its kind in the Northeast, Dan says. Builders and log home owners buy supplies from out-of-state companies over the Internet, and Hilltop has been getting calls from people looking for those supplies locally. “It’s a need that hasn’t been fulfilled,” says Nate McKenna, director of sales and operations and Dan McKenna’s son. The retail store will also rent out equipment needed for restoration work on log homes. The company also plans to increase its staff next year by adding four sales people and a receptionist, and could hire more production and drafting employees depending on how the market fares.
The McKenna family plans to fill another market niche in 2009 by expanding the facility’s 5,600-square-foot commercial drying kiln. The kiln dries freshly cut logs to prevent them from settling, and currently Hilltop has to ship its logs to be kiln dried at The Wood Mill in Mercer. In a couple of weeks, the company hopes to start using the one kiln for its own purposes, and then hopes next year to add up to three more kilns to the facility that other saw mills and building companies will be able to pay to use. After a fire this year destroyed four commercial kilns in Whitefield operated by Whitefield Dry Kilns, the McKennas say the service is sorely needed in the industry.
By having its own drying kiln, the company will save about $50,000 annually and hopes to generate that much in additional revenue by offering the services to other builders, according to Nate McKenna, who is being groomed to one day run the company when the elder McKennas retire. “There’s usually quite a backlog in kiln dried wood, so the brokers we buy from are very eager to get their green product in,” he says.
Seasoned strategy
Even as they make plans to expand, the McKennas remain pragmatic about their approach, cutting their spending and reducing their overhead as much as possible. Though Hilltop’s revenues have held steady over the past five years at around $3 million, and the number of houses sold annually has remained at 40-50, the number of units sold this year is projected to be down 15%, says Cathy McKenna, the company’s treasurer and unofficial vice president.
And Hilltop’s not alone. David Gordon, president of Katahdin Cedar Log Homes in Oakfield, says his company is doing better than most in the industry nationwide, but that his revenue is still down five to six percent this year. Though people are still buying the high-end second homes and the inexpensive seasonal cabins, the middle market — those people who need to sell their current house before buying another — has dropped out. “I’ve been in this business over 30 years, and I’ve never seen it as close to this bad,” he says.
To ride out the economic storm, Hilltop plans to up its regional and local marketing efforts. About two years ago, the company decided to limit its expensive national marketing campaign and focus on pitching itself in the Northeast, which has been more successful. The company has focused on building its local customer base by purchasing land and developing subdivisions in the central Maine area, including its current Streamside Estates II division in Gardiner. And a recent partnership with Great Brook Preserve, a gated community in Newry near the Sunday River Ski Resort, will help Hilltop market its log homes to people interested in buying lots there, according to Marie Stuckey, the company’s marketing director.
The company is also planning to pursue more commercial work. Ninety percent of Hilltop’s work is residential, but the company has of late been expanding into the commercial markets, including a bed and breakfast in Carrabassett Valley and a 25,000-square-foot mall in Maryland. And regular seminars for builders and homeowners to educate them about log homes will help get the word out as well.
“You have to be in people’s faces more,” says Dan McKenna. “People are still going to buy — there is just a smaller percentage of them.”
Financial advisors have for a long time said that buying when the stocks are down to is key to coming out on top when the market turns. And the McKennas are hoping that type of risk-taking will work for Hilltop as well. “It’s a tougher market,” says Nate. “We have to be looking at where the market and the money is, and be gutsy and take advantage of opportunities when they happen.”
Mindy Favreau, Mainebiz staff reporter, can be reached at mfavreau@mainebiz.biz.
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