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Business Observer Thursday, Nov. 6, 2008 12 years ago

No Bust Zone

A real estate entrepreneur finds success, even as others crumble around him on the Gulf Coast. Says Shawn Kaleta: 'We are still busy.'

No Bust ZoneA real estate entrepreneur finds success, even as others crumble around him on the Gulf Coast. Says Shawn Kaleta: 'We are still busy.'HOMEBUILDING by Mark Gordon | Managing EditorThe last thing Shawn Kaleta needs for his homebuilding business is for the residential real estate market to hit bottom.And for good reason. Kaleta has not only found a niche in renovating and building new homes in Holmes Beach, a 1.6-mile sliver of waterfront and near-waterfront homes nestled between Longboat Key and Anna Maria Island, he's found a burgeoning empire. A return to the boom days, or even an end to the bust days, could disrupt his company's momentum. "I hear the news going on out there and I feel bad," says Kaleta. "But I can't relate. I'm out there cranking."So much so that Kaleta's year-over-years sales numbers read like they are straight out of a time traveler's journal, circa 2004: In 2003, he sold three homes for about $1 million. In 2008, however, he's already sold about 30 homes, with sales totaling more than $10 million. He expects to sell as many as 50 homes in 2009. And here's a nugget that has become as rare in Gulf Coast homebuilding as a summer snowstorm: Kaleta builds 90% of his products on spec. Most of his buyers, a blend of German, Irish and Canadian vacationers, with a mix of French and Swiss nationals, pay cash. Prices range from $295,000 for small one-bedroom cottages to $795,000 for five- and six-bedroom homes. "It's amazing that in this market, we are getting people to buy pre-construction," says Kaleta. "We are fortunate that we have a great product."Kaleta, 31, essentially runs two businesses under one flag, Holmes Beach-based Beach to Bay Investments, Inc. While a portion of the business is self-funded, a pair of deep-pocketed investors, both of whom are part-time Island residents, also backs Kaleta. One investor, Claude Melli, made his money selling oranges to Tropicana, while the other, Graham Hanson, owns several outlets of the American version of Kentucky Fried Chicken in Europe. One business is the development side, where Kaleta buys up dilapidated homes that are usually in foreclosure. He then rebuilds the entire home, keeping just the shell. The focus of the rebuilt homes is a cross between Old Florida and modern design. "We try to keep the Florida tranquility," says Kaleta.The other side of the company is rental properties. Some homes are rented by the season, while others go for monthly or weekly rentals. Other homes Kaleta sells to other investors, who rent them out. One advantage Kaleta has in rentals is that Longboat Key has a 30-day minimum stay provision for many residences, which Holmes Beach doesn't have. Step it upMore than just Kaleta's clients have noticed the dual efforts of his business. In the city of Holmes Beach, population 5,100, Kaleta is seen as a Donald Trump-like real estate mogul. For starters, in just the past two years, Kaleta has built new or rebuilt roughly 45 run-down homes, which eliminates eyesores from the neighborhoods. And he does it fast, too, with turnaround times averaging about 90 days. Kaleta hires subcontractors to do the bulk of the work, finding that he's getting the best of the best, at the best prices, as many tradesmen are hungry for work. "He has stepped things up here a bit," says Billie Stuckert, a leasing agent with Anna Maria Island Accommodations, which has rented some of Kaleta's homes. "These aren't your typical Florida cottages."And Larry Chatt, general manager of Island Real Estate of Anna Maria Island, says it's not a coincidence that Holmes Beach has become a go-to place on the Gulf Coast for rentals and vacation-home purchases the past two years. "Shawn has been a big part of improving the island," Chatt says. "[His homes] have helped create a lot more sales and interest."Prior to being anointed a Holmes Beach local hero, Kaleta was on track for a successful corporate career. After gradating Purdue University with a chemical engineering degree, Kaleta, a Cincinnati native, returned home to work for consumer goods giant Procter & Gamble. Kaleta oversaw multimillion construction projects for the company, his first venture in development. Kaleta liked the work, but after a few years wanted to rid himself of two drags: Cold weather and Corporate America. Says Kaleta: "I decided I couldn't do this the rest of my life."The first part was easy. Kaleta flew down to Florida and like so many Midwesterners before him, he drove the state's West Coast. He settled on Homes Beach after exploring Tampa Bay and nearly moving to Sanibel Island. Kaleta's inner entrepreneur took longer to come out. After moving to Florida he landed a job with Welch's juice company, as a project manager in its engineering department. He later worked for the Tampa division of eye care company Bausch & Lomb, also in project management It was in 2003, while still working for Bausch & Lomb, when Kaleta launched his real-estate career. He started small, by buying one house with an extra lot. He sold the lot and used the proceeds to invest in more properties. Along the way, Kaleta earned an MBA from Florida State University, where he focused on real estate finance. Kaleta says the skills and experience he picked up in Tallahassee have played a big role in his success. Lavish landscapesNonetheless, one of Kaleta's key principles in homebuilding is as elementary as maintaining an obsessive focus on details. It's an approach that might have gotten lost during the anything-sells boom days, but it's worth revisiting for any industry during the economic slump. For example, when Kaleta builds pools, he places umbrella holes in the front step, to add ambiance. More poolside flair comes with the painted tile designs Kaleta's crews place on the pool floors. Then there are the tiki-bars, which dot most of the lavishly-landscaped backyards. Kaleta personally oversees the design and construction of the bars - all of which are made with imported tiger grass he ships in from Polynesia. Other details include outfitting each house with surround sound, flat-screen plasma TVs and Playstations. The attention to details pays off. Says Kaleta. "There are a lot of people who say 'we just want a Shawn house.'"That sentiment is perfectly illustrated at Holmes Boulevard and 67th street in the city. Kaleta and his partners bought a string of three run-down properties there last year and quickly went about a renovation project. The result was a casual-coastal-cottage feel spread out through six units, ranging from 900 to 1,700 square feet. The units, less than a block from the beach, were sold and rented as individual condos. The detail-oriented aspect of Kaleta's business that holds a stronger connection to his MBA lies in cash flow. The operation, says Kaleta, "is kind of like a commercial real estate market, more than a residential one," because it relies on the old business staple of positive cash flow. For instance, Kaleta's first five-bedroom home, which he built in 2005, initially went for about $2,000 a month on the rental market, which was a stretch back then. But he was able to preserve and carry his costs, mostly because of the low price he paid for the home. Now the house is booked 40 weeks out of the year at $2,800 a month. It's cash flow like that that allows Kaleta to take a long-term view. "If I have something I can't sell, I don't care because I just rent it," says Kaleta. "It doesn't matter because it's cash-flowing."Kaleta's success has led to one other factor: Confusion among his buddies back in Ohio and Indiana. People call him all the time, he says, with resignation and hang-in-there in their voices, assuming that anyone with real estate and Florida on their business card is struggling.Kaleta tells the well-wishers not to worry. "As crazy as it sounds," says Kaleta, "we are still busy." REVIEW SUMMARYBusinesses. Beach to Bay Investments, Holmes Beach Industry. Homebuilding Key. Builder has a found a niche in renovating and building new homes on Holmes Beach.

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