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2015: The Year Things Turn Around

Bidding activity is up—and even brisk in some areas of the United States. But wall and ceiling contractors still face obstacles: low margins, for one, increasingly shallow labor pools for another. It’s interesting times ahead—a roller coaster ride for some. Here’s a snapshot, with viewpoints from across the nation.


In major cities on the coast of California increased project backlogs spell improved construction activity for 2015, says Travis Winsor, CEO of The Raymond Group, headquartered in Orange County, south of Los Angeles. One of the largest wall and ceiling contractors in the state, The Raymond Group has five offices, four on the West Coast from Seattle to San Diego and one office in Las Vegas.

He forecasts building activity will remain strong for up to three years in Orange County and the LA area, based on projects on the planning books today. Hospitality, multifamily residential (particularly in both San Francisco and LA) and privately-funded education projects are among sectors that could feed contractors well into 2018.

But national and global factors could erode his optimism. Energy prices, political stability in Washington and even the status of the large economies like China and India (which impact commodity prices) are question marks that could change that economic outlook.

Inflation is another marker for the times ahead. "Interest rates are at artificially low levels right now, providing better access to capital for many of the projects we’re on,” Winsor says. "Changes in this area, which make capital more difficult or expensive for owners to acquire, will have a negative effect on our market.”

While activity in the Los Angeles and San Francisco is expected to remain brisk in 2015 and possibly beyond, margins continue to be tight. The CEO attributes it in part to increased competition from a maturing non-union sector.

Winsor, a unionized contractor, says non-union contractors are making inroads into markets that have historically been union strong-holds. "They have become more sophisticated and are putting some pretty impressive projects on their backlogs,” he says.

Another concern on the West Coast is the skilled labor force. Los Angeles, for example, is on the brink of a labor shortage as building activity ramps up. While there are a number of "bright stars” among apprentices trained or developed through union halls and companies like The Raymond Group, the contractor says it is important to look in-house at ways of retaining top management and field crews to help meet the needs on projects through 2015 and beyond.

Washington and Oregon

Up the coast in Seattle, billions of dollars in building permits have been issued in the past year or so, but unlike previous construction booms where the lion’s share was earmarked for the commercial sector, this boom is fuelled by multifamily residential construction, says Dick Mettler, executive director of the Northwest Wall & Ceiling Contractors’ Association. Much of the work—four- and five-story wood frame housing—is non-union, leaving members of the NWCCA out in the cold.

Mettler says the number of hours for his contractor members is down about 50 percent since pre-recession levels because commercial and industrial projects—normally union work—have trailed off.

He says since 2008, a lot of unionized workers changed teams, heading to the growing non-union sector. "We’ve helped the non-union sector by providing them with relatively skilled workers,” he says.

How big is the shift? Last fall about 50 tower cranes were operating in King County (Seattle-Tacoma-Bellevue), but only half were union projects. That’s a marked change for the once-strong union city, Mettler points out. Margins, meanwhile, are dropping, not rising, even on union jobs.

An uptick in the commercial sector projected for 2015 is good news for union contractors, but like the California market, the skilled labor pool is running dry in the Seattle area. "The unions are scrambling to recruit as many people as possible from the non-union sector,” Mettler says. "It’s an interesting paradox: Our work is down significantly compared to years ago, yet we’re already out of labor.”

While hard times haven’t put many Seattle-area union contractors out of business yet, their long-term survival is at stake, says Mettler. "It’s a typical Rolls-Royce scenario where there was a lot of work and they were a profitable company,” he says, "but they were killed because of (a lack of) cash flow. In the downturn here a lot of companies have put their earnings into the company to survive, and now they are getting all this work but their cash cushion is pretty well gone.”

John Killin, executive director of the Associated Wall & Ceiling Contractors of Oregon and Southwest Washington, Inc., is tempering his optimism with caution for the 2015 outlook in Portland and rural regions.

After two years of expansion on Intel’s chip wafer fabrication plant—the area’s major project, work is winding down. Still, there are some bright lights in 2015, including several office and condo towers in Portland and data farm developments in rural Oregon communities.

A return to pre-recession economic output, however, is still a ways off, Killin says, but wall and ceiling contractors have weathered hard times in the region well compared to other sector contractors. "I saw a lot of people (building contractors) shut their doors in 2009, but this (wall and ceiling) group is well-financed and well managed,” he says.


Moving east to the Rocky Mountains, Travis Vap, CEO of Denver’s South Valley Drywall Inc., says Colorado—and Denver in particular—is in a strong position, with economic output (based on drywall board usage) as much as a year ahead of most parts of the United States. "People I know nationally tell me they are experiencing what Denver was about a year ago in a more uncertain time.”

Residential construction in the Rocky Mountain state is growing about 10 percent annually—a rate that is probably 12 to 15 months ahead of the commercial sector. "Every indicator we have is that the (residential) building will continue through 2015,” he says noting that multifamily residential—buildings three stories to 11 stories high—is increasingly common. The flipside, though, is that economic output is only just nearing levels of 2007, prior to a downturn when contractors like South Valley Drywall lost 90 percent of their residential business.

Vap says in 2015 commercial building is also expected to climb to pre-recession output levels. "The good news is that there are about 20 high profile projects under construction or soon to be under construction in Denver,” he notes.

Factors spurring growth include a low cost of living in the region and its four-season climate. But Vap points to another draw to the state: the legalization of marijuana for recreational use—a new business creator. "What it has done to lease rates and building costs in Denver is unbelievable,” Vap says. Areas zoned for marijuana businesses can lease for $12 a square foot net. Compare that to conventional business that lease for only $7 a foot.

Still, Colorado contractors face a squeeze as material and labor costs rise faster than profits and high-profile projects remain "very competitive” with an influx of more out-of-state contractors (from Texas, for example). "It is very, very cutthroat.” What’s more, the labor pool is shallow since many skilled workers left the state after 2008. It means developers have to play a more patient game because projects that, say, took nine months to complete in pre-recession times are now taking about 14 months because of the smaller labor pool.

Vap says there is also some concern that the construction cycle could trend downward in a couple of years: "It’s been eight years since we hit the bottom, and typically the cycle is 10 years.”


In Florida, the challenge for many specialty contractors isn’t a lack of projects, it is managing those projects. "Because of such factors as the market’s continued expectation of low margins and lack of skilled craft workers, many projects are being executed inefficiently,” says Michael Cannon, CEO and president of KHS&S Contractors, based in Tampa.

The industry hasn’t recovered from a mass exodus of tradespeople after the recession, resulting in decreased productivity and an increase in hours to complete jobs. "We are training a new workforce, which creates new challenges impacting production and cost,” says Cannon.

Furthermore, incomplete designs and other inefficiencies have increased labor costs because of the resulting multiple schedule disruptions and comebacks, according to Cannon.

"We will be updating our operational and administrative procedures to offset the increasingly inefficient way we are required to operate on many projects,” says Cannon. "In addition, training employees on how to mitigate inefficiencies is on tap.”

Cannon says while margins for many companies were too low to sustain a business during the recession, many owners’ margin expectations haven’t changed, despite the improved economy. Margins have to go up if specialty contractors are to remain financially viable in the long term.

He also says bidding is "very active,” particularly in the South Florida and Orlando markets. Health care, for one, could be an economic driver in the state in 2015. "We expect it to continue to be strong emphasis for us, particularly as the outcomes of healthcare regulations become more evident,” says Cannon.


Travel north to Tennessee and Mike Taylor, executive vice president of Nashville-based Liddle Brothers Contractors, Inc., will tell you he is "very optimistic” about 2015 for wall and ceiling contractors in the middle Tennessee region and nearby states. Low office rents, a favorable business tax structure and a growing population through high birth rates and migration are contributing to strong office growth and record high industrial output. "We have many very large multi-use projects in the works in Nashville for 2015 and 2016,” says Taylor. Building activity is also on the upswing in Kentucky and Alabama.

Furthermore, after several years of "very thin margins,” profits are improving. "This is a sign of the backlog (of projects) that contractors are beginning to feel in most sectors. In 2015, we think most of the contractors in our area are going to be back to pre-recession revenues and hopefully margins as well.”

"There are some really hot markets in the United States, and there are some pretty slow markets,” Taylor points out. "We’re very blessed to be in a market doing pretty well right now.”

However, inflation—often a side-effect of an economic upswing—has to be kept under control to sustain the recovery, says Taylor. Material costs across the board have risen 3 to 5 percent in 2014, and the same is expected in 2015 in middle Tennessee. Labor costs—up 6 to 8 percent in 2014—could soar to 10 percent in 2015 because of the growing scarcity of skilled workers as the economy improves, he forecasts. Like in other regions, labor left the state or the field altogether during the recession and unsuccessful efforts to recruit replacements factor into the shortage today. "It’s getting more difficult to find people to who are willing to come in and learn a trade,” says Taylor.

Taylor adds that EIFS is one sector seeing strong growth as more owners in the region buy into the value of increased building insulation as a practical means of reducing energy bills.

New York

Since mid-2014, work has increased and 2015 is going to be busy in New York City, say two Long Island-based contractors—Par-Wall Finishing, Inc., of Greenlawn, and Island Acoustics of Bohemia.

It is no surprise that Manhattan is leading the way, with a number of high-profile projects—none larger than Hudson Yards, a 17 million square foot mixed-use development on 28 acres on the West Side. It is billed as the largest private development since the Rockefeller Center. The World Trade Center projects add fuel to Manhattan’s building scene.

The "hottest market” in Manhattan probably is high-rise residential, says Mike Weber, president of Island Acoustics. As heights soar to 50 stories and taller, increasingly developers are splitting up contracts to ensure timely delivery. Brian Gordon, president of Par-Wall Finishing, adds that the soaring price of real estate in Manhattan has spurred on residential redevelopments in Brooklyn and Queens.

Weber is bullish on hospital and health care expansion. There are a number of sizable additions on the books for startup later next year. The retail sector is also undergoing change, with a number of expansion programs planned or under way at shopping malls. As well, "paint/polish projects”—esthetic upgrades to big box outlet centers built 10 to 15 years ago—is an emerging market.

As for government initiatives, the 2015–2019 capital budget for NYC School Construction Authority (set at about $12 billion) could include the addition of up to 32,000 new class seats. At the same time, New York Mayor Bill De Blasio proposes to build or preserve 200,000 affordable housing units over the next decade.

Another positive sign is an increase in older office building renovations—a traditional market that was flat during the recession. It is "time-driven” work, says Gordon. "We tend to do much better on those jobs.”

The return to busier times in NYC should translate to more profitable times, but estimating departments must start raising prices because margins are still "very tight,” says Gordon. "These developers are so used to squeezing the buffalo on the nickel.”

"The numbers are moving up for us,” points out Weber. "There is a pretty active bid board so I think the numbers (margins) will continue to rise” for the sector, although smaller contractors that rely on niche markets may continue to struggle.

Island Acoustics surpassed pre-recession sales volume in 2014 and Weber sees good fortune continuing. "For the longest time our work was divided equally between Long Island and the city, but now it’s 75 to 80 percent in the city,” he says noting that the non-union sector has taken a bigger slice of the market share on Long Island.

The labor pool remains relatively stable, and union halls have ramped up training in expectation of better times. Material cost increases are not expected to be significant in the drywall sector, says Gordon.

He points out that construction activity is difficult to forecast in NYC post-2015–2016. Even with major developments like Hudson Yards and the World Trade Center, it remains to be seen if the demand for premium space will be there for proposed and planned developments to hit the ground.


In the Motor City and other parts of Michigan, builders are encouraged by work in the health care sector and for the first time in years, office interior remodeling is happening in downtown Detroit. At the same time, while retail build-outs remain stagnant, some new apartments and condos are planned or under way, says George Stripp, executive vice president, National Construction Enterprises, Ypsilanti, Mich. He then added that last summer’s announcement for an NHL Red Wings arena is more good news.

"Our Ann Arbor operation is starting to add project managers and estimators. We haven’t done that in a long time,” says Stripp.

Since the downturn, non-union contractors have made inroads in Detroit. A case in point is in the non-union metal framing sector for larger projects downtown.

Qualified tradespeople continue to be scarce, and Stripp believes that contractors have to embark on recruitment campaigns through construction associations and the school system to attract young people to the field.

He adds the current Michigan government is more business friendly than some administrations of the past. State business tax rollbacks have been good for small to medium-size companies, and the state’s effort to attract more business through right-to-work legislation introduced in 2014 has merit. "Probably the single biggest thing with the legislation is that they (employees) can opt out of paying union dues, but I haven’t seen any major impact and I don’t think we will in our industry,” says Stripp.


Cross the Michigan border into Ontario, Canada, and the economic story is quite different. The 2008 U.S. downturn did not cut deep into the building economy in much of Canada, and drywall contractors in the country’s largest city, Toronto, faced only a minor slowdown. Some contractors, such as Oakdale Drywall and Acoustics, have seen work steadily rise since 2008 and have gone through a banner building year in 2014, largely because of hospital and office sector work but also construction of facilities for the 2015 Pan Am Games.

Construction may tail off in 2015 but it is still expected to be an active year, says David D’Angelo, vice president of Oakdale. "There’s no reason to worry about a lack of work,” he says. The province’s Liberal government promises a 10-year, $130 billion commitment to infrastructure projects that includes more than $11 billion for hospitals and $11 billion for schools.

"There still will be a lot of cranes in Toronto in 2015,” adds Bob Pirrochi, president of 4 Star Drywall Ltd., Toronto. Many of those cranes are building condo towers in the city’s vastly changing downtown and surrounding neighborhoods.

Still, as brisk as the construction pace has been in Toronto, margins are tight, and fierce competition has kept prices down.

Pirrochi says materials costs are rising, with gypsum up 10 percent in 2014 and further increases expected next year. The price hikes are partly tied to a decrease in production in U.S. plants. "There’s no board (to speak of) being imported from the States,” says Pirrochi. Steel prices have risen in the past 18 months and are expected to continue to rise in 2015.

The hectic pace last summer in Toronto led to skilled labor shortages for unionized contractors like Oakdale, but D’Angelo says the Interior Systems Contractors Association of Ontario and its affiliated Interior Finishing Systems Training Centre "has done a good job” on recruiting and training new workers.

Don Procter is a freelance writer in Ontario, Canada.

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