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Go West, People!

For a few years we’ve more or less taken for granted that the light we now and then spy at the end of the downturn tunnel is nothing but an on-rushing train.

Today, however, this light appears to be (at least most report it so) actual daylight. In fact, based on surveys of AWCI member contractors in several metropolitan areas west of the Mississippi River, that is the happy conclusion one, at last, dares to draw.
that the light we now and then spy at the end of the downturn tunnel is nothing but an on-rushing train.

Today, however, this light appears to be (at least most report it so) actual daylight. In fact, based on surveys of AWCI member contractors in several metropolitan areas west of the Mississippi River, that is the happy conclusion one, at last, dares to draw.

The following cities were surveyed: Albuquerque, N.M.; Dallas/Fort Worth; Denver; Honolulu; Houston; Las Vegas; Los Angeles; Minneapolis; Phoenix; Portland, Ore.; San Antonio; the San Francisco Bay Area; Seattle and Tucson, Ariz.

To gauge the current economic and market pulse of these areas, we asked AWCI contractors to consider the current climate and compare it to that of a year ago and determine if there had been a change, and whether that change had been for the better, for the worse; or, whether things had remained unchanged.

The following subjects were surveyed: area economy, political environment, bid volume, bid competition, project types, EIFS, new permits, renovation vs. new construction, area contractor outlook and personal outlook.

Area Economy

Seventy percent of those surveyed report that the economy in their area is stronger today than a year ago. Ten percent report a weaker economy, and 20 percent report it unchanged.

Noted strong spots include the San Francisco Bay Area. This is where Craig Daley, president of Daley’s Drywall in Campbell, Calif. (and AWCI’s current vice president) reports that “the Bay Area economy is definitely improving. The amount of projects to bid is our biggest indication of improvement.”

Another strong area is the Pacific Northwest, where Dick Mettler, executive director of Northwest Wall & Ceiling Contractors Association in Seattle, reports that “the economy is coming back. Unemployment is under 6 percent again, and there’s an apartment building boom going on.”

Contractors in Las Vegas and Albuquerque also report strong economies.

Rural Missouri, however, reports an economy worse now than a year ago, as did one Hawaii contractor. Another Hawaii contractor, however, reports a stronger economy.

Political Environment

Seventy-five percent of those surveyed believe that their area’s political environment is pro-construction, 15 percent report an anti-construction political sentiment, and 10 percent feel the local political environment is neutral toward construction.

Among those who feel the political environment is not construction-friendly, Mark Mathiowetz, president at MCI Paint and Drywall Inc. in Burnsville, Minn., feels that the political machinery in the greater Minneapolis area does not favor construction.

Dick Cronn of Billings & Cronn Co., in Portland, Ore., harbors a similar sentiment: “In some ways it is very anti-business here. Many things are quite liberal, with lots of regulations and hoops to jump through.”

Bid Volume

When it comes to the current volume of bids and how it relates to the volume a year ago, 67 percent report higher bid volume, 11 percent report a lower volume, and 22 percent say their bid volume is level.

Possibly the brightest report comes from Pat Arrington of Commercial Enterprises, Inc. in Albuquerque: “Bid volume is way up. So much that we cannot even bid all that is out there.”

But Mettler is a little more cautious. He says, “Seattle bid volume is lightly up although we’re seeing a host of preliminary budgeting for larger announced projects—of which about half will probably come to fruition.”

Jim Monterosso, chief estimator at Exterior Wall Systems, Inc., in Tucson, Ariz., sees a lower bid volume, which he attributes to financial institutions still holding on to their money despite a pent-up demand for new buildings.

Dave DeHorn, chief estimator at Brady Company Los Angeles, Inc., concurs. “Although we’re seeing more bids, due to tight budgeting requirements and tight financing, we sometimes have to bid the same project three or four times, in increasing detail,” he says. “We’re way up on volume, but we’re working harder for the same amount of work. Financing is holding things back.”

Bid Competition

As for whether there are more, fewer or about the same amount of competitive bidders for each job, 35 percent report more bidders, 40 percent report fewer bidders, and 25 percent report the situation unchanged.

Daley, for one, reports, “During the recession we saw 10 to 12 bids on any significant job, which statistically favors the job going to whoever made the biggest mistake costing it. Today, though, we are back to a more preferred two to four bids.”

Mettler reports a similar scenario: “It depends on the size of the project, but our guys are seeing fewer bidders—five or six per project these days rather than eight or nine.”

Conventional wisdom would be that a stronger market would see fewer bidders—especially in areas where residential projects are on a comeback, meaning that residential contractors who have been poaching on commercial turf are now heading back home. Also, a stronger market could mean that there are more available jobs, meaning contractors no longer have to bid everything to stay busy.

Mathiowetz agrees: “We see fewer bidders. The increased bid volume in the Minneapolis area prevents competitors from bidding all of the jobs.”

However, some strong areas still see a large number of bids from out-of-state contractors who have gravitated toward remote existing work while their local economies still sputter. As Mike Sireno, president at Baker Drywall in San Antonio, puts it, “Many contractors are still moving in to Texas from different parts of the country.”

DeHorn reports, “I would say the competition is a little less in the Los Angeles area these days. A few of our competitors have gone out of business, and I have not seen any start-ups in our area. We see an average of five to eight bidders per project.”

Project Types

While the types of projects that keep contractors busy these days do not necessarily have any bearing on whether recovery is afoot, the story they told is still worth telling.

The types of projects from those surveyed is as follows:
• Medical/Hospital – 20 percent

• Private – 18 percent

• Commercial – 18 percent

• Government – 9 percent

• Military – 9 percent

• Airports – 6 percent

• Condos – 6 percent

• Hotels – 6 percent

• Schools – 6 percent

• Multifamily Units – 2 percent

Naturally, the economic base of the area often dictates the types of projects involved. Las Vegas, for example, reports hotels as their strongest category, as does one Honolulu contractor.

As for individual areas, Daley reports that “during the height of the recession, it seemed the only big jobs to bid in the Bay Area were public works; these days we see large private work making a comeback.”

Mike Hoffarth, project manager at Canyon Plastering & Drywall in Phoenix, sees virtually all project types in his area. “Bid volume for all those project types has increased,” he says. “We focus on medical, hospital and a lot of charter schools. We also see some resurgence in retail—though most of that is renovation.”

In the Seattle area Mettler reports, “Our really big area is private sector apartments. We still see some military as well, and some eastern Washington hospitals along with some schools. But the boomer is private apartments. Both Google and Amazon are expanding here, so we have a lot of new jobs. These guys need somewhere to live.”

Jason Gordon, president AWCI Colorado Chapter, reports that “Hospital and other medical is way ahead of other project types in Denver and the rest of Colorado. This while commercial office still seems to hold steady, and retail is gaining momentum.”

Sireno says, “Hospitals are the primary type of new projects here in San Antonio, with military work right behind that. We are seeing some private work now, but not much.”

DeHorn says, “Here in Los Angeles, hospitals are number one, and airports—with the $5 billion LAX project—number two.

“Also, we are beginning to see some condos now. The housing market is starting to pick up, including three or four proposed condo projects in downtown Los Angeles. This means that the commercial construction should soon pick up, too.”

New Permits

About three contractors out of four that we surveyed kept their finger on the new permits pulse, and of those, 80 percent report a higher number of new permits today compared to a year ago, 13 percent report fewer new permits and 7 percent do not see a change.

If there is a single statistic that should raise our hope for the future, this might just be it.
Renovation vs. New Construction
As a rule, a downturn in construction fortunes usually means more renovation projects vs. new construction. When asked about this trend we found that 42 percent of those surveyed see more renovations today than a year ago while only 5 percent see less; however, 53 percent see about the same renovation volume when compared to new projects.

Arrington sheds an interesting light on this trend, and why we still see so much renovation. “Real estate prices are still so low that even today you can buy an existing building for about 70 percent of the cost of the land alone to construct a new one,” he says. “You can afford to re-configure existing properties to your needs, so renovations remain a very strong sector of our market.”

DeHorn agrees. “There is still too much office space available in LA and Orange Counties,” he says. “It’s more cost effective to renovate an existing structure. A proposed 34-story Santa Ana office building still has not gotten off the ground; there are too many existing empty office buildings.”
Area Outlook
Being a mindset rather than a measurable statistic, the area outlook may not be as concrete a measurement of daylight as some others.

That said, we are happy to report that of those surveyed, 85 percent feel that the area contractors’ outlook is optimistic today. Only 5 percent feel it is pessimistic, and 10 percent feel it’s neither one way nor the other.

“We could have a larger backlog,” admits Daley, “but it is comforting to know that we are adding—and keep adding—new jobs to that.”

To hear Mettler tell it, “It’s slightly optimistic. I really think the Seattle guys see more and more projects come alive. Some of them are even beginning to worry about workforce, which is a problem we welcome back.”

Personal Outlook

Considering the personal outlook of those surveyed (how they see the rest of 2013 and 2014 developing for their own company), 85 percent of those surveyed are optimistic while 15 percent take a dimmer view of the future.

Here is a sampling:

Mathiowetz in Minnesota says, “I hope to beat 2012 profits by 15 percent, and 2012 was actually not a bad year.”

Daley in California says, “We are expanding our operations to meet the improved work load, a much better challenge than reducing operations like a few years back.”

Kevin E. Respecki, president of Kayar Construction in Honolulu, says, “My backlog for 2013 is already larger than everything I did last year. And 2014 promises to be a big year here in Honolulu.”

John Hinson, division president at Marek Brothers Systems, Inc. in Coppell, Texas, is “expecting about a 25 percent increase over last year’s volume, but the margins are still ridiculously low.”

Mettler says, “2012 saw a 9 percent increase in Seattle business. For 2013 I expect a bit more. 2014 might even see a spike midway through, when some of the big projects now in the permit stage break ground.”

Monterosso in Arizona says, “We have a great year coming up. Had a great year last year. The industry is bouncing back.”

Gordon says, “We’re finally seeing the tide turn in this market. Last year was pretty flat, this year is looking a lot better, and the next couple of years should see a 5 to 10 percent growth per year as well. And this seems to be the feeling all around Colorado.”

San Antonio’s Sireno says, “Hopefully, the residential market continues to improve and the commercial market will follow. We are looking for commercial work to pick up late third quarter/fourth quarter 2013 and into 2014.”

From Los Angeles, DeHorn says, “We’ve been very fortunate to have done a lot of Kaiser work. They like us and we like them, so we’ve been busy over the last three years and will continue that way.”

While some, mostly rural, Western U.S. areas still battle a hard economic climate, the almost-overwhelming consensus among our metropolitan area contractors is that the tide has in fact turned, and that the light at the end of the tunnel is, at last, daylight.

Los Angeles–based Ulf Wolf is the senior writer at Words & Images.

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