Baltimore: Margins on projects are up. “They’re better than ever,” says Robert Aird at Robert A. Aird Inc., “even better than 2008.”
Buffalo: Kevin Biddle at Mader Construction says revenue from projects in Western New York is up 25 to 30 percent.
Columbus: Brent Allen at Compass Construction says all segments of construction are doing well, including single-family homes, multifamily housing and high rises.
Fort Lauderdale: Momentum is building in southern Florida, says B&B Interior Systems’ Jeffrey Burley. “We’ve been ramping up for three or four quarters,” he says.
Hartford: On the disappointing side, Rita Gosselin at G&R Construction says, “There are very little projects, and some of the projects going are getting canceled.”
La Crosse: Mike Poellinger at Poellinger, Inc., says, “Business is starting to pick up, but it’s still competitive.”
Myrtle Beach: Danny Bonnell II at Commercial Systems Plus says growth in coastal South Carolina “is in the double digits.”
Memphis: William H. Roark at Acoustics & Specialties says his firm is “swamped with bid activity.”
New York: Lee Zaretzky at Ronsco says, “We’re going to increase our volume by 50 percent this year.”
Double digits. That’s the growth rate for drywall construction projects this year in Myrtle Beach, S.C., according to Danny Bonnell II, president of Commercial Systems Plus, Inc. He say margins on projects have improved as well.
Growth and improving margins constitute our report for the eastern United States. It isn’t the story everywhere east of the Mississippi River. But it’s common, and it’s good news. Many eastern drywall contractors are, in fact, turning away projects. Where business is slow, there’s probably a booming market just up the road to go after.
In Buffalo, “medical is through the roof,” says Kevin Biddle, president of Mader Construction Co. in Elma, N.Y. He says more than $400 million in medical buildings got started in 2014, and several hotel projects are also under way.
In central Ohio, Brent Allen, vice president of Compass Construction in Dublin, Ohio, describes construction activity as robust. “There are more tower cranes in downtown Columbus than I can remember,” says Allen, whose company revenues are up about 40 percent this year.
Michael Heering, president of F.L. Crane & Sons, Inc. in Fulton, Miss., says he’s seeing an uptick in projects. Construction revenue is growing in his market, which includes Mississippi and parts of Alabama and Tennessee. “It’s not a large amount,” Heering says. “Call it ‘medium.’”
However you choose to label it, the cityscapes and beltways of eastern metropolises are full of construction work. Of course, this not the case everywhere. Sources say construction activity in Hartford, Conn., is flat and maybe even down this year. Yet in many eastern cities, building is brisk, and revenue is cranking. That means the Great Recession is over. One hurdle remains to surmount: low margins. But on this we may need to wait.
“I wouldn’t say we’re to the point where it’s ‘name your price,’” Allen says.
Some Firms at Capacity
The markets in the eastern United States are in various phases of growth.
The Big Apple is definitely undergoing a construction boom. Market revenue is up significantly in 2014, says Lee Zaretzky, president of Ronsco, Inc. in New York City. This is good, especially since 2014 growth comes on the heels of 2013, which, he says, “was a decent year.”
In Memphis, William H. Roark, president and owner of Acoustics & Specialties, LLC, says the volume of construction contracts this year versus last year is the same. What’s growing in Memphis is the bidding. “The bid activity related to design budgets is definitely more active than what has been typical here, though it’s still competitive and maybe more competitive,” he says.
Construction in South Florida is on a roll, more so than in central and northern Florida. “It usually works out that way,” says Jeffrey Burley, president of B&B Interior Systems, Inc., Plantation, Fla. “South Florida gets a lot of commerce from South America and the islands below us.”
Some of the growth in the East can, quite frankly, be attributed to redoing others’ mistakes.
“A lot of our work is finish, fix or tear off and replace the work of others,” says Robert Aird at Frederick, Md.–based Robert A. Aird Inc., which operates in Baltimore, the District of Columbia, Annapolis and Northern Virginia. “Many GCs bought the low-ball price. They’re coming to us for help.”
This year in Washington, D.C., drywall firms are being awarded fewer projects, but sources say they’re submitting significantly more bids.
“The amount of pricing has tripled, but we only have half of the awarded jobs we had last year,” says Gabriel Castillo, senior estimator at Pillar Construction, Inc. in Alexandria, Va. “It’s pricing, budget, pricing, budget on a lot of work.”
Castillo says the number of awards could be higher, but he thinks that D.C.–area drywall companies are operating at capacity.
“Everybody is super busy,” Castillo says. “We’re finishing the contracts we priced last year.”
Naturally, business isn’t rosy in every eastern market. In Connecticut, Rita Gosselin, president of G&R Construction, Inc., says last year Hartford construction volume was flat and filled with mostly small jobs. “We had a big job over the winter, but after that it’s been nothing,” Gosselin says. “Usually this time of year we’re very busy, but we’re not.”
Still Competitive
In general, profitability remains tight on projects under way east of the Mississippi.
“Margins are tighter than we would prefer,” Burley says. “It’s due to competition.”
In Tupelo and the surrounding region, profitability varies by project.
“The more complicated the project, the less competition there is on it,” Heering says. “It’s still kind of tough, but as firms start to load up [on awarded work] they begin to fall out of the [bid] picture.”
Heering’s approach is to challenge his competitors to be more reasonable on their pricing.
“I don’t tell them where I’m going to be [on my pricing],” Heering says. “I say, ‘If you guys want to fight over this stuff for nothing, go for it. When you get all that you want, then I’ll step in. Otherwise, I’m going to put on some margins I can live with.’”
Heering believes competitors are following his lead, and margins in Mississippi are slowly inching upward.
In New York City, profitability has yet to return to pre-recession levels, according to Zaretzky.
“I don’t think we’re back to the margins and turning away jobs like we were prior to 2008,” Zaretzky says, “but things are moving.”
Types of Projects
Drywall contractors operating in the East report a variety of projects under way.
In La Crosse, Wis., strong sectors include hospital construction and pent-up school work, says Mike Poellinger, president and general manager of Poellinger, Inc. He also says that manufacturers that held off from renovating their facilities are starting those projects this year.
In Myrtle Beach, the hot project sectors include education, commercial, retail and hotels.
In New York, Zaretzky says his company’s interiors work in health care is stable. He says high-rise construction in New York City is “coming back online.”
The federal government’s economic stimulus package funded a lot of construction projects a few years ago. Instead of government work, however, Castillo sees more institutional projects and apartment construction currently under way in the nation’s capital.
“It’s multifamily, five-story, garden-style construction,” Castillo says. “Concrete podium on four or five stories of wood framing—half of a city block, an entire city block. That type of project is going crazy here.”
Labor Supply and Wages
Lately, labor shortages and rising wages are a common cry of complaint among drywall contractors. But the view on the ground does not always agree with voiced concerns.
In 2013, for example, it seems like some industry associations were up in arms about the potential shortage of labor in New York City. Did those concerns pan out?
“Nah,” Zaretzky says. “In unions where we’re signatory, people are available. It’s always difficult in an upturn market to get people to run the work, but we’re prepared.”
In Connecticut, labor is available for projects.
“There’s a lot of people willing to work. But the thing is, you’ve got to find work at the right price. It’s difficult to make a profit,” says Gosselin, who laments over Connecticut’s labor laws, annual registration and licensing fees and other taxes cutting into her firm’s profitability. Still, many areas in the East are void of qualified workers.
“I don’t ever recall it being like this, to be honest with you,” Allen says. “I would have never thought in this market [Columbus] manpower would have been our biggest hurdle, but it is.”
In Maryland, Aird agrees. “There’s a terrible dearth of qualified interested workers,” he says. “It’s so bad that last summer, I had to hire 12 guys on work release from [an area] jail.”
GCs Seeking Qualified Firms
With more projects under way, general contractors are beginning to focus less on low prices and more on quality construction. The result is a kind of competition for firms with know-how.
“GCs want the wall guys who are legit,” says Bonnell about Myrtle Beach. “We have EIFS insurance, so we’ve become appealing. The guys who don’t have what the GCs want have gone to other states.”
Allen says his firm can be more selective with projects in Columbus. “We’re actually turning work away,” he says.
Yes, this year drywall firms throughout the East are optimistic about business. Revenues are generally up, and the bids are beginning to support better margins. Still, in looking ahead an air of caution remains.
“We still have a lot of slow pay issues out there,” Poellinger says. “We have to be careful with how risky we want to be.”
Mark L. Johnson is an industry writer and marketing consultant.
