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CONSTRUCTION KNOWLEDGE BLOG

February 9, 2010

Unemployment Drops under 10% but nears 25% in Construction
Filed under: Industry outlook — Tags: — nedpelger

A recovery of sorts seems to be happening in America. With unemployment dipping below 10% for the first time in months and factory orders increasing at a faster than expected rate, we have some reasons for cheer. This surge in factory orders bodes well for an economic turnaround.

Construction, on the other hand, acts as a lagging indicator and the pain we now feel doesn’t seem likely to get better in the short term. ENR noted that the construction industry unemployment rate hit 24.7% in January, the highest since February 1983.

I was standing in an unemployment line for a couple of weeks just about exactly 26 years ago and it was unpleasant. For those of you in that situation, I offer some of the best wisdom about construction industry trends I’ve ever heard:

“When things are good, they aren’t nearly as good as they seem and when things are bad, they aren’t nearly as bad as they seem.”

Finally, keep in mind that everything is relative and depends on your attitude. This Russian proverb sums it up:

“The church is near,
but the road is icy.
The bar is far away,
but I will walk carefully.”

CONSTRUCTION KNOWLEDGE BLOG

December 24, 2009

Banta Tile: A Cautionary Tale
Filed under: Industry outlook,Uncategorized — nedpelger

Banta Tile and Marble installs some of the best looking stone in our region. They put the granite counters in our home kitchen. I’ve enjoyed working with them since I started in the business in 1981. They started in 1929.They are a good solid company who does excellent work.

Now they are no more. Lancaster Online reported that a US District Judge just signed a writ of execution for $2.9M for Local 5 of the Bricklayers & Allied Craftworkers against Banta. The immediate reaction, of course, is for Banta to declare bankruptcy and shut down the company. Their payroll of up to 50 employees now will look for other things to do.

Apparently Banta worked on a couple of union projects years ago and signed contracts without paying too much attention to some of the clauses. Almost anyone who runs a construction company has rushed through contracts at times. These clauses, apparently, required Banta to continue to pay into the Local 5 of the Bricklayers & Allied Craftworkers pension program even though their employees weren’t members of the union and would never collect.

Frankly, I wouldn’t have thought that sort of thing was even possible, much less legal. The law, though, need not follow common sense.

I remember working for Cal High of High Construction in my early days as a PM. We were exploding with growth and always promised quick completion schedules. I couldn’t find the construction craftsman to get our commitments met and told Cal we could just get some fellows from the union hall. Quickly he squared me up about that step having many consequences beyond my immediate needs. He told me to figure out another way and I did.  As I read about Banta Tile today, I realized I’d received yet another great lesson from Calvin G. High.

So the take-away on this piece? No matter what you do in construction, don’t rush into contract agreements without understanding the potential consequences.

CONSTRUCTION KNOWLEDGE BLOG

December 5, 2009

19.4% Construction Unemployment in November
Filed under: Industry outlook — Tags: — nedpelger

Last year the November unemployment rate was 12.7%, but ENR just reported we are now at 19.4% for construction unemployment. That’s about 1 in 5 construction workers now out of a job. That sucks.

It’s difficult to see what 2010 will bring. Lots of the Owners I work with are considering pulling the trigger on new projects, but wary of the economic recovery. The ability to procure construction financing also keeps some projects from starting.

The ENR article also noted that the federal highway and transit spending looks to decrease about 20% from 2009 to 2010, due to all the stimulus money in 2009.

Let’s hope the entrepreneurial spirit that made America strong will kick into gear. Then Owners will see opportunity outweigh fear and take the risk to move forward.

CONSTRUCTION KNOWLEDGE BLOG

October 3, 2009

Unemployment at 17.1% for Construction
Filed under: Industry outlook — Tags: — nedpelger

With a 1.5M US construction jobs lost in the past 2 years, ENR just reported that the September 2009 unemployment level is 17.1%. The August level was 16.5%, so that’s a substantial jump.

The federal government claims the Stimulus funds have saved or created 122,000 construction jobs. So the Stimulus helps a bit, but what we really need is a functioning economy that demands facilities in which to live, work and pray.

In my own microcosm, we are busy and work keeps coming in. I’ve anticipated a big economic downturn for the last 20 years and tried to be prepared for it. While studying the Great Depression, I realized that the 20% unemployment rate meant 80% were still working. I determined that I wanted to position myself to be one of the working 80%.

To try to accomplish that goal, I’ve run my business with 3 simple guidelines:

  1. Keep overhead low, pay attention to costs all the time
  2. Stay near the bleeding edge with technology innovation
  3. Deliver fantastic customer service

Of course I fail at all those from time to time, but strive to keep them in focus.

If you are out of work, don’t expect a quick fix turnaround. It is a tough economy and construction recovers slowly. Time will pass, though, and things will get better. Remember the words from a wise old contractor, “When it’s good, it’s never as good as you think, and when it’s bad, it’s never as bad as you think.”

Start now to position yourself for a better future. Read some challenging books, go to the library, develop a plan for becoming who you are capable of being.

Then take some time to consider some people who are truly suffering, like the flood survivors in Philipines. A couple photos I found made me smile as I thought about people’s ability to smile in the face of struggle.

flood_powerlines

By the way, why is it always boys that do things like crawl up on the power lines?

flood_pig

CONSTRUCTION KNOWLEDGE BLOG

July 29, 2009

Caught in the Vegas Bust
Filed under: Industry outlook — Tags: — nedpelger

Las Vegas, like many of its visitors, goes from boom to bust fairly often. It’s a gambling town and people (developers are reputed to be people) have a tendency to push all their winnings back on the table for the next roll.

This Wall Street Journal article describes how the boom-to-bust affects workers and businesses. In a nutshell, Las Vegas bet big on both tourism and business conventions. The current economic malaise botched both bets.

The $3.1 billion Fountainebleau project, for example, went into bankruptcy last month. ENR states that the project sits vacant at 70% completion with lawsuits piling up. The Bank of America estimates it would take $1.5 billion to complete the project and the finished value would be only $1.8 billion. So the 3,300 construction workers who were on that site in the Spring aren’t likely to be coming back. The 3,400,000 sf casino, hotel and retail complex seems destined to sit empty for a long time.

Failures like the Fountainebleau go beyond my cognitive abilities. I just can’t understand the scale. Neither do I have any sense of how a project like that eventually gets untangled. I can’t conceive of the final project resolution.

The $8 billion Las Vegas City Center project, on the other hand, seems to be likely to be completed this year. Projected to employ 12,000 people, it will help the local economy. The additional 500 hotel rooms inserted into the market will probably further drive down the daily rates.

The graphic below from the WSJ article show the many projects that are stumbling.

Las_Vegas_2009_project_status

So if you’re working in a market that’s taken a hit, but not fallen off the cliff (like Las Vegas), you should probably take a moment to look on the sunny side. Always on the sunny side.

“Keep on the sunny side, always on the sunny side,
Keep on the sunny side of life.
It will help us every day, it will brighten all the way,
If we keep on the sunny side of life.”

CONSTRUCTION KNOWLEDGE BLOG

July 15, 2009

The Biggest Construction Boom to Bust
Filed under: Industry outlook — Tags: — nedpelger

It seems Dubai, in the United Arab Emirates, may have the dubious distinction of the biggest construction boom to bust. Just a year ago, Dubai was growing and building at a rate that was probably beyond any in history (I’m guessing on that). The world’s tallest building, and not just by a little, was going up along with hundreds of other buildings and a few man-made islands.

The global financial crisis hit Dubai hard. Most of the construction stopped and the property values are half what they were at this time last year. The Economist has an article The Perils of Autocracy that provides some great insights into the status. They state that the outstanding debt level isn’t clear. The ruler of Dubai, pictured below, doesn’t have to be forthcoming with the numbers because, well, he’s the Sheikh.

Dubai_ruler

Guesses on the debt run from $80 billion to $120 billion. Lots of construction companies haven’t been paid.

The completion date on the Burj Dubai (world’s tallest building) remains fluid, though a news release today claimed a December 2009 opening. Most construction activity in Dubai has ceased, though, and no one knows what the next steps will be. The Economist article quotes a Western banker who blames the Dubai leaders for taking far too long to recognize the coming crisis. I love his quote, “They were splashing about in the water when they should have been swimming across the channel.”

CONSTRUCTION KNOWLEDGE BLOG

July 3, 2009

Time for a New Sensibility for Stadiums and Arenas
Filed under: Industry outlook — Tags: — nedpelger

The New York Times has an excellent article about about the financial struggles of all the new sports stadiums in the greater NYC area. With new ballparks for the Yankees and the Mets showing many empty seats on their TV broadcasts, the various new stadiums and arenas look to have saturated the market. There are only so many corporate sponsors, luxury box buyers or even fans that will be participating.

The developers and local government push for the prestige of these projects. Those of us in construction appreciate any project we get to build. Yet how do these projects get designed, funded, approved and built when the market seems to say no?

I think the private-public partnership can be a very good thing, but also a dangerous market distortion. When public money flows into these projects, or public guarantees back the bonds, poor decisions often follow. Too often the developers that propose the projects manage to get their fees in ways the public bodies simply aren’t sharp enough to catch (not illegally, just lots more cunning).

I remember when a big bridge contractor won a local huge roadway project and had a major dispute with the PA Dept of Transportation (PennDOT). The story goes that contractor noted that the project was headed to litigation. The PennDOT guy said, “We don’t care, we have attorneys on staff to handle it.” The contractor said, “Yes, well, we have attorneys on staff as well, but our attorneys went to Harvard.” Well, the litigation happened and PennDOT got shellaced. Which means the PA taxpayers paid their bill.

As these public/private partnerships occur, the public bodies need to be more cautious about the endgame. As much as we love building them, some of those projects shouldn’t get off the computer screen.

CONSTRUCTION KNOWLEDGE BLOG

June 25, 2009

Brutal Bidding Market
Filed under: Industry outlook — Tags: — nedpelger

When people ask how I’m doing, I tell them I’m swamped with work, busier than I’d like to be. I’m hearing that’s not too normal these days (not that I’ve ever shot for normal). I read an article in ENR this morning that was sobering.

Last year in late Spring, the commercial construction sector was in decent shape, this year we are in a deep recession. Unemployment, led by the many laid off construction workers, tops 10% throughout much of America. The public bid jobs that are coming out via the stimulus money show a crazy level of competitiveness.

For example, an airport terminal replacement in Utah drew 50 GCs. 20 to 30 bidders are common on projects. ENR reports that a fire station in Arizona recently bid for $2.2M while a similar project two years ago went for $3.8M.

That sounds like great news for owners, and it is with an important caveat. Owners need to be extremely careful about who they select to do their work. I experienced a fairly major construction recession in the early 1980s and many contractors went bankrupt.

When a firm struggles for their life, they will do almost anything. Lying, cheating and stealing all far into the range of behavior to expect. When the sub or the GC goes under, the owner will certainly get caught in the current. After a number of subs going bankrupt, we found that a 25% hit on the contract amount was typical to get it worked out and completed. We learned some brutal lessons in those days and lots of folks are going to be learning those lessons again these days.

Good luck. Be careful.

CONSTRUCTION KNOWLEDGE BLOG

May 26, 2009

What Goes Up…
Filed under: Industry outlook — Tags: — nedpelger

Those of us that make a living designing or constructing buildings may be interested in a recent ENR article about US skyscrapers selling at incredibly cheap prices. A 40 story tower in NYC (1330 Avenue of the Americas) just sold to a Canadian pension fund for $100,000. Three years ago that building sold for $500M. The owner defaulted on his $130M bank loan for a building located near the Museum of Modern Art, Rockefeller Center and Central Park. The Canadian pension fund held that $130M loan and agreed to take over the rest of the mortgage payments in hopes of avoiding a total loss.

While this example amazes, plenty of tall buildings around the country are selling at incredible prices. Tenants leave, developers can’t find new tenants or loans to cover the shortfall and the properties go into default. With the lack of financing options, one source compared it to a scenario if all houses had to be paid for in cash, with no financing available. The prices of houses would plummet, because so few buyers would be able to purchase. The supply of houses would be huge and the demand would be tiny, thus the prices would free fall.

Many industry sources think the next 12 months will see this scenario play out in the commercial real estate market. If it does (if the government or the market are unable to help create a sense of confidence for the banks to loan again), then we may be in for a rough ride for a spell.

We may be wise to pay heed to what Winston Churchill said about World War II in 1942, “Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

To end on a more upbeat tone, though, I’d like to share this article in the NY Times Magazine that may encourage you in the career choice you made.

CONSTRUCTION KNOWLEDGE BLOG

April 22, 2009

"The Sort of Project God Would Build, If He Had the Money."
Filed under: Industry outlook — Tags: — nedpelger

When TBW and I were in Las Vegas a few weeks ago to see the World of Concrete exposition, we stayed at the Bellagio Hotel. Next door, MGM Mirage is building, “The sort of project God would build, if He had the money,” according to one of the casino competitors quoted in The Economist. The $8.6B City Center project circles the drain, perhaps to become one of history’s great design and construction failures. Dubai  World is a joint venture partner and has sued and refused to provide the next $200M payment.

The Fountains at the Bellagio Hotel

The Fountains at the Bellagio Hotel

I’ve written about this project before, the concrete crews changed some rebar layouts in the foundations and the building inspectors claim the construction inadequate. They all compromised by changing from 80 stories of condos to 40 stories. I can only imagine what that does to the pro forma.

Many of the casinos expanded, believing that Las Vegas was immune to the effect of an economic downturn. Turns out, they aren’t. The gambling revenues fell 10% last year and look to continue to decline this year. With lots of vacant room now, the City Center project will expand that glut…if MGM Mirage avoids bankruptcy, actually gets the financing done and opens the facility.

City Center Cranes

City Center Cranes

In a classic construction management dispute, Dubai World claims in its lawsuit that construction costs have spiraled out of control. MGM Mirage claims all the budgets have been approved by the partners. As in, “Oh, did you expect me to look at that when I signed it?”

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