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Although housing starts might dip somewhat this year compared to last, new home developments still should present contractors with a robust site-prep market in 2003. By Daniel C. Brown |
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"I think that housing is going to continue to be the strongest area of site preparation work in 2003," says Ken Simonson, chief economist for the Associated General Contractors of America (AGC). "And that will bring with it schools, libraries, and retail and religious facilities - all of which require site work. "And health-related categories are sure to grow strongly," Simonson adds. "A survey of employers shows that health-care costs are expected to increase by 10% per year, and some of that money will flow back into construction." Simonson notes that educational facilities showed strong growth in 2002. Public school construction rose 15% through September 2002. And private-education building construction jumped 11% in the same period. Simonson is concerned, however, that educational facilities in 2003 might not maintain their 2002 pace; he says declining tax revenues might hurt school construction. Industrial construction tanked last year. "I don't see industrial construction picking up for another nine to 12 months," Simonson said at the end of 2002. Before industrial construction can gain, factory output, capacity utilization, and manufacturers' profits need to rise. "So far the profit picture has been very mixed," Simonson says. "And it's a similar story with office and warehouse construction. The office vacancy rate is still climbing." Following the Money
In 2001, Los Angeles-based KB Home delivered 24,868 new houses. And its numbers are climbing. "We estimate that we'll do 25,000 to 25,500 homes in our seven states of the Sunbelt [by the end of] 2002," Jeff Mezger, KB Home's chief operating officer, said prior to December, "and right now we're estimating 28,000 homes delivered in 2003." As always with housing, location is the key. "We're continuing to see the coastal areas grow," says Mezger. "We see strong growth on the East Coast and the West Coast because there is a shortage of housing in those areas." A proportionately higher share of job losses has occurred in the Midwest and Northeast, Mezger says, but the housing market is expected to grow in the states where KB Home builds: California, Arizona, Nevada, New Mexico, Texas, Florida, and Colorado. "For our company, clearly Florida will be a big growth engine in 2003," says Mezger. "We're building in Orlando, Tampa and Jacksonville. For '02, '03, and '04 we see great home building opportunities for us in very solid Florida economies. And we continue to see growth opportunities in Texas. We announced a new division in the Rio Grande Valley - in McAllen - and we expect significant growth in 2003 in Houston." As evidenced by ballot initiatives in Colorado and Arizona, some voters are resisting high-density housing, Mezger says. Although lowered-growth initiatives were defeated in those two states, "there is some sentiment that those initiatives will come back in '04," says Mezger. "There is resistance by some homeowners to becoming as densely developed as California has." An Upbeat Forecast George Nolte is the CEO of Nolte Associates, a large civil engineering firm for which infrastructure design and community planning form a large share of the design backlog. Based in Sacramento, CA, the firm in 2001designed infrastructure - the grading, paving, drainage, sewer, and water works - worth an estimated $250 million. (That figure does not include bridges or treatment plants.) Nolte reports that his site work last year showed no growth over 2001. "In 2003, we see about 20% growth in site work. It will come primarily from the private sector, and most of it is housing and housing-driven." Nolte designs projects in California, Colorado, Utah, Nevada, and Mexico. "This 20% prediction is based on what our land-developer clients are telling us," he says. "It's pent-up demand, primarily for entry-level housing. The high-end products are not doing well in any area. "In California we see growth in the Inland Empire - Riverside and San Bernardino Counties. And it's in the counties in the Central Valley - Sacramento, Placer, Fresno, and El Dorado. In Colorado it's the Front Range, from Colorado Springs to Fort Collins." "We do quite a bit of work for large-scale projects," continues Nolte. "Large-scale projects can produce a better array of [building] products than, say, a homebuilder who buys 10 acres and puts 40 homes on it." A large community development can convert the plan from, say, single-family homes to townhomes to adjust to economic conditions, he points out. Nolte says new homes are not overbuilt now, as they were at the end of the 1980s. "Builders get pretty smart. One of our clients told us he won't work with any firm that wasn't in business before 1990 through 1994. Those were five tough years in this business; you had to be good at it to survive." "A Better Year" "This year is going to be a better year for site work," predicts Steve Massie, vice president of Jack L. Massie Contractor Inc., an AGC member in Williamsburg, VA. The firm averages about $6 million of site construction annually. He says retirement community work, medical facilities, and commercial construction will produce new site construction business this year. Last year site construction was down for Massie, which works the area around Williamsburg. Typically the firm does the clearing and grubbing, excavating and grading, storm and sanitary sewers, and water lines. Concrete work and paving are subcontracted. Of the firm's general contractor customers, most prefer to let one site work contract to Massie, which offers single-point responsibility. "If a large regional or national owner comes in to build, they may break up the site work into different subcontracts," Massie says. "But local general contractors here prefer to have one site contractor control everything." With some general contractors and owners, Massie negotiates prices for site construction rather than bidding for it. "After going through the bidding process and doing some initial work for them, the relationship developed to the point that we negotiate with them for the cost of our services," he relates. Not everyone thinks housing and land development will climb the charts this year. "We think 2003 is going to be slower," remarks David Levey, executive vice president of Forest City Enterprises, a $4 billion real estate developer. Based in Cleveland, OH, Forest City is doing the Stapleton Redevelopment Project in Denver, CO: a 2,935-ac. mixed-use development at the former Stapleton International Airport (see sidebar). "While lower interest rates have helped the industry, the indicators we watch are not positive and we're concerned," says Levey. "We're concerned about employment, about the stock market, and about the rate of job creation." Jason Acree is a project manager for Atlanta-based Post Properties, which builds apartment projects in cities including Dallas and Houston, TX; New York City; Denver; Tampa, FL; and Charlotte, NC. "We only have one new start for next year, and it's in Washington, DC," says Acree. "Multifamily housing is pretty soft across the country. Normally we could average four or five starts per year." Site work was slow in 2002 for Peterson Contractors Inc. (PCI) of Reinbeck, IA. The firm averages about $30 million of site construction annually. "We supplement our public works construction with the site work," says Todd Peterson, an executive with PCI. "We've been lucky to have a few larger-site jobs, so our volume hasn't been totally decimated, but the number of projects and the number of larger jobs have gone down. "You have to be kind of a chameleon to do site work," he adds. "You've got to go with whoever is building." Peterson, who is chairman of AGC's Site Work and Grading Committee, says his AGC involvement keeps him in touch with general contractors. He is also on the board of directors of AGC of Iowa and is on the Associate Member Committee of the Master Builders of Iowa. One key to success in site work is to make yourself invaluable to general contractors, to be an idea resource for them, notes Peterson. "We've got great equipment and great people, but everybody's got Caterpillar equipment and Manitowoc cranes. You want to set yourself apart. You want a general contractor or an owner to think, "I need to use PCI; I can get some ideas from them. I can tap into their brainpower and expertise if I get into problems on this job. PCI could help me turn it around.'" Frequent contributor Dan Brown is the owner of TechniComm, a communications business based in Des Plaines, IL.
GEC - March/April 2003
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