COVER STORY, JULY 2011

CONTRACTED MARKET
Despite tough competition and slow growth, contractors are finding business.
Savannah Duncan

Although contractors say the Southeast market is improving when compared to last year, the overall progress has been slow and competition for projects coming on the market has been incredibly competitive.

“Because there’s such a large supply of design and contracting services out there, the market has been extremely competitive,” Bill Finfrock, vice president of sales for Apopka, Florida-based Finfrock DMC, says. “Every professional in the construction industry is looking for work and so it’s been very difficult. People who don’t normally build our kinds of buildings are trying to do so because they are looking for something to do to keep busy. We ventured into other areas that we don’t normally do for the same reasons.”

Brent Reid, president and CEO of Winter Companies’ Atlanta office, says, “There’s a lot of competition in pursuing jobs. That really hasn’t changed, that’s been the trend for the past 2 or 3 years.”

Because of the over supply of contactors, Finfrock says customers have been asking for lower prices. “They know they have a lot of buying power right now,” he says.

“Some clients have asked us to finance projects, which we can do on a smaller scale,” says Rett Gunn of president of Atlanta-based Gunn Construction & Development. “Others are just asking for good quality work.”

“Top clients want free construction services now,” says Russ Hale, vice president of business development of Hoar Construction, based in the Birmingham, Alabama, office. “Years ago, we were able to charge for expertise and our knowledge of the market, but due to market conditions many customers are looking for free services. Most firms are building relationships and looking for good opportunities in the future.”

Commodity pricing is slowly rising, which contractors say has not had a huge impact on their business yet, but they are still nervous it could affect future projects.

“Unfortunately, we’re seeing rising prices in certain areas,” Hale says. “Inflation is coming from federal deficits. The price of fuel is driving up transportation costs and commodity prices for raw materials are slowly creeping up.”

“We’re not dealing with price increases like we were in 2006 and 2007 when pricing was through the roof,” Reid says. “My main concern is that it would be on the horizon, but we haven’t seen any dramatic pressure yet.”

Finfrock says his company was able to incorporate the commodity increases into pricing. “For the most part, we were able to dodge the bullet as far as it really affecting the contracts we signed,” he says. “That’s not to say that I don’t expect potential impacts in the future, but as far as the past, we’ve been okay.”

Some markets, such as healthcare, multifamily and higher education are seeing a small amount of improvement, while others such as office and retail have seen little to no growth.

“On a comparative basis, it’s improving from 12 to 18 months ago,” Reid says. “It’s still soft, but in some respects, it’s improving. There is a lot of institutional work out there, even though that seems to be slowing down.” 

Hale agrees that certain areas are showing activity. “The projects we’ve been seeing mostly are in the healthcare arena and educational institutions,” he says. “With the expectation of education [today] being that high school is not enough, there is a larger demographic group that views college as not an option, but a necessity.”

Reid says that Winter Cos. is working on a dorm renovation project at Georgia Tech in Atlanta. “The higher education market is still fairly strong,” he says. “It’s slowed down some but there’s still some education work that’s going to be coming in the next several months.”

Another property type showing activity is multifamily. Finfrock says, “80 percent of our sales are parking structure related, and all the projects we’ve signed recently are serving the multifamily market like apartments, student housing and senior living.”

In the next year and a half, Reid expects the multifamily market will show continued improvement because there’s a strong demand. “There are a lot of multifamily deals out there and, at least for the duration of the next year, the market will be fairly strong, and be overbuilt if all the deals that are out there right now get done.”

Office developments, on the other hand, seem to be at a standstill. “The office market is still dead,” Reid says. “However, the tenant interior build-out market is very strong. There are a lot of people that are moving around, getting great deals and having space built out.”

Hale says that there has been a small amount of retail business, but he doesn’t expect those projects to begin construction for a year or two.

Looking forward, there is an overall feeling that the market will continue to progress in the same languid way during the next year — better than last year but still recovering.

“We’re all at the mercy of lending institutions,” Gunn says. “Until lending institutions start offering more lending opportunities, we’re going to have flat-line growth. Not necessarily an increase, but not a slow-down either.”

Hale believes that the upcoming presidential election could be slowing progress. “People will take a wait-and-see because of the next election cycle and through the end of the year, there will be a lot of people on the sidelines,” he says.

Reid agrees that although there may be signs of resurgence, the market will continue to be the same for the most part because confidence is down.

“It may be incrementally inching towards improvement but there’s a major amount of uncertainty out there with the capital markets because of deficit and politics. People are still just sitting on the sidelines and don’t have confidence in the economy,” Reid says.

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