2009: Optimism for Trying Times

Despite negative forecasts, Southeast contractors and designers are hopeful for a turnaround

By Debra Wood

Tight lending and a moribund housing market have deterred private commercial and multifamily development in the Southeast, but contractors continue to expect opportunities in the health care, institutional and public markets.

“I think [our new government] will pump a lot more money into the system, which makes more sense than sending everybody a rebate check,” says Tom Raney, senior vice president of R.J. Griffin & Co. in Atlanta. “Roads, infrastructure, government buildings have the green arrow.”

David Hayes, vice president of general contractor Wharton-Smith in Orlando, also expects the federal government will infuse some capital into infrastructure. “If the plan is to invest in the community and create jobs, we will do well,” he says.

And David Robertson, chief operating officer of Reynolds, Smith & Hills in Jacksonville, Fla., adds: “I’m hopeful we will see something coming out of Washington to help stimulate activity [in transportation]. We still have a challenging six months in front of us but beyond that, I’m hoping programs will return to a more normal state and [we will] have a stimulus package that will help put people back to work and overcome revenue issues states are facing.”

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Bob Burleson, president of the Florida Transportation Builders’ Association in Tallahassee, says that in addition to spurring employment, a stimulus package could help local governments and lead to steadier funding of transportation projects. “I hope we see that,” he says.

Mark Wylie, president and CEO of the Central Florida Chapter of Associated Builders and Contractors in Orlando, says: “This new administration has indicated a willingness to spend on infrastructure as a way to put money into the economy. Opening up areas and developing infrastructure is good for the commercial side of the business, so that’s a positive sign.”

Mike Dunham, executive vice president of the Georgia Branch of Associated General Contractors in Atlanta, adds: “We can document the need in roads, bridges, waters, buildings like schools and other government buildings of all types. You could put some money in circulation that would help the economy in a real big hurry on construction projects because of the multiplier affect of putting people back to work.”

However, Dunham says contractors are also apprehensive about what the change in leadership in Washington to the Democratic Party will bring to the regulatory environment and taxation.

Financial concerns

“The robust economy we have enjoyed the last three or four years has come up to a challenging market,” Dunham says. “About half our membership is happy with their body of work going into ’09 and can get all the way through the year with what they have in hand. The other half of the membership is concerned after the first quarter about what work there will be.”

John Cammack, Skanska USA Building executive vice president and area general manager in Tampa, expects construction activity to slow due to uncertain financial markets.

“We’ll see the market throughout the Southeast continue to slow into and possibly through 2009,” Cammack says. “Speaking in terms of Florida, we’ve been hearing how slow the market has been for several years here, but we’re busy.”

R.J. Griffin’s Raney says the credit crunch means that “developers cannot get any money. Access to funds is nonexistent. Hopefully, the banking deal will change it.”

Dean Gwin, chief operating officer of Gate Construction Materials in Jacksonville, says work is slowing but opportunities still exist. He adds, “Prisons, courthouses and hospitals, including private and VA [Department of Veterans Affairs], are strong, and the rest is a little bit of everything, with some school and university, a little multifamily in mixed-use projects, and hotels.”

Competition is stiff in higher education, health care and public work, says John A. Reyhan, Skanska area general manager in Atlanta. “As recently as a year ago, you’d see five to eight competitors in these sectors,” he says. “Now we’re seeing 15 or more.”

The expected decline in contract opportunities should lead to an even more aggressive bidding environment during 2009, says Gordon Knapp, vice president of preconstruction with Suffolk Construction in West Palm Beach, Fla.

“This is a year of really sharpening our tools for a highly competitive marketplace,” Knapp says. He adds that many of the company’s clients indicate ’09 will be a time of capital preservation until stability returns to the financial markets.

“Residential and commercial construction has been the hardest hit,” says Scott MacLeod, Skanska executive vice president and area general manager for the Carolinas and Virginia in Durham, N.C.

Gregory Peirce, senior vice president of Heery International in Atlanta, reports a lot of uncertainty in some sectors.

“We have seen some extreme changes in some sectors, residential particularly and anything that has a speculative nature to it,” Peirce says. “We’ve seen a real downturn in office and retail development.”

Millard Choate, president of Choate Construction Co. in Atlanta, agrees that the capital crunch will significantly impact construction opportunities during the coming year.

“2009 is going to be challenging, primarily due to the pullback in the capital markets,” Choate says. “Your usual source of equity investors has also constricted.”

Choate expects few office-building projects, although the company has a built-to-suit structure under way in Charlotte, N.C. He adds that second-tier cities are faring better than Atlanta.

Raney adds that in smaller communities, local people often are more willing to put equity into a deal to get it going.

Health Care, Institutional

In Atlanta, health care and education remain strong, but the future is in question, Heery’s Peirce says.

“Private institutions that get a lot of funding from endowments have been hit by the market, like everyone else,” he says.

In South Florida, Suffolk’s Knapp agrees that the health-care market will remain one of the most active. “We’re placing a tremendous emphasis on that,” he says.

Knapp adds that higher education also looks good, but state governments could cut back on building projects at public universities.

Bill Morthland, vice president and Southeast Division manager for Hunt Construction Group in Tampa, expects 2009 will be down from 2006-2007, yet some segments will continue to present good opportunities.

“Certain markets, like education and health care, detention and corrections may end up moving right along at the same pace,” Morthland says.

Georgia AGC’s Dunham also sees the health-care market as vital in the greater Atlanta area during ’09.

“Health care is always one that seems recession proof,” says Dunham, who attributes the growth to aging baby boomers and the desire of hospitals to keep up with other facilities.

Choate agrees that health care and medical office buildings will still go up in Atlanta, but says nonprofits may pull back due to fewer contributions.

Public Sector

“We’re seeing an emphasis on public work, both on the federal and municipal levels,” says Suffolk’s Knapp, adding that military construction with base consolidation continues as will VA projects. The VA plans to construct a new hospital in Orlando, for example.

Robertson reports sustainable levels of Base Realignment and Closure work at the Naval Air Station Jacksonville, Naval Station Mayport and Patrick Air Force Base in Florida, where facilities are being upgraded and space for new troops is being added.

“The [BRAC] money has to be spent by 2011,” Hunt’s Morthland says. “The federal money pumping in through the military facilities is pretty significant.”

FTBA’s Burleson says that Florida transportation contractors are not as busy as they would like. The Florida Department of Transportation has moved some highway projects up a few months to stimulate the economy but has not increased funding. The state also is using public-private partnerships to get roads built more quickly.

Across the Southeast, school districts are facing financial pressures resulting from lower sales-tax revenues and a more difficult market for selling bonds, which has prompted some to postpone projects, reports AGC of Georgia’s Dunham in Atlanta and Central Florida ABC’s Wylie in Orlando.

Civil construction will likely decline due to current financial conditions, too, though there should be additional opportunities in this market during the coming year.

“We continue to see a lot of bidding [on water and sewer projects], but we expect it will be slower in the latter part of 2009 because of changes in the municipal-bond market,” says Hayes with Wharton-Smith in Orlando.