Deregulation “is a dirty word because that’s what got us here to begin with,” affirmed Jeff McMahon, a partner at RED Development, “but I agree, banks are being over-regulated now.” He cited, as an example, a project in Blue Springs with great tenants lined up that would have had 10 or 15 banks standing in line two years ago. This time, however, developers have had to call 50 to 60 banks to find one willing to participate.
Scott Vath also cited the banks and the lack of lending. “There is minimal private money out there for the private work,” he noted. “So that leaves the rest of us all scrambling for the public work, and that’s what is driving the margins down and shrinking everyone’s backlog. There is just not enough out there.”
Shane Lutz concurred that there needs to be a liberation of work in the private sector. A shift to public-sector work necessitates a shift in training, planning, and other time-consuming processes. “Everyone is scared of moving,” Lutz observed. “They are scared of lending, building, and we are at a stalemate.” For Black & Veatch, the uncertainty on greenhouse gas regulation has caused problems. “People aren’t planning for anything right now,” said Mike Orth, “because they don’t know where [the regulations] are going.”
Not all was gloom and doom. Grover Simpson, president of Lockton Companies, told of one “success story” in area of transmission and distribution. There is considerable opportunity in getting alternative power—wind, solar, hydro—transmitted into the grid. He sees an opportunity also in high speed rail.
“I’m not sure I want to declare victory with anything that is going on in Washington right now,” Simpson cautioned, “but if there is a silver lining, those are two areas we’ve seen significant projects for our clients. “
“Federal and public work is really keeping us afloat,” attested Don Greenwell. He expressed concern over the proposed budget that would cut federal building by 20 percent. “To pull that money out of building is a big mistake right now.”
Sector Reports
Carl Privitera surveyed his colleagues on the various sectors of the building industry and what they saw as their prospects for the next year or two.
Health care, as Dan Euston noted, is suffering a comparable problem to the energy field: congressional uncertainty. Providers don’t know what reimbursement is going to be, and until they do, they are hesitant to build. There are, however, “some huge mega projects” afoot, but everything else is niche.
Mitch Hoefer sees more activity in the for-profit health care sector. HCA, for example, is plowing ahead with major projects. Rural hospitals are also building, but in large urban hospitals, it is likely to be mainly renovations and niche projects.
Privitera wondered whether there was any work going on at all in the manufacturing sector, such as construction for plants to produce batteries or wind turbines, or in food processing. “Some of those projects unfortunately are going to out-of-town general contractors,” said Vince Migliazzo. “Not only do we have to fight amongst ourselves for projects in Kansas City, but we have to deal with others.”
As Privitera noted, the utilities are constantly upgrading facilities and lines, the Iatan 2 Power Plant in Weston being a prominent example. “So there is a decent market there for people.”
On the renewables front, said Mike Orth, some major wet-weather projects are coming to Missouri. There also seems to be a big push on the energy side—hydo, solar, wind farms. “There are businesses starting to grow up around those industries,” he added, “but certainly not the number that are being displaced currently.”
Augie Huber expressed some reserve about the renewable movement. “Wind energy isn’t really a economical solution now and probably won’t be,” he observed. “You can spend 10 percent of your building budget on energy improvements and be far more effective than putting in solar panels or turbines.”
Pushing Through
Grover Simpson has been around long enough to put current problems in perspective. “There is a whole generation of employees or associates out there today who have never been through the difficult times of the construction industry and gosh knows, the layoff and cutbacks have been emotional and painful,” he noted, “but there are a number of CEOs that we visit with who say we’ve come through five or six years of the most robust time we’ve ever had in the construction industry.”
“While top-line revenues and the corresponding margins aren’t were they were two or three years ago, they are still equal to what they used to be four or five years ago, and a lot of these companies are still very healthy, successful, thriving businesses in our community.”
Said Simpson, “This is a cycle we have to push through.” 
Return to Ingram's February 2010