We’ll slog along the bottom for a while. That was as good as an assessment as any about the local construction economy given by a panel of experts at today’s BUILDEX Express event in Seattle. Moderated by Tom Zamzow of Granite Construction (and President of AGC of Washington), the panel included Gus Gottschalk of Lydig Construction, Greg Porter of Berntson Porter & Co., Gregory Steinhauer of American Life Inc./SODO Builders, and Brian Vance of Heritage Financial Corp & Heritage Bank.
None of the panelists were at all bullish about the local scene for the near future but they did offer some reasons for medium and long-term optimism (more on that in a minute).
Each had their own favorite indicator that they follow to let them know the tide is turning. Gottschalk cited architecture and engineer activity. “Are architects and engineers getting busy? I’m not seeing it,” he said. The recent AIA Billings Index report bares this out: although the national index in September reached positive territory for the first time since early 2008, the index for the Western US was still negative.
Vance follows the unemployment rate and home values. “When they show sustained improvements, then we will have turned around,” he said. “But I don’t see improvements in them until the second quarter of next year at best.” Seattle home values recently backslid after rising for a bit, and they are expected to fall some more, according to Standard & Poor’s/Case-Shiller. And, added Steinhauer, dealing with troubled properties is a prerequisite for improving the real estate market.
Now the silver lining: Location, location, location. The panelists were unanimous that the Puget Sound region is well positioned for future growth. As evidence of the confidence that the rest of the world has in the region, Vance noted that his local Heritage Financial Corp attracts big investors like Goldman Sachs not just because of the bank itself, but also because the investors believe in the Puget Sound region and its long-term opportunities. Likewise, Steinhauer said his firm attracts many foreign investors for the same reason. Porter noted that many out-of-state businesses of all types are looking to open local offices or to buy or merge their way into the region.
(Note: panelists warned that the area could lose one of its business-climate advantages if the income tax initiative, I-1098, passes.)
When the topic of the environment came up, the panelists considered it a double-edge sword for the construction economy. On the plus side, the general green building ethos was considered a positive thing for society, and an opportunity for contractors. “We believe it’s vital to our business,” said Gottschalk. “If contractors don’t embrace green building, they will be on the outside looking in, as most buildings will be LEED.”
Porter noted that there are lots of tax credits and deductions for green building. He gave an anecdote of a business that left $2 million on the table because it had missed these deductions. “You have to make sure to take advantage of the things that are out there,” he advised.
The panelists generally agreed that green building has matured, and that any extra costs associated with it are now negligible, aside from the LEED Platinum designation (think grass-covered roofs).
On the other hand, environmental regulations – or more specifically, the expensive, uncertain and time-consuming processes that they invariably and needlessly engender – are a definite drag on the state’s construction economy. “Projects don’t happen because of it,” Gottschalk said flatly. Zamzow cited the vast number of agencies involved in the permitting process, and the ability of individuals to use the process to delay or stop projects for political, not environmental, reasons. “We once spent $15,000 to prove water runs downhill,” he said.
Streamline the permitting process, and you will have provided a big stimulus to the local construction economy.