More than 150 construction customers, contractors and union leaders learned that while the economy poses real challenges for the industry, tools for developers and organized contractors exist to spur high quality, cost-effective construction as economic recovery ramps up.
Construction Summit #3: Quality Counts, sponsored by the Labor-Management Council of Greater Kansas City, filled the room at the Argosy Casino Jan. 29. It was followed by a luncheon benefitting the National Institute for Construction Excellence and honoring Sam Alpert, the Building Owners and Managers Association Kansas City chapter and the Heartland Apartment Association for contributions to NICE’s efforts.
The Summit addressed three key elements to economic development and construction opportunities: access to finance, tools to improve construction efficiency and quality and access to qualified construction workers.
“Where’s the Money and When is it Coming?” featured Kansas City Federal Reserve Bank President Tom Hoenig giving his analysis and forecast for the economy particularly as it affects the construction industry. He noted that the casino setting was an accurate one given the state of the economy and the events of recent years.
Hoenig was also a particularly appropriate person to address the construction industry since his brothers include a plumber and a project manager. The Kansas City Fed also completed one of the area’s major building projects in recent years and its advisory committee includes Garry Kemp, Greater Kansas City Building and Construction Trades Council and NICE, who introduced Hoenig.
After making national headlines for his position on the Fed’s key national issues, Hoenig forecasted “not a boom but a steady return to a normal economy” for the rest of 2010. Much of the federal stimulus money remains to be spent and recent “steady improvement sets the foundation for going forward,” he noted. Unemployment will come down though slowly. And Federal Reserve monetary policy, as well as federal fiscal policy, will continue to be stimulative “indefinitely.” Hoenig warned, though, that the current policy of zero interest rates is not sustainable. The eventual rise in interest rates, plus the impact of a continued large federal deficit, must be addressed, he said. But he also noted that if the deficit is reduced or interest rates are boosted too quickly economic recovery would be damaged.
Hoenig called for “shared sacrifice” and bipartisan approach to the deficit and to addressing Social Security and Medicare unfunded liabilities or “we have the growth we need for the next decade.” The good news, he said, is that the U.S. still has great advantages versus China and other economies: “market-oriented adjustments, the ability to build consensus and (economic) sophistication.”
Commercial real estate is challenged, he said, but not as severely as the crisis in the 1980s nor as severe as the residential real estate crisis now, which is worldwide. Properties with real cash flows may see a decline in values but “not as insane as in residential.”
Threats to continued economic recovery include, Hoenig, noted, a lack of private sector momentum once stimulus funds wind down and the enormous pressure on state government budgets including but not limited to California and possible federal responses. Yet he predicted that a double-dip recession is unlikely.
Hoenig particularly warned that continued bailouts and a removal of Fed regulation on banks would be counterproductive. He praised elements of the financial reform bill passed by the House but emphasized that there needs to be an orderly process for addressing failing institutions--a bankruptcy that wipes out stockholders but not depositors. He noted that Britain moved away from central bank regulation and “it was a disaster.”
Appointing Fed regional presidents through the political process would also be damaging, Hoenig said. Former Goldman Sachs CEOs have been appointed Treasury secretary by both Democratic and Republican presidents, and the enormous political expenditures by Wall Street firms would bring similar pressures to the Federal Reserve, Hoenig pointed out.
Building upon Hoenig’s remarks, Rockhurst University Helzberg School of Management Dean James Daley noted that economic change is inevitable. Daley also has a construction perspective, as board member and consultant to construction firms and a daughter who is an engineer. One change in demand for construction is the increasing use on on-line consumer buying--consumers shop in stores but then buy on-line. “Economists use the past as a predictor of the future, but that isn’t necessarily the case,” Daley pointed out.
Key to improving construction demand is improving confidence, he noted. “People are slow to change--there is a lag” between reality and perception. For example, while it is good news that the U.S. had 5.7 percent growth in the 4th quarter, is that real growth or primarily inventory resupply?
Kansas City’s economic future is its location near the physical and economic center of the U.S., Daley pointed out. The relatively low cost of shipping from Missouri and Kansas provides a great opportunity, such as the multimodal centers being developed in Johnson County and near Richards-Gebauer. If Kansas City continues evolving as a distribution center, particularly for the value-added pieces, jobs and demand will grow here, Daley said.
While banks are more constricted in lending, community banks not involved in the crisis are still looking for good loans, said John Blatz, vice president of Brotherhood Bank. Smaller and closer to local markets, community banks are focused on “pay as agreed” rather than on value of properties that may be foreclosed upon. Community banks such as Brotherhood do not want to foreclose, he pointed out, because their business is built on relationships and the strength of the local market.
Developers and contractors looking for financing can look to seven strategies to improve their chances, Blatz pointed out:
•Have /get a firm take-out commitment. Construction funding is temporary, so a plan that details exactly how the hand-off occurs to long-term financing is crucial. Look for agreements that eliminate loopholes in end-loan commitments.
•Have/get more equity. Yesterday’s equity levels won’t cut it today, but there are ways to get from the 10-20 percent level of the past to the 25-30 percent expected today such as subordinated debt used as equity, third party guarantees, strong participants and “best-of-breed” partners with a solid reputation.
•Remember that competence = confidence.
•Find the right banks(s). Know the bank’s legal lending limits, their “Sweet spot” for loan size, loan diversification and track record.
•Learn “bankers talk” to help sharpen your loan request package, show how you will maintain key measures and have a “Plan B.”
•Find help including strategic partnerships, joint venturing and mezzanine financing.
•Follow public funding including third party loan guarantees, public permanent lending, soft and hard 2nds, ECODEVO grants, tax credits and TIFs.
Regarding the seventh point, Blatz introduced Brent Myles, Wyandotte County Economic Development director, and Kyle Tucker, Frontier Financial, who explained how public programs are available from government economic development support to SBA financing. All three offered to help developers and contractors find every possible resource to help fund a worthy project.
Once financing is addressed, making projects as efficient, productive and safe as possible also helps the bottom line. Introduced by Don Greenwell, president of the Builders’ Association, four leaders from the J.E. Dunn Construction Co. headquarters project addressed tools used to make that project possible. The project shows ways to “use deal-making opportunities and to sharpen individual and industry tools”that can be crucial to making projects reality for all contractors and developers, Greenwell noted.
The project is reshaping downtown but also shows tangible benefits for owners and contractors. For example, using Building Information Modeling (BIM) and working closely with union contractors and union representatives on safety and productivity issues resulted in a 49 percent productivity hike versus the average project for J.E. Dunn.
Chuck Cianciaruso, a former J.E. Dunn executive and now with C & F Consulting, served as owners’ representative for the project. He outlined the significant challenges facing the downtown development preference of the company and how it worked with city, state and federal governments to acquire the land and address the company’s needs.
The issues J.E. Dunn faced are common to all firms in considering its facilities: enhancing productivity of the workforce, attracting talent and consolidating a spread-out workforce. J.E. Dunn also wanted to support downtown, learn how to use BIM effectively, show what a union workforce can do and achieve the highest LEED status possible, Cianciaruso said.
Cianciaruso noted that land acquisition was a challenge. The company accessed the city’s power of eminent domain but ultimately used its own funds to assemble not only the land for the project but to remove the blight in the surrounding neighborhood. By working closely with city officials, the goal was accomplished.
The LEED process, which is expected to assign a gold level to the project, was explained by Jenny Bloomfield, manager of sustainable construction. LEED involves both the construction process--such as recycling waste and using recycled materials, and the future operation of the building such as minimal use of water and energy. By using gray water systems, natural light and other methods the building will minimize use of resources as well as enhance the productivity of workers, Bloomfield noted. She added that many construction users are interested in either achieving LEED accreditation with their projects or using sustainable methods that are attractive to customers and workers.
BIM has been available for years but only recently has it developed to the point of showing a positive return on investment on the construction job, said Eric Hall, BIM director for J.E. Dunn. BIM “has the potential to redefine how projects get done” and is rapidly being adopted by major clients. Using BIM substantially reduced problems and increased the speed of many elements of the project, Hall said. He also noted that the construction workforce, both labor and management is getting older and that relying on the highly experienced craftsman to address problems on the site will not always be as easy as they move into retirement and are replaced by younger workers. Using BIM can help address problems before they get into the field, he said.
BIM was a key part of the design-build integrated delivery model used by the project, said Eric Floyd, vice president. Using the web to post documents and changes, document and address problems and build teamwork was also critical, Floyd noted.
The project required that all workers be certified with 10-hour OSHA training and that all supervisors be certified with 30-hour OSHA training. As a result, the entire project had just one lost-time accident and zero OSHA complaints in 300,000 man hours, 23 percent below average. Working closely with the craft unions and contractors on drug testing, OSHA training and other work rules was also key to the increased productivity, Floyd said. He added that having a large pool of skilled union craftsmen was also vital to the project’s quality and to meeting its schedule.
Maintaining that pool of skilled union craftsman is the result of $18 million per year in training paid for through payroll deductions, said David Kendrick, Greater Kansas City Building Trades Council business manager. The union apprenticeship programs not only recruit and develop skilled new workers but provide continual training for journeymen, he noted. These workers receive the CAD training and OSHA training, among others, that guarantee qualified workers to contractors and owners.
During and after the Summit attendees also visited displays from several training programs and the state of Missouri Department of Labor and Industrial Relations.
Kendrick pointed out that the pipeline of future workers is a critical issue. He explained the role of the National Institute for Construction Excellence (NICE), which is working with area schools to generate interest in construction careers while enhancing the math and other skills future workers will need. NICE currently sponsors the Crayons to CAD middle school program, the iBuild Showcase and is developing a high school program.
Support for NICE was recognized at the luncheon following the Summit. Sam Alpert, the Building Owners and Managers Association Kansas City chapter and the Heartland Apartment Association were honored for generous support of NICE programs. NICE President Rosana Privitera-Biondo, president of Mark One Electric Co., Inc., noted that such support is crucial to helping children find meaningful careers as well as providing the future workforce of architects, engineers, construction managers and skilled crafts workers. Alpert agreed and noted that the two honored organizations plus the Construction Users Council understand the need for NICE and are pleased to support it. Biondo also introduced Garry Kemp, interim executive director for NICE and recognized the work of past executive director Craig Wright.
The luncheon also featured remarks from Larry Rebman, director of the Missouri Department of Labor and Industrial Relations. Rebman noted his background as a member of Heavy Construction Laborers Local 663, work for the Boilermakers International Union and graduate of the Labor-Management Council’s Mid-Level Leadership Program as well as an attorney giving him an appreciation for the critical role of construction in economic development. He cited numerous initiatives of Gov. Jay Nixon and the department to spur economic development and speed key projects. The department also enforces prevailing wage laws and the recently-enacted requirement for all workers on public jobs to have OSHA 10-hour training, and provides free safety inspection for any Missouri business.
Rebman encouraged contractors, unions and developers to bring questions and suggestions to his department and to soon visit a newly redesigned department web site.
Construction Summit #3: Quality Counts was made possible by sponsors including:
Gold Level--Greater Kansas City Building and Construction Trades Council, Kansas City Power & Light Construction Management, Power Partners
Silver--J.E. Dunn Construction Co., Pipefitters Local 533
Supporting--Builders’ Association, MC Realty Group, Mechanical Contractors Association, Sheet Metal Workers Local 2, Teamsters Local 541, Turner Construction Co.
Basic--American Subcontractors Association, Boilermakers Local 83, Bricklayers Local 15, Howe & Co. CPA, Mark One Electric Co., Inc., SMACNA-KC, United Healthcare and Western Missouri and Kansas LECET.
Other supporters included Sprinkler Fitters Local 314.
The Summit planning committee included Rosana Privitera-Biondo, Mark One Electric Co., Inc., chair; Jim Delaney, Turner Construction Co.; Don Greenwell, Builders’ Association; Kevin Istas, Walton Construction Co.; David Kendrick, Greater Kansas City Building and Construction Trades Council; Payne Mendenhall, Western Missouri and Kansas LECET; Herb Millard, American Subcontractors Association and Labor-Management Consulting; Dan West, J.E. Dunn Construction Co.; and Tom Whittaker, J.E. Dunn Construction Co. Key event assistance also came from Troy Carlson, Initiatives, Inc., event master of ceremonies; Lyle Farrand, Teamsters Local 541; Garry Kemp, Greater Kansas City Building and Construction Trades Council and NICE; Sue Kemp; and April Ramirez, Mark One Electric Co., Inc.