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CEO Roundtable: Construction

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Is the construction industry back on track following the recession? To find out, Springfield Business Journal Editorial Director Eric Olson sat down with Butler, Rosenbury & Partners Inc. President Geoffery Butler, Q & Co. LLC President Rick Quint and Colvin Jones Davis LLC principal Ryan Jones.

Eric Olson: How would you characterize the construction industry in one word?
Rick Quint: Cautious.
Ryan Jones: If I had two words, that would have been one of them, but one word is steady.
Geoffrey Butler: You guys are taking all the good words.
Jones: It’s hard to say a word like steady because of some of the small bumps and dips we have, but at the moment I feel steady.
Butler: I think the only other thing you can put to that is conservative. There is nothing going wild and crazy.

Olson: I’m going to lay that term, conservative, next to the regional bidding forecast the Springfield Contractors Association has been doing. The most recent was 115 projects worth more than $388 million through this fall. Are those numbers conservative?
Butler: Depends on where they came from and what they included.
Quint: Where those numbers come from is primarily government entities. There is very little private work in that.

Olson: About 10 percent? Maybe 15?
Quint: I don’t remember the percentage, but it’s pretty small of what’s really out there. There are projects you can’t let the public know about because they are still a dream. Whereas, (Missouri Department of Transportation) or City Utilities, doesn’t announce a project until it’s funded. School districts, for example, we can ask what their plans are and they say they have two projects. We talk with the architect and they say, depending on what the bond issue is, they may have six projects. They don’t want those six projects published. The last thing they want is the voters to say, “We didn’t approve it, how are you announcing these six projects.”
Butler: They get harassed. They say they are thinking about an addition and all of a sudden 18 architects swoop in on them.
Quint: I think some of the public owners have to be conservative. We do that in September, October, and there are a lot of bond issues that happen in the spring. That could double or triple what a school district does.

Olson: So, best guess of the private side of that pie?
Quint: You are just getting a sliver of it.
Butler: There are so few private enterprise projects they project out that far. They decide to do something, then they do it.
Quint: They keep it close to the vest. The bank might know, but they aren’t talking to us.
Butler: On that list of projects, not all come to fruition, too. The industry is strong, but when you are trying to look forward, that is just crystal ball stuff.
Quint: There was a time when there was enough work and people were concerned about manpower. Owners were more open and wanted to get their project out there on the radar. Today, their attitude is there isn’t enough work to worry about; when I say I’m going to build something, everybody is going to run to my door.

Olson: As best as you can tell going into the fall, are these 115 projects coming to fruition?
Quint: Based upon where that list comes from, I would say most all of them are happening because they were government money.
Butler: The majority are in design at this point and will hit the streets shortly. There is a gestation period on projects.

Olson: I drove through Rogersville and saw the highway interchange work being done. That must have been on that list.
Quint: That was a big one for MoDOT. MoDOT can tell you the time and date.
Butler: They have funding identified before the project goes through. It’s just like the capital improvements tax, there is a schedule for Public Works. Once that quarter-cent passes or re-ups, they just start clicking down the list. That’s a sure thing.
Jones: Those projects have been known for several years.
Quint: On the private side, a good example would be Cox hospital. We all knew it was going on, the tower cranes were up and they were building it, and you could talk to the people at Killian and Beck they would say pick a number. Maybe there was still $60 million in work to bid, but Cox didn’t want to say what the value was. You have to say, “Do we just ignore this work or do we somehow put together a guess?” We take a gamble as a group.

Olson: There is that much turnover?
Quint: A project can die within a year.
Butler: A lot of your projects last a long time. In the architect business, a lot of our projects are front-loaded. In three months, we will get the majority of our fee. Then, the last 20 percent will be during the construction period, which takes 12 to 14 months. When we are trying to plan our business, we’ve got this great big bulb of money then a tail. We don’t know where these chunks are any farther out than about three months.
Jones: We are even more on the tail end of Geoffrey. We work for architects the majority of the time. We don’t even know about things that they know about last minute. We are even more last minute last time.
Butler: A lot of our consultants, we just tell them it’s out there, but we can’t tell them when.
Quint: Business development, in my opinion, takes 18 months in the construction industry. By the time you hear somebody might be building, to the point where we can actually build, less than 18 months is an exceptional project.

Olson: Reading between the lines here, the public construction market is leading the industry locally?
Quint: I think it’s fair to say the public side was the only thing that existed for a couple years.
Butler: The last five years, it was the strong part, but private enterprise is coming back.

Olson: It just hasn’t caught up yet?
Quint: No, no, no. It’s nothing like it was in the late 2000s.
Butler: There is no speculation. In the last five years, the only thing built on the private side was something the businesses had to build to handle their business.

Olson: Digital Monitoring Projects is a good example of that. They just announced a $7 million expansion because they have business behind it.
Butler: SRC is notorious for it. They are building these businesses, and they just have to accommodate them.
Quint: If you look at some of the work we have done lately for SRC, it was to consolidate one business unit from five different buildings.
Butler: There is nobody developing empty warehouses for manufacturing. There is nobody developing dirt to build on. That is our biggest problem here. The industry is subject to what’s available to build on.
Quint: Another thing is, in this community, inside the loop, what’s left to develop is left for a reason. It’s the Hy-Vee sites and they are tough.
Butler: They have hair on them.
Quint: They do. It takes a lot of sweat and hard work to make them happen. People are cherry-picking and taking the easy ones, but they are gone. That hurts our community right now. The public isn’t helping us with some of these projects. We get a lot of bad press as a community. I understand the public has a right to their opinion, but it’s tough to develop in Springfield.
Butler: We have a doughnut around the community of estates. There are five- and 10-acre pieces of property around the perimeter of the city limits developed over the last 30 years. That is constraining everything within. The utilities virtually can’t get across, outside that doughnut, to the other developable land. You have to go though somebody’s estate. The big thing Springfield is going to see is redevelopment of areas like the Walmart at Grand and Campbell.
Quint: And across the street.
Editor’s note: The CEO Roundtable is held at The Bank of Missouri, 2360 E. Sunshine St. The former Regal Beloit Corp. building, which closed in late 2014, is across the street.
Butler: Knock that sucker down. You say, “Wait, it’s a perfectly good building.” Yeah, but it’s 50 years old and the property is worth more than the building.

Olson: Thinking about increasing the development footprint in Springfield, how do we break through?
Butler: We are constrained. The city limits stop at those places, particularly east and southeast. Our footprint can’t change.

Olson: That’s the other side to it, zoning changes within that doughnut.
Butler: We need a new zoning ordinance. The one we have now sucks. It’s Band-Aid, after Band-Aid, after Band-Aid, after Band-Aid. It’s set up for greenfield development, and we have no more.

Olson: How can it be tweaked?
Butler: You throw it away and start from the ground up. Right now, it’s set up with all these restrictions, like the perimeter landscape requirement, the green-space requirement, the interior parking lot landscaping requirements, the height limitations, the bulk plain. You go to Beaverton, Ore., and their building setback is reversed. They have a set forward. You basically have to be on the property line and as you go back there is penalty. That’s wasted land. They did that to preserve the green space around the community. They want as much density inside their footprint as they can get. They got rid of parking requirements. They said we have a light rail within a mile. You put in whatever parking you think you need and you can afford. We need to take a look at our requirements. If you are putting in a grocery store, you know how many parking spaces are required. Let the developer and user decide.

Olson: Might an ordinance change temper some of those thoughts?
Butler: Oregon is a whole different mentality. Those are green people. They made a decision on the value of the beautiful countryside around (them). They wanted to maximize density. Maybe that’s what we have to do here, get denser. Land is scarce. God quit making it quite a while ago.

Olson: According to national statistics, there were building increases in every sector except one last year – communication-related construction is down.
Butler: A lot of those increases are just pent-up demand. In 2008, the bank shut it down on things like hotels. They said, “No more.” They didn’t start opening the taps until the last two years. For five years, all of the franchisors were saying we have upgrades and a new face. They would go to their franchisees and say you have to do that and it’s gonna cost, but the bank wouldn’t lend it. So, they would have their flag pulled. Now, you have a Hampton Inn available to build, which they will sell to somebody who wants in the business. We now have more hotels around the country than you can shake a stick at. It’s about 80 percent of our business right now.
Jones: Everybody is waiting to get the money to do what they needed to do five years ago.

Interview excerpts by Features Editor Emily Letterman, eletterman@sbj.net[[In-content Ad]]

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