Crystal Ball

Bullish Industry Leaders Set Sights on Busy 2007

by Debra Wood

By all accounts, 2006 provided multiple opportunities for contractors, designers, and developers in New York, New Jersey, and Connecticut. And industry leaders generally predict an even better 2007 for the region.

Even as major projects are slated to come out of the ground, however, material costs and workforce constraints could tamp down the robust expectations.

We asked a variety of leaders in the real estate development and construction industry to peek into their crystal balls for an informal forecast of the market, as well as their thoughts about challenges and public policy priorities for the coming year.

Lou Coletti

President, Building Trades Employers’ Association, New York

“I think 2007 is going to be a very strong construction market in New York City. Many large projects that have been planned and discussed for years have shovels in the ground – Yankee Stadium, Shea Stadium, the Javits [Convention Center expansion]. I think Atlantic Yards will start. We still have a strong residential market despite prices starting to moderate.

“The biggest challenge is going to be in terms of the ability to have enough people, materials, and supplies, and the cost of those materials and supplies. We’re competing with strong construction markets on a global basis.

“I don’t know if we have enough skilled labor but we have an institutional mechanism through the apprentice system [that can get us there]. I’m more concerned about the capability on the contractors’ side. You cannot manufacture a good project manager in three to six months. Now, you have companies with very strong backlog that are looking for new people. We have not done a good job of recruiting young people into our industry.

“Contractor capacity and bonding capacity will also become significant issues. [In Albany, it’s] the same priorities we have had for a while – reform of the state labor law 240-241 [regarding liability for workplace injuries] and worker’s compensation reform. I believe there will be discussion of reforming the Wicks law [that requires prime mechanical, electrical, and plumbing contractors in addition to general contractors on many public projects]. We would like to change the no-damages-for-delays language in public contracts. If we are able to get legislative relief in those areas, they can help reduce construction costs.”

Jim Abadie

Senior Vice President and Principal-in-Charge for New York, Bovis Lend Lease, New York

“I’ve been here 27 years, and there are always [alternating] cycles between private sector and public sector. Right now, going into 2007, the private sector and public sector are [both] going at full speed. That’s the interesting perfect storm we are having, and I think it is causing some of the inflation we are getting in the trade buys. They are busier and can put a little extra on this one – and maybe will get it.

“For the last 12 to 18 months, [construction costs have risen] 1 to 1.5 points per month, and that’s unheard of, too. What’s driving it is materials costs going up. Steel, copper, sheetrock, all of the commodities are going up. All the unions finished negotiations this summer, and they got an average of a 5 percent to 6 percent raise. The labor component on a lot of these contracts is 50 percent to 60 percent.

“The other piece is because when it’s busy, you will put a little bit more of a margin on the project than you would in the past. They are not sharpening the pencil as much as they used to do.”

Jeffrey Zogg

Executive Director, General Building Contractors of New York State, Albany

“Clearly, in the downstate region, especially in the City of New York, there is a strong construction economy and a tremendous demand for projects of all sizes, especially what I call the megaprojects.

 “There will be tremendous demand for work, and the industry will be challenged to provide the services needed. I’m sure they will, but my members tell me that finding good management folks is a challenge every day. The unions believe they can provide the manpower necessary, but where does that leave the rest of the market? The industry has shown a way over the years in these environments to produce and I am confident it will.”        

Paul Brady

Executive Director, American Council of Engineering Companies of Connecticut, Middletown

“I think we will see the same conditions as in 2006 for the most part. I think housing may be slowing down, single and multifamily, although we are seeing some interest in transit-oriented residential projects near train stations. Commercial appears strong. Institutional is pushing ahead, and there is a fair amount of transportation work.

“The people I talk to are running at full bore. I’m not sure we could do any more work... There are projects that are not going to be done because there aren’t people to do them on both the engineering and construction side. The problem that design professionals, in particular, are talking about is the shortage of skilled design professionals, and the trades are also concerned. For some engineering firms, that is their biggest problem.”

Chris Ward

Executive Director, General Contractors Association, New York

“2007 looks like one of the strongest years in the history of infrastructure construction in New York City. If you look at the projects that just got awarded, and are going to get awarded soon, and even ones set to get started toward the end of 2007, it’s a long list of subways, water tunnels, wastewater plants, highways, big bridges, little bridges…

“Our real concerns are materials availability, price fluctuations for materials, construction management capacity, the city and state process for managing these projects, and public awareness.

“There will be some difficulties without a doubt. The size and breadth of these contracts and the simultaneity of them will put a lot of stress on the public and contractors. You’re going to first see contractors here growing but also partnering with construction companies from outside the region. That’s one way to handle capacity issues.”

Ed Rytter

Treasurer, Construction Roundtable of New Jersey, Edison

“It’s kind of like a stirring giant. A lot of things are predicated on the overall economy, but things are looking rather well... I believe we can deliver product faster than they can in New York City. There’s not a lot of excess product in the city, so that’s a good sign for New Jersey [where the pharmaceutical industry remains strong, despite recent consolidation]…

“Business activity is good. The pressure is there for building. I don’t think you will see a lot of speculative building, but there are needs that have to be filled.

“On the labor side, there are some positive things. The Construction Users Roundtable and some of the major unions are working together to eliminate some of the costly, nonproductive issues.”

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Pat Di Filippo

Executive Vice President, Turner Construction, New York

“2007 will be as busy if not busier than 2006. [With] the work pursued and won, all contractors will be busy building those major projects in 2007. The backlog that was created has satisfied appetites and will give us a clear picture going into 2007.

“There is a concern for continued demand for residential, although it continues to provide opportunities. It appears in general that the market is continuously supplying opportunities in all the segments.

“The ability to attract quality talent is increasingly difficult. From the professional perspective, it’s important contractors and subcontractors recognize their limitations. I think we are all conscious of that manpower-to-opportunity-to-commitment-to-execution relationship.”

Terrence O’Neal

Principal, Terrence O'Neal Architect, New York

“Among architectural and engineering firms, there is still a lot of optimism looking at 2007. Most firms try to balance their public work and private work, and there are some big indicators that public work will be available. While New York City is not going to be getting as much funding from the state for school construction as it had hoped, there is some optimism in that now we know what that level of funding is going to be. And [Mayor Michael Bloomberg] reinforced his housing initiative in January [2006], so it will probably gain some ground in 2007.” 

Paul O'Brien

Managing Director, Building Contractors Association, New York

“In terms of the activity, contractors are very positive about the number of jobs that are out there. Commercial renovation and alteration seems to be picking up considerably. Clients are taking sizable spaces and moving around. Nobody wants to guarantee that things are going to be great in 2007 but all of the indicators show that it’s going to be a very good year.”

James Power

Special Counsel-Land Use, Kramer Levin Naftalis & Frankel, New York

“It’s been full speed ahead so far, and I don’t see any sign of it letting up. People are still active pursuing new sites... A site will become available, and we will hear from several clients about it very quickly. There has been a real bias in the development community for residential sites because on the back end, residential generates a much higher price per square foot...

John Cavanagh

Executive Director, Contractors’ Association of Greater New York, New York

“2007 is going to be a continuation of 2006. The only softness that may occur will show up in the housing market… There may be more product on the market than demand for the product.

“We know where we are going with labor. All of the major union contracts were negotiated this year. Prices did go up but not as dramatically as I predicted originally.”

Gary Berman

President and CEO, Greyhawk, New York

“For 2007, I see absolutely great things, better than this year. ... The economy is being stimulated right now. The price of oil is lower. The price of money is lower. The stock market is higher. People will have cash to spend.

“There are several speculative office deals in the works. K-12 school construction will be a hot market. College and university work, across the spectrum, is going nuts right now from the community college level to the most valued higher education institutions. Private schools are upgrading, because of the competition.”