Storm Front Coming

Experts give gloomy forecast for regional construction industry

By Tom Nicholson

Buckle up, it’s going to be a rough ride.

That’s what analysts are saying about the year ahead for contractors amid forecasts that building markets throughout the region will shrink by nearly a quarter in 2009.

Already beleaguered in 2008 by soaring materials and fuel costs, a dearth of labor, and the credit crunch brought on by the national financial crisis, in 2009 contractors face a downturn in markets in nearly every sector, analysts say.

“This is the epic perfect storm,” says Louis Coletti, president and chief executive officer of New York-based Building Trades Employers Association. “It went from the strongest market in history to right off a cliff.”

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In New York state, construction starts will shrink by 22% in 2009 from last year’s boom-time levels, with starts in the Tri-State region projected to drop by 15%, according to McGraw-Hill’s Construction Outlook 2009 report. The broad-based downturn will be particularly cruel to commercial markets including hotels and mixed-use buildings, in which construction starts are projected to drop by 29% this year, says Kim Kennedy, manager of forecasting for McGraw-Hill Construction, which owns this magazine.

The downturn is a blow to New York markets which had stayed buoyant despite dour national economics last year, but now “will fall harder in 2009 than the rest of the nation as the recession catches up,” says Kennedy. Nationally, construction investments are projected to decline by about 12%.

Across the region there are projects being delayed as owners sit on the sidelines amid tightening credit and lofty materials costs. In Connecticut, department of transportation officials cited the economic uncertainty for their decision last month to postpone indefinitely the request for proposals for construction of the $500-million Quinnipiac River Bridge. In Syracuse, city officials this winter blamed the credit crunch for stalling the $450-million Destiny USA hotel and entertainment complex; and the start of a $31-million Marriott Hotel project in downtown was put on hold as owners wait for better steel prices and financing terms.

Contractors and subcontractors in the region didn’t need to wait for analysts’ predictions, as many are already in full-blown recession mode. Says Coletti: “Things are very tough right now for a lot of subcontractors. They are already seeing jobs delayed or cancelled and many have already had to lay off employees and there is the potential that many of them will go under.”

As bad as conditions are, the future fallout could be worse, Coletti adds. “If subcontractors go out of business, who will be there to pick up the work when it recovers?”

In a recent meeting of BTEA board members, “they all were despondent,” he says. “We are having meetings to figure out how to deal with this dramatic downturn.”

In New York City some contractors this winter are still riding the vestiges of last year’s unprecedented building boom.

“There is still a lot of work under way,” says Richard Anderson, president of New York Building Congress. But the NYBC’s construction outlook report issued in November warns that in New York City more than 30,000 construction-industry jobs will be lost in the year ahead. “By 2010 we expect to see a decline in construction investments of about $8 billion,” Anderson says. “There is a lot of uncertainty now, particularly with infrastructure projects in the city.” Anderson says of 15 major infrastructure projects in the pipeline, “some are being questioned.”

Across the Hudson River, contractors in New Jersey “have never seen it this bad,” says Brian Tobin, executive director of Associated General Contractors, Edison. “There is no funding in place for many public works jobs and projects are being delayed.” Tobin says in the market uncertainty the number of bidders on public jobs has dwindled from dozens to just a handful. McGraw-Hill’s outlook projects a modest 3% drop in construction investments in New Jersey in 2009, with significant slowdowns in commercial and institutional projects tempered by projected increases in residential and electric utility projects. All eyes are now on the $8.7-billion tunnel project between New York and New Jersey, part of the Access to the Region’s Core initiative.

“That project will be a big shot in the arm,“ he says. Federal authorities gave environmental approval for the project in November, clearing an important hurdle to federal matching funds for a proposed project. New Jersey Gov. John Corzine says the project “will jump-start the state’s construction sector.”

Infrastructure projects are also facing uncertainty in Connecticut as town and city officials struggle for bonding.

“Wastewater, sewer and highway projects are all in limbo right now,” says Faith Gavin Kuhn director of Wethersfield, Conn.-based Connecticut Construction Industries Association. “Contractors are really concerned about state and local bond money being let for projects this year, They just don’t know if the money will be there.” says Gavin Kuhn. The state is projected to see construction investments drop modestly overall with some markets staying bullish in the year ahead, according to McGraw-Hill Analytics.

“Health care seems to be doing well as are schools, as long as the public money is there,” says Gavin Kuhn. “But contractors are concerned because projects are being let later and later.” About the upcoming months, she says “Let’s face it, it will be a roller coaster, but we do rebound.”

Upstate contractors “have quiet a few projects in the pipeline,” says Andrew Claus of Rochester-based Rochester Builders Exchange.

“We are typically a bit behind the state trend, so even though things here still look pretty good, we are starting to see some projects get delayed or that can’t get bonded, and we are starting to wonder about the future.”

The New York Building Congress’ Anderson says the outcome of the downturn depends on whether there will be a “soft landing scenario where markets rebound, or a hard landing in which the government slashes programs and credit doesn’t ease up.” In the city, “Manhattan will recover because it attracts investments from around the world.”

But Anderson is quick to caution that “the sky is not falling, we will get through this.”

Kennedy says the future may not be as dim as forecasts predict. “There is a silver lining to this recession in that materials prices have started to show signs of easing,” she says. Kennedy says the downturn will bottom out midway into this year. “By early spring the credit freeze should start to thaw and by the end of this year we will probably have seen the worst of it,” she says. “If we can make it through the end of this year will be much better.”

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