Contractors keep building on housing boom

Wall Street may be slumping, but walls continue to rise at Vermont construction sites.

Many experienced observers are saying the activity level isn't as high as last year's. But they go on to say that the boom times of the recent past were something of a bubble, and that the current picture represents a return to normalcy rather than an industry recession. There is also a sense that the slowdown may continue into the next few months. But there is no deep concern about the economic fundamentals for construction (though political and military factors might still have an effect), especially with interest rates so low.

Also, outside interest in Vermont is high (with the geopolitical situation and terrorism one factor), giving an already intense housing market an additional push. Difficulties in meeting the demand for homes has also boosted longstanding concerns about the twists and turns of Vermont permit processes.

Perhaps the largest effect of general economic conditions has come in areas dependent on tax revenues. With the federal budget again showing deficits and Vermont's 2002-2003 already subject to recessions, there may again be a slide back to the years when the condition of the state's roadways was going in reverse, and bridges were sometimes something to be crossed when someone got to building them.

Indicators

The employment figures for contract construction don't show the field in a tailspin. According to Department of Employment and Training figures, there were 15,300 workers in July, up from 14,800 a year ago. However, that was a slight decrease from June, which saw a total of 15,500 construction workers.

One of the best vantage points for assessing prospects is at the bid-tracking service firm Works in Progress. President Larry Cain summed up his estimate by saying "It is my belief that the current slowdown in construction activity will continue until early spring 2003, and then will slowly begin to improve."

Works in Progress compiles figures for pre-design projects, those in planning, and those in bidding. For pre-design, the average figures were 15.25 for July of 2000, 9 for July of 2001, and 8.25 for July of 2002. For the same dates, the numbers for planning were 22, 21, and 26.75. For bidding, they were 54.75, 39.25, and 62.25.

Cain added, "Even though the number of planning and bidding projects has increased, it is generally agreed that the current projects now printing and in our plan room are of smaller size than of previous years."

Ifs and Abutments

Gauging the overall strength of construction activity has been rendered more difficult by the enormous size of some projects. A case in point is the ongoing expansion of the Fletcher-Allen medical center, which has not just been controversial because of the way a $50 million garage was added to $200 million worth of approved work. There is some sentiment among Vermont contractors that too few of those dollars will stay home, particular because, it is alleged, bidding opportunities and choices have been preferentially allocated to union shops.

But Pizzagalli Construction vicepresident Kevin McCarthy saw the situation in a different light. "We'd all like to see that work stay in Vermont," he said, but for projects on the scale of the Renaissance work, "there just aren't people big enough here to do it." Regarding one part that went to bid three times, making it look as if there was a search for a non-Vermont union contractor, McCarty said he did not have a problem with how it went. The first time, Pizzagalli was the only bidder, and the medical center was required to have competitive bids. After the second round, changes to the work required re-bidding.

In the end, a fair amount of money will come to Vermonters, as the companies involved do their hiring, McCarthy observed. Chances are that individual workers won't want to travel 200 miles from their homes in the Boston area, he said.

The other side of the picture is that Vermont's largest construction companies rarely do all their business within the state's borders. Pizzagalli, for instance, has done wastewater plant work all along the East Coast, and has opened an office in South Portland, Maine. "There's a lot going on over there," McCarthy said of economic life along the Rockbound Coast.

And sometimes out-of-state companies become Vermont companies as well. Middlebury College a decade ago called on Barr and Barr, a regional player with offices in Boston, Hartford, and New York, as they were going into a huge capital construction phase (which recently has continued with a $20 million residential project, a $40 million library, gym renovations, and more). Today, they work out of a Vermont office as well, with many of the personnel locally hired.

At the same time that Vermont's manufacturing sector is adjusting to globalization, the construction sector has its own cross-border alignments in regionalization.

Tale of the Register Tape

One way to pick up activity on a smaller scale, including pickup-and-toolbox local handymen and do-it-yourselfers, is to look at sales in the building supply stores. There, the picture was generally upbeat, with some indications of things slowing down.

We've had a good year," was the word from John O'Brien, a principal at Gregory Supply in Burlington, "but it's not the same activity it was last year. It's not as robust." Most of their trade is with professionals, versus the do-it-yourselfers, he said. "There's not as much business," O'Brien continued. "But last year there was too much business."

The housing market was one source of that rush, with supply unable to meet demand - "especially with our regulatory process," O'Brien said. "The costs are reflective of that."

A 15-year veteran of the building supplies trade, O'Brien said he has seen a "vocal minority" prevail in arguing against growth by arguing against sprawl, with the result that people routinely see their children go to other states because there is simply no place for them here. In Chittenden County especially, this should be considered when people talk about Vermont's quality of life, he said. At the Lacillade Lumber Company in Williston, owner and president Jim Lacillade said, "We've been very busy. It's quite a bit ahead of last year, 15 to 20 percent overall."

There was "a little blip" right after the IBM layoffs, Lacillade said, but then things picked back up. With about 86 percent of their sales coming from contractors, the residential market has been very important, he said - particularly upscale second homes and relocations. Along Interstate 89 and up the Interstate 91 corridor as far as the Canadian border, urbanites have been building six- and seven-figure homesteads, complete with security systems, backup generators, and power user telecom links.

"We're seeing a lot of that," Lacillade said. Clearly, 9-11 has translated into I-91, with relatively safe surroundings, good schools, and scenic beauty as draws. And that doesn't necessarily mean burning the bridges with the Seaboard - "they don't have to be in the city all the time."

One indication of the strength of demand for building supplies is that Lowe's sees room for one of its superstores, even with Home Depot nearby in Williston. As for the latter, they opened their second Vermont outlet this summer, in Rutland.

Joseph Audette, an assistant manager for Home Depot in Williston, said, "We've had a very good year." They serve contractors, but the bulk of the business has come from do-it-yourselfers, he said. The Rutland store obviously has no numbers from last year, he said, but looking at projections and sales, "it's going very well."

At Rotella Building in Rutland, Home Depot so far isn't hurting the wellestablished local supplier, with their kitchen and bath subdivisions adding to general sales. Said Mike Rotella, "It's strong, there's no question. Business is phenomenal."

At Goodro Lumber in Killington, sales associate Chris Young said, "It's fairly busy - just as good as last year." New residence, repairs, and remodeling are all contributing.

In fact, Young is seeing something that has been very rare in the years since the great real estate crash around 1990 speculative construction, buildings going up before they have buyers. "A lot of spec homes are going up because the real estate market is so strong. There's no inventory to speak of."

In Manchester, Joe Miles, the owner and president of the RK Miles building supply company, said the year started slowly, but now "things are going along pretty well. It seems to be moving along at a pace similar to last year."

At Randolph's Central Supplies, sales associate Tom Tucker said, "Things have been fairly steady. Things seem fine."

Hard Hat Times

Outside the red-hot residential market, factors like the national, mutually reinforcing manufacturing slump and falling consumer confidence have weighed more heavily. But Vermont firms contacted for comment were busy enough not to be looking at layoffs - indeed, some companies were hiring - and in some cases the good times continued to roll.

"I would say construction is chugging along," said Otto Engelberth of Engelberth Construction in Colchester. "It's certainly slowed down from where it was a year or two ago, but that was almost extreme. Things are getting back to historic normality."

Maple Tree Place in Williston, a $20 million renovation-addition project at the Rutland Regional Medical Center, and work worth more than $6 at the Dartmouth-Hitchcock Medical Center in Hanover, New Hampshire are all keeping Engelberth's crews busy.

At Pizzagalli, McCarthy said, "So far things are going pretty well." IBM is still calling on them, both to work in the Vermont plant and at Fishkill, NY.

But things have slowed down, toward historical levels, he said.

"When you see a project, you see a lot more people proposing on it." Where four companies might have sought a particular job, now eight will want it. Pizzagalli does a lot of its work out of state, because within 100 miles of Burlington, it's really slowing down."

"It's going slower," agreed Peter Schober, president of Summit Construction in Montpelier. "I think the level of it has to do with more people trying to do it."

In Newport, Grant Spates of Spates Construction, said, "It's going better than it was in the spring." But in true Vermont work ethic fashion, he himself kept busy in the spring minding 3,500 maple taps at a farm in Morrisville.

Currently, he is helping to keep an eye on construction projects in Newport, North Troy, St. Albans, and more.

At Bread Loaf, a Middlebury designbuild company, marketing administrator Holly Kelton said the current business climate has affected their construction operations. But they have used what might have been down time to rethink, retrain, and otherwise revamp how the company functions, so "it's been a healthy summer for Bread Loaf.

Far from being pessimistic about the future, "we are looking to hire more people," Kelton said. Specifically, they realize they can boost productivity by finding highly qualified people "at the front end of jobs," such as senior estimators and senior architects. "We've hired some extremely competent people this summer," she said.

Top projects for Bread Loaf this summer have included the Orvis flagship store in Manchester, renovations not far away at the Equinox resort and conference center, a new parish hall in Stowe, Dartmouth-Hitchcock renovations, and work at Williams College in Massachusetts.

Moving south to Brandon, two large construction companies there have both been doing well. At Naylor & Breen Builders, a call got as far as the office manager, who said, "We're out straight."

At the McKernon Group, Larry Rowe, their vice-president of sales and marketing, said "It's certainly not as robust as it was last year. We're busy, but we are not booked to that extent." The scope of projects, too, is "not as big as last year," he said.

However, "we are always selectively hiring," Rowe said. "If we hire these people, we become more efficient." Some hirees may be helpful in getting work in the first place, in an environment in which the McKernon Group has to make a greater effort to land contracts.

Rowe said they have one niche in high-end residential construction. That active market has taken them far from Brandon: recent projects have been in Cornwall, Bristol, Rochester, Londonderry, and several in New York's Lake George area. One way or another, they are keeping at around 65 employees - up from about 50 two years ago.

As for the Mad River Valley, Steve Frey, a project manager at William Maclay Architects & Planners in Waitsfield, said, "Our firm is doing very well right now. We are very, very busy." Part of that is their orientation toward environmentally sound "green construction," an area where "we're finding a good response.

John Russell III, senior vice-president at the John A. Russell Corporation in Rutland, said, "The marketplace is slowing up, and there aren't a lot of major projects out there."

On the other hand, "there are a lot of smaller projects," Russell, continued. "We're doing okay," he said, though "we'd like it to be busier."

"Vermont can be tough," Russell observed. His company has compensated by putting together a good track record in doing time-critical maintenance and upgrading projects at power plants in other states.

The Vermont work ethic: "We are a little more expensive than other companies, but we get more done in the time frame allotted."

In Ascutney, Daniels Construction vice-president Mark Thompson said, "It's going gangbusters." Their forte is municipal work - bridges and related roadwork, water works, sewer plants. "That market is still quite strong," he said.

Still Can't Get There from Here

While there is indeed money in the pipeline for many civic projects, that is an area where people's accumulated shortfalls, cumulatively subtracting from tax revenues, are having an impact.

Cathy Hilgendorf, the school construction consultant for the Department of Education, said part of that money comes from the annual bonding, and thus won't be subject to budget recissions. Of the $39 million bond for this year, $12.75 will help school work. But other money comes from the general fund, and the hits there will have an impact yet to be determined.

The cloud's silver lining, Hilgendorf said, is that the escalating costs characteristic of the height of the construction boom are seeing some rollbacks. Feedback from architects is indicating that prices for school districts may be "a little more realistic, at least."

As for "horizontal work" on roads and bridges, Dave Scott, the Vermont Agency of Transportation's director of project development, said the situation is that a number of big projects that have been in preliminary stages of planning and design for the past 20 years are at last ready for construction - and they are stretching funds for smaller jobs.

The list includes the Bennington bypass ($100 million if all three-quadrants are completed), the Chittenden County Circumferential Highway ($80 million), Shelburne Road/Route 7 in South Burlington ($34 million), Route 9 in Searsburg and Wilmington ($20 million), and the Mississquoi Bay bridge ($42 million).

By way of contrast, the amounts in this year's budget for general bridge work are $14.7 million for state bridges, $6.4 million for Interstate bridges, and $20 million for bridges in the local roads program.

Scott said, "Right now, there are $109 million worth of projects ready to go, but unfunded." The agency's budget could be 50 percent larger and they would have no trouble finding good uses for the money, he said.

"There's no end to the problems," Scott said. Or, to look at the proverbial silver lining, there will be plenty of work in upcoming construction seasons.

Copyright Boutin-McQuiston, Inc. Sep 01, 2002
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