With 2014 quickly drawing to a close, Mockler Taylor Architects thought that we would ask several industry insiders about the current state of the high-end residential industry of Fairfield County (CT) and Westchester County (NY). We thought that this would be valuable to homeowners considering a construction project, and we honestly wanted to test or confirm our own thoughts on this as well. So, we decided to ask four local General Contractors a couple of questions to get their thoughts. We have not edited their answers, and are presenting them anonymously (the answers are in a completely random order), so that we could get as honest feedback as possible – not “marketing” answers for the GC’s businesses. We thank the builders that participated in this, and have linked their contact information below. So, here is a peek into the current industry climate for 2014.
How busy are you? How is your current workload (especially as compared to the past, i.e. before recession and the more immediate past years)?
- We are fairly busy with a variety of projects. It is not as strong as 2005, but things have gotten much better than they were in 2008. The phone is ringing more often than it was last year and we’re getting a good amount of leads though email and directly through our website. Right now we’re building about an equal percentage of new homes, additions and renovations. The homes we’re building for sale are all selling very fast and from the blueprints or prior to completion. We haven’t had a change to finish a unit to list before it sells. We hope the New Year will continue with the same trends.
- Gratefully, we have rebounded nicely since the depth of the recession in 2009-2011. The number and size of our projects are up. Our project mix since the recession has been and continues to be heavily weighted with renovations and alterations. Similarly scoped projects have larger budgets than those from a few years back as clients are electing more comprehensive plans and product selections.
We are not as busy, however, as would expect given our level of activity. The percentage of projects that are green lighted for construction is still below norm, with 2013 perhaps providing us a false positive given the number of Hurricane Sandy related projects. We need to see continued improvement in the resale market to increase the viability of more new construction projects. Land location and acquisition cost are paramount in determining the overall viability of these projects.
- We are extremely busy; our 2014 workload will go down as our biggest year since 2005. Our sales will be triple in 2014 than what we contracted in 2012. The down years for us were 08’-10’. Before the recession we were not as busy as we are now.
- Our workload is at 70 % of our managerial and production capacity. This has steadily increased from 10% in mid 2006. Our gross receipts have grown by 300% since mid 2006.
How is your pipeline of potential work? Bidding more/less than recent past? Getting more/less inquiries from potential clients?
- Our pipeline is fantastic and the projects are getting bigger. We are booked for 2015 now, although we plan to hire and expand over the winter to accommodate more work. I am not sure if this is due to the economy or our growing network and reputation, but I suspect both. We are not bidding as much as we were back in 2008-2011, although we are bidding against fewer contractors on bigger scale projects so the projects we are being awarded is up. Client inquiries are up as well. We seem to be seeing a lot more clients calling us directly, the GC, than in years past.
- Our list of potential sources for work has increased by about 500% due to an intensive marketing initiative. Repeat business from existing works sources makes up one third of our current business. We are bidding much more than in the past history...every project under contract was awarded through a bid process. Inquiries for new work are less than in pre-2006 years but are growing by about one new inquiry per year. All work inquiries result in projects, but not in the same year.
- Our backlog is good. It’s nice to be in this position in contrast to the slow years that we all faced. Right now we’re set through the second quarter of 2015. Although we look forward to bidding on some projects, we’re actually bidding, in general, much less than we used to. There are so many contractors who are willing to cut their margins to a point that is not sustainable. They don’t understand that this strategy will not pay off in the long run. We’re now passing up bids if those builders are on the list. Lead generation is about the same. We get about 6 calls or online inquiries per month from architects or directly from clients.
- Our pipeline is healthy and there is not a shortage of bidding opportunities. This past year, for the first time since the recession, we declined bidding on a number of projects. This partly reflects a fundamental change in how we now approach bids. Clients more than ever want to ensure that they are getting good value and we have elected to respond by providing complete transparency in our bids. Although these bids are significantly more costly to develop, it has been very well received by our potential clients as it allays their concerns while providing a framework to collaboratively tailor features and finishes to their budgets. We suspect this transparency may be one of the new norms as a result of the recession.
- Perhaps most telling of the strengthening market was that perspective clients are once again selecting their builder earlier in the process to form a collaborative team approach. Clients realize that construction is costly and want help maximizing their budget. We have found this to be especially true for the larger projects that will likely require a phased approach to construction. This is a direct contrast to the practices of past few years were a significant number of bidders were solicited before awarding the projects.
How are construction costs as compared to the recent past? If you can, touch on both labor prices and material prices (any specific anecdote is appreciated).
- We continue to see a dichotomy in pricing: the rising cost of finished goods, from ancillary products such as saw blades to finished fixtures seems to continue unabated while at the same time we continue to see compelling values for finished goods fabricated by our local craftsmen. I read recently that for the first time ever a stick built house is less expensive than a modular and our clients can currently outfit their homes with a bespoke kitchen for the price of a semi-custom. Perhaps this is due to the larger firms perception of greater pricing-power but is a great time to be in the market for a custom kitchen.
In terms of labor costs the most challenging aspect we have faced since the downturn has been the calibration of quality to price. As the market pressured unit pricing, we responded in kind. From architects through finish carpenters and painters, we have all struggled with reconciling the quality of our work with the reduced prices demanded by the market. As the market has continued to regain its bearing labor unit prices have generally been restored to pre-recessionary levels. This year we did provide our in-house crews with their first pay increases since 2005; our employees have been very loyal and have absorbed the significant cost of living expenses over the past decade. It felt good to be able to recognize their loyalty as frankly they, along with our clients, are the reason for our continued success.
- Costs are up as most know. Labor and materials are climbing very fast these days. I remember how low the pricing I was getting on labor in 2010 and wondering how long that pricing would last, the clients were truly seeing great deals at that point.
- Great question. Material costs go up every year. Windows, plumbing and electric fixtures, paint, and most all materials, continue to rise. Did you ever think quality paint would be $50 per gallon? Labor rates, however, are still down slightly from the boom years. Actual wages for carpenters, electricians, plumbers, painters, etc., are down. This is due to the amount of workmen who have come from south of the border and Eastern Europe. They’ll take the hourly jobs for less than American men who are looking to be in the trades.
- Construction costs have remained steady in the labor area while materials and equipment costs have increased by about 20% since 2006 levels. OH&P levels have dropped overall, and General conditions have risen by about 3-5% in the renovation market. Cedar products alone have risen by 20% since June of 2014. Clients are expecting more supervision and greater availability from contractors.
Availability of materials as compared to the past? How has this affected project schedules?
- Materials remain in good supply and readily available. Lead time items show no change. The largest factor-affecting schedule these days are timely decision making. The Internet has created Clients who are more informed, (Houzz, Pinterest, Zillow, contractor and architect web sites) but in a sophomoric sense. They have become more involved in the building process today creating a "committee" effect that slows the building process.
- We had a cabinet supplier deliver their contract late twice this fall. Other than that, we have not had much of a problem getting materials for our projects.
- What we have found is not so much that we have availability issues, but rather that our suppliers have less capacity. So, if anything, we find we have a series of smaller delays often brought about simply because our suppliers have elected to run with leaner operations. We have changed some of our operations as we recognize the risk of these delays having a cumulative effect over the life cycle of a large project.
We did lose some key fabricators in our supply chain. It was not the run of the mill provider, no pun intended; rather the high-end custom fabricator or mill that reduced capacity or some instances relocated or ceased operations. While we have been able to provide alternative sources, invariably these sources have a higher price point and/or have reduced product offerings.
Coinciding with the recession was marked increase in conservatory and regulatory efforts regarding the harvesting of Genuine Mahogany; as a result it has become almost prohibitively expensive. While the market has responded with some known and lesser-known alternatives all these woods have very different performance characteristics than Genuine Mahogany and as such we have begun to advise our design partners and clients to take a cautious approach to the fulfillment of mahogany.
In a similar vein are suppliers are cautioning us regarding the availability of unprimed white cedar sidewall shingles. As a very recent development the mills now prefer to sell these shingles pre-finished rather than release inventory. As white cedar has historically been used as a cost effective alternative to western red cedar, it is likely its used expanded in the recession that may be compounding the issue. In any event we are advising clients that we may have fulfillment issues with natural white cedar shingles.
- We have had no issue with the availability of materials. We have had issue with the availability of sub-contractors. We have a lot of work and our subs just have not been able to hire and grow quick enough. For example: Our “A” team electrician was a 12-man team in 2007 and they were able to handle all of our projects without issue. During the recession they went down to a 4-man team and are now back up to 7, as previously stated we are busier now than in 07’ and our electricians cannot keep up. We are being forced to find more resources constantly. This is consistent with 75% of our sub-contractors. This issue has caused problems with our scheduling as we are finding it difficult to accelerate jobs.
Thank you to the General Contractors that participated in this survey. Here's to a great 2015!
Kelly Wright, Wright Building Company
Devin Meenan, Classic Connecticut Homes, LLC
Anthony B. DeRosa, DeRosa Builders, LLC
Paul Kramer, Kramer Construction, LLC