July 16, 2012

Construction woes linger

Photo / Pablo Robles
Photo / Pablo Robles
To Rainer Muhlbauer, principal architect at BL Cos. in Meriden, the problem is one of confidence in the economy.

Architects and building contractors in Connecticut — buoyed by government projects an uptick in multi-family housing developments and pent-up retail demand — are bucking a depressing national trend.

The national Architectural Billings Index dropped sharply to 45.8 in May from 48.4 in April, which had been the first time it scored below 50 in five months, according to the American Institute of Architects.

The index reflects a nine- to 12-month snapshot into non-residential construction spending. A score of 50 or above indicates an increase in demand for design services. The new projects inquiry index was 54.4 for April, down from 56.6 in March.

A depressed job market and stricter lending guidelines continue to drive foreclosures, creating opportunity for designers and developers who build multi-family housing. But tighter credit conditions has stymied cash flow and stalled projects, economists say.

Rainer Muhlbauer, a principal architect and design planner in Meriden, is among those seeing the glass as half-full. He reports a surprise uptick in business this year and one strong area is multi-family housing.

But some of Muhlbauer's clients at BL Companies still struggle to access cash for projects.

"There is still a lack of confidence in the real estate market that has stopped people from buying homes," said Muhlbauer. "And we're still seeing foreclosures, so the demand for multi-family rentals has jumped."

Muhlbauer is optimistic about the economic recovery and anticipates positive trends this year.

At Amenta/Emma Architects, P.C. in Hartford, business is growing again.

"We are in growth mode. We have reinvented our workforce, hiring more staff and purchased services and software to accommodate our present and future needs," said Anthony Amenta, design principal. "We find activity holding steady if not getting slowly better each month."

Amenta said his firm's inquiries and new project awards are up this year after "coming out of our low point in 2009."

"We are seeing increased spending in the public sector," said Amenta. "Our retail and corporate work is continuing to be strong and our senior living work is starting to move forward again. Private higher education is beginning to release projects as well."

"Pent up demand with a general sense that the client entities have weathered the storm seem to be the triggers," said Amenta.

Muhlbauser is seeing similar trends at BL Companies.

Muhlbauer is busy providing architecture, structural, mechanical, electrical, plumbing, civil engineering and land survey services to a variety of retailers in Connecticut.

"We're providing complete design services for the highway service plazas that are being renovated throughout Connecticut," said Muhlbauer. "We are also providing the same array of services for the Storrs Center mixed use development in Mansfield, on the edge of the UConn campus."

Muhlbauer said his firm is doing about 15 percent more retail projects today compared to a year ago and the company's backlog is about almost a year out.

"When the economy dips, retailers are one of the first to feel the pinch," said Muhlbauer. "The industry typically puts things on hold and shuts down when it gets slow, so we didn't anticipate it coming back this year like it did."

Muhlbauer works with national retailers looking to roll out or improve and expand regional stores.

"I see a lot of retailers right now that want to expand their presence in the market," said Muhlbauer.

"They are tired of waiting any longer," he said. "It's been three years of a lousy market. They're ready to do something."

"Our backlog is 11 months out," said Muhlbauer. "It's beyond what we targeted, so we're pretty pleased with that. We know that could change very quickly, so we're just working hard and staying focused."

But the longer term future may not be as bright.

Kermit Baker, chief economist for AIA, said for the second year in a row the second quarter has declined sharply from fourth and first quarter gains.

"Given the ongoing uncertainly in the economic outlook, particularly the weak job growth numbers in recent months, this should be an alarm bell going off for the design and construction industry."

"The commercial and industrial sector is the only one recording gains in design activity at present, and even this sector has slowed significantly. Construction forecasters will have to reassess what conditions will look like moving forward."

For Kathyann Cowles, a principal architect in Glastonbury, succeeding in a depressed economy is all about flexibility.

"Our billings are up slightly from last year in the corporate sector due to recent mergers and departmental restructuring," said Cowles. "We haven't seen any dramatic change one way or another in our work flow."

"We still feel positive. We must respond to our clients and support their needs," said Cowles. "We continue to maintain long-term partnerships and have been adjusting to new expectations and challenges."

Cowles' firm, id3 Architects, is busy these days managing a handful of building improvement projects. "Most of the work is not optional for our clients but is driven by business needs," said Cowles. "Several clients are releasing partial projects in preparation for future projects."

"To a large extent, projects that were on hold have now been released into construction," said Cowles.

Since the financial meltdown in the fall of 2008, the main problem has been too many designers chasing too few jobs. Credit is still tight, said Baker.

Lenders are reluctant to dole out money for private commercial projects and government funding is limited.

Baker said design firms need to constantly communicate with clients about their projects, remain sensitive and open to concerns and plan for periods of stalled progress.

The AIA recently launched its Stalled Projects Database, where industry leaders can connect with investors and re-start projects nationwide that make solid economic sense but which lack the financing needed to be finished, said Baker.

The AIA reported earlier this year that its stalled projects database contained more than 36 projects worth nearly $1.2 billion and 50 investors looking for deals to finance.

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