When will construction rebound? Local companies weigh in
| Wednesday, Jan 27 2010 07:29 PM
Last Updated Wednesday, Jan 27 2010 07:29 PM
Nearly nine in 10 contractors say there will be no recovery in the construction industry this year, according to a national construction hiring and business outlook forecast issued by the Associated General Contractors of America.
More than three-quarters of 700 construction firms surveyed across the country in December and January said they are submitting bids so low they will actually lose money on the projects.
Of national respondents, California construction firms were among the most pessimistic. Only 9 percent of companies surveyed in the state said they expected the construction market to grow this year, compared with 40 percent in the most optimistic state, Alabama.
With work scarce and profits low or non-existent, many firms are putting off hiring, equipment purchases and other major spending.
Government intervention in the form of tax breaks for personnel and equipment and funding so-called shovel-ready building projects isn't helping locally owned firms much, according to Bakersfield area companies.
Federal American Recovery and Reinvestment Act dollars are mostly going to large, unionized companies that are bonded and can pay a prevailing wage to build public works projects, said Norman Galanski of Black Stone Asphalt Construction Inc. in Bakersfield.
"There are no projects designed for small businesses, so we don't get any of that money," he said.
One public policy that has helped is tax breaks for homebuyers, said Carrie Williams, general manager of the Bakersfield office of McMillin Homes.
A law passed last year extended an $8,000 tax credit for first-time buyers that originally was to have expired in November. It covers homes purchased or under contract through April 30.
"We're still very positive and optimistic," Williams said. "We've got four active communities in Bakersfield. A fifth is almost built out. And people are out shopping at all of them. We've had 12 sales already for the month."
But in general, the private sector hasn't been strong enough to make up for reduced public spending, said Bob Smith, president of Wallace & Smith, a commercial and industrial builder in Bakersfield with 35 employees.
"Most private construction has to be financed, and the banks just aren't lending right now," he said. "Until the lenders come around, our business isn't going to pick up."
Carlyle Builders Inc. in Bakersfield has four employees and mostly focuses on private commercial projects.
Almost all of the firm's work these days is outside the Bakersfield city limits because locally, nobody's building, said owner Steve Carlyle.
Although Carlyle Builders was launched in 2006 at the pinnacle of the real estate boom, Carlyle said in some ways, that's been a blessing.
"Some people built up a pretty big machine to build when times were good and then the faucet got shut off on them," he said. "For us, the faucet was shut off the day we started."
Black Stone's Galanski said bidding for work is fiercely competitive. Where once he vied for jobs with four or five fellow bidders, now he's up against as many as 30 competitors for asphalt and concrete jobs, including companies from out of state.
At one time, 80 percent of the company's jobs were public works projects. That's shrunk to 40 percent.
"Private is where it's at right now, but nobody in the private sector is spending right now because they don't have to, and they don't have the money," Galanski said.
Galanski said he's let go of five or six employees over the past four years. Black Stone has 13 employees.
Sorci Construction Services is a custom remodeling company in Bakersfield that works in both commercial and residential.
In some ways, said owner Brian Sorci, the economic downturn has worked to his benefit.
Those who would normally buy a new home or commercial building are often choosing to remodel, instead, to save money.
And because the distressed properties and foreclosed homes that make up a lot of the market's real estate inventory are often in need of repair, he's getting some of that work, too.
So from Sorci's perspective, all is not lost.
"I think that we're in the middle of a U-shaped recovery rather than a V-shaped recovery," he said. "I don't think it's going to shoot back up, but we're at or near the bottom."
