The latest U.S. Bureau of Labor statistics for the construction sector includes data from January, 2009. Then, the unemployment rate was 18.2%. To put the plunge into perspective, 2008 closed at 10.8%, with the fourth quarter showing 843 mass layoffs — the greatest amount during the year.
These alarming figures are not even reflective of the February downturn, which Miron Construction’s CEO guestimated would show about 25% unemployment. Wages have been pretty steady over time, and 2008 closed at a rate similar to that paid five years ago.
So what do those jobs pay? The mean average wage for carpenters in 2007 (latest available breakdown) was $20.10 an hour. Construction laborers make $15.24; construction managers get $41.25; electricians make $22.85 and operating engineers and other construction equipment operators make $21.18.
Union membership rose to 16.2% in 2008 — up from 13.8% in 2005 — at a time jobs are disappearing. Everyone is searching for security.
It was the panel’s mission to explain what we are doing to remedy or to assist the economy, and they were invited because of IB’s strong belief that construction remains the clearest beacon for hope — a place where good-paying jobs could be created. And this region already has a very high economic stake in development, as witnessed here.
Our Expert Panel
Steve Holzhauer | Eppstein Uhen Architects
Holzhauer is a Principal, Eppstein Uhen Architects. EUA is one of Wisconsin’s largest architectural firms, with Milwaukee and Madison locations. Clients come from all sectors; the business is registered in 18 states for business.
Mark McNally | Bachmann Construction
McNally is CEO of Bachmann Construction. Founded in 1954, this Madison-based family business generally completes up to 50% of a project with it’s own workforce for diverse construction, including historical restoration and green building.
Gary Brown | Dir., Campus Planning & Landscape Architecture, UW-Madison
Since UW Facilities Manager Al Fish is on loan to Governor Doyle for the stimulus package, Gary Brown takes on even more responsibility for UW-Madison building projects. It’s a role he’s well prepared for.
Dan Davis | CG Schmidt
Davis is Senior Vice President. Now a fourth-generation contracting and design/build firm, CG Schmidt has consistently ranked as the largest Milwaukee-area contractor. It also has a Madison office, and carries a diverse portfolio of niche and general buildings.
Mark Olinger | Dir., Planning & Community & Econ Dev., City of Madison
On Olinger’s watch in 2008, Madison began two especially ambitious projects: Phase One of the $28 million redevelopment for Allied Drive, and redevelopment of the Villager Mall on South Park Street.
The Discussion
Note: Participants were not provided with a script or questions; the moderator did not use notes. This was a free-flowing, candid discussion.
Three Area Companies Report
McNALLY: I think that for residential, it’s tough, it’s going to get tougher, and it will be until 2010 before there’s any real serious rebound. I think that a lot of the builders are fighting with foreclosure pricing, and that’s going to prevent substantial developments.
Commercial is a different story. We’re seeing that projects are still moving ahead. There’s just a lot more competition and shrinking margins. But projects that have been thought out — while postponed or deferred — are still moving ahead. Our bid room is swamped this month, telling me there’s still activity out there.
But with commercial, generally speaking, you’re dealing with an ROI model — with owners looking to get a return on their investment, and they have to maintain market relevancy, and they’re putting money in. So whether it’s lighting, heating, ventilation, or air-conditioning, they’re updating facilities. That’s what’s keeping that sector going.
It’s probably the structures that are between $5 to $25 million that are struggling right now because of the financing. But after that, now you start dealing with different types of governmental assistance.
HOLZHAUER: I would have a slightly different opinion on what’s happening. Residential surely is flat. Condominiums are stopped. Apartments are proceeding, which is exciting. Student housing is very attractive now, with a lot of student housing projects in Madison and elsewhere. And that’s actually driving our office presently.
Commercial projects are really flat. And I’m proud to see four tower cranes in Madison, but those are for very large projects. Other large projects commercially seem to be on ice right now for us, and so I would say we haven’t seen this kind of a downturn in the 25 years ‘ve been in the business.
I think it will come back. We’re hopeful that the stimulus package will motivate that, and that architecture and engineering firms will lead that. But I think you’re going to probably hear from others around the table that 2008 was very, very slow.
DAVIS: From our point of view, looking at the different sectors, the housing market certainly has been flat. A lot of the capacity for building has moved from that sector into other sectors, and that’s creating a lot of the competition that Mark referred to.
There are still a lot of institutional projects out there in the planning stage. They have slowed down because it’s tougher to get bond money for tax-exempt institutions and to get standard construction loans and/or long-term financing. That has delayed some of the larger housing or mixed-use projects.
But demand hasn’t necessarily gone away. Housing — certainly the vacancy rates are a lot higher than ever in the past. But the demand for healthcare services, for senior living services, for institutional educational higher ed, K-12 — all those demands are still there. I think the economy’s creating a bit of a bubble that will come around.
It’s really a question of when the housing market bottoms out and starts back up. Then I don’t know if it will immediately create housing construction projects, but it will potentially create senior living projects that have been on hold for a while, because seniors will be able to consider selling their homes. The turnaround times will go from 14 months down to six eventually. And some of that credit will loosen, and those institutional projects will begin to start, too.
IB: And so the projects that were already started, already financed, continue. New starts, companies watching their cash because of credit, and smaller scale, private-sector building — no activity?
DAVIS: No, there’s not as much of that on the smaller scale, that’s for sure. Yeah, a lot of our institutional clients are holding onto their cash and delaying the projects potentially, or just fighting through getting reasonable cost-of-debt. That’s the problem. It’s two or three times what they’re used to right now in the marketplace. So they’re hesitant and they’re waiting, and they’re hedging their bet.
But the reasons behind those projects haven’t changed. The demographics are still the same. There aren’t fewer people that need health care services or senior living services; not fewer kids in school, and the buildings in the K-12 aren’t getting any newer. The reasons behind the projects are still there. What’s slowing down is that speculative work that was a lot of times, in the last six to eight years, based on relatively cheap money.
MCNALLY: But [some] banks right now are going to their existing credits and allowing them to vacate any pre-payment penalties in order to get financing somewhere else —which tells you a little bit about the precarious nature of their finances, which pushes this thing off a little bit for the commercial, traditional financing.
DAVIS: Yes. It takes longer to recover. But what I found is that there’s probably more money out there than there are deals that people are willing to invest in. There’s still a lot of equity out there. So there are projects, even on a commercial basis, that are looking for financing — or input on the equity side.
What it Takes to Get the Deal
MCNALLY: Are you guys getting asked to participate in the deals? We’re getting that.
DAVIS: We’ve been asked to participate in deals, yeah, and more often, frankly.
IB: By “participating in the deals,” do you mean help fund or finance it?
MCNALLY: Yes. You can still take what you would get paid for out-of-pocket expense — labor, subs, materials — but to the extent that there is any razor-thin profit, you put that back into the deal and let that ride for three, five years.
IB: And would you be doing that primarily to keep your workforce employed so that you’re not losing it during this period? What is the incentive to give up any profit?
MCNALLY: To do the deal — to get the project.
DAVIS: There’s intrinsic value to the deal, because a long-term payback, many times, is also attached to that request. A lot of times, the way we’ve been asked is that it’s solid equity at the front end, but they don’t have go out and finance, so they don’t have to leverage the project as much. They’ve got somebody with “skin in the game,” so everyone is motivated for the project to go well.
It does fuel our core business, but it’s also a long-term income source. You just have to look at the rate of return and look at it deal by deal.
Development in the City of Madison
Editor’s Note: With Tax Incremental Financing (TIF), the city pays upfront to aid a developer, or for public improvements, and then recaptures the money from property taxes (“tax incremental”) generated by the new development.
IB: When times are economically challenging, Mark, what happens to TIF money and how it gets distributed? What’s the demand for TIF, with projects falling off? The City still wants to go ahead with development, presumably, so what’s your position?
OLINGER: Correct, and historically, TIF has been — I don’t want to say a reactive model — but the nature of TIF, having to meet a “But For” test, meaning “but for TIF, the project doesn’t go forward,” usually we are responding to applications from developers or businesses for projects. I believe our last TIF deal was University Square last year. From our side, we are issuing permits, doing plan reviews, and planning six to 12 months out, depending upon plats, all of that. We’re seeing that it’s not been a pretty picture. For example, Madison only issued 148 single-family permits last year. In 2002 or 2003, we issued over 900.
When the markets shifts, you get caught in the squeeze, and you get what you see at Union Corners and Hilldale now. The money’s there. I think we’re seeing that the increment is there. Although I do believe in downtown, we are seeing some softening of real estate values, and we’ve actually seen that in some of our residential areas. We’re doing the commercial assessments now, so I don’t know yet. But it has been a challenging environment. We’re down several hundred thousand on permit fees over the last couple of years, which tells you a little bit about what’s going on out there.
IB: And what will happen as property owners come back and want their houses re-assessed? Personally, you’ve got me assessed at about $90,000 over what I think you could sell my house for. What if there are mass appeals?
OLINGER: Well, that’s a very good question. The ripples. As a city that is heavily dependent upon property tax for its operating revenue and schools, a decline or re-adjustment can have significant consequences to the operations of government. So you’re absolutely right. And personally, my assessment has stayed the same for the last two years with no up-tick in my property. Unfortunately, I think you’re seeing that a lot.
So as wage rates and other demands on our services grow, and the property taxes do not increase likewise, it becomes a real challenge. That’s the budget the mayor has had to grapple with over the last couple years — particularly this year. Next year, what happens and how do we plan for that eventuality? We’ve still got 225,000 people and lots of employees that are here on a daily basis that need our services.
And the City of Madison prides itself on being an attractive place to live with a high quality of life. Those things happen, and it’s been a real challenge. I listened to what Mark and Dan were saying, and we’re kind of upstream from them many times, because University Square first started talking to us five or six years ago. And Union Corners took three years to get through its planning and land use approvals.
The slowdown right now has given us, I think, the ability to think a little more clearly about what we may want to see the City re-develop, once we get out of the trough. I don’t think we’re out of it yet, but we’re always in this kind of Catch-22. We catch it when we’re planning in advance, and we catch it when things are going fast, because then people are saying, “Well, you guys are reacting too much, and where’s the big plan? What’s the big picture?”
But this period right now has given us a chance to think critically about a lot of things, which helps a project when it does come through. Take Park and Regent [streets] — perhaps it’ll move through the process quicker than it might because there was a plan in place and already some kind of generally acceptable principles regarding what could happen. So we weren’t making it up as we went along.
IB: Was the financing already in place?
DAVIS: No, it’s not. It’s private financing, and not in place yet.
BROWN: But the neighborhood plan was there, and that greatly helped move things through the discussion process.
DAVIS: The upside — I think Eppstein Uhen did a great job guiding that process and working with the staff of the city to really match what was thought to be a good development plan along Park and Regent. It’s a critical intersection, with the number of people who pass through that intersection. The plan was well thought through. I think the right kind of architectural team makes a heck of a difference to work with the city and make sure it ends up being something you can be proud of for a long time.
Is Madison (as a City Entity) “Overly Involved?”
IB: Are neighborhood associations, during a downtime, easier or harder to work with to get a project through? Are they more conservative, worried about the longevity of the building — or are they focused also on bringing in jobs as a form of economic recovery?
OLINGER: I wouldn’t say the latter; more a bit of the former. One of the things we, as professional planning staff in the Department, along with Building Permit, inspectors, and all — our goal is that these buildings go up to stay 50, 100 years. And while I don’t think we’re soothsayers and can figure out exactly what the future will always look like, we have a pretty good sense about today. I think most people are concerned that what gets put in complements what we’ve already got, and will withstand the test of time to the extent that we know what that means, and that, when it’s all said and done, add value overall to the city, not detract from it.
A lot of those things are subjective. I still have my issues with some buildings that have been built downtown the last few years. I, and neighborhood associations, are always concerned that there’s something chomping at their heels, wanting to undo what many of them have worked very hard to do. There’s always that balancing act.
I think Madison is a city that encourages and likes participation. I had somebody tell me the other day, “I have never seen a city more difficult to work with than the City of Madison.” Not a statement I’ve never heard before.
But the speaker was from way out of town. And I replied, “That’s been part of the culture. We’re pretty educated, we like to get involved, we like to have bases touched. And if you get that, then the process is a lot smoother. If you don’t understand that, the problem, the process will be a lot more difficult and challenging.”
Sometimes we can help that process, and sometimes it’s just a challenge from start to finish. But I’ve never seen a good project not get done. I have seen some mediocre projects still get done, and I’ve seen some mediocre projects not get approved. But a good project will always get approved. It may look a little different, it may function a little different, but I think it will happen.
DAVIS: I think neighborhood groups are always really looking at quality-of-life issues, and they’re looking at it from how they interact with those areas of the city that bump up against residential areas. That balance has been maintained pretty well, and it shows up in all the sort of national ratings about why it’s so nice to live in Madison.
And yeah, it can be difficult for a developer that’s focused on making his pro forma work sometimes. And sometimes their expectations don’t include working through some of those issues that do impact quality of life in Madison. So you go in with the right expectations.
HOLZHAUER: Mark, I’ve been involved in three projects that I think were very excellent that didn’t get done yet. You mentioned Hilldale for one. The other one was 800 East Washington. And the third one was on the far east side — Union Corners. Those all took years to conceive and to present and to review, and all three of them are basically empty sites. I think all of them had merit.
My challenge to the city is that maybe because there was so much due diligence on the part of the city — so much involvement — the whole market economy shifted and at least part of those projects failed because of the long duration of public input.
I think Hilldale would have been a phenomenal investment on University Avenue. We saw that evolve with Joseph Freed, and I don’t know what will happen there. And 800 East Washington — the Gorman Company project — really would have been a strong initiator for East Washington Avenue. And the neighborhood embraced it.
So I still smart from some of those projects, just as everybody does, because those would be huge investments in the city and generate jobs and generate other spin-off in those neighborhoods.
DAVIS: And would have added to the quality of life, frankly, in a lot of those neighborhoods. Particularly East Washington Avenue. Some of the vacancy rates that went on to East Wash in the last two years have increased significantly. That would have generated, I think, a little more traffic or attention there.
IB: Is there a sentiment that there’s not going to be that much speculation on East Washington street by other developers because of what happened to the Gorman plans?
OLINGER: I’ve spent a good chunk of my last four years thinking about East Washington Avenue. We got a planning process put in place with some funding from the city, MG&E, neighborhoods, and the County. I guess we all have different perspectives. I don’t want to dwell too much on 800, because there are a lot of issues there, but I think still the future for East Washington is incredible.
Fundamentally, I have a hard time envisioning people living on East Washington Avenue. It’s putting people on a highway. I still have a hard time thinking that’s a great place where people want to live when you’ve got 65,000 cars a day outside your residence.
If you think about the densities the plan adopted, which are exponentially greater than what is there presently, there’s opportunities. Speculation? Probably not. I think what we need is somebody who would say, “I want to be downtown, but I don’t need to be on the Square. I’d like to be on East Washington.”
What we have tried to do is put in place — through the plan and Urban Design Districts and our TIF District — a way to say, “If you want to be an employment center on East Washington Avenue, and want to put some density there, come talk to us.”
Part of the issue with the 800-project was it was a residential project. And that has its own set of dynamics that are different than an economic development project along that stretch. And I think, ultimately, the fact that the University (urban research park) is on the east side of the Square is an amazing statement and a real shot in the arm for the long-term vitality of that street. Now we’ll have to wait for the sign to go up and the scientists to get in there, but I like the idea of some buzz, because right now, it’s not there yet. But it’s coming. And I think long-term very highly of what’s going to happen with East Wash.
UW-Madison Building Environment
IB: Gary, does a difficult economy stall university plans, or are you one of those institutions that the Legislature is going keep propelling forward?
BROWN: We’re still in a major building boom right now. We have $600 million in construction, and $450 million in the planning and pre-planning stage. That’s the most construction we’ve done. Even during the ’60s and ’70s, we weren’t building this much all at once.
We’re not slowing down, but we have heard rumors from the Legislature that there will be no new General Purpose Revenue, no GPR tax dollars for new buildings. You’re not going to see that in the next couple bienniums.
And our mantra has always been what IB said in the opening [for the roundtable]: “Construction is the hope, the economic driver for everything.” We continue to tell the Legislature that important message: You’ve got to keep construction going. Otherwise, this is not going to work.
We’ve been lucky to use a lot of private dollars. Both the former and current chancellors have been wonderful about bringing private dollars back into the university and the state for projects on campus. Now we have heard from some donors that their endowment funds just aren’t there. Clearly, they’ve been hit by the same market downturn, and they don’t have as much money to give as they projected. So we’re struggling a little bit on some of our 100% private-funded projects. But they’re still out there, still going.
IB: With endowments, a percentage of an estate might be earmarked, but if there’s less of an aggregate, the amount is likewise diminished. How do you recover that money lost from the private sector?
BROWN: We have projects that are in design, and we were counting on a certain amount of money coming in, and we just have to go back and re-design and cut some things out, cut some programs out, or delay programs.
IB: Which can cost more money, in terms of possible materials inflation over time.
BROWN: In the long run, yes, it will cost more, but it’s just one way of getting over that hump we’re facing. So construction, from our perspective is still out there, gangbusters. That’s why you’re seeing all the cranes in downtown Madison right now. And we’re happy and glad we can continue to keep that moving ahead. We have been very thankful the bidding climate has changed. Clearly, we’re seeing 10 to 15% reductions in what we were thinking construction is going to cost us, so that’s helped us. In these downturns of not getting enough funding, we think that’s very good. We’re hoping that continues.
We’re not sure what’s going to happen when the stimulus money starts, and projects and construction firms are getting busier and busier. Are those bids going to continue to go back up or not? We’re not sure.
Speaking of Inflation….
IB: What about the commodities market and the potential for hyper-inflation due to materials speculation? Does that worry you?
DAVIS: Well, inflation is a concern we have. When I talked about the downturn, and it coming back when people start to get busy, that’s our concern: You budget a building, and a year later, when it actually gets bought out and put on the street for bids, you could be in a crunch where you’ve budgeted too low based on current commodity prices. Right now, we haven’t necessarily seen direct relation of commodity prices. As gas, for example, went way down, you didn’t necessarily see all the petroleum-based products go down equally. Roofing products have jumped up in the last three or four years tremendously, doubled or more in price because of petroleum. And they don’t necessarily go down as far as they went up.
But what will happen, I think, is that we won’t be able to guarantee some of those commodity prices as long as we used to. It happened a few years ago with steel, for example. We’d get steel quotes in that were only good for 48 hours, literally, on large mill orders.
That kind of occurrence could happen. And so, as budgets get put together, it’s a little bit of speculation as to how far you can guarantee commodity prices.
IB: Planners: When you get a bid, do you want the prices guaranteed? Is that going to be more attractive than the lowest bid — or will you still be going with the most competitive bid?
OLINGER: Generally speaking, I think where that shows up, just exactly what Gary said — a project will come in, they’ll price it, and say, “Whoa!” And they’ll need to re-design or re-engineer, or value-engineer.
There are two projects, however, that we’re working on — Allied Drive and the Villager — where we have been very fortunate. The environment in which we are now is helping make both of those projects happen. In fact, on Allied, we’re going to get basically the project that we designed, which was amazing. I don’t do enough of that — two projects in the last ten years, both underway right now. We’ve been very fortunate in today’s market, with the exception that roofing materials again ticked back up. Everything else has been pretty consistent. And we did get a guaranteed maximum price, and we’ve ordered all our materials, so we’re okay right now on Allied and, I think, on the Villager.
But we do see that come through on changes that people need to make to buildings and projects, once they bid it out and things change.
DAVIS: That is an issue with the UW particularly, because of the planning and the length of the planning process. There’s a long-term master plan, and those budgets are put together far in advance of knowing whether or not even the project’s going to go.
BROWN: We’re doing estimates right now six years out. And in any timeline, we’re looking at projects 10 and 20 years out. So we have to estimate high, there’s no way around it. We have to look at inflation rates, whatever they might be, and estimate as best we can. But things change in six years, and technology changes. We’ve got to be able to negotiate those changes as we go through the process and add alternate looks at different ways of taking programs, or shelving certain areas because we don’t know what’s going to happen on those. It’s just a fact of life for us, and we’re seeing that on a lot of our projects right now.
MCNALLY: I don’t know about six years, but I can state with confidence that in six months, we’ll be dealing with one of two issues. If these economic developments continue to unfold as they have, and we look at ever-increasing layoffs and company shutdowns and bankruptcy of entire industries, we’ll be in a depression about July — in which case, all bets are off.
I don’t think that’s going to happen. I think that other things could happen, and it’s likely going to be inflation. If you start to follow some of the commodity prices, tin took a 5% jump in the month of January alone. I think about the only material in the construction industry that will be okay for a while will be dimension lumber. But otherwise, everything else — steel, concrete, gypsum, anything that involves petroleum — is going to be very susceptible, because there’s nothing left in the supply line. Wholesalers have been running with minimal inventories because they’ve been trying to conserve cash. They don’t have anything, whether steel or structural, none of it.
So, if you have an order now, you actually have to go ahead and contact the foundries, the mills, direct.
Then take a trillion dollars and stick it into the back end of this year, and watch what happens. And that’s where the inflation, I think, will show up.
An Industry in Transition
DAVIS: The demand has been down for materials long enough now that supply isn’t there anymore. That means the price doesn’t necessarily go down just because, at this point, demand is going down anymore. So it will be a bit dicey when people start to think the economy’s leveled off a little bit, and they start committing to projects again. Everybody — builders, designers, UW, everybody — will have to be careful about what prices they think they’re going to get for projects. Right now, we just bid a job with 19 bidders on the list. It’s aggressive right now, a changed marketplace.
A friend in the Madison market asked me the other day, “What do you think you’re going to look like after this downturn?” And I said, “Well, I know I’ll be about 15 pounds lighter.” And I started to tell him about our strategies to stay healthy through this. He said, “That’s not really what I was asking. Who do you think is going to be around after this?” I told him, “I think there are going to be some household names in the industry that will, if not go away, be completely changed, or will have had to change their business significantly so they’re not going to be the same kinds of companies.” Everybody can’t survive this in the same form that they started, frankly.
IB: Are you seeing more competition from Milwaukee or other cities? If they’re large enough to travel for a project, are they?
DAVIS: Our firm is in Milwaukee and Madison, but we’ve seen Fox River Valley companies in Madison. Chicago firms, absolutely. They’re traveling.
Even the subcontracting community is traveling because of that.
MCNALLY: In the 2008 phone book, under General Contractors, there were 175 names. And people think there’s such huge money involved in construction projects … for the new facility over at the Research Park, the difference between the two top bids, with alternates, was $6,000 on an $8-million project. That’s all.
HOLZHAUER: What’s exciting about it, though, is that everybody’s trying to re-invent how they do business. It’s not just us around the table, but every company is asking, “What can we do better? How can we be more efficient? How can we apply our dollars to get a better building?” So as we come out of this, it’s exciting that CEOs and the facilities people are saying, “Show me ways to make this building produce a better value for my company. Bring materials that have durability or sustainability and let’s do it a different way.”
The Green Investment
IB: Are companies moving more toward “green building” or are they going to become more cautious about perceived layers of cost?
HOLZHAUER: There are two different client profiles now. One is thinking long-term, saying, “It’s time to do the right thing.” They invest in alternative energy or geothermal or solar water heating or green electric car connections. The other type of client is really just trying to survive, and is not investing heavily, but just trying to downsize and be more efficient.
We’re seeing more people who are getting ready to invest who say as soon as the economy gets rolling, they’re going to build smartly for the long-term.
BROWN: We definitely are requiring more green building and looking ahead toward sustainability at the university. And it’s not just from a planning perspective, but our users are demanding it. Faculty, staff, and students are demanding that we be green in everything that we do. And it’s not only from a construction standpoint, but also how we maintain our facilities and go about our business. Today’s students are very knowledgeable and very interested, and their voices are heard. They’re a big group — 40,000 out there with a voice — and they’re a big part of the decision-making process. Our faculty as well. When they need or want something, we listen.
OLINGER: We’ve tried to change a couple things. On city buildings, for example, we have become much more sustainable and are actually pursuing LEED Certification on new libraries and new fire stations. For our own capital infrastructure, we do energy-efficient retrofits. So from an internal standpoint, the mayor has done a lot to help move us in that direction.
We also have tried to change some processes for firms or homeowners wanting to make some energy-efficient improvements. We have passed an ordinance making that much easier.
We’re responding to the market. Technology’s changing, styles change, and over time, I think a lot of this will become more ingrained. Then “green” or “sustainable” won’t be something you add; it’ll be part of the project from day one. That’s the evolution we’re seeing already.
BROWN: I heard somebody compare it to the American’s with Disabilities Act. When ADA came out in the early ’90s, people responded, “Oh, we’ve got to do all this extra stuff! I’ve got to spend all this extra money.” Eventually, it just became ingrained, automatic. I think the whole green sustainability movement is going to be like that in a few years. People right now say: “Oh, my gosh, it costs so much.” But it doesn’t if you do it right from the beginning.
DAVIS: Some of it’s driven by financing, but a developer can attract tenants that have a corporate affinity or responsibility toward it. We need to keep reminding ourselves that in the end, what we are tooling up for, is that a facility is a solution to a business need.
As Mark said, you’ve got to make your bottom line and pro forma work. If you can attract an institutional or a large corporate tenant because you are in a LEED-certified building, versus a standard one that does nothing special for the employees inside it, you’re going to go to the LEED certified building. So people that were driven by the bottom line before that raised concerns about price are now going back and re-thinking that and saying it’s part of a long-term plan.
HOLZHAUER: That’s a great point, because everybody’s trying to optimize and retain quality staff. Being in a healthier building, with better day lighting, air quality, and more convenient access to the outside, helps you retain the best staff —whether it’s LEED or just well planned.
DAVIS: The reason they’re doing it is maybe a little bit different, maybe not altruistic. But we tend to focus on energy now.
I think water re-use will come right behind energy as a driving force. We’re re-tooling priorities.
Changes at the Worksite
IB: One other topic: Given a down economy, with perhaps inflation in materials, is the cost of securing a jobsite likely to increase?
Or has this always been a level cost of business?
DAVIS: I don’t know whether it’s really changed a whole lot. We’ve always had to protect the work we’ve put in place.
MCNALLY: We’re securing sites that we were pulled off on a year ago, and it’s not because of materials. We don’t want trespassers. You don’t want people walking through impaling themselves on a rebar that might be 12 inches popped out of the soil. That’s just risk management. We’ve got
fencing all the way around Metropolitan Place, which is in receivership.
I haven’t had the problems in Madison. In larger cities, I’ve heard of problems on construction sites where people have gone in and stripped out all the copper piping, stripped out all the copper wiring. They got access to the site somehow. But around here, I haven’t heard of any issues with that.
DAVIS: That actually happened way before the downturn; I don’t know if the two are connected necessarily. It was connected with some commodity pricing. Copper shot up a few years ago. It could happen again, but it’s not honestly something we’re spending a whole lot of time thinking about at this point — above and beyond what we normally do to protect a site. And frankly, a lot of the sites we’re going to be working on, like Union South, you can’t bring anything onto the site until you absolutely need it anyway, because there’s no place to put it.
BROWN: It’s all just-in-time delivery. We’re doing a lot more of that in our urban sites now. You have to. There’s just no lay-down space to store materials.
HOLZHAUER: That’s one of the neat things unfolding, too: just-in-time or lean-process delivery. We’re integrating literally 3-D building models. And firms like CG Schmidt or Bachmann are able to look at those three-dimensionally and really optimize how they set up scaffolding or concrete pours.
Construction has really come a long way. It’s totally integrated, just-in-time, efficient without a lot of waste. The waste you do create, you recycle. It’s a very interesting process.
OLINGER: Even the city requirements have changed for the deconstruction of an eco-structure. From the first step you take, you’re required to go through a process and submit a plan that shows how you’re really going to re-use those materials. And Madison, frankly, is a leader in that area — to require all projects that have demolition involved to go through deconstruction.
IB: An “obstructionist” becomes a “leader” when affordable technologies catch up with vision or mandate?
OLINGER: Exactly. And one of the fascinating things I discovered while we were doing Allied — out of the nine buildings we tore down, over 90% of those buildings stayed out of the landfill through either recycling or grinding on-site. Amazing, and it seems like such a no-brainer, but that wasn’t always the case.
Just think of the costs — both societal and project — where we ground up all the basement foundations, and that became the base for backfill for pipe and street. Kept it on-site. It’s a wonderful thing.
Now that’s part of that ingrained nature. There’s that learning curve piece, but it is amazing today how little I hear about that. That seems to be part of the culture.
BROWN: It’s how you do business.
DAVIS: We actually started doing that almost 15 years ago with a project with Eppstein Uhen. And it was before LEED was there. We started to build our culture around that a long time ago. And now that’s second nature to us.
And I think, like you’ve said, Gary, product recovery will be second nature, and the focus on energy consumption or reduction is a huge issue. We don’t necessarily have a conservation issue. Our society, I think, has a consumption issue. We can keep making more, but we need to use less. And water is going to become the next issue.
A New Vision
IB: We’ve touched on challenges, as well as advances in technology and processes. We’ve also alluded to changing mindsets. But I’ve detected another new vision expressed at this table: While competition is increasing, you’ve expressed a respect for one another’s challenges and successes, and seem to have a strong sense of collaboration. True?
MCNALLY: Well, it has to be that way, though. You can no longer look at a project as a series of discreet steps. It has to be collaborative. What architects and engineers propose can affect the pricing, and that can affect how you market it. It can and will certainly affect how you construct it, what shape it needs for the approval process, and neighborhood acceptance. You can’t do this in your own little silo. You have to involve the other parties today, if you want to see successful projects go through.
DAVIS: That’s part of the intrinsic waste in the process in the past. There have been studies done that range quite a bit, but suggest that anywhere from 18% to 35% of the cost of a construction project is wasted because of that sort of incremental process.
First, there’s an idea. Then it gets handed off. Then drawn. Then bid. Then built. Then operated.
You waste effort, time, and money in that multi-step process. The integrated process of a collaborative effort removes a lot of that waste. You’ll never get to zero, but it’s certainly gone a long way to help squeeze the most value out of that available dollar.
BROWN: That’s the basis of the lean-delivery method that we’ve been starting to use, too. Institutes for Discovery has been using that, and Union South.
HOLZHAUER: And software systems have really, really advanced in the last five years, too. That’s where the contractors and architects are really looking at the same equipment and optimizing. Ten years ago, you couldn’t build some of the buildings we’re designing now, because you just couldn’t draw them. Now, the computer systems are allowing us to model them three-dimensionally.
IB: Collaboration….We can, and will, rebuild this economy together. Thank you, today and into the future, gentlemen, for your vision, labors, and leadership.
