Industry is booming, but faces challenges
By Andrea Richard
In March, SFBW hosted a roundtable breakfast with some of the region’s prominent general contractors in building construction. Participants in the panel contributed to SFBW’s research for its new feature, “The List,” which starts with general contractors in this issue.
The participants shared insights about their favorite projects and what they are working on. The conversation took on a serious note with anecdotes of lessons learned, industry challenges and the state of the labor market.
The panelists:
• AJ Meyer, vice president of business development, ANF Group
• Michael Taylor, president, Current Builders
• Charles Sisca, president, Sisca Construction Services
• Patrick Lee, president, Shorecrest Construction
• Rex Kirby Jr., president, Verdex Construction
• Ryan Romanchuk, business unit leader, DPR Construction
Editor Kevin Gale moderated the discussion, which was held at MassMutual’s headquarters in Fort Lauderdale. This transcript has been edited for brevity and clarity. Here are key takeaways.
What projects are you working on?
Romanchuk: The most technical work we are doing in South Florida is at a historic building in Miami that functions as a data center. We are breaking ground right now on the Schmidt Family Complex for sports at Florida Atlantic University. We built Clemson’s about two years ago. We are about to start on Modernizing Medicine’s headquarters in Boca Raton.
What are your favorite projects in recent years?
Lee: We built a house in Coconut Grove that was designed by a team of architects and that was on the market for $50 million for a little while. It was a huge learning experience for us, I was very aggressive in taking it. You live and learn.
We do a lot of our work, cost plus. What we found is that projects under $10 million, the owners end up paying and I think we end up making less. We’ve turned our focus to doing projects at a “fixed sum” and gained a certain profitability out of it.
Sisca: Most of my experience was developing high-end residential in New York—and it was great when you could put a house up for sale and sell it. When it came to custom work, I promised when I moved to Florida, I’d never touch another residential job.
We work for some mom and pop-type operations. They mortgage their houses, and they borrow from friends to start businesses. One example is Brooklyn Water Bagel. We’ve done about 25 for them. Planet Fitness is another. This gentleman was laid off from American Airlines. He was on furlough and happened to be the son-in-law of a banker that we used, and he asked me if I could help keep him busy. He swept the floors for me 15 years ago. He had two little kids. Now he has 30 Planet Fitness franchises, and he’s built like a $10 million house at the Aero Club in Wellington. That’s what is exciting to me—helping people to get to a position where they can prosper, and seeing good people do well.
Taylor: The University Park, student housing park in Boca [Raton] for FAU. What’s challenging about that is, you have a deadline and that deadline is the start of the school year. Turning over 600 beds all at one time. It was very rewarding and done very well—the developer did very well on the project. We had a few sleepless nights trying to get the project done.
We are finishing up a challenging project in Coral Gables. It’s a Tesla independent showroom, in which the top three floors have condos for cars—where people can keep their cars. There’s an elevator that you drive your car into to get into the condo.
What trends you are seeing in construction?
Meyer: Specifically, in the workforce and affordable side, we are doing a lot of [Housing and Urban Development] programs—[Section] 221(d)(4). It’s a unique financial mechanism that developers are using [for] garden-style builds. We are doing 377 units for Terra Group right now in Pembroke Pines.
The program is a definite trend we are seeing in the multifamily market. It’s not affordable housing, but it’s a financing mechanism through HUD, where they back the loan in a non-recourse matter. And so, developers can leverage about 85 percent loan-to-value, where, in the market right now, they are getting anywhere between 45 and 55 percent. Maybe some major clients are getting more. It’s extremely attractive for a lot of these developers. Now there are parameters, and there’s a roughly nine-month process. And for us, having done three of them at this point in the last two years, we are recognized by HUD. That’s a unique niche and I think it’s going to continue.
Neal: Right now, equity is taking a cautious approach, particularly, to high-rise projects, which are these 40- or 50-story multifamily deals. We are probably going to see a little bit of a pause on that. Garden deals, if you can find land, still may go forward. I have a suspicion that we will see a limited number of big projects go forth.
Affordability, in terms of what can you afford to pay as a renter, is an issue. Everything on Brickell, in Midtown, is $3 a foot. So if you get a 1,000-square-foot apartment, your rent is $3,000, $4,000 a month. Who could afford that, right?
We are working on a high-rise project in downtown Miami, where you pay $1,300 a month to live in a student housing-like, multifamily building. You rent a bathroom and a bedroom, and you share your communal area and kitchen. This is gaining traction in Europe. Maybe that is a new pathway to affordability.
Sisca: Affordability is top on almost every developer’s mind. We’re seeing smaller units, but with great amenity packages, creating a lifestyle for residents. A big trend we are seeing is communications inside these buildings: access control, internet access. Even the fire department is coming in, making sure that radios can work in every part of the building. We are spending a tremendous amount of money in the communication section of these buildings. That’s what the kids want—they would rather have phones than water.
Neal: Mobility. The thinking is that living in Palm Beach County is more affordable, and I can jump on the Brightline and be in Miami for work within 45 minutes.
Kirby: Another trend is, we are seeing a lot of buildouts of open office spaces. Lots of glass and less offices and more open plans. Even in apartments with amenities that continue to enhance, they have their own little cafes and social areas.
Taylor: I’m seeing automatic package delivery as an interesting trend. When a delivery comes, the person gets a text message letting them know that they have a package and the code to access it. With the advent of Amazon delivery, package delivery is a huge selling point.
Meyer: Because of affordability on the buyer/renter and developer sides, what’s needed is more self-storage. I’m seeing significant opportunities in self-storage.
What is the state of the labor market?
Romanchuk: Our industry keeps pushing risks further and further down the stream. So there are fourth- and third-tier subcontractors, where you hire a company and they use [IRS Form] 1099 [independent-contractor] employees, doing piece work. We’re ruining construction in South Florida by doing piecework for everything. We are not getting the right training. We are having to rework, [and] the costs go up.
Meyer: The challenge in the gap that I’m seeing is in onsite supervision. You have a lot of these high school kids going to college, getting a building construction degree, spending $60,000 to do that, and they don’t want to be onsite at 6 a.m. and get home at 7 p.m. They want to be in the office as a project manager. They feel as though they would be making more money, so there’s a skill gap that you’re going to see. Our average workforce in the country is age 44. I think you’re going to see that worsen in the construction industry.
Taylor: We are working with some of the vocational technology schools. But it is very difficult because the education system is not promoting a blue-collar workforce. I think we need to change our thought process in our education system, where, instead of people going into the service industry becoming cooks and waiting tables, there are good-paying jobs.
Kirby: Even what we could do on the training side is minuscule compared to the needs. I think we are all seeing it: The quality of labor out there in a busy market in every cycle is the same—it’s at a horrendous level. The amount of supervision you need now versus three years ago is night and day to me. We have to add extra people to supervise just because of the quality of labor. ♦
