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VOL. 124 | NO. 164 | Friday, August 21, 2009

Economies of Scale

Architects redesign efforts in tough financial environment

By Eric Smith

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GREEN DESIGN: Architecture Inc. is the architect of this Leadership in Energy and Environmental Design (LEED) certified house at 686 Somerville St. in University Place. -- PHOTO BY LANCE MURPHEY

The dynamics of a bleak economy render a simple equation when applied to the architecture and design industry.

If financing is tight, then fewer construction projects are started. If fewer construction projects are started, then the need for architectural firms to create blueprints and design buildings also diminishes. And if there’s a decreased need for architectural firms, then some companies are forced to cut staff and many more to implement hiring freezes.

Memphis is not immune to the nationwide credit crunch and subsequent slowdown in residential and commercial building activity, and that formula has drastically affected the local architecture and design industry, which languished as much as any during the past year.

Nationally, the forecast remains gloomy, as the Architecture Billings Index in June reached its lowest total since February with a score of 37.7, according to data from the American Institute of Architects. (An ABI score above 50 indicates growth; a score below 50 indicates decline.)

As job losses mount and projects are scrapped, Memphis firms are doing what they can to hang on. Because of shrewd business savvy or sheer luck – or a combination of both – not all firms are suffering, and not all have enacted layoffs. But the reeling financial climate is on the minds of everyone in the industry, said Joe Wieronski, a partner at Askew Nixon Ferguson Architects and president of the Memphis chapter of AIA.

“That’s the main topic right now. Everybody’s talking about it,” he said. “People are crying a little bit. Some people are doing OK, but the majority of people, I would say, are hurting at the moment.”

Resourcefulness a must

The problem with this recession is its severity and length, noted Frank Ricks, principal of Looney Ricks Kiss Architects Inc. Unlike past downturns, this one has hit numerous sectors of the economy and resulted in massive unemployment, creating a ripple effect that quickly reached architecture firms no matter their size or business model.

“At this point it seems like just about everyone has been touched in some way, mostly in a reduction or negative way,” Ricks said. “This one’s been deep enough and long enough, and because it affects the funding sources in such a significant way, it’s made it extremely difficult.”

Surviving has become a matter of flexibility for most firms, and the ones who endure won’t be the ones sitting around waiting for projects. They’ll be the ones who adapted to the changing environment by finding creative solutions to a dried-up market.

BANKING DESIGNS: Looney Ricks Kiss designed the Independent Bank building at the corner of Poplar Avenue and Germantown Road. -- PHOTO BY LANCE MURPHEY

Salvador Feraci and Doug Burris are principals at Renaissance Group, a small Lakeland firm that has focused on the changing needs of its clients whether their projects are big or small, or whether the chief concern is sustainability or aesthetics.

“Dynamically, you need to be moving how your client moves,” Feraci said. “If your clients’ concerns are in green design, or if your clients’ concerns are in how (a building) looks from the street, then you have to be able to respond to those changes and look at what makes sense for them. Being in tune with your client and their needs, both from a cost perspective and a marketing perspective, are the two most important things that we can do in this current economy.”

Renaissance Group has found a way to generate business by anticipating challenges. The firm strives to pair clients – say, a developer and an end user – and suggest projects that would benefit both parties.

“We see their perspectives, their challenges, their issues that they need to have resolved,” Burris said. “We try to help solve their problems. We’re not your typical architect. We’re out there trying to facilitate our clients in more than just drawing buildings. We found that to be extremely successful.”

Closing, opening ranks

CONVERSIONS: Construction proceeds in the foyer of the new University of Memphis Cecil C. Humphreys School of Law off Front Street, the former home of the Downtown Post Office. The facility is scheduled to open in the spring. -- PHOTO BY LANCE MURPHEY

“Strategic alliance” is one of those clichéd corporate terms such as “best practices” or “speed to market,” but the phrase has become increasingly popular with architectural firms in this economy. Companies are collaborating to become more competitive and present a unified front that can double or triple the size of the team, said Jimmie Tucker, principal at Self Tucker Architects.

“You don’t necessarily want to look at increasing staff, so if you can team with someone, it may be a firm of a similar size and you’re able to pursue a larger project or put together a joint venture. That’s a strategy that we’ve taken on for several different projects,” Tucker said.

Tucker said the collaborating companies are then able to share some of the marketing costs for preparing different proposals and can be viewed by potential clients as a stronger unit – the sum being greater than the parts. That, and a return to sound business principles, can keep a firm solvent and viable in the leanest of times.

“We’ve had to put a lot more emphasis on good project management and good firm financial management, more so than we have had to do in the past,” Tucker said. “It’s a good thing, because everybody in the organization has begun to understand the importance of implementing these strategies and following through on them in order for the firm to be successful and sustain the downturn.”

Coincidentally, one trend that has sustained the downturn is sustainable architecture and design. Despite less activity overall and smaller projects, the principles of sustainable design and green building have gained momentum because they reflect corporate stewardship and can save users money in the long run.

“Sustainability is here to stay,” Wieronski said. “I think it’s a new way we all need to be looking at things and a new way to build our communities and our projects. We want to do things in a smart, sustainable way.”

Sustenance

Joey Hagan, a principal at Architecture Inc., said his firm has been aided by contracts for large, multi-phase projects whose funds were well in place before the economic meltdown, but he’s certainly seen the effects of a stagnant market on the industry.

“Yeah, people in town are having a rough go of it,” he said. “I have some friends who have been laid off who I never thought would be in that position. I’m talking about people who have been with firms 10 to 12 years, were close to partnership positions, licensed architects, project managers running jobs. It’s tough out there. That being said, I think it’s getting better.”

Hagan and others have seen a recent rise in inquiries, which are a good barometer of how the industry might look six to eight months from now. Of course, inquiries don’t always turn into jobs, but architects will take any positive indicators.

“We all went through a period six months ago when the phone didn’t ring,” Hagan said. “Now I’ve got people calling; they’re fishing around. But it still relies very heavily on the banks to let loose with some money.”

Hagan and his firm aren’t alone. Architects throughout the city have seen the chokehold the capital markets have held on the construction industry, no matter how viable the project, for more than a year. That’s especially true with the private sector, and firms have been shifting toward institutional and public projects, including urban planning and city design.

“Those projects which are not on hold are being scaled back in size,” said Carter Hord, principal at Hord Architects. “Many of our clients are simply doing smaller projects. I cannot speak for other firms. However, our work is spread among different regions of the country. This is largely due to our specializing in churches and other nonprofit clients.”

Safe in the ivory tower

The University of Memphis launched its master’s of architecture program in the fall of 2008, in the middle of the real estate crisis. The timing didn’t impact the program’s inaugural class, nor has the economic turmoil affected enrollment in the U of M’s undergraduate architecture and interior design programs, said Michel Hagge, architecture department chair.

If anything, the slow job market has sent more aspiring architects back to the classroom.

“In the graduate program we have noticed more people coming to us who have been laid off or who are having a more difficult time finding a job, so they’re coming back to graduate school,” Hagge said. “Some of them already have an undergraduate professional degree in architecture, so technically they don’t need the (master’s), but they’re coming back and specializing in architectural education or city building, which is our specialty at the U of M, anyway.”

AIA Memphis’ sixth annual Architecture Month will be held throughout September. The festivities kick off Sept. 3 with a reception and continue all month with architecture tours, a lecture on “Retrofitting Suburbia” by national speaker and author Ellen Dunham-Jones, a golf tournament and the finale, Dining by Design, set for Sept. 26. For a full listing of events and more details, visit www.aiamemphis.org.

Hagge said the graduate students who haven’t yet looked for a job don’t seem overly concerned about the profession. They understand the cycle of the industry and figure the market will rebound by the time they have their diplomas in hand. As for the undergraduate students, Hagge said it’s the parents who are asking more questions about career prospects for their sons and daughters.

“We’re telling them that we’re optimistic,” he said, “that the economy will show some promise and turn around and it will be good for the profession.”

That optimism has the architecture industry as upbeat as possible as it holds tight to the notion that it must reinvent and redesign itself to survive, just as other businesses are doing.

“It’s like every other industry – from the car industry to the homebuilding industry,” Ricks said. “Everybody’s saying, ‘What is that new model that’s going to sell the best?”’

RECORD TOTALS DAY WEEK YEAR
PROPERTY SALES 85 305 21,577
MORTGAGES 62 223 16,417
FORECLOSURE NOTICES 0 17 1,504
BUILDING PERMITS 0 571 42,491
BANKRUPTCIES 34 138 6,717
BUSINESS LICENSES 40 72 3,169
UTILITY CONNECTIONS 0 0 0
MARRIAGE LICENSES 0 0 0