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VOL. 125 | NO. 159 | Tuesday, August 17, 2010

Redesigned and Rebuilt

Firms shift gears in hopes of finding projects

JONATHAN DEVIN | Special to The Daily News

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Archimania employees, clockwise from front, David Pang, Kelly May, Edith Tinker, Andrew Parks, Matt Seltzer, Kayce Williford, and Tim Michael discuss details of a specialty veterinarian hospital being designed for MedVet / PetMed.
Photo: Lance Murphey

David Schuermann, president of Architecture Inc., said his 16-year-old Downtown firm specializes in renovations and restorations to existing buildings.

In the last couple years, though, with banks and developers in a stalemate, he’s had to renovate his business model as well.

“We’re going to be fine,” said Schuermann. “We haven’t had to face laying people off. It can only get better. It’s just a matter of how long it’s going to take.”

In fact, firms like Architecture Inc., which has four architects, may be just as likely to assume a new, larger position in the Memphis and regional markets as giants of the industry tumble, leaving small- to medium-sized firms to grow into a new economy.

“In the past there have been occasions when we were not hired because the client went with a larger firm thinking that they’re more solid, not as risky,” said Todd Walker, principal of Archimania, which has five licensed architects and a couple more on the way. “What’s proven out of this economy is that a lot of the larger firms were hit harder than the smaller firms.”

Memphians don’t have to look far to see what he’s talking about.

In late February Looney Ricks Kiss Architects Inc. (LRK) filed a Chapter 11 bankruptcy petition. LRK, whose footprint shrunk from seven to four offices due to the downturn, is a well-known commodity in town for highly visible projects like AutoZone Park and FedExForum.

The company, like many others struggling to make it, is now working to retool.

“(The architecture industry) is not insulated at all,” said Schuermann. “I think we’re on the front line. When you see key economic indicators of the construction industry and how it’s gone down, we get hit before that because they can’t construct it before we design it.”

In late July, the American Institute of Architects (AIA) released a report that its Architecture Billing Index (ABI) in all areas of the country was a few points below a score of 50, a threshold that indicates an increase in billing. The ABI measures the lag time between architecture billing and construction spending.

“By the time an architect sends a bill, the work that that bill represents has already been done,” said Schuermann. “In the case of a client truly going south, then many times the architect is stuck.”

In one case, Architecture Inc. designed a boutique hotel for a client, whose financing was already in place.

“We completed the drawings and went back to the bank and said we’re ready to do this deal, and the bank backed out,” said Schuermann, noting that the risk associated with hotels had increased in bankers’ eyes in recent years.

“In that case we were lucky. The client went ahead and paid our bill and we continued to work with him to try to develop a project that he could get financed.”

Overall, July’s ABI was 46.0, a slight increase from June’s 45.8. Regionally the South, with an ABI of 46.7, fell in the middle of the Midwest and the Northeast with ABIs of 46.3 and 47.7, respectively. Those areas fared noticeably better than the West with 43.6.

Commercial and industrial design improved with 50.6 ABI, while residential design lagged behind at 46.5.

To cope with the slump, firms moved away from their comfort zones and broadened their client base to include out-of-town clients and the one industry that appeared to have steady financing at the beginning of 2010 – the government.

The American Recovery and Reinvestment Act of 2009 – more commonly known as “ARRA” or, simply, the “stimulus plan” – pledged $787 billion in tax cuts and funding for projects around the U.S.

Much of those funds made their way to the Memphis area, including the Naval Support Activity Mid-South base in Millington.

“The naval base at Millington had a stimulus project,” said Walker. “It was three projects, a new childcare facility, an NCIS renovation, and a third building renovation. We had never answered a Navy request for proposal before.”

Archimania landed the $10 million to $12 million project in February 2009 and expects the childcare facility to be completed in the next two months.

That’s a huge gain for the company whose average project before was around $3 million to $4 million in years before. The company also secured a $25 million administration building project in Los Angeles. The project was halted about halfway through, but Walker said he believes it will resume.

The firm also has seen growth in smaller projects as well, including a new MedVet veterinary hospital in Cordova, an Infiniti of Memphis dealership in Bartlett and renovations to the Visible School building Downtown, all of which fell into the $1 million to $3 million range.

AIA’s project inquiries index in July (57.7) did indicate increases in inquiries made to architects, and the organization predicted a possible recovery in the construction market by the end of 2011.

“Things should begin to turn around midway through next year with retail and hotels expected to see the strongest growth, along with health care and amusement and recreation facilities,” said Kermit Baker, AIA’s chief economist, in a release.

But while government stimulus has helped some, the actions of Congress make others wary.

“What needs to happen is for the private business sector once again to have incentives which encourage the free market capitalist system to flourish without the heavy burdens of increased taxation of all types including capital gains,” said Metcalf Crump, president of The Crump Firm Inc., an architecture, planning and interior design firm.

The Crump Firm has a staff of 24 with seven licensed architects. They’ve been down about 20 percent since 2008.

“The heavy burden of excessive big government and its anti-business attitude and policies have so negatively impacted our economy and discouraged so many small businesses to take risks and to invest their capital or borrowed funds in the future,” said Crump. “This scenario assumes an easing of the lending crisis which is not immediately self-evident.”

Crump said his company has picked up commissions from new clients this year, but the creativity of small businesses can only go so far.

Walker and Schuermann, meanwhile, both said overall recovery for architects in Memphis depends on banks lending more, and both found reinvestment in Downtown’s condo market and business community to be key for that to happen.

“It’s still going to be some years before the economy comes back,” said Walker. “My take is that it’s still at least three or four years away, at a minimum of two years away. However, the economy did probably make some of us stronger. It was the first time we had really weathered a storm. It solidified us as a stronger firm.”

PROPERTY SALES 90 156 6,702
MORTGAGES 61 139 4,268
BANKRUPTCIES 40 85 3,481