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VOL. 8 | NO. 28 | Saturday, July 4, 2015

Building Boom Strains Labor Pool, Supply Chain

Contractors, subs ‘turning down work’ in Middle Tennessee

JOE MORRIS | The Ledger

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Middle Tennessee’s red-hot construction boom is becoming a victim of its own success. Architects, contractors and everyone in between, including Metro Codes, are up to their necks in work.

A crane is reflected in the windows of the new Gulch Crossing building.

(The Ledger/Leigh Melton Singleton)

It’s a happy time of an industry that also can see long, slow periods of stagnation.

But even now there are risks, one of the biggest being that seemingly everyone wants their new house, office building or amphitheater now – and there are only so many subcontractors and laborers to go around.

“The amount of work we have going on here is unbelievable, and it’s about to the point where we have to decide what makes sense to pursue,” says Dennis Georgatos, account manager of Skanska USA’s Nashville office.

He’s been in Nashville for four years, and has seen Skanska ramp up locally in order to tackle such projects as the new Ascend Amphitheater in downtown’s Riverfront Park, as well as HCA’s new Capital View office tower in The Gulch that, when complete, will house Parallon Business Solutions and the Sarah Cannon Research Institute.

The company also will be working on the redevelopment of the Nashville Convention Center site.

Skanska has worked in years past on such major projects as the Nashville Public Library and the neighboring Cumberland Apartments building, but its local operations were small. Not so these days.

“We’ve had ties here a long time, but now we’re in a place where we have to decide which projects makes sense for us,” Georgatos says. “For a long time our office here was very health care focused, and now we’re diversifying so that if one market section slows down, we’ve still got a lot of business.

“We’re talking to a boutique hotel developer now, for instance.”

Other conversations include those with subcontractors. From concrete pouring to roofing, local providers are slammed and so making sure that his projects get in line early has become a big factor in both pricing and deadlines.

“Two years ago, there were a lot of people looking for work, from crew assistants all the way up,” Georgatos explains. “Now the labor market is tight. A lot of people left the industry when it was slow and they did not come back. Some were older and retired, others were immigrants and they have moved around.

“And a lot went to the industry sector, to work in the natural-gas fields.

“We rely on subcontractors to provide the work, and their prices are starting to increase because of the shortage. A lot of them are not even looking at jobs because they’re so busy, but I don’t think that will slow things down too much because companies outside of Nashville are coming in.

“They may not stay when things slow down, but they’ll come in now and bring people.”

Even if outside vendors flood the markets, local builders may not even notice, says Craig Kennedy, a co-owner of Bootstrap Architecture + Construction. “We’re a design-build company, and so we have a general contractor in house,” Kennedy says.

“We offer turnkey services, and so we have built a team of folks we use. We’re not the only ones who use them, and they are slammed, so that can affect schedules.

“Things may take longer than they did before the explosion, but we want to work with the people we know vs. someone coming into the market who may not be all that good at what they do.

“I think people are going to have to learn to be leery of some of those new guys.”

Bootstrap does primarily residential work, remodeling and additions, as well as new construction. As it does more commercial work, Kennedy says the search will be on for new subcontractors to grow alongside the business.

He also predicts the current boom will continue for quite some time, so the contractor marketplace will continue to pose challenges.

“You’re talking two years to build a high-rise building, and even a few weeks for a residential property,” Kennedy notes. “We’ve got subcontractors now who do nothing but work for us.

“We’re turning down work, things like remodels, but we’re also working on relationships with other general contractors, architects and subcontractors.

“Our perspective is that there’s a lot of pie out there, and [there is] a slice for everybody if we all work together. We want to bring in other people, so we can refer on projects that we don’t have the time to do.”

Construction workers are scarce these days. Some are seen here working at the Skanska site at Charlotte and 11th Ave N.

(The Ledger/Michelle Morrow)

Bill Morris, president of KBJM Architects in Mt. Juliet, also advises caution. KBJM has headed the planning and design of more than 400 schools and educational facilities around the state, a book of business that has allowed it to learn some lessons around subcontracting that are serving it well in a high-volume Middle Tennessee market.

“Skilled, experienced workers are in demand, and training new workers takes several years,” Morris says. “In construction, you need a license from the state, but that only requires passing a test and the ability to provide bonding. Each license has a dollar limit a company can work, and it takes several years of success to increase those limits.

“A company may try to get around those limits by taking on more work than they can financially handle from a cash flow perspective, which only becomes apparent when they are slow to get the work done.”

The material supply pipeline also can be problematic now, he adds, because those vendors also are slow to come back from the economic downturn.

“They closed plants or reduced shifts, and are hesitant about increasing production because they are still feeling the pain of the recession,” Morris adds. “Just because the economy spooled up doesn’t mean they don’t have debt they incurred previously. That hinders them, because it’s a careful balancing act between paying that off and expanding their operations. Many are satisfied to have slow, steady growth.”

Another well-entrenched Middle Tennessee operation, Crain Construction, also is navigating the issues of supply and demand. A busy market is a complicated market, says Lizabeth Theiss, vice president of business development, but long-term relationships often carry the day.

“I definitely have a different point of view than someone who’s coming in from out of town and trying to get into this market,” Theiss explains. “We’ve been here 82 years, and we are fortunate to have very solid relationships with our subcontractors. They put us in their pipeline and take care of us, so we are able to pass that along to our clients.”

Crain does many mixed-use projects, all on the private side, and even though the firm is as busy as it’s ever been, Theiss isn’t sure about the whole “boomtown” label.

“It’s a cycle, and we’ve all seen it before,” she says. “There is a lot of volume now, and we’ll all put in extra hours and get it done. And then eventually things will slow down again.

“What we’re doing now is making sure that we’re as diverse as we can be, but we’re also making sure that we get everything done right on our end: Our subcontractors know that when they show up, we’re ready for them to get to work.

“We can’t have any delays, because they are busy. If we’re all saving time on labor by being efficient with our scheduling, then we’re helping each other make money.”

Indeed, efficiency is the watchword across the board, because the glut of projects means that prices for materials, labor and other project elements have come back faster than the labor market.

“Prices are back to where they were in 2007, pre-recession, or even greater,” Morris points out.

“This is the same cycle the construction industry always goes through, only the last time the downturn was more severe than most can ever remember.

“It will take four or five years for the industry to grow back to the level it was in 2008, and then everyone knows it could collapse again.

“Everyone is being careful this time, because nobody wants to be without a chair when the music stops,” Morris adds.

PROPERTY SALES 69 119 21,696
MORTGAGES 64 113 16,530
BANKRUPTCIES 28 64 6,781