Build It

Building for the future: San Francisco

A story in the San Francisco Business Journal today reported on the finding of the Association of Bay Area Governments (ABAG). 

The ABAG says that San Francisco will add 156,000 new workers over the next 25 years and that those workers will require 34 million new square feet of office space.  That's an average of 1,360,000 square feet of office built new each year until 2034.

Moody's did a similar prediction, although their numbers were lower.  They predict adding 61,000 new workers which would require about 13 million new square feet of office.

Regardless of which number you believe, the implication is that building will never die in the Bay Area and especially San Francisco.  It may take a breather (as in what's happening now) but there will always be need and demand for new structures.  Smart developers know that they are not building products for their customers today, but rather for those customers 10 years from now.

I wrote about this topic back in Novemberafter listening to Chris Meany from WMS Partners talk about the need for housing for the future populations of the Bay Area.  Even though it's a tough construction climate right now, he understood that he has to get underway in order to time the market so that his units come online when the housing market has fully rebounded. 

I guess the moral of this post is to have heart.  That this is not the first (or last) recession and that demand and economic feasibility for development will return in time.

Jared Willis

The Spearin Doctrine. What is it and why is it important?

In doing some research on Building Information Modeling (BIM) recently, I came across a legal decision referred to as the Spearin Doctrine.  For those in reprographic sales (or any type of construction for that matter) this is a decision you should become very familiar with.

It was a Supreme Court case (United States v. Spearin) heard in 1918 that essentially lays the legal groundwork for assigning liability for accurate and correct plans.  It pitted a General Contractor against the US Government which had asked Spearin to build a dry-dock in New York.

You can read a great summary here, but basically Spearin completed the work according to the plans as approved by the Owner (the US Government).  A year later, when a neighboring sewer line that was not included on the approved plans broke and flooded the dry-dock, the blame (and cost to fix the problem) was laid squarely on the shoulders of the Owner. To paraphrase the linked article above:

"This doctrine...maintains that a contractor will not be liable to the owner for loss or damage which results solely from insufficiencies or defects in such information, plans and specifications."

When talking to your Owner/Developer clients, the importance of accurate and complete document management can not be stressed enough.  This particular case may deal with the accuracy of the drawings themselves, but stressing your QC processes that help catch incomplete drawings and other mistakes.  Get down to the real issues facing the Owner including that's he's responsible for the drawings that make it out to the team, then show them how you help mitigate that risk with your services. 

Jared Willis

Of construction delays and Pepto Bismol

I've been watching a lot of Construction shows recently.  Stuff like Build It Bigger and Colossal Construction.  These shows offer a great inside look at some of the world's biggest construction projects.  In fact, they even profiled the Grand Canyon Overpass project I blogged about a few weeks back.

One thing that has really stood out to me about these shows is the drama they create around project delays.  At a particularly critical junction, the announcer comes on and says something like, "If they can't get this concrete up on the structure before the thunderstorm hits, the project will be delayed and will cost another million dollars to re-attempt."  First of all, I think, 'A million dollar concrete pour?', but when you add in all the labor, materials, schedule delays and other costs, that number is not exaggerated.  In fact, on the Grand Canyon project, they had a concrete event called the "Million Dollar Pour".

And stuff like that is always happening, all the time and with all the trades (although concrete seems to be involved a lot for some reason).  Every time the announcer tells me how much that one screwup costs, I literally get a knot in my stomach and a little heartburn; and it's not even my money on the line.

We know this happens in real life too.  We were just talking to a GC about a new project of theirs that's slated for a $700 million construction budget, and he said that he fully expects the project to go a year longer than projected and another $100 million over budget.  That blew me away.  This guy, who is very knowledgable in construction costs, expects that they'll spend 1/7th of the job cost in overage.

I started this post to talk about communication, but I think the message that has developed here for Reprographic salespeople is that if you're not helping your clients find a way to prevent wasting an entire 1/7th of their job cost overage and loss, you shouldn't even be talking to them.  If I was that developer, I imagine that the only thing I would want to hear about would be how you're going to help me cut down on overage, risk and schedule delay.  I would imagine that minor savings on materials cost that I could get by hammering subs would be pennies compared to savings in workflow, efficiency and delay.

Bring that message to your clients, help them undo those stomach knots and I bet you'll have their ear and their project.

Public Transportation and San Francisco Transbay

One of the greatest upcoming projects here in San Francisco has to be the new Transbay Transit Center. 

 

This massive, $1 billion project is going to create the "Grand Central Station" of San Francisco.  Bringing together Muni buses, BART trains, Caltrain, Light rail and the eventual high-speed bullet train this project will put San Francisco on the map as a hub for sustainable Transit Oriented Development (TOD).

With the infusion of cash from the government and Economic Stimulus Package, much of the developent dollars are going towards projects just like this one and the development community is taking notice.  In my last issues of the ULI's Urban Land magazine, they presented the results of a 6000 developer survey regarding infrastructure and transportation investment.  Here are some really interesting stats from that article:

• 1/3rd are focusing their development in the central city, 28% in the inner suburbs, 25% in the outer suburbs and 14% still primarily work in greenfield or fringe areas.
• Gas prices are having an impact on where they are choosing to develop.  94% said long term gas prices will influence development patterns and 65% said prices have already affected their decisions about where to locate future projects.
• Even though TOD is a hot topic, 51% ranked highway connections as very important for site selection.  Only 26% said that pedestrian access and walkability were very important and an even smaller 20% said that transit itself was important.

The author, Sarah Jawaid sums this up by saying that overall, "the survey reveals the uncertainty U.S. developers feel about the ability of governments to continue to adequately provide infrastructure in the face of the economic crisis."

For most of the US, this article seems right on to me.  However, I think for major metropolitan areas like San Francisco where we are space constrained, TOD is the future that we all need to clamoring for.

Construction Starts - November

McGraw-Hill Construction just released numbers for Construction Starts in November of 2008.  Overall, construction starts slid 3% to $454 billion annual rate (the weakest level so far in 2008). 

This decline was mostly driven by the continued downturn in residential properties with a 9% decrease in November.  Here's a bad quote:

"Single family housing has now shown decreased activity in 10 out of the first 11 months of '08."

 

Residential building has plunged 39% year-to-date in both the single and mutli family projects. 

Overall, total construction is down 16% since '08.

Is there any good news?

As I've written before, there are some silver linings in these dark clouds.  Education building rose 7% in November and non-building construction (roads, utilities, etc.) added 1%.

These amounts are going to increase in 2009 with the incoming Obama administration pledging to spend billions on new infrastructure creation including roads and transit systems as well as public buildings like libraries, and schools.  Also, the new administration should fuel a boom in renewable energies construction.

Additionally, while overall commercial construction fell 17%, the growth for Institutional Buildings was up 6% and Manufacturing Buildings were up a whopping 56%.

So...

Essentially, even though this isn't great overall news, I think there are the makings of a good recovery.  For instance, even though residential is down pretty far, we know that inventory is going down across the country which means there are sales and that we're probably pretty close to the bottoming of residential's decline.

Public projects and Institutional buildings are up which will be further driven by President Obama and his WPA-like programs.  And, I think the best news is the major growth in Manufacturing Buildings.  Manufacturing plants increase jobs, increase our exports, reduce our dependence on foreign products and can be the economic engine behind recovery.

I believe that 2009 will not be as bad as everyone is predicting and that we will see a return to semi-normalcy by the middle of the year. 

Let's hope I'm right.

 

Jared Willis

Green housing demand slows

MSNBC.com reported today that the slumping economy has slowed the development of "green" single family homes.  The drop in oil prices and the general worsening of the economy has made buyers less interested in low energy housing.

For many of the builders developing green housing, the reason seems to be the other type of green.  The sale of "green" homes gave them an advantage over their competitors.

"Encore" homes promised to slash electric bills by up to half, and buyers snapped them up even though Meritage (the developer) offered them at a higher price than nearby competitors."

"Sales figures in July showed that the Encore development sold 1.55 homes per week, compared with 0.88 homes per week for similar homes in the same city, Kramer said."

At an event in San Francisco a few weeks back, the developer of the Arterra building on King Street said that their decision to go green on their new structure did not necessarily mean they were able to demand higher rent/sale price.  He said the advantage was in marketing.

By having a green development, he was able to get more foot traffic, more phone calls and more general interest which led to a higher close percentage.  He estimated they were selling twice as many units per month than their competition.

When you come down to it, building green IS the responsible thing to do, but as you can see above, there are benefits to your bottom line as well, even if it doesn't come in the form of direct revenue.


Jared Willis

Class-action Lawsuits up 50% over 2007

In today's San Francisco Business Journal, there's a piece about the rise in litigation connected with the Financial Market downturn.  This particular article profiles "electronic discovery" firms and the subsequent business growth they are seeing from companies hoping to protect themselves from lawsuits.

Here's a sobering quote:

"new companies are coming out of the woodwork in response to a 50 percent increase in the filing of class-action lawsuits this year, half of them related to the financial crisis."

Now, granted, these are lawsuits in the Financial sector, but anyone in Construction knows how incredibly litigious Development can be and should take heed and think about protecting, archiving and organizing important documentation that will save you hundreds of thousands of dollars in legal fees, judgements and lost work hours.

Documents can no longer be looked down upon as simply paper.  The entire Construction/Development community needs to take a closer look at the importance of information, and by extension, the people that you trust to manage your information. 

Be prepared to pay more for good document/information management but look at is as pennies on the dollar that you'd be forced to pay lawyers later on.

Click here to view the article

Jared Willis

Green Building Growth

I'm at an event this morning about the future of development in 2009 and the current topic is about green building. I wanted to share a quick statistic for you about where green building is going. 

In 2006, the numbers for green building were $12 billion for new construction and $130 billion in renovation. 

In 2010, that number is projected to grow to $30-60 billion in new construction and $240 billion in renovations. 

Green is real, present and coming. For those who want to remain successful in reprographics, change your approach and the way you do business to match the market. 

Jared Willis

Most expensive part of Development?

I would guess that if you asked most Developers where they spend the most money, they would tell you "labor and materials".  I would again guess if you asked them where document management fits on their list of priorities, it would be pretty low.

But, what if you could link shoddy document management to an increase in labor and materials costs?  What if you could show that spending a little more on document management would actually help control/reduce their costs on labor and materials?  Do you think you'd get the Developers ear?

Connect the dots for that Developer by talking about how an out of date set of drawings, in the wrong hands can cause a Sub to build the wrong thing (labor), which causes them to have to tear out the incorrect piece (labor & materials), order new stuffto replace the incorrect piece (materials), and then have that same Sub re-do the job to get it right (labor).  Now ask the Developer to multiply that for every jobsite error he has on a job.

If you can show that your document management prowess gets the right information, into the right hands, at the right time, the first time...you'll help them reduce costs on the "labor and materials" line item and you'll get the job.

Happy selling.

Jared Willis

Construction Clairvoyance

Anyone who has been in Development knows that Construction is a lagging industry.  Because of the length of time to construct properties, most construction is building for the market situations of 8 months ago.  On the flipside, Developers have to be part prognosticator in that they have to build for the market demand of next year or beyond.

In the current economy, we're seeing a lot of delay and outright stoppage of construction in some cases.  People can't stomach the market volatility or simply can't get resources to build.  Granted, this is a crisis in itself, but the all out stop in Construction will have greater implications for the future.

There is a real and future need for structures to accomodate future populations which we know are increasing.  One estimate for the San Francisco Bay Area estimates we'll need 700,000 new homes over the next 30 years to house our growing population. 

This economy is not only affecting current projects, but it will create a future housing crisis as the demand for homes far outpaces the existing supply.  In fact, I imagine that if you looked back at the last housing price boom in the early 2000s, it was preceeded by a similar halt in Construction in the 1990s.  Even though times are tough, development needs to continue to meet future demand.

Development needs to have a long-term mindset and, in the words of Wayne Gretzsky, skate to where the puck is going to be, not where it was.

Jared Willis