The economic recession and resulting construction industry swoon haven't been kind to contractors, as state licensing numbers and association memberships show, and those who have survived say they are cutting costs, getting creative, and hoping for a turnaround.
The number of licensed contractors in Spokane County this year so far has fallen by about 590, or 10 percent, to 5,190, from 2009, according to the Washington state Department of Labor & Industries. The fallout also has shown up in membership numbers at the Spokane Home Builders Association, which has seen its roster decline by 5 percent so far this year, says Joel White, executive officer.
"I would guess what we're seeing is that a lot of members have stayed in as long as they can," White says. "If we've lost this much already, we'll probably see a decline at a similar rate throughout the rest of the year."
One of the companies to survive, Spokane Valley-based Homestead Construction, began seeing business slow down in the fall of 2007, and has stayed in business mainly by cutting expenses, says part-owner Chris Swanson.
"We had hoped it would be a little more gradual," Swanson says of the downturn. "Right now we're doing one-third of what we were doing three or four years ago. We're all kind of bumping along the bottom."
Kate McCaslin, president and CEO of the Inland Pacific Chapter of Associated Builders & Contractors Inc., says that organization, made up of commercial and industrial contractors, has "just had a couple of contractors going out of business," so far. Still, she says, many contractors have cut costs to the bare minimum to survive.
"They're cutting fatcutting overhead. What's left is muscle," McCaslin says. "We expect if the economy doesn't turn around, they're not going to be able to weather it."
She adds that most building industry forecasters "don't see a big turnaround until 2012 or 2013."
In the meantime, among McCaslin's main concerns is that bids these days are coming in very low, perhaps too low.
"Work is going very, very cheapfar below most people's costs," she says. "You can't do that forever. Sooner or later, it will catch up with you."
Wayne Brokaw, executive director of another prominent trade group here, Inland Northwest Associated General Contractors, says that while the recession has resulted in homebuilders going out of business, "We haven't seen that impact on the commercial side or the highway side."
Public works projects that have kept some Spokane-area contractors afloat during the recession include the North Spokane Corridor freeway project, the Spokane County wastewater treatment plant, and several community college and public school construction and remodeling projects.
In fact, says Brokaw, some larger contractors did more business in 2009 than they did in 2008, because projects started in the year-earlier period happened to be part of less expensive phases than those they did in 2009, so last year's work had a higher dollar value.
That observation is backed up, at least for some companies, in information provided to the Journal of Business in its list of largest contractors, published this past May. In that list, Lydig Construction Inc., Vandervert Construction Inc., and Leone & Keeble Inc., three of Spokane's more prominent players in the construction industry here, all reported higher contract revenue in 2009 than they had reported on the Journal's 2008 list.
Brokaw also says that the mild weather this past winter allowed projects to continue through the colder months, while in each of the two previous years, construction work was shut down due to heavy snowfall.
"A lot of people were happy to be working and providing for their families that normally would be laid off," he says.
Brokaw believes there will be "a very slow recovery for the commercial building side." He says highway construction "will move forward, but at a slow pace for the next couple years."
He says federal stimulus money has provided a needed boost in the Spokane region.
"We didn't get a lot of stimulus money, but we were one of only four projects in the country to be fully funded," he says, referring to the $35 million Transportation Investments Generating Economic Recovery (TIGER) grant for construction of the North Spokane Corridor between Francis Avenue and Farwell Road.
Brokaw says some contractors without work are trying to liquidate their equipment to pay off bills and stay afloat. Some are hoping other contractors that have work will hire them as subcontractors, and still others are simply "looking at doing something totally different."
Dave Baker, of Spokane-based Baker Builders, says speculative builders have been hardest hit by the recession.
He says his company built its last spec home in 1998. Now, the company specializes in custom-built homes and larger remodeling projects, but is diversifying and looking farther afield geographically. He says he built "four or five" houses in Ritzville last year, and did some large-scale remodeling for prior clients. With a deep client base, he was able to keep busy with referrals and repeat business.
Baker says that in the early 1980s, his construction company went through what many small contractors are going through now. At the time, interest rates climbed to a level where consumers couldn't afford home loans. Today, the issue is more that credit has tightened, preventing some consumers from qualifying for loans, but the result is the samefewer homes being built.
He says the challenge builders have today is that consumers' expectations for a new home have risen beyond what they can afford.
"Until expectations become aligned with reality, the market will continue to be slow," Baker says.
McCaslin says the residential market was hit earlier and harder by the recession than the commercial market, adding that commercial contractors didn't get hit hard until last summer.
Now, she says, it's difficult for commercial contractors to get private funding for projects, and most members of her association don't bid on public works because "government projects are a maze of bureaucratic red tape."
McCaslin says, "There was enough private work before the recession to keep busy without having to bid on schools, roadwork, and bridges. Most contractors who did more volume in 2009 than 2008 did more public works. Those who always did public works were able to take advantage of stimulus money."
Some larger contractorsthose with a lot of reservesare using calculated amounts of equity to keep themselves in business, McCaslin says. She also is aware of small- to medium-sized contractors who have cut their work forces dramatically, some from crews of 30 to 50 workers down to five or 10, and the owners have gone back out into the field to work themselves.
"They're the guys that are going to survive," she says.
Swanson, of Homestead Construction, says he has stayed in business by cutting expenses, shortening the time frame between buying a lot and building on it in order to decrease interest expense, scaling back on employees, and reducing employees' hours.
His company also has begun to buy older, repossessed homes that are in need of major work, then renovate them and resell them in the $129,000 to $139,000 price range.
"There's a market for that price in the Valley," Swanson says.
He says he believes that in general, builders of lower-priced homes are faring better than those that focus on mid-priced to high-end homes. Swanson says that here, as well as nationally, the building industry overbuilt during the previous boom, creating a glut of empty homes. On top of that, buyers have the option of purchasing homes that have been foreclosed on rather than new ones.
"Those houses always go cheaper than we can build them," Swanson says.
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