Construction and development professionals in West Michigan remain optimistic as they look toward 2020, even though the upcoming presidential election and ongoing talent issues are causing headwinds.
While some markets might slightly change next year, industry experts who spoke with MiBiz during a recent executive roundtable said they are interested to see how downtown Grand Rapids developments will spark additional new projects. Many also noted that collaboration and partnerships are becoming key to the industry’s success.
Participating in the executive roundtable were:
- Craig Baker, president at First Companies Inc., a Grand Rapids-based general contractor
- Melissa Collar, partner at Warner Norcross + Judd LLP, a Grand Rapids-based law firm that sponsored the roundtable
- Jim Conner, senior vice president at Triangle Associates Inc., a Walker-based general contractor
- Andrew Eckert, senior project architect in Grand Rapids at architecture firm Ghafari Associates
- Curt Mulder, president and co-owner of Wolverine Building Group Inc., a Grand Rapids-based construction management firm
- Suzanne Schulz, urban planning practice leader at Progressive AE Inc., a Grand Rapids-based architecture and engineering firm
Here are some highlights from the discussion.
Where are you seeing the most construction activity currently in West Michigan?
Mulder: Municipalities are starting to spend pretty large chunks of money, not just on schools … but fire stations additions, courthouse expansions, a lot of those types of projects, which is an indicator to me the municipalities have some money to spend along with a need. There probably was 10 years of not building anything and there’s a bunch of pent-up demand there for their own use and just to function at the level that citizens expect.
Conner: That’s the way it works with property values up. They’re restocking cash and they have a pent-up demand. They’re the ones that have access to cash to spend money. We’re seeing construction projects in those local governments. Even some of the higher end stuff is actually getting funded. But that’s also why costs are up because that money is good money and developers are struggling because deals don’t pencil.
Collar: We are seeing quite a bit of public-private partnerships in various forms as we’re looking through these infrastructure developments because we have a lot of infrastructure work here in Michigan and frankly across the country. We are seeing as part of the infrastructure work not just the public-private partnerships, but a lot of renewable energy projects.
The nice thing about the public-private partnerships is the creativity of it. As innovative as you can be with limited resources and collaboration, it is amazing the magnitude of a project than can be developed because of it.
Conner: That is the new way for higher ed. The state funding will allow for universities to borrow and get money from the state for academic-related buildings or infrastructure projects. But they’re not allowed to give for a lot of the student housing. With all the nice apartments or condos that are off campus, universities are having a tough time keeping up with the pace. The old army barracks style living, four concrete walls isn’t going to fit, especially when it’s the same cost.
Will residential projects continue to dominate next year?
Baker: Residential didn’t slow down, nor did multifamily. And it seems like we are going to be strong for 2020 as well in the area and region.
Mulder: And downtown development continues strong, if you count cranes. … We’ve continued to see (multifamily) is a strong market. There’s still stuff going on downtown, but over the last couple of years there’s been a significant growth in suburban areas of multifamily development, primarily because of the cost of construction in an urban area is so high and it’s still relatively reasonable (in the suburbs for) a two-story, three-story multifamily.
How about the industrial market?
Mulder: We continue to see tightness in that market from (an industrial) real estate standpoint. There’s no place for anybody to go to, no room for people to lease. From a construction standpoint, we can build that. But when we tell them it’s going to be four or five months to move into that space, they’ll say, ‘Well, we need it now.’ And what’s interesting is they end up not doing anything.
Baker: Manufacturing is something that drives a lot of other stuff, so to see that strong is good. Most of the stuff is, to me, a sign of thankfulness to live in West Michigan. The economy is great. The challenges we have are growth challenges.
Schulz: And no one has to build on spec either.
Mulder: Right. There’s pieces of spec (in some projects) but not all spec.
Conner: The market needs to come up on the low-end large boxes.
Is there something that’s preventing the market from coming up?
Conner: I think everyone’s kind of waiting for the other shoe to drop. There’s skepticism in the market because it’s been growing at a decent rate for a while.
Baker: And it seems like on the banking side, if you went three or four years after 2008 or 2009, you couldn’t do a spec project without a tenant. But they’re getting to the point now where you can do that again.
Schulz: The banks are the same way with multifamily. They seem to be getting a little bit more nervous than they were before.
What do you mean by that?
Schulz: One thing that’s held back condos from happening is the lending department. There’s a huge demand for condos, and nobody can really build them right now because of the lenders. So you see a lot of apartment construction or townhouse construction with plans to convert to condos in the future. I think you are going to start to see more of those.
Collar: The hard part is the way that some of the financing is set up … and then there’s some jurisdictions around right now that take the position that if you (convert to a) condo, it’s now an uncapping of property taxes. So to the extent that you’re trying to do some rental and some condos, it can have a negative effect as developers progress, which is a new thing that’s happened. Historically, that did not uncap property taxes. Irrespective of what the law says, we have certain jurisdictions that take that position and it makes it financially difficult for them to convert from the rental housing into the single-family houses.
What are some other issues you see affecting development and construction next year?
Schulz: The trade deal with China, that’s a pretty big deal for the manufacturers, and what they are going to do, what they are going to invest in. You couple that with being in Michigan that it’s not ‘if’ but ‘when’ we hit a recession in Michigan.
Eckert: We haven’t seen any slowdown based on projects we’re looking at now. They’re going to carry us through next year. And that means the construction of them — unless something crazy happens, even with an election — I don’t think will change because private is private.
Mulder: A year ago, you’d reach out to a whole bunch of subcontractors and ask for them to price something and you get one or two that say yes. You really have to sell them on why to put the time and effort into pricing a product. In the last couple of months, our team has had more subcontractors say, ‘Hey, what’s coming up?’ That’s our first indicator. But if you talk with them, they’re all busy. They’re actually appreciating a little bit of a breather. Can we catch our breaths, can we give our people in the field a break for once? But then I still think they’re going to just pick and choose which projects that they can be the best.
Schulz: There’s a lot of design-builds. I think the difficulty from a local community perspective with some of the new development types that you’re seeing now is that local communities, their ordinances haven’t kept up.
Mulder: Yeah. You look at that as it relates to industrial, for instance. How much industrial-planned property is there in West Michigan? Very, very little. It’s a huge challenge for us going forward.
Baker: It’s going to continue to be pushed because there’s not a lot of master planned, set-aside developed areas that you can expand in. We’re running out of inventory. We’ve pretty much depleted it.
Does the local construction industry face significant changes related to new technology?
Eckert: We’re looking at artificial intelligence for architecture scripts. Some of the mundane things we do on a daily basis, there’s scripts that can do it for us. You still have to put the information in. It’s not just snap your fingers and there’s a building or we’d be out of a job.
Collar: We get more and more questions on drones and what they can do, because of the way that you can utilize them on the site of construction projects for observation, pre-planning, all the way to finish.
Eckert: With 601 Bond, we punched the exterior with a drone and basically looked at the images. On the design side, we flew a 26-acre site with a drone with a laser scanner on it. We could measure windows and gaps between buildings, which made master planning the site really quick.
Mulder: You’re beginning to see significantly large investments in technology from companies that are trying to componentize or pre-manufacture and pre-design, specifically for multifamily units with the way that they can go up fast and really solve the labor problem that exists.
What does the overall growth of Grand Rapids mean for your industry?
Eckert: It’s interesting to see older, multi-generational firms be very open to being collaborative. That’s one way, in a tight workforce, to have a great culture, have a great place where they want to come. That seems to be the best strategy, which is good, because it makes all of us better business owners.
Schulz: The influx is a lot of Millennials, a lot of young people, and I think that is driving their expectations for what will be built. I would also pair Baby Boomers with that, as they’re realizing they don’t want to maintain big homes and they want some more convenient urban living and they want to be able to travel and not worry about a yard. Those two segments are really driving the urban, walkable places with amenities that are nearby.
Collar: I think you see design and construction evolving as well. You’re seeing the evolution of our younger people that are saying ‘give me a finished product.’ … They want this building and ‘yes, it should meet all of my needs.’ You need each other in the design and construction world to really make that work and deliver.
Conner: (Clients) want everything faster. It’s still the same amount of bricks and the same amount of concrete. It’s how do I get it two months faster? It’s going to be that collaboration early because we’ve got to get rid of some time on the front end.
Baker: You have to have a relationship, you have to be collaborative and figure out how to just move forward down the road together. … It’s interesting to watch client expectations too. The old model was we’ll meet, we’ll listen and we’ll write a bunch of stuff down, then we’ll design. But the whole concept of meeting and then the work is done between, that’s changed. A lot of clients like collaborative work sessions and that can compress the front end because you’re meeting with them and you have a team.
Is there opportunity for consolidation in the construction industry?
Conner: I think there is an opportunity to do that. But there’s a huge risk that comes with that. You have to keep all those people busy. And if you take design in house, for instance, then you’re not probably going to get a whole lot of work from other architects. You suddenly become competition. In the development world, I’m sure you’d have that as well.
How are you handling talent issues?
Mulder: In 10 years, a significant percentage of people are going to be out of the workforce. We have people that are working for us that are nearly 70 years old because they want to continue working. So in five years, they’re likely out of the workforce … But what needs to happen and what will happen in our industry is pairing those individuals with 40 years of experience — because none of them have a whole lot of fun trying to figure out the technology — with the younger folks coming in the industry that understand it. A great thing about the Millennials I’ve experienced is that they all want to learn like crazy. They’re willing to learn and they want to learn and they want feedback. They do want to do it themselves.
Conner: Generations, mine included, thought ‘my kids are going to college, darn it.’ Well, what if they don’t want to go to college, what if they just want to be a mason? They’re going to probably end up being a mason if that’s what they want to be. It makes them happy. I think that the younger generation is looking for, ‘I don’t care about the money, as much as I want to just be happy.’
What issues are you watching for in 2020?
Eckert: Right now, we’re seeing strength in all markets. Retail is a little soft. But the projects we’re working on are kind of the high-end shopping experience. In an Amazon world, you obviously have to make it unique. It seems like that’s the next thing is to really make a shopping experience fun. But it’s multifamily, hospitality, hotel, restaurant — it’s really strong. With office, there’s lots of movement that will be big in Grand Rapids with whatever happens with Spectrum Health (and the planned Center for Transformation and Innovation). Everyone’s really wanting to switch up and move to something different.
Conner: For us, it’s going to be on K-12 or higher education. With the property values up, school districts are able to get a significant amount of money. It’ll be fairly decent. I don’t see a real big downturn or slowdown. It might dip a bit for a month or two here and there.
Mulder: Multifamily is going to continue to stay strong. I think anybody who’s in that market is cautious. Industrial is going to stay strong, maybe not as strong as it’s been for the last three to five years. I think any business owner that’s going into an election year pulls the reins back a little tiny bit just to see what’s happening.
Schulz: It’d be interesting to see where redevelopment starts to happen and what choices communities make — for example, the Studio 28 site and having 400 apartments being put on some of these. Especially suburban communities are challenged because a lot of this stuff is almost fixed in place. With the property values and some of the shifts that are happening downtown, you’ll see bigger things happening downtown because there’s that momentum with headquarters and other things. But I think of what happens next in Kentwood and Wyoming and Plainfield Township and in Walker. What happens in those areas is you see the Silver Line put in, the Laker Line going out into Lake Michigan Drive. The market dynamics and how that plays in those communities will be probably the more interesting thing to watch.
Eckert: It’s fun to see something like Acrisure, which is kind of a game-changer. With a big influx of folks coming in, it will be interesting to see how things are playing off one another. What we’re seeing in the workforce, at least in design world too, is that the workforce wants that livability and the excitement of downtown. Suburbia is great for office. Ghafari has had opportunities to move, and we need to move and grow, but we’re like, ‘We have to stay here because that’s what everyone wants.’
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