Construction Market - PHX Area

[LVG]

To the fellow contractors on this board - what's the construction market looking like in the greater PHX area?

Multifamily / Commercial, or heavy civil works (if you're familiar with the public works side).

 

[82CardsGrad]

LVG, I am not in the construction business, but thought I would mention that just this past weekend, the AZ Republic ran a story on the record amount of commercial space available in the Phoenix Metro area. According to the article, they stated that at present, more than 80 million square feet of space is currently available...

And I'm sure I don't need to tell you about the housing situation... Hard to imagine new construction is even remotely considered to be a viable endeavor at this stage.

Hopefully, someone here could discuss the civil side and perhaps provide more clarity around any other construction options for you...but with a state budget deficit of more than a billion dollars, well, ughhhhhhh....

 

[MaoTosiFanClub]

I only do renovation/maintenance and things are picking up a little but it's certainly no 2005 or 2006. I'd go gov't down here, multifamily and commercial are struggling big time because nothing can get leased out. I still get a decent amount of RFP's come across my e-mail for public works GC projects that I usually pass on due to scope of work. Most of it doesn't require prevailing wage, union, or minority-owned either at the local level although I'm not sure what your company is.

 

[LVG]

I work for a multifamily (read: apartments) owner / developer / contractor / property management firm. Have no real desire to go into single family homes - completely different type of construction (less pay, and kind of a weird way of doing construction, at least from what I'm used to. That's what my former single family superintendents tell me).

Also have commercial experience, and heavy civil experience (bridges, tunnels, marine work). Just wondering what the status was of the PHX market.

Possible location move in the future. But nothing would happen until probably 3rd qtr + this year.

 

[MigratingOsprey]

It's absolutely brutal out there right now. High unemployment, clearing backlogs with few jobs to replace them, slow implementation of stimulus funds.

Public works, street & road and service work seem to be holding up the best.

Anyone tied to residential, concrete, dirt moving, etc are in trouble.

Utilities are way down as are GCs of about every stripe.

From what I've gathered the bids are ultra competative as well.

Some feel that last year was the worst of it and there should be a slow uptick - and there are some signs of life.

There are some others who think that last year wasn't as bad as it could of been as some were able to survive on backlog and now must make the hard decisions this year.

 

[Gaddabout]

Apartment buildings are being abandoned here. In many places in the EV you can rent a single-family home for the same rate or a little more than a 2-bedroom apartment. From what I can tell, it's armageddon for apartment building owners. I don't see any new apartment buildings going up.

 

[jf-08]

We bid a job recently that if we were to just buy all of the materials, dump them in a field and build a wall around the materials, we still would have been 2nd. (No labor, mark-up, equipment, taxes, bonds, other sub pricing, etc)

Brutal.

 

[conraddobler]

I discussed commercial mortgages with some people towards the end of 2009 and they sounded like my side of the business just before the cliff dive.

Faint hope surrounded by awe struck fear.

I thought my landlord was going to french kiss me when I signed my lease extension, and that's here in KC where it's not bad yet.

Commercial lending is going to get a lead pipe to the forehead soon IMO, and all commercial construction is about to nearly halt that isn't government based IMO but it's case by case and area by area, here though it's starting to look like they've run out of projects.

 

[Duckjake]

I discussed commercial mortgages with some people towards the end of 2009 and they sounded like my side of the business just before the cliff dive.

Faint hope surrounded by awe struck fear.

I thought my landlord was going to french kiss me when I signed my lease extension, and that's here in KC where it's not bad yet.

Commercial lending is going to get a lead pipe to the forehead soon IMO, and all commercial construction is about to nearly halt that isn't government based IMO but it's case by case and area by area, here though it's starting to look like they've run out of projects.

Commercial lending has been dead for a while.

Commercial building construction in 2010 will probably be the worst since the late 1980s. Nobody can get any funding for projects even in areas like Austin where there is still some demand for new buildings.

 

[jefftheshark]

I heard over the weekend from a broker friend of a retail project, that was 50% occupied, being sold to a vulture fund for $65 psf. This same project had an appraisal of $295 psf only 14 months ago. To put this into perspective, the TI's cost more to construct than the entire project sold for.

The big problem is that this "sale" is going to effect the appraisals of every project in town, just as your neighbor's foreclosure lowered that value of every home in your zip code.

If this isn't deflationary, I don't know what is.

The lenders I talk to would love to loan money out, hell they get it for free basically, but the credit-worthiness of everyone in town is shot and when this is combined with the low appraised valuations, well you can do the math.

There is no logical reason to build anything for 3 to 5 years in Southern Nevada and I'm fairly sure that the same logic can be applied to Phoenix, California, Florida and Georgia too. The contagion is following the same path as the residential meltdown, it's just moving more slowly.

This situation will cause the collapse of 100's of community banks that will be determined to be "too small to survive". The FDIC is going to sell these bank's assets off to a favored few in structured sales, and the lucky winners will sit on these loans with sweetheart deals, serviced with freshly printed FED dollars for years and years until the market (hopefully) rebounds. In the meantime, the old owners will be foreclosed out, and their assets "redistributed" to whichever politically favored entity draws the lucky straw.

JTS

 

[82CardsGrad]

The lenders I talk to would love to loan money out, hell they get it for free basically, but the credit-worthiness of everyone in town is shot and when this is combined with the low appraised valuations, well you can do the math.

This is what drives me nuts... Obama and Congress, along with the Mainstream Media, continue to pound banks for taking money and not lending it to people who want it. Excuse me????????? How do banks make their money? Certainly NOT by holding onto it! They need to lend, and when it cost them less than 1%, you know they REALLY want to lend. However, who is really fit to take on additional debt? Small companies and individuals have been and will remain in MAJOR deleveraging mode. What a farce...

 

[jefftheshark]

This is what drives me nuts... Obama and Congress, along with the Mainstream Media, continue to pound banks for taking money and not lending it to people who want it. Excuse me????????? How do banks make their money? Certainly NOT by holding onto it! They need to lend, and when it cost them less than 1%, you know they REALLY want to lend. However, who is really fit to take on additional debt? Small companies and individuals have been and will remain in MAJOR deleveraging mode. What a farce...

Yup. And to add to the situation, you have the FDIC looking over the shoulder of every small bank in the country telling them that they have to protect their loan quality at the expense of everything else.

So it's, "you have to loan this money out, but you can't loan to it anyone who needs it, however you can lend it to anyone who doesn't want it all day long".

Our government in action! Heller would be so proud, talk about a great Catch-22

JTS

 

[conraddobler]

These same people ... Obama et al... that are saying we ought to be lending are taking their own programs... FHA? Fannie? Freddie? and tightening the tar out of em.

I have one borrower I've worked with for over a year, who's been caught by at least two guideline changes now in terms of credit score bumps I wish I could show you their email.

It's like, well how's it look this time? Assuming no random guideline changes when can I close this time?

It'd be funny if it wasn't so real life painful and all.

I guess the point is lenders would love to lend but if they did then you'd be mad at having to bail them out, which goes all the way back to what I said a couple of years ago that the system does not work in reverse.

Declining values in residential or commercial cause a positive feedback loop where the value drops feed more value drops.

It also works in a manner much like a step, first people hold out, then panic sell then the value waves down then a new set of people hold out, then panic sell and it waves down again.

We're into the fools rushing in stage now, where fools rush in and think they got a great deal, and then get slobknobbered.

This means in my area at least I think we're nearing a bottom, for now, I hope.

 

[LVG]

You guys are going to make me transfer my own thread over to P&R - arn't you

 

[MaoTosiFanClub]

I work for a multifamily (read: apartments) owner / developer / contractor / property management firm. Have no real desire to go into single family homes - completely different type of construction (less pay, and kind of a weird way of doing construction, at least from what I'm used to. That's what my former single family superintendents tell me).

Also have commercial experience, and heavy civil experience (bridges, tunnels, marine work). Just wondering what the status was of the PHX market.

Possible location move in the future. But nothing would happen until probably 3rd qtr + this year.

Which firm do you work for?

 

[LVG]

Which firm do you work for?

PM sent.

 

[Tyler]

There are new builds starting to go up in my neighborhood, see lots of framing/roofing trucks cruising around again as well.

 

[DWKB]

I heard on NPR that the residential real estate market is still hurting immensely because during the gold rush of 2005 to 2007 the "no questions asked" form of loan approval let in a ton of illegals.
These illegals are now bailing the state, and their houses, and turning the market downward.

 

[MaoTosiFanClub]

I heard on NPR that the residential real estate market is still hurting immensely because during the gold rush of 2005 to 2007 the "no questions asked" form of loan approval let in a ton of illegals.
These illegals are now bailing the state, and their houses, and turning the market downward.

That's true, but the amount of citizens doing the same is significantly higher. Residential is going nowhere fast.

 

[Duckjake]

That's true, but the amount of citizens doing the same is significantly higher. Residential is going nowhere fast.

So where are these people going? Shouldn't there be a corresponding increase in demand for housing in those areas? Are they just moving in with family? Going back to their native country? Living in the streets?

 

[conraddobler]

So where are these people going? Shouldn't there be a corresponding increase in demand for housing in those areas? Are they just moving in with family? Going back to their native country? Living in the streets?

All of the above.

They can't buy houses now because it's really too hard to do, oh I'm sure some still can somewhere but in the main the documentation requirements are now so strict it's probably nearly impossible.

Why so many could buy before is pretty simple, they had bank accounts so they could document income going through the account, that or just use a stated income loan.

Those forms of documentation of income are gone now, it's pure tax returns or paystubs or both.

Think of all the self employed small business owners who may have had a profit, who now show a loss, well they now don't qualify for any type of home loan.

Add the undocumented workers the self employed can't prove income and the people who've lost a job or had their wages cut and it all adds up to a monsterous reduction in the pool of qualified buyers.

The simplest solution is to see people moving in together and pooling resources, but this dosen't help housing demand it's the opposite effect.

 

[Duckjake]

All of the above.

They can't buy houses now because it's really too hard to do, oh I'm sure some still can somewhere but in the main the documentation requirements are now so strict it's probably nearly impossible.

Why so many could buy before is pretty simple, they had bank accounts so they could document income going through the account, that or just use a stated income loan.

Those forms of documentation of income are gone now, it's pure tax returns or paystubs or both.

Think of all the self employed small business owners who may have had a profit, who now show a loss, well they now don't qualify for any type of home loan.

Add the undocumented workers the self employed can't prove income and the people who've lost a job or had their wages cut and it all adds up to a monsterous reduction in the pool of qualified buyers.

The simplest solution is to see people moving in together and pooling resources, but this dosen't help housing demand it's the opposite effect.

That makes sense but then shouldn't we be seeing a corresponding increase in occupancy rates for rental properties. That is what happened during the S&L crisis of the late '80s.

 

[conraddobler]

That makes sense but then shouldn't we be seeing a corresponding increase in occupancy rates for rental properties. That is what happened during the S&L crisis of the late '80s.

I think you will later.

However I think a ton of people are just housing zombies now, not paying, but not yet kicked out of their homes.

 

[MaoTosiFanClub]

That makes sense but then shouldn't we be seeing a corresponding increase in occupancy rates for rental properties. That is what happened during the S&L crisis of the late '80s.

On paper yes, but in AZ for example there's also a mass exodus of immigrant workers (both undocumented and otherwise) due to labor laws and a dearth of construction work causing vacancies to rise.

Which goes back to AZ construction market being a mess. The biggest reason my company is busier than last year is less competition, the total amount of work being contracted as a whole is about the same maybe a little higher.

 

[Yuma]

These same people ... Obama et al... that are saying we ought to be lending are taking their own programs... FHA? Fannie? Freddie? and tightening the tar out of em.

I have one borrower I've worked with for over a year, who's been caught by at least two guideline changes now in terms of credit score bumps I wish I could show you their email.

It's like, well how's it look this time? Assuming no random guideline changes when can I close this time?

It'd be funny if it wasn't so real life painful and all.

I guess the point is lenders would love to lend but if they did then you'd be mad at having to bail them out, which goes all the way back to what I said a couple of years ago that the system does not work in reverse.

Declining values in residential or commercial cause a positive feedback loop where the value drops feed more value drops.

It also works in a manner much like a step, first people hold out, then panic sell then the value waves down then a new set of people hold out, then panic sell and it waves down again.

We're into the fools rushing in stage now, where fools rush in and think they got a great deal, and then get slobknobbered.

This means in my area at least I think we're nearing a bottom, for now, I hope.

I quit telling people we are at bottom in prices, (I'm a Realtor). What I am telling people is that mortgage rates are killer right now, and they will NOT stay that way. With all the newly printed money hitting the system, inflation is just around the corner. Three things are saving our collective butts, imho, the individual savings rate, and the trillion or so dollars big business is sitting on and not investing/spending, and the high unemployment rate. If consumers start spending, business might start investing and hiring, which means more people to spend, and so on, and so on. Businesses are also afraid to invest not knowing if taxes will go up, but if business don't spend, and people don't spend, there won't be any money going into the tax coffers, so governments, local, state, and federal will start raising taxes. We need some spending for our governments sake and to help keep our taxes low, but then we will get inflation if we do spend and mortgage rates will go through the roof!