Stimulus Package

Lately, there has been a great deal of discussion among our peers concerning the impact of stimulus monies released by the Federal Government; the question, has the infusion of capital resulted in a more robust construction outlook? Partisan politics aside, depending upon who you are speaking to and what industry he or she represents, responses are varied.

From the perspective of demolition and environmental remediation companies, here are the current observations. Most of the money is being allocated to local municipalities that are employing the funds to address the blight of foreclosed or abandoned homes. Given the public nature of such bids and the need for townships to get the best return on money invested, the jobs are going cheap and attracting large groups of contractors to bid the work.

For example, yesterday, bid results were posted for small demolition project on behalf of a public school in Illinois. The 40,000 square foot building attracted 23 contractors, one from out of the state. The bid range from low to high covered a $275,000.00 spread. Excessive low bidding is not a healthy reflection of what prices a robust economy would normally command; disproportionate low bidding has become the norm. Exasperating the problem is the types of companies that are submitting proposals.

As we monitor the situation, public bids are attracting many companies who express little credibility as a demolition contractor. Everything from landscape companies to remodeling firms and local residents who may possess a piece or two of equipment are bidding demolition work. The diversity of those who tender proposals reflects that business owners are attempting to diversify and/or make use of available equipment/personnel in order to keep business going. The downside is that local entities who fail to scrutinize the capabilities of contractors are placing unqualified workers in dangerous situations.

Deep, sustainable relationships with private entities have allowed Champion Environmental Services, Inc. to continue a robust workload this summer.

But what of construction and other constituents related to real estate, how has the stimulus influenced their business?
The commercial side of real estate has witnessed fewer deals and higher vacancy rates. Mostly, deals are happening in the form of sale lease backs with few developers able to secure funding for new projects as the credit markets are still unyielding. As Chris Lydon, SVP, who leads Grubb's Chicago Industrial Group, tells GlobeSt.com, “"The capital markets are having such an impact on our industry in that developers are not building spec projects because of the capital markets and credit issues," Lydon says. It's so hard to get deals done these days, which makes spec development pretty much nonexistent at this point and unlikely for the entire year. It's all going to be build-to-suit projects that you're going to see from a construction standpoint."
Link to the referenced article: http://www.globest.com/news/1461_1461/chicago/180078-1.html

The greatest impact of stimulus appears to be in the areas of road work and general infrastructure improvements. Ageing bridge, sewer system, and roadway projects reflect important improvements while providing work to many. The only downside that we have observed is that given the specialized nature of the work, fewer companies are competing for more of the money; if a company looses out on one bid, there are literally hundreds of other opportunities.

The bottom line; stock market and commodity volatility continues, jobless claims ticked up, housing starts are down, and foreclosures continue.