Commercial Construction Update

As you've heard often on this program, the sub prime crash and weak housing market are hurting Massachusetts' economy. On jobs, for instance: The number of people working in construction has dropped about two percent over a year ago.

For some time, credit has been tight and investors jittery in the residential sector. Now some worry those troubles may spread to commercial construction.

WBUR's Business and Technology Reporter Curt Nickisch looks at how the Boston-area might fare.

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CURT NICKISCH: Downtown, along Fort Point Channel, a commercial construction firm is overhauling a nineteenth-century coffee roasting plant. The building's going to be the new headquarters of ADD, Inc., a Cambridge architecture firm.

SOUND OF DRILLING AND HAMMERING

NICKISCH: But it's a drab, cloudy day. Up on the roof, project superintendent Jack Cameron is dismayed by the weather. A steady drizzle forced him to send workers home this morning.

JACK CAMERON: The masons you can see they got knocked out of business. Due to the weather, ironworkers. So this isn't as productive as I thought it was going to be

NICKISCH: Now there are growing concerns that the cloudy financial climate will put a damper on commercial construction like this.

BILL HUGHES: I think the weather analogy is a really good one.

NICKISCH: That's Bill Hughes, the president of Shawmut Design and Construction, the major Boston company that's managing this project.

HUGHES: We live here in New England, and give it another day and it'll change. And that's really how we're looking at this whole economic situation... We believe we're going to continue to grow, even through these tough times.

NICKISCH: Hughes says the commercial construction industry is being hit by a consumer recession. That means restaurants and retailers nationally are being more cautious about building or renovating until people spend more. But Hughes says other types of commercial construction are actually cooking. Especially here.

HUGHES: The fortunate part about our business model is we have a lot of larger institutional clients, like Harvard University, New England Baptist Hospital, those folks operate on a much longer horizon, and look at these times as opportunities to really build their infrastructure.

NICKISCH: Hughes says colleges and non-profits tend to build more in a down market, because they get a better deal. More companies are fighting for the work and drive bids down. He says just look at all the cranes in the Longwood Medical Area or along the Charles River campuses. Growth in the non-profit sectors is cancelling out the decline in consumer-related sectors. Overall, Hughes thinks business will hold steady.

So does Gilbane Construction, a Rhode Island firm. Don Michaels heads its Boston office.

DON MICHAELS: We've had a few private jobs just pull their horns in and say: well we're not going invest by starting this construction in the first quarter of '08. But we really think it may come back in the third of fourth quarter of '08.

NICKISCH: Michaels says this delay in some retail projects is mitigated by steady business for his company in public sector work. He says Gilbane is helping cities and towns build a bunch of new schools.

ROBERT DICKEY: I think the biggest misconception is that there's a crisis brewing in the commercial market.

NICKISCH: That's Rob Dickey. He's managing director of the Boston office of Jones Lang LaSalle, a real estate money management and services firm. He says it's true that the credit market is making it harder developers to get financing now. Banks are lending with stricter terms, asking for more of a down payment. But Dickey says the Hub commercial construction market is used to being limited by external factors.

DICKEY: So one of the unique qualities of the Boston market and the inner suburbs is that it's a very difficult place to get permits, it's a very difficult place to build. It has traditionally been a constrained supply market, and that has led to very strong rents and very strong returns for investors. So in fact this current blip that we're in will constrain the supply.

NICKISCH: And that tighter supply, Dickey says, only makes it more rewarding for projects to move forward again. His advice to developers: it's a great time to be planning and permitting projects that might be a year out. That way they'll be ready to launch when the credit markets stabilize.

For WBUR, I'm Curt Nickisch.