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Tuesday, March 25, 2008
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NO BOOM, BUT NO BUST - YET Area residential construction down, though workers still keeping busy Staff Writer It could be a year or two before the overall effects of the economic downturn are noticed in construction fields in the Brainerd lakes area.
While residential construction is down this year - mirroring a nationwide trend - consensus among area professionals in the industry is that there is enough work to keep employees busy and avoid layoffs.
"The residential market has really fallen off and I don't see it making a comeback for sure this year," said Bob Sweeney, chief executive officer with Nor-son Inc. in Baxter. "Still, it's probably not quite as bad overall as people are hearing, either."
The decrease in residential construction, Sweeney noted, should be offset by a number of commercial projects planned. That's been the trend in Brainerd, where the overall number of permits the city is issuing has stayed steady over the past few years despite the fall off of new residential because of an increase in commercial remodels and additions, Brainerd Building Official Tim Caughey said.
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Workers last week used a crane to place a cupola on top of the Brainerd Savings & Loan building in Brainerd, one of several commercial construction projects under way in Brainerd and Baxter despite the recent economic downturn. Brainerd Dispatch/Steve Kohls
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A few years ago, Brainerd would have between 75-100 residential building permits a year. For the past two years, that number has fallen to 25-30, Caughey said.
"Whenever there's a residential slowdown, commercial seems to pick up. That seems to be the case in the past year or two," Caughey said. "I think it has - and this is just my opinion - gotten a little too big a little too fast. It's a little correction that will level things out - perhaps a bit too drastically for some, myself included."
Baxter has a similar permit outlook to Brainerd in 2008, Baxter Building Official Bob Bauman said. In 2007, there were 25 permits issued for new houses. In 2006, there were 90.
And like Brainerd, it's been commercial projects in Baxter that have kept permit revenues normal.
"As long as we have commercial picking up the slack, I think we're fine," Bauman said. "What we key in on mostly, more than permit count, is total dollar amount of the valuation. Whether we get it in commercial or residential it doesn't make a difference as long as the dollar amount stays up there."
Statewide, the trend is a little different.
A survey of 154 construction industry companies conducted in August and September by Associated General Contractors of Minnesota found that more than 50 percent of the respondents project a decreased volume for 2008.
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Mike Williams, owner of Aspen Sign Co., last week put the finishing touches on the new J.C. Penney sign in Baxter. Brainerd Dispatch/Steve Kohls
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The survey concluded that while the full economic impact of these projections would be hard to estimate, it was clear that sales and construction industry employment will decline, as will sales and employment in related businesses such as design, engineering, insurance, bonding and equipment and material suppliers.
Dave Semerad, of Associated General Contractors of Minnesota, said the problem is too much capacity in workers and equipment and not enough jobs.
"I say it's going to be a little slow, spotty," Semerad said.
What will help construction firms, Semerad said, is the Legislature's recent $6.6 billion transportation bill that will provide companies with highway construction work.
John Jacklitch, owner of J. P. Jacklitch Contracting Inc. of Motley and president of Mid-Minnesota Builders Association, equated the decline in the construction market to an adjustment rather than a downturn.
For the past 10 years there's been a lot of work, which in turn drew more people into the business with work for almost everyone. Now, a dozen people are all bidding for the same job, he said, and some companies have gone out of business for lack of work.
While he believes it probably won't ever be as good as it once was, there's still work out there for companies that want it, Jacklitch said, and people can be successful in a down cycle.
It's all part of a cycle he's seen since he's been in the business. When residential building is up, commercial goes down, and vice versa.
"Guys that want to stay in it, they'll make it," Jacklitch said. "Yeah, it won't be as good as it was, they'll struggle but they'll make it. People just have to look a little more for jobs now."
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Despite a downturn in the economy and a slumping housing market, commercial construction projects such as the 21,000-square-foot Ziegler Cat building in east Brainerd continue to grow. In the past year Brainerd has seen a significant drop in new residential buildings but an increase in commercial additions and remodels. Brainerd Dispatch/Steve Kohls
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Along with an increase in commercial building, Jacklitch said a positive for the Brainerd area has been steady work on remodeling or additions to seasonal homes.
He also said a benefit for new construction are historic low interest rates and the fact that new commercial and industry will bring more jobs, more people and eventually more new housing to the area.
For now, Bill Desrocher, manager at United Building Centers in Brainerd, is trying to stay optimistic despite a 2008 forecast that shows a third year of declining revenue for the company. While lumber sales for new houses are down, Desrocher said his company is seeing more sales for remodels, pole barns and garages. He is hoping the onset of spring will bring good news for the construction business.
"This area is a seasonal area, maybe a little bit more insulated, that's what we're hoping for," Desrocher said. "I think all the lumberyards in town are hoping for it to turn around, but right now it's been all gloom and doom. People are scared to spend money."
Gary Otterstad, chief executive officer of Construction Analysis and Management Inc., which handles mostly government construction projects, said there's enough of a backlog of work to keep his company and others busy for a couple years.
"Is it down? Yeah, it's down a little bit, but I don't think it's significantly down, nothing more than we expected," Otterstad said. "The telltale sign will be what happens maybe a year from now."
Otterstad said it's a good time to build if it can be afforded. There's several companies bidding for projects, crews are ready to work and there are good prices on commodities used to build.
MATT ERICKSON may be reached at matt.erickson@brainerddispatch.com or 855-5857.
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