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Construction, development and real estate: A panel discussion presented by NJBIZ

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From right, Construction, Development & Real Estate panelists Jason Busco, CPA, Smolin Advisory, Tax & Accounting; Thomas Walsh, principal & managing director of Project Management Services, Avison Young; and Mark Fleder, co-chair of the Construction Law Group, Connell Foley LLP, share their thoughts with the audience at the Imperia in Somerset on Sept. 12.
From right, Construction, Development & Real Estate panelists Jason Busco, CPA, Smolin Advisory, Tax & Accounting; Thomas Walsh, principal & managing director of Project Management Services, Avison Young; and Mark Fleder, co-chair of the Construction Law Group, Connell Foley LLP, share their thoughts with the audience at the Imperia in Somerset on Sept. 12. - ()

NJBIZ held its discussion on Construction, Development and Real Estate at The Imperia in Somerset last Tuesday, inviting prominent industry leaders to weigh in on the most pressing issues facing one of the most frenetic sectors in the state today.

Panelists included David Kristjanson, director of business development for the Wohlsen Construction Company’s New Jersey office in Parsippany-Troy Hills; Jason Busco, CPA, manager, Smolin Advisory, Tax and Accounting in Red Bank; Thomas J. Walsh, principal and managing director of project management services in Avison Young’s New Jersey office in Morristown; and Mark Fleder, partner, Connell Foley LLP in Roseland, specializing in construction litigation and representation.

 

The panelists primarily focused on questions fielded from the audience concerning the lack of a suitable workforce; the effect of current events and policies on costs, supplies, and development; the reduction of red tape at the state and local levels in order to kick start stalled projects; and how New Jersey construction and land use is expected to change over the next few years.

Here’s what they had to say: 

Q: What are the biggest issues your company faces in the industry today?

Mark Fleder: A lot of what I’ve had to deal with over the years has been on the back end of projects – projects are late, unfinished, over budget, or have problems with insurance, and that is before we even get to construction defects. … We also have in New Jersey local land use laws – developers are confronted with local planning and zoning regulations and boards. That extends the time between a project being conceived and a building permit being issued. With all due regard to local officials, that is a problem for development, and a lot of businesses have grown impatient with it. They are not going to spend a year or two and a lot of money trying to simply figure out if something is going to be approved. … Additionally, a lot of development has to do with land that already was used for something else, and usually, when those users leave, they also leave junk behind. The cost of dealing with that is astronomical. For example, I’m involved with a project where we just spent $3 million removing asbestos and hauling concrete from a hospital that was built many years ago and trucking it to Pennsylvania.

Thomas J. Walsh: Land prices are up. Construction costs are up. Things are taking a long time to get approved and off the ground. … Developers have to be optimistic or they wouldn’t be in the business, but they are being careful. …  While we certainly are busy now, we’re finding that fewer clients, after determining the cost of the deal, are moving forward than before. There are certainly fewer deals being made this year than last year. People are concerned and hesitant.

BY MEG FRYNJBIZ held its discussion on Construction, Development and Real Estate at The Imperia in Somerset last Tuesday, inviting prominent industry leaders to weigh in on the most pressing issues facing one of the most frenetic sectors in the state today. Panelists included David Kristjanson, director of business development for the Wohlsen Construction Company’s New Jersey office in Parsippany-Troy Hills; Jason Busco, CPA, manager, Smolin Advisory, Tax and Accounting in Red Bank; Thomas J. Walsh, principal and managing director of project management services in Avison Young’s New Jersey office in Morristown; and Mark Fleder, partner, Connell Foley LLP in Roseland, specializing in construction litigation and representation. The panelists primarily focused on questions fielded from the audience concerning the lack of a suitable workforce; the effect of current events and policies on costs, supplies, and development; the reduction of red tape at the state and local levels in order to kick start stalled projects; and how New Jersey construction and land use is expected to change over the next few years. Here’s what they had to say:  Q: What are the biggest issues your company faces in the industry today?Mark Fleder: A lot of what I’ve had to deal with over the years has been on the back end of projects – projects are late, unfinished, over budget, or have problems with insurance, and that is before we even get to construction defects. … We also have in New Jersey local land use laws – developers are confronted with local planning and zoning regulations and boards. That extends the time between a project being conceived and a building permit being issued. With all due regard to local officials, that is a problem for development, and a lot of businesses have grown impatient with it. They are not going to spend a year or two and a lot of money trying to simply figure out if something is going to be approved. … Additionally, a lot of development has to do with land that already was used for something else, and usually, when those users leave, they also leave junk behind. The cost of dealing with that is astronomical. For example, I’m involved with a project where we just spent $3 million removing asbestos and hauling concrete from a hospital that was built many years ago and trucking it to Pennsylvania. Thomas J. Walsh: Land prices are up. Construction costs are up. Things are taking a long time to get approved and off the ground. … Developers have to be optimistic or they wouldn’t be in the business, but they are being careful. …  While we certainly are busy now, we’re finding that fewer clients, after determining the cost of the deal, are moving forward than before. There are certainly fewer deals being made this year than last year. People are concerned and hesitant. Q: But there are certainly positives when it comes to working in this industry in New Jersey. Where are you predicting upward projections?  David Kristjanson: Healthcare – what an awesome sector to be in right now as a builder. With all the mergers and acquisitions, and with outpatient facilities, the whole industry is evolving. Educational facilities are also some of the most exciting projects that are out there right now, with private schools hiring ‘starchitects’ to design. Even warehousing is now sexy with the increase in online shopping.Q: How are you and your company helping to increase the amount of suitable manpower in an industry that always seems to be in danger of shortages? Walsh: Project and construction management personnel, contractors, and subcontractors are all busy right now, which is good. But while there are more people working, it’s harder to hire. Kristjanson: Coming into New Jersey as a 127 year old company, and only being here for a few years, the first thing you realize is that, if you don’t have good specialty subcontractor relationships that can help you manage costs, there is not going to be a lot of work in your pipeline. … So we work with Associated Builders and Contractors, we attend Blue Book Building and Construction Network events, we host lunch and learns – there are all types of ways that we try to promote to and attract the subcontractor community to come work with Wohlsen. One of the things that we do to also retain subcontractors is to ensure that we always operate within a 15 to 30 day pay cycle, when the industry right now is I believe averaging 60 days. That makes them want to keep bidding on the work that we have. Fleder: I believe it was just the Associated Construction Contractors of New Jersey [ACCNJ] who had a career day with several thousand young people coming out to meet with the various trade unions, to learn about their programs and how they can start becoming qualified tradesmen. … When I first started in this industry, I worked with project managers who started their careers as carpenters. They didn’t go to a specialty school but they learned a lot about how to build things because they grew up in the business with their hands on the tools. Q: How will investing in technology not only help to attract more workers, but also move your business forward? Kristjanson: More than half of our workforce is between the ages of 34 and 54 – the number one challenge is attracting younger people into the industry. We can’t necessary inflate salaries due to already high construction costs, so I’m excited when I see companies using technologies such as BIM [building information modeling] and 3D printing. Those things are really cool and will help attract new workers. … [T]echnology in architecture and construction also can help us run projects more methodically, avoiding costs and eliminating issues further down the road. It’s a really efficient way to become more profitable and timely in our industry. … Yes, whenever a company shows up to a presentation having created a model of a building within a week or two at all different scales, there is capital cost that architectural firms hope they will be reimbursed for. But, at least in my discussions with architectural firms, those using CAD [computer aided design] and 3D printing to build and print out models, or BIM, are winning more work because they are showing up with a service that is highly beneficial to the client in helping them to envision what they want their property to look like. From a construction standpoint, when we walk into a presentation using animated design to a show a client in two minutes exactly what the logistics plan is going to be, what the phasing will look like, and how the building is going to be erected, it really helps us create that vision for the client even though we have put a lot of time into it up front. We at Wohlsen probably have the largest information technology department of any construction firm that I’m aware of in order to help us with this. And even though there is a cost to it, our conversion rates have gone up. Q: How will the look and feel of New Jersey change moving into the future? Kristjanson: Consolidation and centralization of corporations that are building new headquarters is a trend that already has started, and as a result, unfortunately there will be more vacant buildings moving forward. … However, there have definitely been some areas throughout the state where commercial parks have been repurposed to accommodate the existing infrastructure. I spend at last one day a week driving around New Jersey with developers from out of state looking at empty buildings or dirt. We constantly are putting together cost models to either repurpose buildings, or tear them down and rebuild. Walsh: A couple of years ago, we were involved in a project in Parsippany in which our client was able to buy three or four buildings at once and was able to attribute a very low value to the site. That gave them the ability to tear apart the buildings, design a new, cool building, and a company called Zoetis leased out the entire 100,000 square feet. They were able to do that because they were able to purchase it with a land value that was honestly quite close to zero. They wouldn’t have been able to invest nearly $200 per square foot in renovations otherwise. In order for many of these office buildings to be redone, the current owners are almost going to have to give them away, or they will sit. Q: What are some policy changes that might result in increased construction and development activity? Walsh: If taxes are changed and businesses are taxed less, and capital gains are less, I know that would bring about more potential investment for developers. I would hope that tax breaks would help in terms of stimulating the economy even more than it is now. Fleder: I respectfully suggest that more needs to be done by the state to attract business here. Someone needs to assume a leadership role in not only finding land for businesses to build on, but also, figuring out how to build right away. For example, I believe sometime back that a governor, perhaps in South Carolina, told the U.S. business community that if they moved their businesses there and brought more than 100 jobs, they would have their personal commitment to be in the ground within 100 days of presenting their plans. Q: Lastly, as we see the rebuilding start in Texas and in Florida, are you concerned about building supply shortages and price escalation? Kristjanson: When you have less supply and more demand, costs go up, especially when there is strain on the current labor force. … The industry is so busy right now that, if I got pricing from a subcontractor six to twelve months ago, when we get delayed, a lot of time those subcontractors have taken on new work. They may have had capacity six months ago but they don’t have it today. We already lose a lot of workforce to New York City, and unfortunately, we’re also going to lose some workforce to Florida right now.Walsh: I would think there also will be some shortages of building materials – we all have contracts in place and if you haven’t bought the materials yet for those projects, yes, it is going to hurt whoever is responsible.  

SOUND BITES

David Kristjanson: We live in a state that has limited resources with a lot of actual construction and development opportunities. While this is probably the greatest construction and development time of my entire life … keep in mind, construction companies more often fail in an ‘up’ economy because of the sheer volume that a lot of companies take on and cannot manage.

Thomas J. Walsh: There are a tremendous amount of warehouses being built which are now very successful and have a very low vacancy rate. Right now, that is the hot industry. Thomas J. Walsh: If interest rates go up, buildings will be worth less. You would think a GDP growth of 4 percent would result in way more activity and more things being built, but if interest rates go up with it, it will have a negative effect from a pure development perspective.

Mark Fleder: Local governments no longer can afford to borrow millions in order to build [public projects]. So, what you are going to see are private entities, developers, coming in and building the things that public entities used to build. For example, there are some folks who have come to New Jersey and told college campuses they would build them a dormitory. They said, ‘We’ll design it, we’ll build it, we’ll operate it, and at the end of the 30 years we’ll give you the key for a dollar. All we want is to be able to lease the land for $1 annually and the guarantee of a certain level of occupancy.’ … We’ve seen very little of this type of public-private partnership, where the public government and a private developer get together and actually create something, because it is difficult to do and make work economically. It needs clever, dedicated people, especially on the public side, in order to make something like this happen.

Mark Fleder: We all grew up with the idea that you lived in a suburban community and you got in a car and you drove someplace to go to work. That model is changing. … Those towns that have encouraged transit village type operations, in many cases, are flourishing. We are now building housing, retail, restaurants, and gas stations all in areas convenient to public transportation.

Q: But there are certainly positives when it comes to working in this industry in New Jersey. Where are you predicting upward projections? 

David Kristjanson: Healthcare – what an awesome sector to be in right now as a builder. With all the mergers and acquisitions, and with outpatient facilities, the whole industry is evolving. Educational facilities are also some of the most exciting projects that are out there right now, with private schools hiring ‘starchitects’ to design. Even warehousing is now sexy with the increase in online shopping.

Q: How are you and your company helping to increase the amount of suitable manpower in an industry that always seems to be in danger of shortages?

Walsh: Project and construction management personnel, contractors, and subcontractors are all busy right now, which is good. But while there are more people working, it’s harder to hire.

Kristjanson: Coming into New Jersey as a 127 year old company, and only being here for a few years, the first thing you realize is that, if you don’t have good specialty subcontractor relationships that can help you manage costs, there is not going to be a lot of work in your pipeline. … So we work with Associated Builders and Contractors, we attend Blue Book Building and Construction Network events, we host lunch and learns – there are all types of ways that we try to promote to and attract the subcontractor community to come work with Wohlsen. One of the things that we do to also retain subcontractors is to ensure that we always operate within a 15 to 30 day pay cycle, when the industry right now is I believe averaging 60 days. That makes them want to keep bidding on the work that we have.

Fleder: I believe it was just the Associated Construction Contractors of New Jersey [ACCNJ] who had a career day with several thousand young people coming out to meet with the various trade unions, to learn about their programs and how they can start becoming qualified tradesmen. … When I first started in this industry, I worked with project managers who started their careers as carpenters. They didn’t go to a specialty school but they learned a lot about how to build things because they grew up in the business with their hands on the tools.

Q: How will investing in technology not only help to attract more workers, but also move your business forward?

Kristjanson: More than half of our workforce is between the ages of 34 and 54 – the number one challenge is attracting younger people into the industry. We can’t necessary inflate salaries due to already high construction costs, so I’m excited when I see companies using technologies such as BIM [building information modeling] and 3D printing. Those things are really cool and will help attract new workers. … [T]echnology in architecture and construction also can help us run projects more methodically, avoiding costs and eliminating issues further down the road. It’s a really efficient way to become more profitable and timely in our industry. … Yes, whenever a company shows up to a presentation having created a model of a building within a week or two at all different scales, there is capital cost that architectural firms hope they will be reimbursed for. But, at least in my discussions with architectural firms, those using CAD [computer aided design] and 3D printing to build and print out models, or BIM, are winning more work because they are showing up with a service that is highly beneficial to the client in helping them to envision what they want their property to look like. From a construction standpoint, when we walk into a presentation using animated design to a show a client in two minutes exactly what the logistics plan is going to be, what the phasing will look like, and how the building is going to be erected, it really helps us create that vision for the client even though we have put a lot of time into it up front. We at Wohlsen probably have the largest information technology department of any construction firm that I’m aware of in order to help us with this. And even though there is a cost to it, our conversion rates have gone up.

Q: How will the look and feel of New Jersey change moving into the future?

Kristjanson: Consolidation and centralization of corporations that are building new headquarters is a trend that already has started, and as a result, unfortunately there will be more vacant buildings moving forward. … However, there have definitely been some areas throughout the state where commercial parks have been repurposed to accommodate the existing infrastructure. I spend at last one day a week driving around New Jersey with developers from out of state looking at empty buildings or dirt. We constantly are putting together cost models to either repurpose buildings, or tear them down and rebuild.

Walsh: A couple of years ago, we were involved in a project in Parsippany in which our client was able to buy three or four buildings at once and was able to attribute a very low value to the site. That gave them the ability to tear apart the buildings, design a new, cool building, and a company called Zoetis leased out the entire 100,000 square feet. They were able to do that because they were able to purchase it with a land value that was honestly quite close to zero. They wouldn’t have been able to invest nearly $200 per square foot in renovations otherwise. In order for many of these office buildings to be redone, the current owners are almost going to have to give them away, or they will sit.

Q: What are some policy changes that might result in increased construction and development activity?

Walsh: If taxes are changed and businesses are taxed less, and capital gains are less, I know that would bring about more potential investment for developers. I would hope that tax breaks would help in terms of stimulating the economy even more than it is now.

Fleder: I respectfully suggest that more needs to be done by the state to attract business here. Someone needs to assume a leadership role in not only finding land for businesses to build on, but also, figuring out how to build right away. For example, I believe sometime back that a governor, perhaps in South Carolina, told the U.S. business community that if they moved their businesses there and brought more than 100 jobs, they would have their personal commitment to be in the ground within 100 days of presenting their plans.

Q: Lastly, as we see the rebuilding start in Texas and in Florida, are you concerned about building supply shortages and price escalation?

Kristjanson: When you have less supply and more demand, costs go up, especially when there is strain on the current labor force. … The industry is so busy right now that, if I got pricing from a subcontractor six to twelve months ago, when we get delayed, a lot of time those subcontractors have taken on new work. They may have had capacity six months ago but they don’t have it today. We already lose a lot of workforce to New York City, and unfortunately, we’re also going to lose some workforce to Florida right now.

 

Walsh: I would think there also will be some shortages of building materials – we all have contracts in place and if you haven’t bought the materials yet for those projects, yes, it is going to hurt whoever is responsible.  

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