Construction spending in the U.S. has reached its highest level since May 2008, according to a recent report released by the U.S. Commerce Department. That’s a healthy 13.7 percent increase in the past 12 months, and, for those in the commercial real estate business, good news for all.
Forecasts for the North Texas region point to continued growth through 2017, according to the Urban Land Institute’s Real Estate Consensus Forecast which contains the survey results gleaned from 43 of the industry’s top economists and analysts. That projection represents one of the longest, sustained periods of expansion and growth for our industry.
Of course, Dallas is at the epicenter of this growth because we remain one of the strongest commercial property markets in the country. Reports show that more than 8.8 million square feet of office space is under construction in the Dallas-Fort Worth area, representing a 50 percent increase from a year ago. Our region also has the fastest-growing industrial building market in the country, with more than 16 million square feet of industrial and warehouse space being built and healthy rents to support that growth.
Scour any national real estate report released over the past few quarters, and every one of them reflects strong and sustainable growth for our region. That’s good news for all, again, but news that carries a heavy responsibility for those of us working in the built environment.
Today, owners and developers want fast-track projects and that means shorter construction deliverables and timelines. When construction is complicated by skilled labor shortages and weather-related delays, for most general contractors, managing business growth falls back on how prepared that firm was before the great boom we are now experiencing.
Fortunately, we saw this work coming and planned for it. Planning is a critical part of managing growth. We have a rolling five-year business plan that we closely track. We revisit the plan halfway through the current year, then update it every year to see globally how we are doing. We also track our performance metrics each month.
If we planned on the fly, we could not have prepared for the additional staffing requirements during this boom time. When business is as strong as it is now, good planning is everything. Failure to plan by simply reacting to the environment will be growth-limiting and can take a company down.
Perils That Exist
Is there a downside to growing too fast? Absolutely. Cash flow in the construction business is critical. You can set up a poisonous atmosphere when you are so far out over your skis that your entire team doubts your ability to lead. People see that their leaders didn’t plan properly, and the result is turnover among your team. When your team lacks confidence in the ability of their leadership to perform and accommodate growth, they will leave for other opportunities.
Word gets around, too. Subcontractors and suppliers can get caught themselves when they accept more work than they can deliver in a timely and efficient manner. Taking on too much business without sufficient staffing can spell disaster because contractors cannot afford to utilize suppliers who are unable to fulfill their contractual agreements on construction projects.
Recently, I asked Bill Penz, vice president of RPM xConstruction LLC, how their firm has managed its growth in this fast-track construction environment. According to Penz, the biggest challenge with managing growth was finding skilled equipment operators, but the oil and gas slowdown has helped with that.
Although the firm’s growth strategy was to double its revenue annually until it hit a targeted figure, leaders were surprised with the doubling of projected revenue growth—far beyond what was anticipated. Again, that’s good news for RPM, but it was also hard to plan for, according to Penz.
I asked Penz if in looking back he would have done anything differently, and he said no, because he was swept up into this white-hot market but felt that the firm had done a good job managing its growth, growing with the market, and serving their customers.
Penz did say that there were two strategies that helped: 1) establishing a strong banking relationship and good credit lines was vital; and 2) managing your company as if it were still operating in recession was important. They haven’t loaded up the firm with too many people or layers of management, and they still negotiate hard when making major purchases and leverage their buying power for new equipment.
There is also another benefit to growth, and that is the opportunity to bring a younger team to the table. We have had great success in recruiting competent field personnel from Texas colleges and universities who are paired with our project managers and superintendents. The learning curve is quick but solid as they provide much needed support in the field and begin to apply their education in practical and efficient ways.
The payoff for these newly minted college graduates is the experience and knowledge they gain first-hand in the field. Their ability to support our senior project managers allows us to handle more work without taking a big hit to overhead. It also gives good exposure to the younger staffer on how to be a strong project manager.
Being in the midst of a boom time bears great responsibility—as a leader, co-worker and business planner. No doubt, there will always be cycles in commercial real estate and the construction industry. Having the foresight to manage throughout these cycles, to forecast the operational and financial needs of the firm, and to develop a strong business plan that addresses the good times and the bad, all play a critical role in ongoing success.
Charles R. Myers is CEO of MYCON General Contractors and co-chairs the Industrial and Office Local Product Council for the North Texas District Council of the ULI. He can be reached at [email protected].