Feet on the Street – The Latest 4/21
Like politics, all market conditions and construction progress are local.
This week, we continue to provide information, new trends and real-time updates to what we saw and learned across different construction platforms and locations.
We are very excited to expand our content. Take a good look at the significant data from industry experts in Rents, Inventory, Sales and Closings, Project Starts and Land Sales.
It’s important to continue to report on COVID-19 and its effects in the field, both positive and negative. Someone’s pain with two jobs shut down became another’s good fortune as their project was the recipient of much-needed manpower to get across the finish line faster than projected. This was just one example of how dynamic change is impacting the lending and construction space today.
COVID-19 compliance continues, and not without challenges. For an Owner and General Contractor, it’s taking time to gather all the required materials and implement the prevention procedures and protocol. Oftentimes, requirements from various agencies conflict, which causes confusion and requires management to default to the CDC, who has the most stringent guidelines.
On the real-world working side, I witnessed framers on a very warm, sunny, 80-degree day, setting huge beams on a second story while wearing masks. Not only is the work incredibly hard, but now they must do it with their nose and mouth covered. It’s bad enough just walking around a job site with one, much less framing a house. I tip my hat to these gentlemen and all the crews hard at work in the field. For now, it’s the new normal and requires significant adjustment by all.
And yet, there’s one in every bunch. An Owner showed up at a job site meeting with NOTHING. No mask, no gloves, no PPE and wanted to talk while standing right next to me. It was astounding and disgusting at the same time!
We saw firsthand and spoke with clients in Texas. Florida, Virginia, Illinois, Massachusetts, Arizona, Nevada and California.
Manpower and Inspections:
“We are seeing reductions in manpower for our projects in Texas, Florida, Virginia, Illinois, and Massachusetts. Across all municipalities, we used to get permits issued in 2-7 days. Now that has doubled in time. Plan review is also delayed. 7-11 informed us that their Fuel Tank Manufacturer is 20 weeks behind schedule. Why? This year, 7-11 is increasing its US portfolio store count by 400. Additionally, COVID-19 has impacted production, resulting in delays” – General Contractor, Ground-up Retail and Fuel Station Construction – Texas, Florida, Virginia, Illinois, and Massachusetts.
“No manpower slowdown. We’ve reduced the number of workers on our sites by half to keep everyone safe. Material deliveries are okay. Inspections are delayed. It’s added 4-5 days to our schedule.” – Owner, Student Housing Projects, Los Angeles, CA
“One subcontractor completely shut down and is out of business. He had projects, but lost two crews (they didn’t want to work for two weeks) and didn’t think they could staff back up.” – General Contractor, Los Angeles, CA
“We’re working out in the open on the Foundation and have 20-30 guys on the job. We called for Slab and Pool Deck inspection. The inspector told us we’re only allowed 10 guys, max. I could understand that when working inside, but outside, it doesn’t make sense. I questioned it. Our inspector is going back and asking his Supervisor.” – General Contractor, Custom Home, Los Angeles, CA
“Inspections in Santa Monica for Public Works and Fire are now on FaceTime. The Building Inspectors will physically walk the units but won’t sign your card. They update your inspection when they get back to their office.” – General Contractor, Los Angeles, CA
Building Materials:
“I see other delays in the future. There can be a materials shortage, due to current lack of raw materials and manufacturing, it will feel like a hurricane. Sheetrock and plywood will be affected. After everyone goes back to work, pricing will go up.” – General Contractor, North Richland Hills, TX
“I heard that there are supply issues with Plumbing and Electrical fixtures. A major wholesaler said they have only 4-6 months of stock, but I can’t confirm that.” – General Contractor, Los Angeles, CA
Rents, Inventory, Sales and Closings:
“Students don’t want to leave the dorms. They want their own rooms and bathrooms. We are getting busier!” – Owner, Student Housing Projects, Los Angeles, CA
“Some properties are selling at discounts, around 5%. There is more buyer interest in new construction. The homes are empty and that’s an advantage. We see a 10%-15% correction coming in Southern California. Lots of smaller developers that built five-unit SLO’s (Small Lot Ordinance) are scared and want to dump. On the resale side, so many homes are not being listed until COVID-19 is over. There are lots of homes coming to the market at once.” – General Contractor, Custom and Semi-Custom Homes, Los Angeles, CA
“Markets like Las Vegas and Phoenix, the low-end (of housing) are going to take it on the chin. We have a client who is stopping two projects in Phoenix. The high-end will be impacted as well. Those buyers have stock portfolios, which are down by a third. There’s still pent up demand. It’s the sweet spot projects that continue to do well. From March 2nd to April 13th, we have clients with projects that saw 3-4 net sales. Another saw 1-2. They had been selling well before COVID-19 and continue to do so because they have good products. And closings! We saw 20 closings in that period too.” – Senior Vice President, Construction Lending, Southern California
“Big Banks are holding the mortgage market together. Especially on the non-conforming side. They have huge balance sheets and will worry about it (selling the paper) later.” – Senior Vice President, Construction Lending, Southern California
“We have a client who owns retail, including three projects with Dunkin’ Donuts. We asked him how his revenue and he said that Dunkin’ Donuts is 20%-25% above projection.” – Senior Vice President, Construction Lending, Southern California
Project Starts:
“Ready to build fuel station projects that are contracted with permits, are on hold. With oil prices dropping, profits are down, and guys are sitting home. We’re not going to see these projects start until the second half of the year.” – General Contractor, Ground-up Retail and Fuel Station Construction – Texas, Florida, Virginia, Illinois, and Massachusetts
Land Sales:
“A lot of big land sales to merchant builders that were scheduled to close have been extended 60 days, by both parties. Their thought is ‘Let’s see where this lands’ which is smart.”
“One client said, ‘We’re going to take this down (close the sale), it’s a great price and the Seller knows it.”
“Another reason for a 30-day delay is that ‘neither side wants to worry if escrow is on time.”
“It’s made the mud deeper to wade through to get the deal done.”
What’s trending
COVID-19 compliance, FaceTime Inspections, the real or perceived threat of material shortages and price increases, delays in permit issuance and the massive bottleneck building in cities and counties, patience and mutually agreed upon pauses on land sale contracts, surprise revenue, and sales and closings in select submarkets.
Thank you
Our gratitude to our clients cannot be adequately described in words alone. Thank you for sharing not only information but your fears, frustration, and hope for a better future. All of us at QuickDraw Fund Control are right there alongside you.