Non-Residential Investment Overview
Submitted by
CalculatedRisk on Tue, 05/13/2008 - 9:00am (14 comments)
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Average Joe.
Okay, I have a related question. My church (in Phoenix) is getting ready to build a new sanctuary. We will be breaking ground hopefully later this year. As a lay leader in our church that has some say over budgeting, how can I use the information contained in this post to our advantange?
CR, BTW, I'm still not sure why you don't use the Private Construction Spending, SAAR chart you made for this analysis. That chart seems to indicate that spening could fall much more, or am I overlooking something obvious?
You should make sure that any contractors who are working on your sanctuary have clean records and procedures for only hiring legal construction workers with valid IDs.
The charts tell you that construction is softening. In your area, that means job opportunities for immigrant construction workers are vanishing. Your church can reach out to illegal immigrants and their families in legal ways and help them. But you don't want to get reported, sanctioned and fined for breaking the employment law. And you can't hide behind unethical contractors who break the law in today's hostile anti-immigration climate.
Because construction employment opportunities are getting so much more scarce, it's probably the humane thing to do for skilled illegal construction workers to motivate them to go back home.
Ummm...Minuteman's suggestion aside you can likely use this info to negotiate for better pricing on damn near everything. If you need more space I am willing to bet in the the area there more than a few vacant grocery anchored retail spaces and movie theaters that could be repurposed to house your congregation quite adequately. Whenever we'd take back a grocery anchored retail center there was a 50/50 chance that it would end up as a Church.
One thing to be concerned about is commodity prices driving building materials costs wider. I'm not sure the size and scope of your project but you may be able to negotiate a fixed price construction contract. There you are taking the credit risk of the developer so do your due dilligence apropriately.
On the political note, I've found that illegals tend to be highly skilled in most of the construction trades. Better than most Americans. It's a shame that there weren't many (if any) H1B visas allotted for stone masons, carpenters and electricians. In a lot of foregin countries learning a skilled trade is viewed as a way out of poverty versus being perceived as a last resort for employment as here in the US.
Also, I'll keep saying it, I'd be much more terrified if the spending on non-res construction were going on unabated. There are still going to be substantial deliveries given the 18-36 month pipeline and certain markets are going to have a bunch of see through buildings but the fact that expected deliveries represent much less on a gross basis and as a % of GDP than in 90-91 is a great fact.
Read on! Game on! Play on! Clever way to move around the Read More controversy
Last!
No, I am!
You guys are pathetic,...this is what last looks like.
Lastest.
i never was first
Don't seem to be many comments on point here. Guess most can't see beyond residential housing. Couldn't agree more with the thrust of this article that commercial real estate might be the next domino to fall.
CR -
The consensus that I am hearing on the street is that significant over building (supply) is not the culprit. Rather demand is sharply weaker due to the same forces causing the recession (layoffs, weaker consumer demand) and this is causing the slump in CRE construction.
I do believe that CRE prices were in a bubble for quite some time due to cap rate compression via excessive leverage. And the tighter underwriting standards have send cap rates up 100bps across the board.
Now that CRE prices are down 15% (which I'm also hearing as an industry consensus) it seems to me that CRE construction will be weak, but not necessarily for very long, only until the demand curve shifts back out again, which may only be 24 months.
Would you agree with this view?
If your view is that I am last, I would agree holeheartedly.