Contractors Learn to Prosper in New Normal Economy
Over the last several years, construction firms performing work throughout the Southwest have been hoping that activity would pick up. For the most part, it has. In fact, six of the top 10 and five of the top seven firms responding to ENR Southwest's annual survey of general contractors reported an increase in revenue during 2013 compared with the prior year.
But more than six years since the downturn hit the U.S., it is becoming clear to many construction executives that "recovery" doesn't necessarily mean a return to levels seen in 2006. Industry insiders call it a "new normal" that includes steady, measured growth and enough activity for the firms still standing to prosper.
Ray Sedey, vice president in the Las Vegas office of McCarthy Building Cos., says the industry hasn't returned to peak 2006 levels because "maybe what was going on then was out of control."
Las Vegas Market Heats Up
Reaching previous peak levels might be years away, but construction activity remains steady.
John Cannito, chief operating officer of Las Vegas-based PENTA Building Group, says that "2013 was a growth year for us. Since the original hit of the downturn in the private market in the Southwest, we have gone through the last three years in a continued expansion."
PENTA has been one of the leading firms during the slow Las Vegas recovery, ranking first in Nevada based on 2013 revenue, according to the Top Contractors survey. The firm recently completed the SLS Las Vegas renovation of the Sahara; the Zappos headquarters—a renovation of the former Las Vegas City Hall; and a $43-million expansion of the United Brotherhood of Carpenters and Joiners of America training center.
While Las Vegas heats up, Arizona growth is a bit more tempered, according to Marty Hedlund, Sundt Construction manager for the Southwest district.
"We are seeing steady, though slower-than-hoped-for growth in the construction economy," Hedlund says. "Areas like southern New Mexico and El Paso are showing progress, but Arizona seems to be a bit stuck in the purgatory between paranoia and cautious optimism within the private sectors."
Potholes on Recovery Road?
Several legislative and governmental actions on the horizon could greatly impact whether or not contractors should expect a boom or bust in the future.
With the Grand Canyon state still recovering from years of tight budgets, public funding for facilities is a key issue. The Arizona Board of Regents is seeking $1 billion from the state Legislature in the next session for research buildings on the state's three university campuses by 2020. Also, if a proposed $900-million Maricopa County bond election for health care facilities passes, it "will rejuvenate the moribund health care construction market," Hedlund says.
In Nevada, Question 3, which would raise funds for school construction by placing a 2% tax on the gross revenue of any business, is being targeted for defeat by numerous industry groups and many large and small contractors. According to research performed by the Coalition to Defeat the Margin Tax Initiative, the construction industry would be particularly affected because at each level of the supply chain companies would have to pay the tax on revenue that had already been subject to the tax at prior levels.
