Northern Colorado Report
School and commercial multifamily housing projects are helping to buoy construction firms in Northern Colorado, now in its third year of decline.
Those contractors, design firms and developers that are surviving are diversified and conservative, and they have learned a new way of doing business to stay in the black, including going out of state.
“This whole economy has turned our business upside down,” says Terry Drahota, president and CEO of Drahota Construction in Fort Collins. “We’ve gone from an 80-person company to a 40-person company. Normally we have been doing around $70 million in construction a year, and in 2009 we put in place $30 million.”
Keeping Drahota’s crews busy this year are HUD-financed apartment and mixed-use projects in the Denver area, as well as Northern Colorado municipal projects.
“There really is no financing available for multifamily projects unless it is HUD, so the fact that we have experience with that and are qualified as a HUD contractor is an advantage for us,” Drahota says.
He estimates his firm will do about $50 million in business this year, which includes a $6.5-million, 19,000-sq-ft addition/27,000-sq-ft remodel of the Chilson Recreation Center for the city of Loveland.
Public projects are important for Alliance Construction Solutions in Loveland, as well. The firm is doing a $3-million, 14,000-sq-ft expansion/7,500-sq-ft remodel of Spruce Hall at Morgan Community College in Fort Morgan. But it’s having more success outside of Northern Colorado, says Damon Balcerak, Alliance project manager for business development.
“We are in the ‘business development’ stages of some medical office buildings, but they are in Denver and Cheyenne,” Balcerak says. “Also, a good portion of our portfolio right now is affordable or transitional housing in the commercial sector in other parts of the state.”
McCauley Constructors of Windsor is not only keeping its 13 employees busy, it just opened a Grand Junction office.
“A lot of companies our size have disappeared,” says Nancy James, McCauley’s business development coordinator. “We are actually hiring for the Scottsbluff (Neb.) library project we just got.”
James adds that her firm has to scramble to win bids, and “the margins are nothing. If you miss one little thing with the margins being so tight, you’re going to lose your shirt. And there are two to three times as many people bidding on any one job than there used to be.”
McCauley’s current projects include an $850,000, 4,000-sq-ft addition to the Cooperative Institute for Research in Atmosphere building at Colorado State University in Fort Collins; a $1.4-million renovation of the Sterling Public Library; and a $480,000 historical renovation of the Hugo Roundhouse.
McWhinney, developer of Centerra in Loveland, the largest master-planned community in Northern Colorado, cut about 15-20% of its staff last year. The developer is cautiously moving ahead with design and construction of its Rangeview series of office buildings, says Jeff Jensen, vice president of commercial design and construction.
“The market is more dependent on having a complete build-to-suit for a client in hand, or the building needs to be pre-leased at a fairly high rate to get financing,” Jensen says.
McWhinney projects include the 82,000-sq-ft Rangeview Four Crop Production Services building, with completion slated for June. The firm is also working on plans or designs for three more 40,000-60,000-sq-ft Rangeview office buildings.
“The cost of construction right now is at an all-time record low,” Jensen says. “We bid the Rangeview Four building to five contractors and it was 25% lower than what was budgeted for. If we had more buildings and we could build, we would. It is the ultimate time to build.”
McWhinney will break ground this spring on one of the few multifamily residential projects in Northern Colorado, the $45-million, 303-unit Lake Vista luxury apartment complex at Centerra. A low Loveland multifamily vacancy rate of about 4% and available HUD financing made it the right time to build, Jensen says.
“You've got guaranteed financing with HUD at a time when it’s very difficult to get financing,” he says.
Michael Gifford, executive director AGC of Colorado, agrees that public projects remain strong while private markets such as retail, office and lodging are stagnant.
“Public work has been flat or slightly up a percentage or two, while private work in ’09 was down quite a bit, and it’s projected that the general trend is going to continue in 2010,” he says.
Gifford sees another trend, as well: Northern Colorado businesses have adjusted their business practices to stay in the game.
It’s being done “through learning, joint venturing, partnering and through being a sub when you are normally a GC,” he says. “It’s an opportunity to re-communicate or re-market what you do.”
Michael Masciola, COO and senior vice president of the Northern Colorado Economic Development Corp., has been tracking business relocation trends in Larimer County and says there could be some demand for new construction.
“The trend that we're seeing now is that 67% of companies looking to relocate want to move into an existing building; another 11% will consider either existing or new,” Masciola says. “Only 22% are looking to build new.”
Dutch wind turbine manufacturer Vestas is a good example of a specialized industry that required new construction for the firm’s 2008 Windsor wind turbine blade factory, he says.
“That relocation put Northern Colorado and Denver on the map for a number of other foreign companies that are looking to invest and put facilities within the United States,” Masciola says. “I'd say 50% of those folks are looking to build new buildings.”
A glut of commercial space has created a market for increased remodeling projects, says David Shigekane, director of business development and marketing of the Fort Collins-based Neenan Co.
“We did some sizable projects in 2009 in Northern Colorado, but I don't see that in 2010,” he says. “The trends I'm seeing in 2010 are based on the markets: biotech, clean tech and remodel work. With all of the vacancy rates, we are seeing a lot more people who want to upgrade their space.
“The other interesting part is that I would say 75% of our work is not traditionally funded by banks. Most of ours is state or federally funded, whether it’s schools, public hospitals, things like that. We are doing schools down south, in Alamosa and Sargents, which were funded through the BEST (Building Excellent Schools Today) program with some ties to federal funding.”
Speaking from a design perspective, George Brelig, principal with RB+B Architects in Fort Collins, says he believes many firms are hesitant to move ahead with construction until economic conditions improve.
“I think it’s going to be a year where we plan projects, perhaps do some design work, but I don't see too many people jumping beyond that and actually breaking ground,” Brelig says.
Besides bidding jobs outside the state, RB+B has found work through networking with consultants and even competitors, Brelig says. RB+B’s current project work includes the design of four schools in Boulder, Aurora and Erie, and school renovations in Niwot and Boulder, for a total estimated construction cost of $92.8 million. The two Aurora new school projects are a joint venture with Slaterpaull Architects of Denver.
Mark Latimer, president and CEO of the Associated Builders and Contractors Rocky Mountain Chapter, agrees that more companies are heading out of state to find work.
“In order to keep their backlog, we are seeing them bid on out-of-state jobs and travel out of state,” he says.
Economic casualties cost ABC some members in 2009, but Latimer says that the organization’s numbers are now on the rise.
“We have quite a few new member companies who are joining for networking and business-development opportunities,” he says. “Additionally, several new members have joined recently due to our lobbying efforts geared at protecting and supporting the construction industry.”
The economic downturn is reshaping the construction industry, Latimer adds.
“There will be a shakeout in the industry, and we will lose some companies,” he says. “But, hopefully, the ones that are strong will have found more efficient ways to deliver their construction projects—and in a greener manner, as well—so we are cautiously optimistic.”
