CREJ - Multifamily Properties Quarterly - October 2015
The challenges facing the construction industry may seem daunting in a climate of growth and exciting innovation. As we continue to have conversations around these challenges, we see a few constant themes such as meeting quality challenges, seeking skilled personnel, lacking affordable for-sale units, and being able to expand across regional and global markets. In the following interview, David Thorpe, vice president of Shaw Construction, addresses the current challenges in multifamily construction and offers solutions to those challenges for general contractors, subcontractors, vendors and the real estate community. Q: What is the greatest challenge of multifamily construction right now? A: It’s a supply and demand challenge. There’s a lack of available, trained construction personnel; high and unpredictable pricing due to the reduction in competition; and schedules are delayed and quality is scrutinized. The growth in the demand side is outstripping the growth in the supply side. Q: When do you see the gap closing between rental and for-sale units? A: That will depend on when the legal environment will allow our clients to feel comfortable building for-sale condominiums. There are people who would love to develop for-sale product, but the legal environment is creating an array of barriers to make that a realistic possibility for developers who are ready to create high-quality products. Q: How is Shaw responding to the civic agenda for more affordable housing? A: We have been an active participant and leader in affordable housing for many years. We continue to work with developers, architects and engineers who know the market, products and the best delivery methods that work for the affordable housing industry. We prefer to work with clients who are on the leading edge of adaptation and innovation. Thus, we aspire to and are eager to engage more work in the affordable arena. Some of our best projects are those that push us to adapt with the changing needs of the market. Our latest project with the Denver Housing Authority is a multifamily affordable housing community called Mariposa in Denver’s La Alma/ Lincoln Park neighborhood, part of the DHA’s plan to reinvent the area. The community received LEED Platinum certification, which is hard to achieve for a residential building. We are proud of the work we did to make sure the building fit within the guidelines of LEED certification, and that we could work on a project that will make such a positive impact in Denver’s affordable housing market. Q: What key learnings can the industry garner from this current construction climate? A: First, adapt as quickly as possible. We understand the dynamics of the market demand change. We best serve our project teams when we quickly come to terms with changing environments and work collaboratively to adapt with our developer clients and our design team partners. Second, give our best assessment of true cost changes – as everyone knows they have been escalating and, at times, rapidly – even if it is not what our developer clients or our design team partners want to hear. Projects that seek to deliver on last year’s costs are the projects that find their way to a troubled budget and pro forma. Third, maintain strong subcontractor and vendor relationships. Bring in additional expertise to assist subcontractors and vendors on how to deal with the challenges of the shortage of skilled labor. Q: What do subcontractors need to bring to the table to compete in this market? A: Our best subcontractors understand everything mentioned above, and they work hard to train skilled labor, retain their best skilled labor, plan their work carefully, and keep a good balance between their available resources and the amount of work they want to take on. They are good planners and strategic project task masters. Q: What do vendors need to offer to compete in this market? A: Strong customer service skills. Our best vendors understand they are vital to the success of our subcontractors and, by extension, the project. They carefully plan, focus on quality control, provide good product information and proactively provide insight to the project team relative to the best means and methods of delivery, storage, installation and maintenance through the life cycle of the project. Both subcontractors and vendors must garner expertise at global procurement and have access to projects produced globally to be competitive. Q: Is Shaw Construction seeing similar trends across the Rocky Mountain region and, if so, what are they? A: We are seeing similar trends across the country. Denver, and Colorado as a whole, is one of the fastest-growing markets, but these dynamics largely are true to varying degrees across the nation. Regionally the challenges may be bigger or smaller relative to supply and demand balance. In conclusion, it is important for us to listen, learn, adapt, communicate and masterfully execute as a collective community from inception to completion for the multifamily residential construction environment to flourish in both for-sale and for-rent affordable product types.