February 19, 2013

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CONSTRUCTION

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CONSTRUCTION

February 19, 2013

It takes their loan portfolio out of a certain range from the regulators, and all of a sudden they’re in trouble with the regulators. That’s the sole reason they won’t do it. It’s nuts. You have the government saying, “Yes, banks, lend the money,” but then they put these capital requirements on them that make it so they can’t make reasonable loans.    

ANDERSON: The banks are kind of in the same position as we are. We’re not buying equipment—right now we’re renting and leasing because we’re unsure about the future. And the banks, I think, are the same way. We’re doing a lot more estimates with people as far as budgeting and what it costs to build a subdivision. People are wanting to know, “Is the time right,” but nobody feels good enough about it yet to spend their money.

There’s a lot of money out there. They’re just waiting for some signals from the government to say, “OK. This is what we’re doing.” That would open the spigot for money to start to flow for all of us. And we would invest more on buying equipment and supplies, too.

P. CAMPBELL: It’s more difficult to get people financed in purchasing equipment. Leasing companies—even the OEM finance companies—their restrictions are higher, their standards are higher. So we’re being asked to carry the risk.

We’ve become the banks for our customers, to a large degree, through rentals, through off-balance-sheet financing. From the supply side, I don’t see that changing any time soon. We have to perform a function that isn’t being performed by the banks right now in order to get people equipment. 

One of the dynamics that we’ve seen over the past four or five years is subcontractor failure. A lot of folks have burned up their savings. Now as we position for a return back, are they going to be able to get a line of credit, or are they going to go bust?

GRAMOLL: It’s taken a couple of years for those guys to burn through their savings, and they’ve gotten themselves in a precarious situation. Right when the downturn started, they were fine, but we’ve seen recently more problems with subcontractors. Even as we think the market is starting to improve, they’re at the end of their rope and have gotten desperate.

JOHNSON: We’re still standing. It’s been harder on our company, but we’ve sustained. The one thing I can honestly say is the market will pay for what’s happening to subs, because the subs that stand will be able to charge appropriately and start taking wages where they need. But there are going to be more needs than available subs because of this.     

ZWICK: As general contractors, we tend to shift blame to poor subcontractors that go out of business on our projects. Frankly, it really starts ahead of that. It’s poor pre-qualification of subcontractors on our end.     

How will last year’s federal, state and local elections affect our industry?

ZIMMERMAN: We still see massive amounts of debt. And until we see something out of Congress and out of the president that is designed to problem solve, we’ll still see a measure of stagnation.

The uncertainty in healthcare is still there. And until we get past uncertainty, we’re going to see people sitting back and not going forward as fast or hard as we’d like them to.    

SNOW: On the brighter side, the Obama Administration right now is trying to push through a $50 billion stimulus plan targeted to highways and infrastructure. Maybe we’ll see some of that again in roads and highway. I can’t imagine Utah getting any of that money, however, because we didn’t vote for him.

The thing I’ve heard from folks around the country is there’s a huge wait-and-see program going on with the federal government. It’s money on the sideline. There’s money out there, but who’s going to put it in when you have such uncertainty about what you’re going to get out of that?     

KLAUMANN: We’re optimistic at a state level because the leadership in both the House and the Senate have a history of supporting construction and transportation for economic development. So there could be a positive outcome in the next legislative session.

From the federal side, it looks promising that some of the regulatory issues within the latest federal highway bill will have a positive impact on transportation—it should reduce the regulation on money.   

ANDERSON: The problem with these highways bills is they’re year to year. We can say, “We’re OK this year.” We need to get back to where we’re doing it in five-year deals so we can plan ahead, maybe invest in some equipment.

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