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Commercial Department: Q&A: Donna Laquidara-Carr, Dodge Data & Analytics: December 2017

 

Q&A: Donna Laquidara-Carr, Dodge Data & Analytics

Think about data-driven answers for construction financing

Construction projects represent a large amount of business for commercial mortgage brokers and their clients. Nationwide, the seasonally adjusted annualized rate of nonresidential construction completed as of this past August totaled more than $691 million, according to data from the U.S. Census Bureau. Of that total, more than $207 million was dedicated to private multifamily, office and commercial construction projects.

Delving into construction data can be a huge boost for brokers looking to understand short- and long-term construction trends. Donna Laquidara-Carr, research director of industry insights for Dodge Data & Analytics, spoke with Scotsman Guide about Dodge’s quarterly Commercial Construction Index (CCI) and how it relates to investment strategies.

Explain what the Commercial Construction Index is and why it might be useful to lenders and commercial mortgage brokers.

The Commercial Construction Index is an overview of the health of the construction industry from the point of view of a contractor. What we do is quarterly: We survey just about 200 contractors. … The focus is just on contractors who build commercial and institutional projects, so it does not include people working on infrastructure or anything along those lines.

So, how is all this useful to lenders and brokers? Well, construction is just a huge part of the U.S. economy, so obviously the health of this industry influences the health of the economy as a whole. … If you can follow those patterns over time, it would be really helpful for lenders and brokers to understand that marketplace a lot better, where it’s going and when you might be starting to expect to see increased costs coming down the line.

The third-quarter 2017 CCI report said many contractors have steady or increasing project backlogs. Will this make it more difficult for projects to be financed and completed in a timely manner?

They report an average backlog, overall, of about 9.5 months. But the ideal for them is around 12 months. …I think that there is a big question about difficulty for projects to be financed and completed in a timely manner, and that does have to do with hiring personnel. They are reporting having so much difficulty finding skilled workers, and we think that this could have really long-term implications.

Because of these shortages, we do see 39 percent [of contractors] … are turning down work opportunities, so that has implications. And 68 percent say they are challenged to meet schedule requirements. It’s not really about the amount of backlog. It’s about who is there to do the amount of work, and we see the potential for both schedule impacts and, eventually, for the cost of construction to increase.

What factors are driving contractors to have confidence in their business for the next 12 to 24 months?

Knowing that you have work, it always does lead to a little bit more confidence. We see about one-third reporting that they expect their profit margins to increase over the next year and another 57 percent say they expect their profit margins to stay the same. And remember, the profit margins in the construction industry were an area that got particularly stretched during the recession, when there just wasn’t enough work and [there were] a lot of people competing. A lot of people were doing projects almost at cost.

Seventy-eight percent say they expect [property] owner financing to get easier or remain the same in the next six months. That’s a key factor, that they think the pipeline of projects is going to continue because owners can get financing.

Historically, do larger contractors have an easier time obtaining financing than smaller companies doing smaller projects?

[Contractors are] always sort of looking at their line of credit, and with smaller companies, it’s a little bit harder because there is less collateral to loan against. We did see a little bit more concern coming from smaller companies, a little bit less confidence in the third quarter, than we saw with the larger ones.

I have no idea if that’s just a quirk of this particular quarter’s data, or whether that’s more meaningful, but if we see it continuing or worsening over the next few quarters, then that might be a suggestion that the market might be starting to turn. That could be an indicator that, if you’re smaller, it is a little bit more challenging to be able to keep ahead of that financing prospect.

Donna Laquidara-Carr is the research director of industry insights for Dodge Data & Analytics. She provides editorial direction, analysis and content for the organization’s SmartMarkets Reports. Previously, she worked for nearly 20 years with Dodge’s editorial team, where she gained detailed insight into the construction industry. She holds a doctorate from Tulane University, a master’s degree from Boston University and a bachelor’s degree from Middlebury College. Reach Laquidara-Carr at donna.laquidara@construction.com.


 

Neil Pierson is editor in chief of Scotsman Guide Media. Reach him at neilp@scotsmanguide.com or (800) 297-6061.

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