2009 Top Contractors

Executives Wary as Market Dives in Midwest

By Brian R. Hook

The results for total construction spending across the Midwest in 2008 are discouraging at best for contractors: down 35% in St. Louis, 9% in Indianapolis and 9% in Chicago.

Health-care construction is a rare market doing well. One example is the recently completed DuPage Medical Group Glen Ellyn Clinic in suburban Chicago. (Photo courtesy of Leopardo Cos. Inc.)

As a result, executives for the Midwest’s Top Contractors are approaching the year with caution.

Mike Bohn, senior vice president and regional manager in Chicago with Providence, R.I.-based Gilbane Building Co., says that while most of his company’s projects are not being canceled, many are being delayed six months to a year or more due to the high cost of raising money.

“Even if you can sell bonds, the interest rates are so high,” Bohn says.

Backlogs are holding steady and Bohn expects revenue at his firm to remain flat. “Anything that gets put on hold or delayed runs the risk of being canceled,” he says, adding that he does not expect a turnaround in construction until 2010.

Rick Mattioda, president of Hoffman Estates, Ill.-based Leopardo Cos. Inc., is also seeing projects put on hold due to the credit market crunch. Projects that looked like they were ready to go are being scrutinized further before financing, he says.

“The market is uncertain,” Mattioda says. He expects revenue at his construction firm to drop 20%. “Nobody knows for sure when this credit crunch will ease,” he adds. While the retail market has slowed to a standstill, the municipal and education markets have stepped up activity and are helping pick up some of the slack, Mattioda says.

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“We have always had a good mix of midsize to larger along with smaller projects,” he says. “It seems like now there are a lot of smaller projects that we are looking at. The larger projects are some of the ones that have been put on hold.”

25% Projected Drop in Chicago

Total construction spending in the Chicago metropolitan area dropped to $17.3 billion last year compared to $19.1 billion in 2007, according to data by McGraw-Hill Construction, of which Midwest Construction is a unit. McGraw-Hill predicts it will get worse, totaling $13.7 billion in starts this year in Chicago. That’s a 25% drop.

The biggest decline in construction spending in 2008 in the Midwest was in St. Louis, where total spending during 2008 dropped 35% to $3.2 billion, according to McGraw-Hill.

“Everybody is nervous about this economy,” says Scott Wittkop, president of the central division at McCarthy Buildings Cos. Inc. in St. Louis. He says a number of clients are waiting to see what happens with the overall economy before committing capital.

“We still see a decent list of opportunities ahead of us, but there will be more competition on most of them,” Wittkop says. He adds that as work slows in some markets, general contractors are looking at other markets, leaving their core area of expertise.

Federal work is the strongest now for McCarthy. There is also a “decent amount” of health care and science and technology projects, Wittkop says. “There are opportunities out there,” he says. “You just have to work harder to find them.”

Wittkop says he is hoping the federal stimulus package will eventually help boost construction spending.

“We are monitoring the long lists of projects—that wish list if you will—that people have submitted to try and get some of that funding,” he says.

While total construction spending also dropped 9% to $4.5 billion in Indianapolis, spending increased in Milwaukee 18% to $2.8 billion last year, in part due to continuing work on the $3-billion Oak Creek Generating Station in the south suburbs, according to McGraw-Hill.

The construction market is “speculative at best,” says Corey Brumbaugh, vice president of business development for Neenah, Wis.-based Miron Construction Co. Inc. Nevertheless, the firm’s backlog is holding steady.

“In the development world there is almost no work happening because of the lack of financing,” Brumbaugh says. “But we do still see a lot of opportunities in the industrial market, the health care market and education market.”

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