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Cities on the East Coast have a tremendous sway over developers. It is a lot more difficult to get approval to build a 30-story building than to renovate an existing 10-story one,” said Glenn Kingsbury, manager, NECA's Boston Chapter. “You are constrained, which gives renovation a push.”
That's the good news. The bad news is that business is down and it's the same story across the country. Still, many contractors have carved out niches in the renovation market that are netting a profit in lean times.
“We do a lot of renovation to fancy hotels in Boston,” said Howard Lehr, CEO and chairman of the board, Suffolk Electric Co. Inc of Jamaica Plain, Mass.
“The woodwork and antiques are of a quality that couldn't be replicated today. They have irreplaceable paneling with carving in the hotel lobby, sitting rooms or libraries,” Lehr said. “The trouble is the electrical was done God knows when, before I was born. We have to be cautious. In a lot of cases we actually channel [cut into] the walls because we can't fish the walls if the wall is solid or full of cork [used for noise insulation].”
And they have to be considerate and adaptable. “They don't shut down the hotel,” added Lehr. “They will give you part of it and you get a certain amount of time to do it. Yet sometimes you're in an area and the hotel will tell you, 'We'll be renting those rooms this weekend, so give us as many as you can.' The job may not be perfect but we finish to a point and the plasterer and painter come in after us. The hotel puts the furniture in and they rent the rooms. Then they move the furniture out again and we go back in. They have faith in us. They know we'll meet the schedule [and] we won't cause disruptions. With renovation, it is not necessarily the price, but the quality of the work. Our motto is: We do the work other contractors won't or can't do.”
Older brick structural buildings in some areas of Boston are being renovated into office space, apartments and light manufacturing or artists lofts.
“It's a revitalization of different rundown areas that you see in every city,” Lehr said.
“Economics drives the projects,” Kingsbury said. “The driving fact is a developer's ability to make money and develop it to a higher economic use.
“Projects of this sort can be like new construction. With 19th-century buildings, the demolition companies come in and wipe out the place without much input from the electrical contractor who is typically back-loaded on the project,” he said. “Every single piece of wire gets ripped out of a building and nothing is left.”
Yet, in spite of the new projects, the workload in Boston is down 15 to 20 percent, according to Kingsbury.
“It's a very, very tough market,” said Lehr. “A lot of contractors take work now and don't mark it up and hope they get something on the bye and don't add a profit.”
In Detroit, Motor City Electric Co. (MCE)-a company with a sophisticated technology division and strong ties to local business-has been renovating the Renaissance Center, the 104-floor global headquarters for General Motors. The building's solid exterior shell was retained, while the interior was gutted for the project.
MCE began working on the Renaissance Center in 1996, when the company was invited to do the electrical for the first two floors. For the past eight years, MCE has been working on the other 102 floors-more than 5 million square feet of space. The project includes rebuilding the electrical system for almost the entire complex, including installation of a new computer data center, new fire alarm and security systems, and the installation of all telecommunications work, plus broadband cable systems. Since the project entails working in a fully occupied building and all fire alarm and security systems must be active, some of the work is done in night shifts or in one area at a time, so as not to disrupt the normal GM workflow.
Concurrently, MCE has also been doing renovations and new construction on the GM Vehicle Engineering Center for the past two years.
“There is some market for renovation in Detroit but overall construction is down in Detroit,” said Richard Martin, MCE vice president.
“In Chicago,” reports Tim Taylor, assistant manager, NECA Illinois Chapter, “not just renovation but all work is down. Last year our electricians worked 13_ million hours and it's down to 11_ to 12 million this year.”
One Chicago contractor is managing by cutting back its work force, working efficiently and relying on a niche in the renovation market.
“For the last 30 years, we've been doing nothing but renovation of office buildings in Chicago,” said Bill Hardt, president, Hardt Electric Inc. “It was kind of an inflation-proof type of a thing. People would expand and contract. When times were good, they would add and for leaner years they would cut down on office space. For leaner years, when other construction was suffering, we did pretty good. As a company, we do a lot of small jobs, about 2,000 a year. Our average job is $10,000 to $15,000. We're now doing our largest project ever-a renovation of a warehouse that is being converted into condos-a $3 million project. We're getting more and more residential as commercial in Chicago is getting more competitive. We started our business in 1973 and we were very successful until 9/11. We grew a little each year but our volume went from $12 to $13 million down to $7 to $8 million last year.”
“Chicago was hit very hard,” Hardt said, “so contractors are doing jobs much cheaper with very little margin. Others are taking those jobs and lose money, but we won't do that. We'd rather cut our force and become more efficient.”
One efficient method used by Hardt Electric is to create a preview of the positions for electrical boxes.
“We put the box in place before wiring and make the owner and designer take a look at how it looks on the wall and how it matches with the furniture. If they want to make a change, it's just a matter of putting in a few screws. It's very successful and leads to fewer mistakes.”
On the West Coast, Steve Washburn, manager, NECA Puget Sound Chapter, Seattle, said, “It is pretty slow. We've always enjoyed a fairly decent market-share compared to some other cities, but that may be dwindling. Seattle and Portland run neck and neck as far as the commercial side, up until recently, with the union balancing between 75 to 80 percent of commercial, but now we are at 65 percent of commercial.”
In San Francisco, Ken Paganini, CEO, Paganini Electric Corp., said, “Eighty percent of our business is in renovation, tenant improvement, and power and data. We do restacks and floor build-outs. We've been in the market since the early '70s. It's a dynamic market for San Francisco, a 49-square-mile city with about 3 square miles with all the office buildings. We're vertical where other cities are horizontal. But our renovation market was reduced by 50 percent after 9/11. The last few years have been the worst in 50 years. Everyone pulled back. We had millions of dollars of contracts stopped or cancelled. Tenants and building owners were not spending any money doing anything. We are beginning to pick up projects but they are much smaller. A project before would be a $1 million, and now it's a $300,000 build-out.”
Nationwide construction for the first 10 months of 2004 was $842.4 billion, up about 9 percent above the same period in 2003. In the residential market, expenditures for improvements and repairs of properties were at a seasonally adjusted annual rate of $198.8 billion-19 percent above the fourth quarter 2003 estimate of $166.7 billion. That could be good news for contractors if they aim for that market.
“From a marketing standpoint, for a number of years we've encouraged companies to find a niche, a specialty,” said Kingsbury. “Renovation is a specialty, no question. Not any electrician can work in any area, like on historic structures. There are things to know about each niche. If an electrical contractor finds a specialty, they can aim for that market and demand better prices.” EC
CASEY, author of "Kids Inventing! A Handbook for Young Inventors" and "Women Invent! Two Centuries of Discoveries that have Changed Our World," can be reached at [email protected] or www.susancaseybooks.com.