06 Mar Commercial Construction Recovery Is Just Around the Corner

News about the economy reminds me of the story where a shoe company sent two salesmen to Africa.  The first salesman wrote back “this is a terrible market, no one wears shoes.”  The second salesman offered “what a fantastic market – everyone needs shoes!”

The media coverage focuses on the unemployment figures; however this is a lagging indicator for the economy and will not help predict the future.  It is like watching the tail of a dog and attempting to predict which way the dog will go.

What we should be studying are leading indicators.  Historically, commercial construction follows the housing industry by 12-18 months.  This holds true for a recovery or a bust.  The good news is that in May 2011 housing starts hit bottom and have been increasing (year over year numbers) ever since. Commercial Construction Recovery Is Just Around the Corner…

This would indicate a “commercial construction recovery” will start this Summer/Fall.  In my travels around the Southeast, we are already seeing signs of new housing and small commercial activity that historically lead to a much larger commercial construction recovery.  We believe that this time will be similar to the past and an industry recovery is on the way.

We also believe that Municipal Government Construction will be decreasing.  All indications suggest that Counties and Cities are in an income downward spiral due to a dependency on property tax related income.  This spiral has not yet reached a bottom.  The continued protesting of property tax assessments will continue to cause County and Cities to lose revenue and force them to find alternate sources of funding.  Their ability to tap the Bond Market is in jeopardy as the revenue declines.

I have been working with a few lenders who have a finance program that enables a County or City to tap into financing using a Sale/Leaseback format.  This enables a municipality to plan and provide the needed municipal funding for hospitals, clinics, government buildings or residences without accessing the Bond Market while preserving their borrowing capacity for future projects.  Contact dboyken@consultdrb.com to learn more about the program.