Harvey, Irma, and Maria will be names that will forever be etched
in the minds of most construction executives and recruiters.
Although for most people, they were the names of the storms that
will be remembered for the devastation they left, for construction
companies, the storms will be remembered for dealing the industry
yet another blow as to the already tight construction labor market.
The construction industry has been
losing ground for years with respect to
retaining both skilled and unskilled
laborers. From the skilled laborers’
perspective, the lure of a college degree
been the driving forces in
focusing those otherwise interested in
construction careers away from trade
schools and/or journeyman programs.
On the other side of the spectrum,
US-based construction jobs as they once did.
Adding to the final blow, by some accounts, the construction
industry lost approximately 20% of its workforce in the years following the Great Recession. For the most part, those who left the
industry did so for better working conditions and higher pay.
The storms of 2017 are going to be remembered for, among
other things, the amount of construction work they left to be
done in their wake. Although, construction companies often look
positively at construction activity brought about by damaging
storms, the storms of 2017 will eventually prove to have been too
much, too soon, and during a timeframe when construction labor
was too tight and insufficient to meets the needs of the industry.
The industry is now forced to reconsider and change the
means by which it deals with construction labor. Many construction companies are no longer relying on third party headhunters
and traditional hiring practices. Instead, companies are setting
up their recruiting departments, recruiting across state lines, and
paying signing bonuses and providing promises of higher wages
to those who positions are at the critical mass levels.
Notwithstanding, not all of the industry’s labor problems can be
resolved by paying its workers more money.
Completing a project within budget and schedule is still the litmus test for most contractors and construction contracts. But,
meeting the challenges of budget and schedule has become
immensely more difficult due to the unpredictability of the
reduced construction work force. Moreover, the foregoing has had
significant impacts on: 1) ability to control quality with unskilled
labor; 2) ability to maintain the contractor’s profitability; and 3)
ability to set contract completion dates (especially those subject to
delay penalties) when manpower counts are difficult to predict.
These impacts are not limited to construction companies.
Many developers have had to scrap construction plans due to
raising construction costs. As labor becomes more scarce, and as
pricing for new construction projects go up based on supply and
demand principals, so do the price points of the projects.
Recently, in St. Petersburg, FL, a permitted multifamily project
was removed from construction after the developer determined
that it could not accurately predict the completion of the project.
Rather than risk the uncertainly of exceeding its budget, or failing to timely deliver the project, the developer decided to scrap
the project altogether.
Conrad Lazo is a shareholder at law firm Becker & Poliakoff. He may be
contacted at firstname.lastname@example.org The views expressed here are the author’s own.
Storms Impact An Already Tight Construction Labor Market
By Conrad Lazo
Two GSEs, Two Sectors
Two separate offerings by Fannie Mae and Freddie Mac illustrate
borrower demand for two types of loans: green and fixed-income,
respectively. Fannie recently priced its eleventh Multifamily DUS
REMIC in 2017 totaling $1.19 billion under its Fannie Mae
Guaranteed Multifamily Structures program.
Three of the tranches –A1, A2 and X—were all backed by Fannie
Mae’s 10-year, fixed-rate green MBS collateral, according to Dan
Dresser, VP, Multifamily Capital Markets, Trading & Credit Pricing.
“This is Fannie Mae’s third GeMS deal with a Green-only col-
lateral group included,” he said in a prepared statement. “Strong
interest from our traditional DUS investors and a new community
of socially responsible investors helped to drive spreads tighter
across the entire deal.”
Earlier this year Fannie Mae priced its first DUS REMIC with
two green tranches. It was, according to the GSE, the first green
agency CMBS deal. The beginnings behind that benchmark deal
began several years ago when Fannie Mae began quietly and then
not-so-quietly marketing its green MBS securities.
At the same time, the agency has been been rolling out various
initiatives to encourage borrowers to make water and energy
improvements to the GSE’s asset base. Then last year some $3.5
billion in green MBS was issued. At that point the GSE had accumu-
lated the critical mass to re-securitize the paper in its REMIC pro-
gram and as this latest transaction shows, it continues to do well.
Separately, Freddie Mac priced a new offering of Structured
Pass-Through Certificates, its vaunted K Certificates, backed by
underlying collateral that consisted of fixed-rate multifamily
mortgages with predominantly seven-year terms. For the most
part the offering is business as usual. What is interesting is the
seven-year, fixed rate paper.
To be sure, fixed-rate offerings have been a staple of the GSEs.
But it is becoming clear that the fixed rate loans are more in favor
than the floating rate loans this year. There are likely many reasons for that, with the rise in Libor and the maturity of the cycle
chief among them.—Erika Morphy ◆