In the Spring 2017 BusinessQ Roundtable, seven commercial construction experts went the rounds on trends, timing, workspace and myths.
Jeanette Bennett, BusinessQ: What is the status of commercial construction in Utah County?
Gifford Briggs, vice president, Big-D Construction: We are doing more apartments now than we ever have in the history of Big-D. It’s a bubble, but we don’t know when it’s going to burst. I think we’re all surprised it hasn’t tapered off yet. It may be a generational thing.
Ryan Freeman, CEO, Forge Companies: Demographics is one of the reasons this is happening. We just finished a project in downtown Provo where we were targeting 25- to 35-year-olds. And we ended up with everyone from a 75-year-old retired couple to a student. A lot of people are looking for convenient living — whether it’s the retired couple looking to not have to mow a lawn or a Millennial who wants to lock the door and be mobile. It’s a broader market than it used to be. The stigma of renting is gone, too.
LaMar Lisman, principal designer and CEO, Lisman Studio: It’s almost sophisticated now to rent. We have clients who don’t want to own things anymore. We met with clients this last week in Los Angeles and they could afford to stay anywhere but they stayed at an Airbnb and used Uber to get around. This idea of being able to move quickly is a real phenomenon and I keep wondering when it’s going to end, but it’s like, “Oh, here comes another big project, and here’s another one,” so I guess we’ll ride the wave. (Laughter)
Stacy Andersen, co-owner, Remedy Furniture & Design Center: The architectural and design style right now is not the “Utah County mold.” Social media and Pinterest drives this. Homeowners and business owners care about their style and want to have an unexpected element in where they’re living. Their brand and culture is brought into their workspace. It’s funky, it’s edgy, it’s awesome.
Alan Rindlisbacher, director of corporate communications, Layton Construction: I have a feeling our discussion today will center around these generational differences — Millennial changes. It’s fine to live in apartments. The top rankings we receive in the state is driving in-migration. We’ve seeing different attitudes. It’s the Goldman Sachs workers in downtown Salt Lake coming from New York who have no problem paying $3,000 a month for an apartment in downtown Salt Lake City. It changes attitudes, it changes perspectives.
“The architectural and design style right now is not the “Utah County mold.” Social media and Pinterest drives this … There’s nothing more rewarding than seeing a happy client at the end of a project.” — Joey Johnson and Stacy Andersen, Remedy Furniture & Design Center
Ryan Freeman, Forge Companies: There’s a whole paradigm shift with homeownership. It used to be your parents said, “Hey, buy a house. This is one of the ways you can acquire wealth.” These kids have seen their parents go through a hard time during the last economic crash, and they’re looking at homeownership entirely differently. They’re saying, “This is something I buy when I’ve made it, not as a means to accumulate wealth.” They have no problem renting until they get to that point.
Jeff Simonsen, vice president and manager of Provo location, Central Bank: The one thing that might change this is financing. Regulators have targeted Utah County as an area that’s had extreme growth since 2014. So, the financing options might tighten for building more multi-family complexes. They haven’t yet because the vacancies are so low — single-digit vacancies. So, as long as they remain there, lenders have justification to lend, but if there’s any weakness at all you’re going to see a real tightening in the finance markets.
Bennett, BusinessQ: Is there that same don’t-buy-it-rent-it attitude among business owners?
Cody Black, executive vice president, Coldwell Banker Commercial Advisors: We’re still seeing a lot of people desiring to own real estate and put equity in their own pocket as opposed to someone else’s. However, there’s a big market for renting as well. Larger companies are still leasing, so you’re not seeing as much Class A development being purchased. As I’m reading the trends of other markets compared to our market, Class A almost outpaces development and growth for new product than industrial. Typically, industrial outpaces retail and office. We have such amazing strength in attracting tech companies, so development is justified. We’re encouraging developers to go vertical and put spec product on the industrial side. Right now, industrial vacancies are around 3 percent, which is unheard of. We haven’t hit these numbers in over 10 years. Industrial space along the I-15 corridor is almost non-existent. Office vacancies are still really healthy. We’re still around 8 percent vacancy in Class A office.
Freeman, Forge Companies: A lot of people have their eyes on construction costs when deciding whether to build or lease — either way you are faced with numbers tough to pencil. If you are an established company and have a good growth pattern, you don’t mind spending top dollar, which is what I feel we are paying today. I’m seeing struggles with tenant improvement costs. We just built an office building in Traverse Mountain and had to increase our tenant improvement allowance because you could not get anything done for less than $50 a square foot. And it’s now getting closer to $80, which is unbelievable.
Rindlisbacher, Layton Construction: Labor is driving a little bit of that. We have a very low labor pool in certain trades, dry wall and framing being two. Also, back in 2003 to 2005, the pricing of commodities shot up. But March of this year is the first increase I’m seeing in concrete — it’s a $7 per yard increase. And that’s the first across-the-board increase I’ve seen since it started. You’re starting to see steel ticking up a little bit. We bid a project last July and the developer had a hard time getting financing put together — it was a $25-million project. Our subcontractors held their pricing from July of this last year until we were able to get it contracted in January. And none of them increased their cost, which shocked me.
Freeman, Forge Companies: Do you think that the last downturn and the exodus with subcontractors out of this state has caused this imbalance now?
Rindlisbacher, Layton Construction: Absolutely. Previously, we had 100,000 construction workers in the state of Utah. Through the downturn we’ve lost 40 percent. We bottomed out at about 60,000 construction workers. And then all of a sudden the construction market takes back off and our labor hasn’t returned. Everybody is working diligently, all the associations, all the construction companies together working with the schools to say, “How can we get that labor pool back?” We’re only back to between 80,000 and 88,000 workers, so we’re doing more work with fewer people.
“We want cool, we want urban, we want trendy. We don’t want to just build anything. When you approach things that way, you automatically get that collaborative effort, you automatically get that excitement, that synergy of working together.” — Ryan Freeman, Forge Companies
Briggs, Big-D: Right now we’re seeing the biggest risk of subcontractors going out of business because, first of all, they were money-depleted during the recession and had to use reserves. Or secondly, if they’re entering the market now, they may have a skill but they don’t have the cash to start a company.
Rindlisbacher, Layton Construction: The back-page editorial for an industry magazine had this headline: “Beware the Recovery.” The writer said we will lose more contractors and subcontractors coming out of the recession than going into the recession because, just like Gifford says, everybody leaned down, tightened up, pared back, did everything they possibly could to survive and all of a sudden we came back into the good times. Ultimately we’ve thinned down so much that these companies get overburdened and they simply have no cash reserves, nothing to carry them, and we lose subcontractors along the way.
Lisman, Lisman Studio: And the subcontractors are losing people. Their workers are getting hired away by other people. They think their framers are going to show up and then they’ve gone to work for Big-D. (Laughter)
Simonsen, Central Bank: That’s what we’re seeing with most of our contractors and subcontractors — it’s a labor problem. They cannibalize each other.
Bennett, BusinessQ: What a paradox! We have so much work and not enough people. Let’s talk about trends in tenant build-out and improvements.
Andersen, Remedy Furniture & Design Center: Our clients want unique elements. For example, 10 or 20 years ago, lighting wasn’t discussed. We talked about paint and flooring. And now they’re wanting to stylize lighting. The other thing I’m seeing in commercial space is the lifestyle element. You’re seeing swag rooms and think-tank rooms and architecture that inspires. A lot of those software companies want the techie, edgy look with clean lines. They aren’t comfortable with a streamlined, conventional look.
Lisman, Lisman Studio: Our clients want value. Whatever we’re showing them, they have to see a return on their money — whether it’s going to help them recruit or improve their image. Startups want to immediately look credible. They don’t want to look like they can load everything into a semi and be gone in the morning. So, we’re trying to create spaces — lobbies, conference rooms, employee areas — that look established and professional. Particularly here in Utah County, people want a more edgy design. They want to be cooler than the kid down the block. But the industry has swung that pendulum as far as it can go.
Bennett, BusinessQ: In what ways is that pendulum swinging back?
Lisman, Lisman Studio: Employees want to feel like they have ownership in the company so that they’ll stay. Recruiting is great when you’ve got a climbing wall in your office, but if the person’s not happy or if they don’t feel valued, then they’re going to leave. It’s finally coming to the point where people need to feel respected again. We’re also seeing a lot of organic influences. People want their businesses to feel welcoming with lots of wood, stone, warm colors and natural light. I can’t believe the amount of money that’s being pumped into skylights and windows.
Andersen, Remedy Furniture & Design Center: Another trend is the furniture industry is offering commercial textile use and wear. Back in the day, we expected residential product to play in both spaces. Now, they’re asking, “Is this going to work as our front lobby where people are constantly using this?”
Bennett, BusinessQ: What’s the current thinking on open office space versus private offices?
Lisman, Lisman Studio: Still very open.
Andersen, Remedy Furniture & Design Center: The workplace is mobile. You used to have your big computer sitting on the desk, but now people operate their businesses from their smartphones, their iPads. You’re not needing as many intentional workspaces.
Lisman, Lisman Studio: Because of that, cubicles are dead. We’re doing something now called benching where you have a lot of people work at a table because they don’t really need designated space to use their iPad. We’re also still seeing the trend of pulling executives into the building and running the worker bees around the perimeter where they get natural light and exposure to the elements.
Andersen, Remedy Furniture & Design Center: A corner office for an executive is seen as a cage.
Lisman, Lisman Studio: It’s frowned upon. It establishes a hierarchy people aren’t comfortable with anymore. They want to feel collaborative and like they’re team members.
Rindlisbacher, Layton Construction: There’s that generational issue I’ll continue to raise — I’m the grayest of the bunch here. As those designs are made, you need to include the Generation Xs, the Generation Ys and Millennials — make sure they’re part of decision-making processes. I’ve worked in a closed-door office environment for 33 years. And now I sit in an open-space cubicle area. That’s the trend. We recently completed Pluralsight’s facility in Davis County. It’s all open space. It’s the pool table, the Viking refrigerator in the full–blown kitchen.
Lisman, Lisman Studio: We did a board room for a corporation about 20 years ago with a 30-foot table out of wood from one single tree in Russia. That company called me not long ago because they wanted to cut that table up for the lunch room. They no longer care what it was made out of or where it came from. What was important was the employees and having a fun break room for them.
Briggs, Big-D: Another thing we see is smarter use of space. Companies are using de-mountable walls so they can move the space, knowing as their companies change they have to change space allocation.
Freeman, Forge Companies: Any time you put a wall up, it’s more expensive. It is cheaper to build open space, but you can make anything expensive. Even though collaboration areas are the way of the future, you are spending money on lighting and finishes to make it look cool.
“Young entrepreneurs need to establish a banking relationship before they ask for a loan because they’re not going to get it otherwise. Open accounts and start a banking relationship.” — Jeff Simonsen, Central Bank
Lisman, Lisman Studio: Let’s not forget that the movable walls are also sustainable. A lot of companies now are feeling more responsible. They want these types of products because they’re better for the environment.
Black, Coldwell Banker: Parking trends are also changing. Four stalls per 1,000 square feet used to be the standard, and now any developer will do a minimum of five parking spaces per 1,000 square feet because of the open-space trend. Most spaces are around 70 percent open now, but accommodating those parking densities is becoming problematic.
Freeman, Forge Companies: It’s all systemic, too. What’s interesting is you’re increasing parking density, but that means you’re having to shrink your buildable pad, and that means you’re shrinking your square footage. It’s going to be really, really interesting to see how all this plays into the growth of Utah. If we can just get our construction prices in line, we’ll be a lot happier.
Bennett, BusinessQ: The Point of the Mountain has been a popular area for some time. What are your thoughts on that part of the county?
Freeman, Forge Companies: The east side of the freeway in Lehi is the best piece of property in the entire world. The traffic west of I-15 is actually horrendous. That’s the one thing causing problems for the growth of that market. It’s pretty much a train wreck, and they’re going to have to spend a lot of money to get it fixed, but if they want growth in Utah they have to fix that traffic issue.
Black, Coldwell Banker: To be honest it’s why we’re starting to see tenants push further south to the next exit near Lehi Roller Mills. There’s still incredible momentum at Thanksgiving Park, not to take away from it, but the congestion is definitely a huge concern. Pleasant Grove is the interchange I see being the next big growth area to hit for Utah County.
Rindlisbacher, Layton Construction: We have to look to the future and look to the past to learn from our mistakes. I go back to the days of Alan and Karen Ashton. They were the ones who had the foresight to build this idyllic garden space. I look at that tree-lined street that goes down to Thanksgiving Point, and that is a vision from 25 years ago. It was a different time and a different place. The next generation needs to look to the future to say, “Where are we going to be in 10 and 20 years from now?” We need to help our policymakers and our traffic planners fix the problems because we aren’t going to slow down.
Briggs, Big-D: We’re victims of our own success. Utah has advertised Silicon Slopes, the developers have done their part in developing the land and putting the product in place. Then, the tech industry has done its part in attracting companies to that area. And now traffic stifles growth.
“Four stalls per 1,000 square feet used to be the standard, and now any developer will do a minimum of five parking spaces per 1,000 square feet because of the open-space trend.” — Cody Black, Coldwell Banker Commercial Advisors
Freeman, Forge Companies: Despite the traffic, things are still super strong. Our outlet mall increases sales by 30 percent year after year. The Harmons Center was almost 100 percent pre-leased before construction started. Office leases are still getting done. There are great things happening but you have to look to the future and make sure the infrastructure is in place before it gets bigger.
Bennett, BusinessQ: Other county hotspots we want to mention? Anything south county?
Briggs, Big-D: Watch Spanish Fork. There’s a lot of retail going in that interchange and it’s coming at a pace that would rival American Fork’s Meadows when that started.
Simonsen, Central Bank: The price point is pushing people south residentially. Vineyard is experiencing growth in all aspects, just by the sheer numbers of rooftops going in there. The whole Geneva Road area is going to have a transformation to where it’s not going to be the slum of Orem anymore.
Freeman, Forge Companies: If you want to have a downtown living experience, Provo is the only place in the county. Provo has a really strong growth opportunity for developers.
“Watch Spanish Fork. There’s a lot of retail going in that interchange and it’s coming at a pace that would rival American Fork’s Meadows when that started.” — Gifford Briggs, Big-D
Simonsen, Central Bank: Provo has changed a lot in the past five years, which has made a huge difference downtown.
Bennett, BusinessQ: What should business owners know about working efficiently with their construction team?
Briggs, Big-D: Business owners have a misconception about how long the process takes and they drag their feet until it’s too late. Then they want everything done in a compressed timeframe. It takes a year to get the planning to the point where you can begin construction. Plan ahead and be involved. If they don’t put the time into it, then they’re going to be disappointed in the end product.
Andersen, Remedy Furniture & Design Center: Sometimes owners think, “We’ve hired a professional and they’ll take care of it.” But being involved and communicating — letting us do our job but still having a say — brings the best results.
Rindlisbacher, Layton Construction: It involves every person around this table. It’s the real estate guy who gives input about land prices and costs. It’s the developer and the banking community. It’s the interior designer, it’s the architect. It’s the builders that can all sit down together in that holistic approach to talk openly — nobody holding any cards — what do we really want to accomplish with this whole process? This is important because if it ends up being overbudget, we’re the bad guys who come in to say, “LaMar created a beautiful design, but you can’t afford it.” We need to be talking early.
Lisman, Lisman Studio: It should always be a collaborative team. It should be a combined effort. I call it a four-legged chair. You need the architect, the builder, the client and the designer. And if one of those legs is short or it’s not there, the chair is going to fall over.
Simonsen, Central Bank: From the financing side, it’s all about relationships. Young entrepreneurs need to establish a banking relationship before they ask for a loan because they’re not going to get it otherwise. Open accounts and start a banking relationship. Understand what banks will allow before applying. We see young entrepreneurs and business people come in with ideas, but there’s not a lot of planning. As a bank, you don’t want to give money if they don’t know what they’re doing.
Black, Coldwell Banker: The irony I have found is that seasoned investors know the process, and yet they’re the ones who engage us. It’s the new clients who have to learn this. It’s the Utah County mentality of everyone wanting to save all this money by doing it on their own. The irony is, the ones who could really do that themselves with deep pockets won’t do anything without getting our feedback on the project. The people who need our help the most are the ones who are trying to do it all on their own.
Lisman, Lisman Studio: We had a client come to us with an incredible retail food concept. But they interfered so much and they had no idea what they were talking about. I wanted so much to help these people because they were young and their idea was phenomenal, but they would not take guidance. Younger, startup companies need to put together a good team and trust that team. I’d much rather work with a small entrepreneurial client than a huge corporation.
Freeman, Forge Companies: Coming from Arizona, I noticed here you have this incredible mix of individuals who are very entrepreneurial — that is the one defining characteristic of Utah County. We have a motto in our company that we work with people who believe what we believe. And whether it’s a banking relationship or a construction relationship, we want someone who sees the world as we see it. We want cool, we want urban, we want trendy. We don’t want to just build anything. When you approach things that way, you automatically get that collaborative effort, you automatically get that excitement, that synergy of working together.
“As those designs are made, you need to include the Generation Xs, the Generation Ys and Millennials — make sure they’re part of decision-making processes.” — Alan Rindlisbacher, Layton Construction
Rindlisbacher, Layton Construction: The confidence entrepreneurs have leads them to think they can do it all. Confidence is a good trait, but they also need to understand there are other professionals who have the same level of credibility and knowledge to accomplish the tasks.
Andersen, Remedy Furniture & Design Center: We try to gain their trust by gathering information about what they are looking for and what direction they want to head, but then we direct it strategically because we’ve been down this road before and we know what will work on their budget. When we come back and explain the why behind our design, they soften. Then, as we move forward and give them credit for the design, it takes that threat away and they trust us with future projects as well.
Bennett, BusinessQ: Why should a BusinessQ reader consider using your company and services for their construction project?
Lisman, Lisman Studio: Nobody would focus more on their project than I would. When putting together the right team of people, that’s what they need to look for. That’s why I went into my industry. My “high” is helping people achieve their goals.
Freeman, Forge Companies: This may be heresy coming from a developer, but how much money we’re going to make on a project and how many square feet can we maximize in the site is far down the list of my priorities. We want to make it as cool and functional for the tenants and residents as absolutely possible. We put all kinds of finishes that you don’t see in apartments or you don’t see in office buildings. We try to make it a special experience. And at the end of the day what we’re trying to create is communities.
Simonsen, Central Bank: Working with us is working with someone who is in the community. We’re not a large institution — about a billion dollars. We love helping people in Utah County achieve their dreams through the financing side. We pride ourselves on taking something that other institutions have turned away and finding a way to make it work, especially small businesses. We give back to the community, and we love to see it grow.
Black, Coldwell Banker: Information and experience is powerful, and that’s what we bring to the table. Our firm includes professionals who have experience with specialized real estate concerns. For example, I specialize in commercial real estate, but I use a residential agent for my residential projects. I own about 20 different units myself, but I don’t go out and invest without having a professional close by who knows the market and their specialty.
Andersen, Remedy Furniture & Design Center: I’m like LaMar. There’s nothing more rewarding than seeing a happy client at the end of the project. Joey and I love utilizing our talents and creativity to create a project and then have someone happy at the end.
Briggs, Big-D: Yesterday I found out that the first building I was involved in when I graduated from college is going to be demolished this year. I almost want to tie myself to it and not let them do it. (Laughter) I’m in construction because I love to see things built. I opened our office in Utah County in 2005 and have been here ever since. This is where I live, this is where my kids go to school and this is where I prefer to build. I’ve created a career around building things in Utah County. There are two things we do: We reduce the risk for owners and we provide a mechanism to give them what they have envisioned and dreamed. I find it very rewarding.
“People want their businesses to feel welcoming with lots of wood, stone, warm colors and natural light. I can’t believe the amount of money that’s being pumped into skylights and windows.” — Lamar Lisman, Lisman Studio
Rindlisbacher, Layton Construction: In the construction industry, I think our children all have the same response: “Oh, Dad, you don’t have to tell us about another Layton project.” We drive down the street and I’ll say, “Layton built that, we built that, we built that.” And my kids a long time ago said, “Dad, we don’t want to hear those anymore.” We truly take pride in what we do. We live by the motto of providing predictable outcomes. And sometimes it may not be what they wanted to hear regarding costs and timing, but at the end of the day, we want to give them that product they really envisioned and more. We want them to walk into that final product and say, “I paid a fair price and you put it in place when I needed to have it there and the quality is just everything I ever wanted it to be and the design is beyond what I hoped.” That’s what drives us.
Bennett, BusinessQ: I like that phrase of predictable outcomes. Our conversation today took some predictable and unpredictable turns, and I’m excited to share this with our readers.