Must come down. The rapid decline of the construction sector.
Construction jobs may have swollen the province’s employment rolls when times were good, but when global financiers Lehman Brothers and others began collapsing last September, the shock waves shook the B.C. construction sector. The subprime mortgage crisis of 2007 had already prompted lenders across the continent to tighten lending terms and prompted developers to rethink launching new projects. But the fall of the lenders themselves in 2008 halted construction even on developments that were in progress.
Projects already on the books kept employment and revenue numbers buoyant, but as building permit volumes and housing starts fell in 2008, the construction sector lost 65,800 jobs between October 2008 and April 2009.
ITC Construction Group stood in the path of the storm, with high-profile projects including the five-tower Infinity project in Surrey and Millennium Water, where Olympic athletes are set to stay in 2010. Jung Developments Inc., the developer of Infinity, had obtained financing from Lehman Brothers, and suddenly last fall its project was looking for a backer. ITC found itself facing an indefinite pause on remaining towers after completing the towers it had already launched.
Meanwhile, Fortress Investment Group was juggling its own commitments – scrambling to pull together financing for its subsidiary Intrawest ULC while taking advantage of the City of Vancouver’s willingness to back construction of the Vancouver Olympic Village to step away from its financing arrangements with Millennium Development Group.
Intertech expects to see its project load decline by up to 40 per cent over the next year, throwing upwards of 800 workers off the job by 2010. The completion of Woodward’s and Millennium Water will also leave it with less than the 25 projects it was handling at the peak of the market. “We are fortunate that we have some major projects,” ITC Group CEO Peter Rezansoff says, his eye on the future.
While its remaining projects continue to keep the company busy, Rezansoff is proud of what the company was able to handle during the heady years that began in earnest in 2002. Revenues totalled $568 million in 2008, up 68 per cent from 2007, a figure Rezansoff doesn’t take for granted. A veteran of the early 1980s and other difficult eras, he is realistic about the future. “We don’t anticipate the same volumes going forward,” he says, even as he points to signs of hope such as low mortgage rates and a slowdown in construction-cost increases. The pause is encouraging homeowners to jump into the market and allowing developers with finished or completing product to move what they’ve got.
The flurry of sales activity promises to put a dent in demand for new construction for the time being, eliminating the need for new work from ITC and other contractors until consumers’ demand for new units strengthens.
Rezansoff, who has spent four decades in the business, isn’t holding his breath. “It would be hard to pick up the same volumes because they’re non-existent, unless miraculously the economic conditions turn. But generally speaking, nobody expects that it will happen overnight.”
Rather, ITC – which trimmed in-house staff from 280 to 250 last year – is taking steps to make sure it is well-positioned for the next upswing. Fine-tuning takes the form of improvements to information systems, staff knowledge and overall efficiency.
ITC, like Amacon, Anthem and Concert Properties Ltd., has entered other markets, seeking work in Alberta and Ontario and diversifying into commercial projects – a division that took a back seat to residential construction in recent years. ITC is building a student residence at the University of Calgary, for example, and a large Save-On-Foods location in Coquitlam.
Concert, whose revenues soared 58.9 per cent to $299.3 million last year on the completion of projects, is also taking measures to broaden staff skills rather than shed workers. Staff are being offered chances to work in other divisions of the company. David Podmore, president and CEO of Concert, believes the strategy will give staff a better understanding of the industry and help them develop skills they might not otherwise have had – not to mention a fresh perspective on what they’re doing for the company.
Others are not so lucky. Some architecture firms are grappling with 20 per cent reductions in staff, contributing to a degree of churn unprecedented among younger employees, who are cycling through two or three positions in the course of a few months or are finding themselves on the sidelines indefinitely.
To those who are shaken, however, Rezansoff has words of hope.
“There’ll always be construction going on, and you have to do it in the best manner you can,” he says. “There’ll always be work for those who can perform and have very efficient methods of building and provide a quality product at the best possible price and on time.”