South Florida Construction Executives Optimistic About 2014, But Challenges Remain

Construction executives gathered in Boca Raton last week for an exclusive power lunch with Kaufman Rossin and broadcast journalist Tom Hudson of WLRN. They shared their thoughts on the opportunities and challenges facing the South Florida construction industry, and they were optimistic; nearly all attendees said they anticipate more new business in 2014 than they had in 2013.

The executives represented a variety of construction industry segments, including architects, land planners, residential and commercial builders, engineers and finishing contractors, as well as professional service companies that serve the industry, including lawyers, insurance brokers and financial professionals.

To start the conversation, attendees responded to this fill-in-the-blank statement: “2014 will be better than 2013 for the South Florida construction industry if _______________.” Here’s what they had to say:

• If homebuyers feel safe from a national security standpoint, and there are no terrorist attacks, said William Bentz of W. A. Bentz Construction.
• If we don’t continue to have serious labor shortages, said Todd Flegel of Merit Floors. He and other attendees, including Ursula Chavez-Iafrate of FAE Consulting and Kimberly Rodale of GFA International, said they have had to raise salaries to attract and retain workers, an increasingly common issue in Florida’s construction industry.  When the state’s economy and the housing market took a nosedive during the recession, many construction workers left the state to pursue other industries, such as the oil business. Getting them back has been a challenge.
• If Florida eliminates commercial lease taxing, the industry will see more growth and more companies will move to the state, said Jonathan Flah of Sisca Construction. “Limiting sales tax on lease proposals would be tremendous,” agreed Ken Dubow, CPA, an entrepreneurial services principal at Kaufman Rossin. And it just might happen. Gov. Rick Scott recently announced that a $100 million reduction in the commercial lease tax is on his legislative wish list again this year.
• If we are diligent about avoiding the pitfalls that happened last time, said Traci Miller of Miller Construction. Banks shouldn’t lend to people who can’t afford to buy; “there is nothing wrong with renting,” she said.

Other executives cited concerns ranging from bonding to government regulation and increasing costs.

“The biggest financial issue right now is getting payment and performance bonds,” said Todd Flegel. “Kaufman Rossin is helping us try to secure bonding by reviewing our financial statements.” Material costs are skyrocketing, in part because of increasing demand from China, said Miller. Insurance rates are starting to go up, too, said Lorin Montgomery of Corporate Insurance Advisors.

Government regulation is also adding to costs and slowing down projects, said Brian Cheguis of Cotleur & Hearing, a landscape architecture company based in Palm Beach County, where he says there has been a noticeable increase in code inspections over the last several months. Many attendees echoed this sentiment, citing frustration with the “over-complicated,” “lengthy,” and “inconsistent” permitting and inspection process. Inspectors have always been inconsistent, said Jeffrey Flegel of Merit Floors. “When things were busy, they didn’t look too closely because they didn’t have time. When things were slower, they looked more closely,” he said.

Despite the issues, attendees seemed optimistic about the industry and South Florida’s recovering housing market and economy. Kaufman Rossin’s Client Services Principal Steven Demar, CPA, said that in 2007-2009, the accounting and construction industries experienced similar challenges. Many students changed majors and workers moved into other careers when the recession struck. But things are better now. Hiring is picking up, wages are rising, and the local housing market is back, he said. No one knows how long it will last, but – at least for the time being – there are plenty of encouraging signs.

“The momentum is here now,” said architect Ken Hirsch.