Archive for the ‘AEC’ Category

Court Ruling is ‘Death Blow’ for California RDAs, Win for State Officials and Schools

Thursday, December 29th, 2011

With only three days left in 2011, the California Supreme Court ruled that the state had the right to abolish the redevelopment agency (RDA) program, which Governor Brown did in June, but not to set up a smaller program that required RDAs wanting to stay operational to make payments to schools and other public programs. Here’s an excerpt from an article on SFGate, the website of the San Francisco Chronicle:

The California Supreme Court dealt a death blow to the state’s decades-old redevelopment program, ruling today that state lawmakers did have the authority to eliminate the economic development program, but striking down a law that would have allowed the agencies to exist in a smaller form.

The ruling is the worst-case scenario for cities and other proponents of redevelopment, who had sued the state over two bills approved by lawmakers and signed by the governor. Under those laws – AB26 and AB27 – the state’s 390 redevelopment agencies would cease to exist unless they agreed to pay $1.7 billion this year and $400 million in future years toward schools and other agencies such as special fire districts.

Today, the high court ruled that AB26, which eliminated the agencies, was legal; but they said that AB27, which would have forced the agencies to make payments to schools and other public programs if they wanted to continue to operate, was not legal under state law.

The court’s decision is a relief for state leaders, who counted on that money to plug the state’s budget shortfall this year and in the future.

This topic is covered in our 340-page Expanded and Revised 2012 AEC Market Guide to California, which we released this month. 

The section on the RDA controversy includes detailed data about the state’s $8 billion RDA program and the ramifications of the court’s much anticipated decision.

A panel discussion of the San Francisco chapter of the Urban Land Institute (ULI) reflected the worry of RDA backers.

As reported in Urban Land magazine, Fred Blackwell of the San Francisco RDA said large, long-term projects such as the Transbay Transit Center, Mission Bay, and the Hunters Point Shipyard transformation would “simply not get off the ground.”

Moderator Zane Gresham, an attorney at Morrison Foerster (New York, NY), said, “These funding issues for smart urban development and redevelopment are one of many problems facing the state, and policy makers are hard-pressed for solutions. What are the choices? It’s a series of trade-offs and every constituency should be weighed in those choices. Clearly, the challenge that this presents for affordable housing, for economic development, for infrastructure development really can’t be overstated.”

The article adds, “What does that mean for San Francisco? Half of the city’s RDA budget goes toward affordable housing, said Blackwell. If RDAs are abolished, some 1,400 affordable housing units that have not been committed would be in jeopardy.”

During our interviews for the 2012 Market Guide to California, we spoke with a Mission Viejo city official who said they were counting on redevelopment funding, in some form anyway, for two major projects. “We have plans in place for two large low-to-moderate income housing facilities that we hope to pay for with help from the state’s Redevelopment Agency’s Low and Moderate Income Fund,” said the official.

Faced with a choice between forfeiting the funding or paying a fee to remain viable, the city “opted in” — at a cost of $1.82 million for fiscal 2012 — and moved ahead as if the funds would be available. Now it is possible that the redevelopment money may never find its way to these projects.

According to the Orange County Register, Mission Viejo Mayor Dave Leckness said, “We’re paying $1.8 million to protect $12 million,” referring to redevelopment funds already dedicated to the two projects mentioned above.

The Visalia Times-Delta reported that the city of Visalia and Tulare County were set to pay more than $1 million each in redevelopment funds for fiscal 2012, while the city of Tulare would have handed over more than $500,000 to keep its redevelopment program alive.

The paper reported:

Visalia City Manager Steve Salomon said the decision was expected but added that the ruling will also mean cities will need to get creative to redevelop blighted areas. “We may have to use new tools to help improve areas of the city,” he said. “There were very real things that this money helped with. We won’t be able to do as much as we did before.”

While SFGate is correct that the Supreme Court’s decision is a “relief” for the state on one hand, it is likely troubling on the other because the state now needs to address the billions of dollars in projects that were depending on the RDAs and are suddenly in absolute limbo.

Most likely, the state and the California Redevelopment Association (which represents RDAs across the state) will attempt to negotiate a compromise that helps the state achieve its fiscal goals, while keeping the program alive in some form.

It’s safe to say, though, that the court’s ruling solidifies that the state has the upper hand.

The redevelopment program has been a lightning rod for controversy after audits revealed questionable use of redevelopment funds, including for the upgrade of a luxury golf course, travel junkets, lobbyists and commercial developments that some argued are inconsistent with the program’s mission.

Often overlooked in this discussion of the value of redevelopment programs is that the issue pits RDAs against the interests of public schools. As the Supreme Court wrote in its opinion filed December 29, 2011:

Tax increment financing remains a source of contention because of the financial advantage it provides redevelopment agencies and their community sponsors, primarily cities, over school districts and other local taxing agencies. Additionally, because of the state’s obligations to equalize public school funding across districts and to fund all public schools at minimum levels set by Proposition 98, the loss of property tax revenue by school and community college districts creates obligations for the state’s General Fund.

The effect of tax increment financing on school districts property tax revenues has thus become a point of fiscal conflict between California’s community redevelopment agencies and the state itself, a conflict manifesting in the current dispute.

So as it relates to the AEC industry, the ruling may be a blow for residential developers, particularly those that work on affordable housing and urban renewal. But architects, engineers and contractors whose target markets include public schools and community colleges may find the pipeline for school projects a little fuller. (We repeat may, because the state has shown no inclination to use the newfound funds for anything other than offsetting its deficit problems.)

This is only one of the fascinating and evolving issues addressed in our 340-page 2012 AEC Market Guide to California.  

The report assesses the outlook across 40 individual markets and subsectors heading into 2012. When feasible, the report breaks down the markets by major metropolitan area and geography. It also includes a section we call “12 for ’12,” which looks at a dozen major issues expected to affect the California AEC industry in 2012. In addition, the report provides a summary view of the national and state economic outlook, a review of legislative action and other political factors influencing the industry. The links and resources section is nearly 50 pages alone.

If you’re interested in ordering the book, click on the link to the right and order through our secure PayPal site.

2012 AEC Market Guide to California: Up in 2012

Monday, December 19th, 2011

Now that 2012 is almost upon us, economists and researchers have a far clearer view of what to expect in the coming year. Many of these experts have revised downward their estimates about the strength of the ongoing recovery.

While it may be true that the overall economy will continue its slow, sluggish rebound from the worst of the downturn, the welcome conclusion of The Expanded & Revised 2012 AEC Market Guide to California is that nearly every market served by the state’s AEC firms is improving at a healthy pace heading into the new year.

To be sure, 2012 will be another challenging year for our industry – nothing will come easily, especially away from the vibrant coastal gateways and high-tech centers. But overall, there will be more work in more markets across a wider geographic spread than we’ve seen in several years.

Here’s an excerpt from our introduction to the Market Outlook section of our 342-page newly expanded and revised 2012 AEC Market Guide to California:

If you look individually at each market sector served by AEC firms, you’ll find that most show at least the promise of improvement in 2012. Some markets even held up well during the downturn and continue to provide a solid amount of work for consultants.

So why does the overall California market seem so bad for so many firms in so many places?

Part of the problem is the “haves” and “have-nots” issue. During much of the downturn, the coastal gateway cities and technology centers at least held their own, while inland areas a little too far from the action or dependent on the “wrong” economic drivers (e.g., construction, natural resources) suffered.

According to some, the gap is widening. In the report, “California: Bifurcated and Buffeted,” UCLA Anderson Forecast Jerry Nickelsburg says, “Now that the U.S. economy has stalled, the differential between Coastal California and Inland California has begun to widen and the specter of long-term economic stagnation in Inland California has reared a not very pretty head.”

In terms of markets, many firms working on health care projects continued to thrive, but most that had grown reliant on private site development experienced dramatic reductions in revenue, backlog and profit.

John Withers, a consultant with California Strategies, LLC (Irvine, CA), says he’s never seen the market so fragmented in his many years in the business. “If you ask how the state of California is doing, you have to drill way down and look at it on a project-by-project and product-by-product basis. It’s a very uneven marketplace.”

Withers said an investment banker from another state recently asked him how things were going here, and he took an even more “micro” look. “I said, ‘you know, I can only answer that question on a neighborhood-by-neighborhood basis. Some segments are just dead; nothing is happening and everybody’s waiting for the turnaround. Others are doing quite well.”

With public-sector work, Withers says that he’s instructing his design and construction clients to make sure the funding for the projects they’re pursuing have a solid footing.

“For public-dollar projects, the key concept is having a dedicated revenue stream, something where no one can get their hands on the money,” he says. “You want projects with dollars that are earmarked and directed for a  particular purpose, not something from the [general fund]. Water/wastewater projects tend to be very stable now; they usually have a steady, dedicated funding source.”

Another issue casting a pall over the outlook is that the battered single-family housing market, which was the biggest single factor in the most recent, long construction boom, indirectly affects so many other markets. A depressed housing market has implications on publicly driven markets (e.g., tax receipts, voter sentiment) and privately driven markets (e.g., the connection between residential and commercial growth, particularly retail).

Two other enormous issues affecting the California market outlook remain unresolved as of this writing – high unemployment and the state’s budget woes. The outcome of these two issues will have a major say in the overall strength of the markets in 2012.

In the latter stages of 2011, the state’s unemployment rate improved markedly. Though still among the nation’s highest, California’s seasonally adjusted rate dropped a full percentage point from January through October. The state’s budget shortfall remains a concern, though promising results from tax receipts in November diffused the crisis somewhat. Foreclosures do appear to be continuing their recent upswing, which is troubling.

With this said, even some of the markets and places that have suffered the worst during the downturn are showing signs of life.

Investor-dependent markets such as the speculative office sector are reporting results that are moving the indicators in the right direction. New building is lagging, but the metrics that typically portend a return to construction activity are solidly in place and improving.

Inland areas in Riverside and San Bernardino counties, while still facing extreme difficulties, have seen encouraging signals as well. The Inland Empire, struggling with high unemployment and too many foreclosures, is considered by some to be a national leader in the rebound of the industrial market.

Surely, as an industry and a state, we’re still climbing from the depths of the downturn after reaching such highs in the middle of last decade. So while individual markets and geographic areas are improving substantially, the mood among many in our industry is still down.

The Guide spends the next 200 or so pages analyzing 40 markets and submarkets, gauging the outlook for each market in detail. This follows a section of nearly 50 pages that discusses 12 of the most pressing issues in the industry as it heads toward 2012. 

The Expanded & Revised 2012 AEC Market Guide to California is available now in both pdf and hard-copy formats. With your paid order, you will receive an e-mail containing a pdf file of the report the same business day. A hard-copy report will follow by U.S. Postal Service mail. The cost is $299, plus shipping. Just click on the button on the home page to order via our secure PayPal site. As always, it comes with a full money-back guarantee, so there’s no risk to you.

Indicators Point Toward Commercial Rebound, Bakersfield Office Revival

Friday, October 14th, 2011

The commercial real estate market turnaround is underway in a few select geographies, but the new development activity that is occurring is hardly enough to sustain all the AEC firms that once relied on the market for work. Recovery may be happening from a strict economic, almost intellectual standpoint, but in the real world the market is still struggling as we approach 2012, based on research for The 2011-2012 AEC Market Guide to California.

Yet, despite the lack of significant commercial development activity in most metropolitan markets, there is hope. Hassim Nadji, Managing Director, Research and Advisory Services with commercial real estate consulting firm Marcus & Millichap (Encino, CA), says that commercial real estate is on “a solid recovery trajectory.”

Nadji notes that commercial real estate is doing well when compared with its residential counterpart. “The degree of distressed home sales is still high, somewhere between 25-30%,” he said in a September interview. “In commercial real estate, even under distress, it still generates cash flow for the most part. The distressed sales are a lot less, in the 10-12% range.”

Nadji added, “Lenders are modifying and extending loans during the crisis, and the economy added 1.8 million jobs over the past 12 months, so commercial occupancies have stabilized and are beginning to improve. Investors are moving back into the market, taking advantage of low interest rates and the fact that pricing has reached bottom.”

Despite Nadji’s encouraging words, the recent release by ENR California of the list of the state’s top design firms illustrates just how far down the commercial market is when compared with a few years ago (see table below).

Top California Design Firms – Commercial Market

 

2011

Rank

Company 2008 Regional Revenue ($Mil) 2010 Regional Revenue ($Mil) Percent Change  
1 AECOM 53.77  32.51 -39.5%  
2 Gensler 48.48  27.63 -43.0%  
5 Ware Malcomb 10.18  7.61 -25.2%  
6 HOK 6.74  5.58 -17.2%  
10 SmithGroup 7.80  2.57 -67.1%  

 Source: ENR California (2011 rank is for 2010 revenue)

 To be fair, AECOM Technology Corp. (Los Angeles, CA) reported $41.1 million in 2007 commercial market revenue (a less-drastic 21% drop compared with 2010) and Gensler (San Francisco, CA) earned $29.7 million from the commercial market in 2007 (only a 7% drop to 2010), so 2008 may have been a better-than-average year in the commercial market for some firms.

 Still, the commercial sector has some distance to travel before it is again a dynamic, thriving market for California AEC firms.

Surprise Candidate for California Office Rebound?

In its most recent Office Market Trends report, which includes measures of 2nd Quarter 2011 vacancy rates among major national metropolitan areas, international commercial real estate firm Grubb & Ellis (Santa Ana, CA) reports that Bakersfield has the lowest vacancy rates among top California metros.

In the central business district (CBD), among 58 US metropolitan areas measured, Bakersfield ranked 8th nationally with a vacancy rate of 11.6%. The state’s 9th-largest city fared even better in the suburban market rankings, taking 3rd behind Long Island and New York City’s Outer Boroughs with a vacancy rate of 10.7%.

Given this indicator, could Bakersfield actually lead the office market rebound in California? Opinions are mixed.

“There are a lot of empty buildings here,” says Craig Hummel of commercial, industrial and agricultural real estate firm Craig Hummel & Associates (Bakersfield, CA). “I’d like to think the market is going to rebound, but I’m not sure if that’s a realistic outlook given all the absorption that would need to take place first.”

Hummel isn’t alone in his skepticism, and not all indicators are so positive. The home foreclosure rate in Bakersfield is higher than the state average – in August, 1 of every 159 homes received some kind of foreclosure notice according to real estate research firm RealtyTrac (Irvine, CA). The unemployment rate is above 10% and the retail vacancy rate stood near 12% in the 2nd quarter according to market research firm ReisReports (New York, NY).

Yet, even these indicators are moving in the right direction. The unemployment rate dropped by more than a percentage point from January to July, the foreclosure rate improved slightly from July to August and the retail vacancy rate is down from over 14% in 2009.

Because Bakersfield has traditionally been a center for the oil and agricultural industries, much of the employment in the city is not the type to fill office buildings. However, the city has recently added more technology, manufacturing and distribution firms to its mix, which could help spur demand for office space.

“The market here was never overbuilt, and once the oil companies start hiring at the executive level again, we expect to see a solid recovery in the office sector,” says Matthew Starr, vice president in the commercial office division of Grubb & Ellis’ Bakersfield office. “We’re bullish on Bakersfield’s office market.”

Is the Outlook Dimming for Obama’s Job Plan?

Friday, September 30th, 2011

Outlook Dimming for Jobs Plan? 

President Obama was in California early this week, speaking about his jobs plan at a Silicon Valley session sponsored by career-based social networking site LinkedIn. He then moved on to fundraisers in Los Angeles and San Diego.

One of the reasons we decided to revise The 2011-2012 AEC Market Guide to California before we even released it was because of the effect the Obama plan would have on California and the AEC Industry. Next year will have a very different look for both if Obama is successful in passing this plan or substantial parts of it.

Yet, with each Obama speech (and fundraiser), it appears less likely that anything meaningful will come out of his American Jobs Act (aka, The Obama Jobs Plan). This is because, in our opinion, the president is exhibiting either a stunning lack of political acumen or a shameful amount of political gamesmanship in the face of this prolonged economic crisis.

In the former case, it is delusional to believe that public opinion is a strong enough hammer to overcome the inevitable GOP opposition to the plan. Obama’s last stimulus plan received mixed reviews at best and his approval ratings have been on a steady decline. Does the Administration really think the president can rally enough support to force House Republicans to hand him a victory in this supercharged political climate?

On the other hand, if the goal is to create the campaign talking point “I tried to fix the economy but the GOP cared more about winning elections than helping Americans,” it’s a misfire because voters only remember what politicians did while in office, not what they tried to do.

Whether it’s simply naive or politically motivated, Obama’s approach doesn’t seem to be working.

This is too bad, because elements of the plan could help the U.S. and California economies, as well as the AEC industry.

Some argue that there is nothing meaningful in the $447 billion plan. Many of these critics are small-government, anti-Obama folks or political operatives with a clear agenda. Conservative economists who loathe the plan, such as former Reagan budget director David Stockman, are opposed to just about everything Obama proposes due to vast differences in economic and political philosophies. Their condemnation was predictable.

Liberal-leaning commentators, such as Paul Krugman, are more favorable to the plan, of course, with some calling for even more government investment and involvement.

Many middle-of-the-road economists and observers support at least some elements of the plan. Mark Zandi of Moodys.com, who once served as an advisor to Obama’s 2008 opponent John McCain, said:

“President Obama’s much-anticipated jobs plan is a laudable effort to support the struggling economy. The plan would go a long way toward stabilizing confidence, forestalling another recession, and jump-starting a self-sustaining economic expansion. If fully implemented, the Obama jobs plan would increase real GDP growth in 2012 by 2 percentage points, add 1.9 million jobs, and reduce the unemployment rate by a full percentage point, compared with current fiscal policy.”

As with the 2009 American Recovery and Reinvestment Act (ARRA), the Obama plan would almost certainly prop up the economy and the industry temporarily. The hope, as it was then, is that the rebound would be in full swing by the time the stimulus ran out of steam. This didn’t happen last time, but may have a better chance at this point in the recovery.

The White House says the plan, if implemented in its entirety, would do the following for California: a payroll tax cut for 710,000 firms, $3.96 billion in highway and transit modernization money, as much as $1.85 billion for local communities, $1.13 billion to community colleges and $2.81 billion for school infrastructure projects. (See the AEC Insight blog entry “Where the Work Will Be in 2012” for more on the effects of the Obama Plan on California.)

Zandi says that government action such as the proposal by Obama is necessary to overcome the current crisis of confidence among investors and the American public. However, he is not optimistic about its chances. “Given the current political environment, it is unlikely that much of what the president has proposed will become law, but nearly all the proposals have some bipartisan support. An extension of the current payroll tax holiday for employees seems most likely to pass. The proposed expansion of the employee tax holiday and the new payroll tax holiday for employers are also possible. The president’s spending initiatives, while worthwhile, seem like longer shots,” says Zandi.

If Zandi is correct, the measures most critical to helping the design and construction industries – the billions in investments in roads, schools and other infrastructure, as well as the aid to municipalities, and the infrastructure bank designed to spur more public-private partnership projects – have little hope of passing.

Should the infrastructure elements of the plan somehow pass, one area of concern for AEC firms – beyond the opposition’s contention that it may be a long-term drag on the economy – is the potential for other important infrastructure-related legislation to get lost in the political weeds. This happened with the 2009 stimulus; government programs that support transportation, public works and other markets critical to the industry still languish without resolution as Congress passes extension after extension to keep these programs on life support. 

What will it take to pass the Obama Jobs Plan?

If the president truly believes his plan will boost the economy and he wants the bulk of it to be enacted, he must make a political sacrifice. This isn’t 2009-2010, when he was fresh off election and had the public support and political might to do what he wanted (e.g., pass ARRA and the Health Care Plan).

He will need to compromise with Republicans on the issues most distasteful to them (i.e., raising taxes, increasing debt) and make sure that they are in position to receive an appreciable amount of credit should the plan succeed. Maybe Obama’s team is working with Republicans and skeptical Democrats in the background to craft such a compromise. Otherwise, there is no way this plan could overcome the political implications of handing Obama a solid, recovering economy – temporary or otherwise – on the cusp of an election year…especially with a candidate as vulnerable as Obama appears to be.

California’s Best Markets for 2012 (Excerpt)

Monday, September 19th, 2011
Where the Work Will Be in 2012
(From the AEC Insight E-Mail Newsletter, September 13, 2011)

For most California AEC market sectors and service areas, 2012 will be vastly better than 2011. Not that the bar was set very high, but better is better.

Certain public- and private-sector client segments will recover faster than others, so it is important to know which geographic areas, industries and project types are best positioned for the strongest recovery.

We discovered several promising candidates during the course of our research for The 2011-2012 AEC Market Guide to California, including the following:

The City of Dublin.  If you work in Northern California and you’re not talking with people in the Dublin area, you’re missing an opportunity.

One of the fastest-growing cities in the region is seeking to expand its total area by annexing the neighboring 1,450-acre Doolan Canyon property for development. The city’s commercial climate also appears to be improving, with business leasing activity strong – including an announcement by business software provider Taleo that it is expanding its space and adding 200 employees.

Unemployment is very low (6.6% in June), and housing permit activity year-to-date through June 2011 is more than 100% higher than it was during the peak of the housing boom (average of June YTD permits for 2005-2007). Its strong school system is a draw for families looking for a place to settle. Recently improved business incentives are helping fill retail vacancies that began to plague the city a few years ago. Plans for a new charter high school and expansion of the city’s water infrastructure are in the works.

Even some of the city’s problems – a relatively high foreclosure rate and a potential battle with neighbor Livermore over the Doolan Canyon plan – could spell opportunity for AEC firms. 

Large Infrastructure Projects. While some states are rejecting high-speed rail – and the federal money that comes with it – California continues to move forward with its plans to build the politically charged high-speed rail line. On September 9, the California High Speed Rail Authority drew more than 800 representatives from Central Valley businesses to a forum discussing how small business can grab a piece of the $6 billion that will be spent on construction of about 120 miles of high-speed rail lines from Fresno to Bakersfield.

Even if HSR falters, other large infrastructure projects show promise. On September 12, the California Public Employees’ Retirement System (CALPERS) announced that it was investing an additional $800 million in large infrastructure projects in the state – including airports, roadways, water/wastewater systems and energy. And President Obama’s Jobs Plan, should it (or any version of it) pass, would likely result in at least a short-term boost in the state’s infrastructure funding. Obama’s initial plan calls for $3.96 billion in highway and transit modernization money for the state.

San Bernardino Schools. The Obama Jobs Plan has a lot more to offer California. The White House says that in California, under the American Jobs Act, 710,000 firms will receive a payroll tax cut, while as much as $1.85 billion could go to revitalize local communities, $1.13 billion to community colleges and $2.81 billion for school infrastructure projects.

Some would likely benefit more than others in the Obama plan, including San Bernardino schools. According to the Press-Enterprise, “San Bernardino City Unified School District would be a big winner under President Barack Obama’s job-creation plan. The district, one of 11 in California and 100 around the country singled out for direct funding, would receive more than $60 million for school construction and modernization projects if Congress approves the package as proposed.”

Obama’s proposal faces a political fight and is unlikely to pass in its current form, but the potential for significant amounts of money to pour into a single school system should have the attention of AEC firms working in the K-12 sector.

The other 10 California school systems with money earmarked in Obama’s plan, according to the Press Enterprise, are Los Angeles ($743.5 million), Fresno ($97.5m), San Diego ($91.8m), Long Beach ($75.5m), Sacramento ($46.9m), Oakland ($42.4m), Stockton ($39.0m), Santa Ana ($36.2m), Bakersfield ($34.7m) and San Francisco ($29.8m).

For much more insight into these and the other most promising markets in California, order The 2011-2012 AEC Market Guide to California on the AEC Insight Home Page.

Falling in Line with Social Media Marketing

Thursday, September 1st, 2011

The following is an excerpt from The 2011-2012 AEC Market Guide to California, found in the chapter “A Dozen Game-Changers for AEC Firms.”

California is the Motherland for social media companies. Google, Facebook, Twitter and LinkedIn are all headquartered in the state. In a survey by B-to-B listing firm NetProspex (Waltham, MA) identifying the top 25 “most social” cities in the US, 7 were in California, including 3 of the top 4 (San Francisco, San Jose and Ventura). NetProspex based its ranking on the percentage of businesspeople active on social networks.

The AEC industry, conversely, is one of the least social, according to the same survey. Not a single AEC firm is found among the top 100 social firms in the country, and no industry component – not A, not E, not C – is in the top 50 most social industries.

Is this reaffirming the stereotype that the AEC industry is slow to adopt change? Or is it a case of an industry instinctively recognizing that the potential return is insufficient to justify the investment?

The answer to both questions is “probably.”

The truth is that most AEC firms will find that there is some marketing and public relations value to being involved in social media marketing. In particular, the business-focused LinkedIn, along with the more social Twitter and Facebook, offer marketing and PR potential to AEC firms (with the latest entry, Google+, on the horizon and closing fast).

The key is to not expect too much. Social media should be one prong in a multi-pronged marketing program. Developing a social media presence is unlikely to propel an AEC firm from anonymity to superstar status overnight (although that’s pretty much what happened with building code and engineering review services firm Naffa International (Fresno, CA), which rode founder Imad Naffa’s social media strategy to a massive increase in notoriety and workload).

Further, there’s only a remote likelihood of making a direct connection on a social network that leads to new work – at least at this point in its evolution. At minimum, you can expose your firm to a larger group of potential clients – or more likely, to their marketing and PR folks – and capitalize on the built-in publicity you get, albeit fleeting, by building a list of “followers” and occasionally providing them with information about what your firm is doing.

There are additional side benefits, however. A social media marketing program often leads firms to develop content that it can use in other areas (e.g., a blog post revised into an article in an external newsletter that becomes a magazine piece). It can also re-energize a marketing program, and help a firm assess, streamline and define its marketing and PR approach.

If you’re still a novice on the social media marketing scene, here are some steps you should immediately take to improve your social media standing. (If, on the other hand, you’re making your 10th Facebook update of the day and have 2500 followers on Twitter, you can probably skip the next few paragraphs.)

1.      Please understand this – social media is not a fad.  If you think Twitter exists only so middle schoolers can talk about how much they hate homework and that LinkedIn is primarily a job board, you might as well be the guy in the 1940s who said that television would never catch on. Social media as a business tool is here and it’s only going to grow. So even if you don’t actively participate in any social network, personally or in business, you or someone in the upper echelon of your firm need to be familiar with the most popular social media programs. At minimum, as we hurtle toward 2012, social media should be part of the marketing planning conversation in every AEC firm.

2.      Protect your brand. You can acquire social media identifiers in the same way you do domain names, with one difference – with social media, it’s free. Start with Facebook and Twitter, the two most basic and popular sites. On Facebook, you (or someone who has a Facebook account) should set up a page with the firm name, then try to acquire the Facebook URL via the site http://www.facebook.com/username/. If the name is still available, you should be able to secure the URL, even if you never fully activate the page.

With Twitter, it’s even easier. When you register, you’re asked to create a unique user name. The key here, though, is the word “unique.” If the user name you want is taken, you’ll need to set up some type of variant. All Twitter user names are 15 characters or less and can only include numbers, upper- and lower-case letters and the _ sign. No spaces. Once you sign up, you have secured the URL containing your user name (mine are http://twitter.com/aecinsight and http://twitter.com/thejagg_group).

If you do nothing else, do this. It takes almost no time, it costs nothing, and you never know when you might want or need these tools. If you need help, ask the nearest person under 30 to show you how to do it… or that middle schooler complaining about homework on Twitter.

[In the next few days, I’ll post more from this section of The 2011-2012 AEC Market Guide to California, including additional recommendations for more advanced firms, as well a discussion of California AEC firms and owners engaged in social media.

IPD, SB1953 and Other Acronyms Driving the California Health Care Market

Friday, August 19th, 2011

Just finished a wide-ranging interview with Bob Mitsch, vice president of facility planning and development for Sutter Health. Bob discussed his organization’s experiences with and commitment to integrated project delivery (IPD), the innovative contracting and project delivery method that Sutter is often credited with creating. He also spoke about the outlook for the health care sector as it pertains to the design and construction industry, as well as the attributes he looks for in an architecture, engineering or contracting firm.

Bob’s interview, along with much more on the health care market, AEC industry trends, and the outlook for the California design and construction market will be documented in The 2011-2012 AEC Market Guide to California.

Is China Over for California (and U.S.) AEC Firms?

Tuesday, August 16th, 2011

One of the first interviews for The 2011-2012 AEC Market Guide to California was with a project manager for one of the largest OPM (Owners’ Project Manager) firms in the state. In discussing the current condition of the California AEC industry, he said with a certain resignation, “Anyway, the only firms making money are the ones working in China.”

An exaggeration, perhaps, but there’s a seed of truth as well. In January, The New York Times published an article under the headline “China Boom Benefiting Smaller U.S. Architecture Firms.” It described how a 17-person Seattle architecture firm – Stuart Silk Architects – landed a dream project in China. The client chose Silk’s firm primarily because a representative liked a home that the firm designed in Palm Springs. The Chinese developer quickly hired Silk to design three villas in a new community with properties selling for the equivalent of $7.5-million to $15-million (U.S. dollars). The three homes soon became nine.

The Times wrote:

Mr. Silk’s 17-person firm is among scores of small to midsize architectural practices across the United States that are enjoying a startling boom in Chinese projects — whether in spec mansions for sudden multimillionaires or quarter-mile-high skyscrapers. Although a handful of big firms, like Skidmore, Owings & Merrill of Chicago and HOK of St. Louis, have extended global tentacles for generations, it has been only in the last half-dozen years that Chinese projects have gushed down to their smaller brethren.

These firms are grateful for the commissions, and not only for the obvious reason — that the Chinese work has helped fill the void left by a listless American economy. More intriguing, the architects say, is that Chinese developers and even government agencies are proving to be better clients than their American counterparts. They say the Chinese are more ambitious, more adventurous and even more willing to spend the money necessary to realize the designs. This thrills the architects, who have artistic undercurrents that often struggle to find an outlet.

Smaller West Coast firms were also the focus of an article published a month later by the online news resource DailyFinance. Entitled “China Beckons West Coast Architecture and Building Firms,” the article notes that West Coast firms of all sizes and types are positioning themselves as “international experts” to win work in China.

China’s construction growth, fed by a thriving economy and a massive population movement from rural to urban areas, will dwarf that of the U.S. over the next 10 years. This should give building companies with a West Coast presence a chance to offset the effects of sluggish domestic demand by hawking their expertise overseas.

China’s residential and commercial building stock will surge 61% between 2010 and 2020, compared to a 7% growth rate in North America and an 8% increase in Western Europe, Pike Research said in a report.

With the success that U.S. firms are having in China, it’s not surprising that competition is increasing from fellow Western firms. Andrew Nathaniel Mayer, an American architect living and working in China, blogged of the Times story, “The New York Times finally caught up to what savvy architecture firms in the U.S. have known for at least the past decade: there is a lot of work to be had in China.”

Mayer’s excellent resource on Chinese real estate and construction is China Urban Development Blog. In his piece about the Times article, he adds:

…yet the NYT piece glosses over some of the difficulties U.S. architecture offices face when seeking work in China, especially if they do not already have a presence in the country or some other kind of local connection. Sure enough, just last year (and previously mentioned on this blog), some American architects found themselves caught up in scams related to bogus projects in China, perhaps blinded by the hype promoting the country as an architectural free-for-all.

In an e-mail interview for The 2011-2012 AEC Market Guide to California, Mayer said that small firms, despite their relative success recently, are still at a competitive disadvantage compared with their larger peers when pursuing work in China. He also sees the market tightening for U.S. firms, though not disappearing altogether, as he wrote in the e-mail message:

When it comes to western or American AEC firms working in China, I would have to say that the larger corporate firms have an edge up in entering the market due to their resources and reputation. Chinese firms are getting smarter now and moving up the value chain quickly, so I foresee less need for ‘Western expertise’ in the future.

That being said, China is still open to qualified companies, provided those firms play by China’s rules and partner up with local joint venture companies. No part of China is off limits to western firm involvement, but the interior parts of the country are the areas booming at the moment.

“International Opportunity” is one of the trends identified and detailed in The 2011-2012 AEC Market Guide to California, to be published by The JAGG Group. The Guide offers suggestions for how firms can break into or increase their success in international markets, as well offering information on the countries and regions most likely to provide the greatest opportunities for California AEC firms in the coming years.

For more on this subject, and many others  click on the “Buy Now” tab on the www.aecinsight.com home page and order your copy of The 2011-2012 AEC Market Guide to California. The book will be available in late August.

Oakland Developer Tagami Dishes on AEC Industry, Market Outlook

Monday, August 15th, 2011

Phil Tagami is Managing General Partner of the California Capital Group, the company working on redeveloping a 135-acre parcel on the old Oakland Army Base Property. He is also a prominent figure in California real estate and politics, and when he talks, he does so with passion and frequent bursts of unfiltered candor.

In a 30-minute interview for the soon-to-be-published research report The 2011-2012 AEC Market Guide to California, Tagami offered his view on the Northern California construction and real estate market; the attributes he looks for in architects, engineers and contractors; the “erosion of trust” that is damaging the real estate profession; and several other issues important to the AEC industry.

Here’s an excerpt from the interview:

“With architects, I’m looking for gray hair,” he says. “I want the person who sells the job to do the job. We punish architects who replace the senior guys with the diaper squad because we’ve already explained what we want, now we have to retrain others who haven’t done the upfront work. We don’t have that with engineers as much as with architects. We’re seeing a lot of salesmanship these days. We don’t want to talk with a salesman; we want to talk with the technical people.”

The 2011-2012 AEC Market Guide to California is available for sale at the reduced pre-publication price of $199 (plus shipping) by following the “buy now” link on the AEC Insight home page. After 8/19/11, the price goes up to $299 for good.

This comprehensive research report includes a look at the top industry trends in California, as well as a summary and forecast for the major market sectors served by the AEC industry. The book ships in late August.

Strategist’s inside view: What public agencies want in consulting firms

Friday, August 12th, 2011

John Withers is a consultant with public affairs consulting firm California Strategies, LLC (“CalStrat”), but he also is a long-standing board member on public agencies in Southern California. In an interview for the upcoming market research report The 2011-2012 AEC Market Guide to California, Withers offers valuable insight into what public agencies look for in their consultants.

“I sit on the board of several public agencies – water districts, sanitation districts – and in 24 years I’ve seen every pitch known to man,” says Withers, who focuses on water resource management, regulatory issues, land use and development, and infrastructure for CalStrat. “When I sit down and consider a consultant, in the simplest terms I’m analyzing three things.

“First, do they have equivalent project experience? Where have they done this kind of project before successfully?

“Second, I look at the resumes of the key people who we would interface with on a day-to-day basis. If there’s a problem, who is going to take care of it and will they be able to take care of it.

“And their technical approach. I want them to show that they’re already on the job, thinking about it. What are the opportunities and constraints? What can they do to add value? Are they showing us any innovative or alternative approaches?”

While most good AEC professionals know that these are three critical aspects of the process, how many actually deliver a strong performance in these areas? How many junior folks in our firms truly grasp their importance? What better way to drive the point home than to hear it straight from the source?

With public-sector work, Withers says that he’s instructing his clients in the design and construction industries to make sure the funding for the projects they’re pursuing have a solid footing. “For public-dollar projects, the key concept is having a dedicated revenue stream, something where no one can get their hands on the money,” he says. “You want projects with dollars that are earmarked and directed for a particular purpose, not something from the [general fund]. Water/wastewater projects tend to be very stable now; they usually have a steady, dedicated funding source.”

Withers adds that he’s never seen the market so fragmented in his many years in the business. “If you ask how the state of California is doing, you have to drill way down and look at it on a project-by-project and product-by-product basis. It’s a very uneven marketplace.”

Withers offers more of his perspective in various sections of The 2011-2012 AEC Market Guide to California, which is being published by The JAGG Group and due to ship in late August.