Fall 2009: From the Publisher

Is a stimulus package needed to bail out the commercial construction market?

by John Llewellyn

John Llewellyn, publisher In 2007, Lionheart Publishing celebrated its 20th anniversary as a custom and contract publisher. Currently, Lionheart publishes six national magazines, including two titles for the construction industry. To learn more about the company, visit  www.lionhrtpub.com.	John Llewellyn, publisher In 2007, Lionheart Publishing celebrated its 20th anniversary as a custom and contract publisher. Currently, Lionheart publishes six national magazines, including two titles for the construction industry. To learn more about the company, visit  www.lionhrtpub.com.
John Llewellyn, publisher In 2007, Lionheart Publishing celebrated its 20th anniversary as a custom and contract publisher. Currently, Lionheart publishes six national magazines, including two titles for the construction industry. To learn more about the company, visit  www.lionhrtpub.com.

According to the latest industry reports, the commercial construction market continues to falter as other segments of the economy begin to make the slow climb back to normalcy. The U.S. Department of Labor’s July employment report indicates another 5,900 job cuts in commercial construction for that month, bringing the year-to-date total (July 2008 to July 2009) to nearly 730,000 nationwide. This is a staggering statistic made all the more unpleasant when you consider that these job losses are in one market segment.

And where one segment of the economy stumbles, others fall down. For example, some bank analysts say losses from the commercial real estate market are the single largest cause of bank failures. Clearly, the federal stimulus package released earlier this year has yet to reach fully into the construction trades, particularly commercial construction. The Associated Builders and Contractors’ Chief Economist, Anirban Basu, said in an August new release that it is typical for nonresidential construction to lag behind broader economic cycles. “However, the impacts of the stimulus package passed in February should become significantly clearer during the next six to 12 months,” Basu added. But will it be enough, and can the commercial construction market wait any longer for stimulus to trickle down? I am left to wonder: Is a stimulus package needed to bail out the commercial construction market?

Without a swift and marked improvement in this market, the construction industry as a whole will continue to falter. More jobs will be lost, more projects will be cancelled, vacancy rates will continue to increase, and more firms will go out of business or be forced into bankruptcy protection. Not even the typically “recession-proof” healthcare construction market will be able to withstand this economic meltdown. All indications point to this market segment declining as well, as hospitals put off new construction and renovation projects.

The Obama administration may not yet be willing to bail out the construction industry directly, but at least it is beginning to pay attention. In August, the Federal Reserve and Treasury Department said they would extend the Term Asset-Backed Loan Facility program (TALF) to free up more credit for loans to build offices, apartment buildings and other commercial real estate. This is a step in the right direction, but only time will tell if it is enough. The problem is, there is not much time to spare.

According to an Aug. 18 article in The Washington Post, by 2011, $814 billion in commercial real estate loans are expected to mature. So, without the ability to refinance their debt, developers are in serious danger of foreclosure. At the very least, there is potential for this market to prolong the recession, taking thousands more jobs with it. MD

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