Being ‘Plan B’ Ready: Finding your way around capital projects and tenant improvements

From the Commercial Construction & Renovation article published August 25, 2021:

It has been (and continues to be) an unprecedented year. What’s a contractor to do? Tom Murphy has your answers. We asked the director of project services for NAI Hiffman/Hiffman National, the Midwest’s largest commercial real estate services firm, how he works around the year of building under the gun.

What’s your normal workload, and how has the pandemic changed it?
We serve a portfolio of almost 100 clients and manage over 200 projects per year, from replacing HVAC systems to installing new roofs to repaving lots. When the pandemic began, our pipeline of projects initially was reduced by as much as 60%. Today, many of our clients are looking to resume their capital spend, either because they want to complete the work before their tenants bring employees back to the office or because they realize they need to complete the projects to compete for new leasing opportunities.

What kinds of shortages are you encountering?
You name it and I guarantee it will have an extended lead time, minimum order quantity or some other delay. This is not only true in specialty items, but also everything from standard carpet and LVT flooring to roofing materials. We can’t get enough of the plates and fasteners used to install roof systems and are being told some material lead times will be as late as November/December.

On the mechanical side, we’re experiencing extended lead times of as much as six weeks. Recently, we released an order for two 115-ton package units and were told by the manufacturer the typical lead time of eight to 10 weeks is now 14 to 16 due to a steel shortage. We’re currently replacing all the flooring in an office, and it’s taking months to get the carpet in.

Lumber has not been an issue because CRE uses more metal framing than lumber. But in May and June, we experienced longer lead times and problems with material availability with the metal framing.

What’s causing all these shortages?
There are several factors, including shipping backlogs, petroleum-based materials shortages caused by this winter’s storms in Texas, truck driver shortages and skilled labor shortages.

After the pandemic began, shipments from Asia almost came to a complete halt for about six months. But then, at the end of summer 2020, US consumers began buying manufactured goods in huge numbers and the Pacific seaports got jammed up. It has yet to recover. These challenges still exist today and affect material lead times, impacting the production of things like light fixtures and flooring.

Another factor is a shortage of raw materials used in production. For example, earlier this year, the weather problems in Texas affected the petroleum industry, of which many manufacturers use.

The remaining factor is skilled labor. Most US manufacturers do not have the skilled labor to operate their facilities to 2019 production capacities and did not manufacture excess products in 2020. One flooring manufacturer with operations in Georgia is trying to fill over 100 manufacturing and administrative positions. Another roofing materials manufacturer stopped accepting all new orders in an effort to fulfill its current backorder—which means customers requiring millions of square feet of roof replacements need to find alternate materials or put their projects on hold.

What are you telling clients who want to get capital projects done?
Things are taking 20% longer and costing 20% more because of shortages, delays and manufacturer pricing increases. I don’t see the increases from many manufacturers buying building products from rolling back their price increases; however, freight surcharges and minimum quantity for orders may go away as the freight industry recovers.

Always have a Plan B with respect to items that have a long lead time. Thinking creatively to solve problems and meet deadlines is a must. In some cases, we’re completely switching systems or parts in order to complete critical jobs.

I tell the brokers we work with, “Chicken is on sale.” Don’t freeze, don’t wait. Get it done while buildings are empty. Tell your client these are the delays, and it’s going to get worse before it gets better. But we can still move the ball forward.

For information about Hiffman Project Services, contact Tom Murphy at tmurphy@hiffman.com.