Supply Chain Disruptions Create New Challenges for Builders
Construction projects are taking longer to complete and costing more to build than they did prior to the COVID-19 pandemic. The supply of available materials dried up considerably during the pandemic due to shutdowns and social distancing requirements, which reduced capacity at manufacturing plants. Those supplies continue to be constrained, and lead times for receiving materials are massively elongated.
For example, when placing orders for roofing insulation, builders can now expect a 180-day lead time versus just two weeks pre-pandemic, says Todd Sachse, CEO and founder of Detroit-based Sachse Construction.
Open web steel joists now have a lead time of 35 to 45 weeks when previously they were available in four to six weeks. Even getting standard paint has been an issue, according to Sachse.
The cost of lumber has come down to $399 per thousand board feet after spiking to an all-time high of $1,515 in May, according to Fortune. But there are still price hikes on shipping costs or items like glue, says Sachse. “These price hikes have cancelled projects, put some on hold and have placed a strain on subcontractors and trade partners who did not procure materials quickly and are not able to recoup the differences.”
In July, the producer price index for steel mill products soared 11 percent for the month and 109 percent year over year, according to the Associated General Contractors of America. Lumber and plywood were down 16 percent from the prior month but up 57 percent on a year-over-year basis.
“We’re keeping a close eye on materials pricing, materials shortages and supply chain delays,” says Rich Jacobson, executive vice president with Minneapolis-based Kraus-Anderson Construction. “Lumber surged but now seems to be trending downward. Now we’re seeing prices soar for steel framing, metal studs and drywall.”
The delivery of prefabricated steel buildings has been delayed six to eight months on average, and specialized HVAC systems are taking four to six months for delivery, according to Albert Marks, business development manager with Northbrook, Illinois-based Mosaic Construction. Marks says the delays are a “devastating blow” to clients seeking speed to market.
John Line, executive vice president at Southfield, Michigan-based Huntington Construction, says that the supply chain disruption has caused his company to send out requests for proposals to 30 vendors in order to receive three bids. Before COVID-19, the firm would place bids with three to five vendors. “We find ourselves having to make a significant amount of phone calls to partners, vendors and contacts in the industry in search for the materials we need.”
Dave Bartolai, vice president with Chicago-based James McHugh Construction Co., echoes this sentiment. His company is spending a lot more time early in a project life cycle to secure vendors and materials in an effort to counteract the shortages and shipping delays.
Forecasts ramp up
Despite the challenges the construction industry has faced as a result of COVID-19, pipelines are still robust. “Our pipeline has remained full over the course of the past year, with completions on some big projects earlier this year and starts on others scheduled for late 2021 and early 2022,” says Steve Spinell, principal with Vernon Hills, Illinois-based Kinzie Builders.
Kinzie recently completed two transit-oriented luxury apartment projects in suburban Chicago. Avere on Duane is a 48-unit building in Glen Ellyn, and 10 North Main is a 97-unit development in Mount Prospect.
St. Louis-based Midas Construction, which used to exclusively build hospitality projects, has expanded and added multifamily to its portfolio of projects. Currently, about two-thirds of the firm’s projects are multifamily and the rest are hospitality, according to Tim Flacke, vice president of project development.
Before the end of the year, Midas is scheduled to break ground on a 180-unit luxury apartment project in Dardenne Prairie, Missouri, as well as a 184-unit apartment complex in downtown St. Louis. The firm is also underway on construction of a $35.7 million Residence Inn by Marriott in Clayton, Missouri, as well as a $26.4 million AC Hotel in the Central West End neighborhood of St. Louis.
“The hospitality industry is seeing a comeback in leisure and business travel this year, and multifamily has remained strong,” says Flacke. “We’ve seen a 10 percent increase in revenues this year over last year. We expect a double-digit revenue increase in 2022.”
Sachse Construction currently has a variety of multifamily, retail and corporate office projects underway throughout the Midwest. “This year’s revenue will be slightly stronger than last year’s, though well shy of our initial expectations,” says Sachse. “We anticipated the market would bounce back this year, but we are now seeing the recovery being pushed to 2022.”
Bartolai says he is seeing an uptick in development activity as projects are receiving financing. “Projects committed to us pre-pandemic are proceeding this fall,” he says. “Accordingly, our forecast for the rest of the year into 2022 is looking much more favorable as these projects get started and we see other opportunities ramp up.”
McHugh is in the home stretch of completing St. Regis Chicago, an 1,100-foot luxury condo and hotel development. It will be the city’s third-tallest building, according to Bartolai.
Jacobson says Kraus-Anderson is on track to meet its overall sales and revenue goals for this year, which are forecast to be 10 to 15 percent higher than in 2020.
Earlier this year, Kraus-Anderson broke ground on Moment, an $80 million apartment tower in downtown Minneapolis. The second floor of the 10-story building will be home to Firefighters for Healings and its Transitional Healing Center for injured firefighters and burn victims. Kraus-Anderson is also building Bryk on Broadway, a $39.2 million affordable housing project in the Destination Medical Center district of Rochester, Minnesota.
Marks says his firm has “blown its revenues from last year out of the water.” Given this growth, Mosaic has expanded its team from five employees in spring 2018 to 22 employees. Mosaic’s affiliated brand, Cannabis Facility Construction, has experienced rapid growth in the construction of cultivation facilities, processing labs and retail dispensaries for marijuana.
One example is a new recreational and medical dispensary for Mission Dispensaries in Calumet City, Illinois. The 3,000-square-foot location features retail space, back-office space, a secure vault and an advanced security system.
GCs leverage tech
In some cases, the pandemic has led general contractors to utilize more technology and offsite or modular practices in order to save time. For example, when Midas faced supply and scheduling challenges for its AC Hotel project in St. Louis due to COVID-19, its solution was to utilize prefabrication and building information modeling (BIM) technology, according to Flacke.
“This allowed us to adapt to materials shortages and delays by prefabricating building components in controlled environments, which also delivered greater precision and safety,” says Flacke. “But the key was an intense coordination of engineers, architects and subcontractors using BIM to ensure exacting standards were met.”
Construction of the AC Hotel is on schedule and slated for a fall completion, says Flacke.
According to Jacobson, Kraus-Anderson’s pre-construction team includes both BIM and virtual design and construction (VDC) expertise. These building practices are increasingly being implemented by clients and project teams to evaluate the building envelope, energy use and efficiency, constructability issues and mechanical, electrical and plumbing (MEP) decisions.
Kraus-Anderson is working on some proprietary tools designed to foster even greater team collaboration.
Spinell says that Kinzie is continually implementing new construction management and other technology tools that increase efficiencies and boost communication between developers, architects, general contractors and subcontractors. “While we’ve reinstituted in-person meetings, we’re still incorporating virtual meetings to save on travel time,” he says.
As a result of COVID-19, Sachse Construction developed an online health screening tool that enables workers to safely and quickly complete a COVID health screening each day. The system also serves to provide an accurate headcount for the number of tradespeople on the job.
Additionally, Sachse says that COVID has forced his team to get creative in its ability to solve issues virtually, since travel restrictions have limited in-person interaction with clients.
“Our team has used Matterport, a 3D camera platform, to perform virtual tours of our spaces on demand,” says Sachse. “This technology enables our teams and clients to remotely review the work performed onsite and make adjustments as needed in real time, before changes create a large impact on the schedule and become costly.”
— Kristin Hiller