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Sluggish housing market a blow to some contractors: Residential crews seek commercial jobs to stay busy

November 5, 2007

The number of crews Robert Hoffman employs to frame new homes has dwindled from 14 to four, and could drop even more if the residential construction market continues to sputter.

But the owner of Hoffman Framework Inc. in North Salem, a tiny town in western Hendricks County, is not about to let his 12-year-old business wither away.

Instead, he's expecting to recover by making the leap to the much more vibrant commercial sector, where he can use his experience framing houses to build structures for retail and office tenants.

"We're hoping to make this last, no doubt about it," Hoffman said. "It's my feeling that commercial [building] wouldn't experience the highs and lows that residential does."

Likewise, scores of subcontractors who once reaped the fruits of the housing boom are attempting to broaden their scope as well and take advantage of the abundance of commercial building. Smaller companies whose niche is light construction particularly are noticing the shift.

They are receiving inquiries mostly from painters, drywall installers and masons-trades that can make the transition easiest from residential to commercial work.

Even so, many are rejected due to more rigorous insurance and safety standards that need to be met.

"They have different skill sets, so we're turning down a lot of these guys," said Allen Galloway, vice president of strategic planning and business development at locally based Boyle Construction Management Inc. "We have a certain quality we have to maintain."

Some, though, can fill a void left by a raft of massive construction projects such as the Indianapolis International Airport's midfield terminal and Lucas Oil Stadium that are draining the area's commercial labor supply.

The result is a worker shortage that is making it more difficult for smaller construction companies to find qualified subcontractors. One company feeling the pinch is locally based Paragon General Contractors Inc., which so far has used Hoffman on a job on the northwest side.

"It's a growing issue here in central Indiana," company President Charlie Hill said. "There are such huge projects going on and pulling a huge number of skilled craftspeople for just those two projects that it's affecting us indirectly."

Paragon first encountered interest from residential subcontractors toward the end of last year, when housing starts really began to drop, Hill said. As this year progressed, and it became more challenging to fill jobs, executives took a closer look at employing the subcontractors.

The company puts them through an intense screening and safety process before they're given a job. Hoffman just finished his first project, at the Cancer Community Wellness Center in Park 100, and is eager for more. To get even larger jobs, Hoffman said, he wants crew members to receive metal studwork training.

That may prove to be a wise move, given the strength of the commercial construction industry.

An October report from the Bureau of Labor Statistics showed that, during the past 12 months, employment in non-residential building, specialty trades, and heavy and civil engineering climbed 1 percent. Conversely, the residential building industry shed 4.5 percent of its work force.

Single-family home-building permits in the Indianapolis area were down 24 percent, to 492, through the first nine months of 2007, from 645 in the same period in 2006, according to the Builders Association of Greater Indianapolis.

Home remodeling projects are also on the decline because dwindling residential values are decreasing the availability of home-equity loans, which are often used to fund renovation projects.

Home builders have cut back on their inventory of speculative homes to meet weak market conditions and, as a result, suppliers are searching elsewhere for work, said Steve Lains, CEO of the Builders Association of Greater Indianapolis.

"There are just a lot of ups and downs in the marketplace," he said. "It's not going to rebound in the last quarter of 2007, but we'd like to see some positive things in 2008."

The exodus of Los Angeles-based KB Home Inc. from the Indiana market stung the area, and Hoffman, particularly hard. He performed a lot of work for the home builder and likely would have stayed busy, as KB was slated to build roughly 600 homes in the mammoth Anson development in Boone County. The developer, Duke Realty Corp., is expected to name a replacement builder soon.

Due to the residential downturn, Scott Grimes, executive director of the Indiana Subcontractors Association, said he is aware of an "influx" of members seeking work from light commercial contractors.

Some are turning to the local chapter of the Associated Builders and Contractors Inc. for assistance. The construction trade group is noticing a slight uptick in membership from residential subcontractors trolling for opportunities, said chapter President J.R. Gaylor.

"We see it as a good thing," he said, "particularly if they're going to get into public work."

The organization provides training and helps members navigate the mounds of documentation that often accompany building projects.

The trend of subcontractors subsidizing their residential work could have a lasting impact. The Indiana Construction Roundtable will announce the results of its annual Craft Labor Study in December. The preliminary numbers, Gaylor said, indicate commercial and industrial building will remain robust.

That should bode well for Hoffman and others who are bidding on the additional opportunities.

"Part of the answer for us is commercial work, if we can pick it up," Hoffman said. "It gives stability in the marketplace."
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