When a government inspector came to the construction site for Summerlyn Apartments in Raleigh, N.C., she found a problem: The doorframes sold to the project by Parks Building Supply didn’t carry manufacturer labels listing the frames’ fire rating. The builder explained that all doorframes produced by the manufacturer, Endura Products, are third-party certified to meet the minimum 20-minute fire standard required by the U.S. Department of Housing and Urban Development (HUD), which was helping to pay to build Summerlyn.
That cut no ice with the HUD inspector. “So where’s the label?” she demanded.
“We had to pay the original manufacturer to come to the site to affix the labels,” says Scott Hartmann, Parks’ general manager.
Ah, the rigors of government work. Contracts come slowly and payments move even slower. The red tape can be suffocating. But some dealers will attest to how, in the darkest days of the downturn, it was orders from publicly funded projects that helped them avoid worse problems than what they actually faced. Gary Campbell, CEO of VNS Corp. in Vidalia, Ga., notes that the downturn forced VNS to lay off half its staff, and had it not been for government work the dealer would have had to make even deeper cuts.
And while home construction’s revival might make Uncle Sam less attractive today, you can find dealers nationwide that intend to continue pursuing affordable housing projects, military housing developments, and local construction from schools to fire stations.
A Steady Source
Most of the building suppliers interviewed for this story say about 15% of their sales are made to buyers who receive significant government funding. The largest piece of this business typically involves government-subsidized housing projects built for low-income residents.
In 2003 through 2005, roughly 350,000 multifamily housing units were started each year. Of those, it’s likely that 80,000 were begun annually with the help of federal Low-Income Housing Tax Credits (LIHTCs), information from the Harvard Joint Center for Housing Studies indicates. In addition, another 45,000 units were rehabilitated each year thanks to LIHTCs. This year, when we’re on pace for a starts rate of roughly 250,000 multifamily units, government support is likely to figure in roughly 65,000 of those new units. On top of that, about 35,000 units will get rehabilitated with LIHTC money.
New affordable housing developments are now under construction across the country. Most are built by private developers that have applied for government funding, though sometimes a local agency acts as developer. In Grand Junction, Colo., the local housing authority is building 72 affordable apartments at Village Park Apartments.
“This is probably going to be the biggest residential project that gets kicked off this year in the county,” says Richard Goodman, area manager for ProBuild in Grand Junction. “It’s nice that they are doing that at this time when the market is kind of slow.”
One might think that such federal support would be on its way out given the fight over just about any form of non-defense spending. But LIHTC isn’t a budget item; it’s part of the tax code. So unless Congress revamps the tax code and cuts the popular program, it will stay in effect.
Pursuing the Deal
ProBuild bid to sell many of the same types of materials to the Village Park construction site that it would send to a conventional apartment project, from rebar and foundation materials to lumber siding and roofing. But before it could do so, it had to know the project existed well ahead of when the first spade of dirt was turned. Dealers say this can be incredibly tough work.
Jim Taylor, head of business development for Warner Robins (Ga.) Supply, knows that by the time a project gets announced in the newspaper, it’s often too late to bid. So he keeps in close touch with local officials “I belong to a lot of community things,” he says. “I go to the city council meetings. … Golf courses and restaurants and sidebar conversations is where deals are struck.”
For example, Tractor Supply Co. plans to build a $50 million distribution center about 20 miles north of Warner Robins in Macon, Ga. State and county officials have reportedly offered tax abatements, investment credits, infrastructure improvements, and land.
“I kept calling the economic development people and found out where the announcement would be,” says Taylor. At the event, held this June, Taylor sought out the contractors for the project and asked if his firm could bid to supply steel doors for the center. Since then, he’s heard about plans to build a new firehouse in Perry, Ga., that could use Warner Robins’ trusses and commercial doors.
“I think we have a shot at getting some of the material,” Taylor says.
Some building suppliers attend meetings on proposed development projects, listening carefully for promises to use local companies.
“You can’t [be a public official and] go into the Chamber of Commerce and Rotary Club and say you’re going to be hiring local people, and then forget that you said it,” Taylor says. He likes to tell those officials: “Maybe we weren’t the lowest price but can you take a look at us?”
But courting public officials and establishing strong relationships with local builders won’t guarantee you’ll make a sale. The competition to offer the lowest price can be fierce once officials announce a new housing project.
“When that happens—and it’s not an everyday occurrence—it seems like there have been some contractors from five or six hundred miles away,” says David Stordahl, owner of Triple S Building Center in Butte, Mont. “Everything is a lowball price.”