New Resource

By Scott Brauninger

So far this year, steel prices have risen sharply. We’re paying at least 30% more than we did in October 2009.

What’s going on here?

Other than the fact that steel prices plummeted dramatically last year, and probably had nowhere else to go but up, part of our quest for answers led us to a story about the current squabble that’s going on in the global steel and iron ore businesses.

Over the last 6 months, the iron ore producers have decided that they are tired of selling ore at a year-long fixed price. So, they’ve demanded that steel producers pay spot prices, or at least, accept quarterly adjustments to pricing.

Steel producers, and the governments that house them, are outraged at the proposal. China has gone so far as to arrest Rio Tinto executives and put them on trial for taking bribes related to ore pricing.

If the ore producers get their way (and it looks like they will), raw steel production costs will rise. According to The Financial Times, last year’s iron ore spot price which was $61/ton is now at $144/ton. So, expect iron ore prices to basically double from last year’s price; at least in the short term.

This doesn’t necessarily translate directly into steel prices doubling domestically. Most of the steel we use is derived from recycled steel already sold on the spot market. Fortunately, or unfortunately, these prices have already escalated, and its likely they will remain somewhat stable in the near term (we hope).

You’ve heard it before, and you’ll hear it again; strong overseas demand is the reason for the rise in all these prices. But, the miners aren’t the only ones driving up the price. India, a major exporter of iron ore to China, imposed export taxes on Indian iron ore to ensure there would be sufficient supply for their own needs.

What are we going to do if prices continue to rise with global demand ?

There’s no doubt that rising construction material prices here in the USA are the last thing anybody wants to hear about. Just when a development deal seems to have some value, its frustrating to see the value evaporate into the pocket of foreign ore miners.

However frustrating pricing increases might be, they are signs of recovery. Everlasting deflation is bad for business, and we’ll take economies growing overseas than no growth at all.

So, where does that leave us for the short term ?

If you get outside of the USA right now, you’ll see development moving along. Maybe not at the frantic pace like before, but still moving.

Its easy to listen to the news and think that China and India are the only economies left standing in the world right now. However, places in the Americas such as Panama, Colombia, Peru, and other places many of us have been programmed to be frightened of are still growing at respectable paces.

Panama, a very small place really, with only 3.4 million people, is still on the move. Panama is constructing new roads, bridges, new residential towers, marinas, canal infrastructure, a metro, and is just finishing a land reclamation project in the capital. In 2009, Panama’s unemployment rate was 7.1%; lower than California. Panama’s consumer economy is booming. Even their national airline, COPA (a great airline by the way), is still profitable.

In Colombia, the Colombian Peso was one of the fastest appreciating currencies in the world last year. Inflows of foreign capital and growing natural resource utilization have strengthened the peso so much that Colombia has been forced to buy tens of millions of US Dollars every day to try to keep their exports competitive. Unfortunately, this makes Colombia more expensive at the moment. However, their own purchasing power for imported goods has increased dramatically, and if you’ve got something to export there, the time may be right to check it out.

In Peru, the Peruvian stock market was up over 100% last year (2009). Hopefully a mutual fund you owned was smart enough to invest there. Peru and the USA have also recently ratified a Trade Agreement. There’s even Starbucks in Lima, so you won’t feel totally lost.

The USA has a strong history of overseas development. We built the Panama Canal after basically taking Panama away from Colombia, and we did that 100 years ago. Short of starting your own revolution to spur your business, perhaps a simple exploratory trip to an emerging economy will do.

If you’re like us, and tired of listening to self fulfilling prophecies about a double dip recession while the rest of the world is moving along, stop watching CNN, jump on a plane, and see what you can do outside the USA while US industry recovers (and it will).

The building sector is the single largest consumer of energy in the nation, so it is refreshing to see a firm like HKS embrace the technology for their own 110,000 square foot Dallas headquarters.  Design can play a powerful role in conserving resources - HKS partnered with Renewable Choice Energy to offset its annual electricity consumption with 100% wind power.

According to a recent article in earth2tech by Justin Moresco, mainstream homebuilders are starting to take energy efficiency and other green features a lot more seriously. The latest evidence came earlier this week when KB Home, one of the top five U.S. homebuilders, announced that all of its new developments in Northern California would be built to GreenPoint Rated standards, a green building rating system developed by Berkeley, Calif.-based Build It Green that grades homes based on energy efficiency, water and resource conservation, indoor air quality and more. “The early adopters were custom builders who championed the [GreenPoint Rated] standard,” David Myers, Build It Green’s communications and development manager, told us. “Now we’re seeing it move into the mainstream.”

A recent article in the Wall Street Journal, Deal of the Week, by Anton Trojanovski highlighted just how difficult it is to get a construction loan these days.  Not only did the developer, Randall Miller, secure a long-term lease with UCLA for his medical-office building project in Santa Monica, CA, but he had 3 investors committed to the project.  The problem? Only one of the three investors  had originally signed on to personally guarantee the loan.  That wouldn’t have been an issue a few years ago, but now with the change in the standards at which you can borrow, it took the 2 other investors to guarantee the loan to get a commitment from US Bankcorp to lend $28 million for the project.   Rudy Kramer from US Bank’s LA office, commented that “sponsorship” - the people willing to guarantee the loan - is paramount to the bank’s decision - second to the real estate.

Late last week, a California state commission voted unanimously to approve the nation’s first mandatory statewide green building code that, according to a statement by Governor Arnold Schwarzenegger, “lays the foundation for the move to greener buildings constructed with environmentally advanced building practices.” The move sends a signal that the state is serious about green building, even if some groups worry it might cause confusion in the market around different rating systems.

Are we headed for the second portion of a double dip recession? Although
many builders, developers and others in our industry optimistically promote
the idea of slight economic recovery, there is still strong sentiment that
our economy may be facing a second down turn. Factors such as unemployment
and sluggish growth dampen any optimism.

The following article from the U.S Chamber of Commerce makes a strong case that we are not out of the woods yet.

By Ross Edwards

For those of us in the construction business these words are ringing more true with each passing day. As more and more companies go out of business or lay off more people the hope of short term pain is becoming a fading dream. Most people attribute the” Innovate or Die” quote to: Damon Darlin in a 1997 article: innovate or die on the Net (1996) By CNET News.com Staff

The following is a summary from the AIA construction forecast for 2010:

Construction Volume by Sector:

• Retail: -28% in 2009, -12.6% in 2010
• Hotels: -25.8% in 2009, -16.8% in 2010
• Office buildings: -21.5% in 2009, -17.3% in 2010
• Education: -8.2% in 2009, -0.7% in 2010
• Healthcare: -1.5% in 2009, -0.8% in 2010

If your company has been doing work primarily in Retail, Hotels, and Office Buildings clearly the term Innovate or Die has taken on new meaning. The question is what does this mean for a Construction or Real Estate professional who has been doing this work for 20 or more years? Most people assume the market for these sectors will come back in the next few years. How long will it take for you to innovate into a new area? By the time you get there will your current expertise come back in vogue. Clearly the companies that have made their money and have established relationships in the Education and Healthcare areas are much better positioned than the players in the other areas.

The question then is where is the future of our business going? How long will the current malaise last? And finally, where will the money be for the next 2-5 years and how do we take advantage of that.

Over the next few blog articles we are going to focus on a few ways we are trying to Innovate at New Resource – stay tuned.

According to Justin Moresco at Earth2Tech, 2010 looks to be a pivotal year for transitioning the built environment into one that consumes significantly less energy, water and other resources.

Modular Green Homes Go Mainstream: When Warren Buffet makes a bet in energy-efficient modular homes, it’s a good sign the market is set to grow. Clayton Homes, one of the largest builders of manufactured housing in the U.S. and a subsidiary of Buffet’s Berkshire-Hathaway, launched its i-house earlier this year. The homes, which will be constructed as modules in a factory and then assembled in the field, are billed as “affordable luxury in a green, energy-efficient package.”

Besides Clayton, a number of startups like Zeta Communities and Blu Homes are getting into the prefabricated market. So far, these companies have built a relatively small number of “prefab” homes, but 2010 could be the year that this industry finally becomes a serious player. “It’s going to change — there is no question,” Michelle Kaufmann, whose firm, Michelle Kaufmann Studio, designs prefab homes, tells us. “The technology is there, it’s just about embracing it.”

The industry will really take off once the country’s largest home builders start using modular construction. That time is probably not too far off, as Kaufmann says she’s been approached by two of the nation’s five biggest home builders (she wouldn’t give names because of nondisclosure agreements) to advise them on modular construction.

Besides cost savings in labor and materials compared with conventional building, modular construction can help developers reduce risk, Kaufmann says. A developer can build homes on a large site as sales come in rather than investing a large amount of money upfront to build all the planned homes at once and before most are sold. This should prove attractive at a time when financing is hard to come by and the market for new construction is lagging.

On November 10, 2009 we delivered a factory built bathroom POD to Stanford University. Working with Vance Brown Builders we were able to greatly reduce the on-site construction time, cost, traffic and waste associated with a field-built project. Installing the bathroom took less than an hour. Watch for more projects that are taking advantage of this innovative and sustainable way to build!

The growth of the green building market has been widely celebrated recently, spurred largely by government policies and rising recognition that such structures are more economical to operate.  An article published yesterday in Earth2Tech, by Justin Moresco does an excellent job of describing 5 of the major risks that could hinder rapid growth.