As public and private organizations pour more than $2 billion of capital investments into the region, area construction firms are riding a long-awaited wave of prosperity. But is it too soon to declare this a “new normal”?
Where are these jobs coming from? Michael LaLoggia wonders aloud while observing the projects board in his Rockford office.
On one side of the general contractor’s whiteboard is a list of residential projects. On the other side, nearly every space is filled with odd commercial jobs – bathroom upgrades at local factories, a new store about to open, a room addition at a pub. He’s got seven additional inquiries awaiting response.
“I think if you want to get business, it’s available,” says LaLoggia, president of LaLoggia Construction and Remodeling Inc. “You might have to seek it a little bit, but it’s there. I’m in a scramble to keep up with what I have.”
Just a few blocks north, downtown Rockford is enjoying a renaissance, as once-vacant buildings return to life. Work on a new hotel at the Amerock/Ziock building is just the cap to several years’ worth of investments downtown.
All across our region, in every geographic corner and nearly every economic sector, organizations are investing heavily in construction. In fact, since 2012 more than $2 billion has been invested in capital projects around the region, according to Transform Rockford, the nonprofit organization developing a strategic plan for Rockford’s self-renewal.
This latest growth in the construction industry is welcomed news to the general contractors who oversee some of the biggest projects. After several years of exceptional growth, they remain cautiously optimistic about what’s to come.
“I think much of it has to do with economic growth within the Rockford area,” says Joe Scandroli, president of Scandroli Construction. “All three health systems are investing a lot of new money in our region, and when you look at the referendum the Rockford schools passed, when you look at what the park district has done, the upgrades to I-90, and municipal projects through the city and the county – not to mention the airport and Woodward – you see evidence of Rockford’s economy developing. It feels like we’re moving in the right direction, to where there’s going to be some more private investment and manufacturing investment taking place.”
Leading with the Big Guns
Take a close look what’s been built over the past six years and you’ll notice a preponderance of work funded by government bodies and hospitals.
Leading the way is Mercyhealth’s new east-side hospital, which will cost an estimated $400 million. OSF Saint Anthony is completing an $85 million new tower. SwedishAmerican opened a new cancer center in 2013 and is planning $130 million in improvements to its Midtown campus – including the construction of a new tower.
Rockford Public Schools has plowed more than $140 million into upgrading its buildings and establishing two replacement facilities. For Stenstrom Construction Group, that included a new fieldhouse at Auburn High School and a replacement for the aging Kishwaukee Elementary School. The firm was also a key player in the Rockford Park District’s campaign to improve area sports facilities, as it transformed a vacant riverside factory into the $24.4 million UW Health Sports Factory.
“I think our combined contracts on that were around $20 million,” says Jeff Bockhop, president of Stenstrom Construction Group. “And, we just finished two of three police stations: the one on New Towne Drive and one over on West State Street.”
Schmeling Construction Co. completed a third police station.
“There’s been a fair amount of growth along the riverside corridor, and I think we’re just starting to see that growth getting started,” says Stephen Schmeling, president and fourth-generation leader of the family-owned Schmeling Construction Co. “That’s something that could drive future growth.”
Scandroli’s firm, meanwhile, has taken numerous projects amounting to a combined nearly $60 million around the Chicago Rockford International Airport.
“We’re in the process of modernizing and expanding the existing terminal building,” says Scandroli. “We were involved in the Rock Valley College aviation technology center. That project addressed workforce issues in aviation and opened doors to other growth like another project we managed: AAR’s new maintenance, repair and overhaul facility.”
Despite some deep investments in the region, area construction firms are still waiting for the private sector to act. Woodward Inc.’s new $100 million campus in Loves Park, Ill., remains one of the largest privately funded ventures over the past few years.
“We’re hoping to see more investment from existing private industry, especially from manufacturers that are looking to advance in their existing facilities,” says Scandroli, a fourth-generation leader of his family’s firm, founded in 1907.
The Next Wave
Nathan Heinrich, vice president and third-generation leader of his family’s general contracting firm, Rockford Structures, subscribes to his father’s theory on the business cycle. Company CEO Bradley Heinrich believes certain signals will indicate a growing market for construction.
“The beginning of our comeback is in manufacturing and warehousing, things like that,” explains Nathan. “Then, it moves into retail and other businesses that support manufacturing, warehousing and related fields. And then towards the end – and we saw this right around ’08-’09 – that more nonprofits are building. In 2007 and ’08, we built more nonprofit buildings than we’d ever done before.”
Over the past few years, the Heinrichs have followed work around northern Illinois, southern Wisconsin and at least four other states. Manufacturing and warehousing jobs are starting to pick up, Nathan Heinrich says, and he’s seeing increasing demand for retail work, especially related to national chains.
Around Beloit, his family’s working on the G5 microbrewery in Gateway Business Park, which is expected to be completed soon. The building climate in Beloit appears similar to that of the Rockford area.
“They both seem to be growing at the same pace, with the same types of things – some retail, restaurants, manufacturing,” he says. “And I’m seeing those same things all over the country. As we travel around, we’re watching and we see the same things in every town we go to.”
At the same time, he notices there’s still a lot of uncertainty.
“The No. 1 thing I hear when we talk to a client is, ‘Is it really time to pull the trigger?’” Heinrich says.
It’s a conversation familiar to many area contractors.
“We have a couple of projects in the works and they’re being cautious,” says Christie Stenstrom Jarrett, vice president of HR and marketing for Stenstrom Companies. “They really want to do a lot of due diligence, so they’ll call and say, ‘We’re really thinking about this,’ but they have yet to commit. The lead timing with private-sector work is a lot longer than it was 10 years ago.”
With private dollars still in suspension, contractors are questioning whether the current growth rate is truly sustainable. Is a market correction in order?
“That’s a little bit of a concern,” says Scandroli. “The Rockford area isn’t used to seeing this kind of spike, and it’d be really nice if we could sustain it, but I don’t know if that’s realistic. We’re not going to have too many replacement hospitals. I don’t mean to sound pessimistic, but there are always peaks and valleys. We’re certainly on an uptick right now.”
And there are indications, says Jarrett, that big, institutional-type spending is winding down. Rockford’s schools projects are nearly complete, the hospital work is slowing down, and government cutbacks stand to delay roadwork.
“Based on what we’re hearing about the budget situations of the city and the county, there will be some road work, but I would say most of the construction is probably wrapping up,” says Jarrett. “We all hope the private sector will pick up now.”
From Challenges Come Opportunities
Contractors are preparing for a summer they believe will be as busy as, or busier than, last year – and 2017 was a very good year.
Rockford Structures is expanding its office staff. Stenstrom is so busy that Jarret’s finding challenges in recruiting enough project superintendents.
“During the down economy, we would have taken every little job because we needed every single one,” says Jarrett, whose grandfather started the firm in 1953. “But now, because of limited resources and project superintendents, there might be the occasional small job where it’s just not possible for us. We just don’t have the manpower.”
That’s welcome news for contractors like LaLoggia who stick to small-scale projects, both residential and commercial in nature. It’s also good news for the independent business people – carpenters, plumbers, electricians and such – LaLoggia hires to do the work. He estimates he has roughly a half-million dollars’ worth of jobs on his docket.
“I’m bidding a job right now in Oregon. Are some firms going to drive there for a few weeks just to do a $100,000 job?” says LaLoggia. “For us, that’s meat and potatoes.”
LaLoggia just finished constructing a new, freestanding Little Caesars in Belvidere, the first of four he’s planning to build in the Rockford area for a Chicago-area developer. The job stretched his skills in many ways, as he worked with the chain’s headquarters and suppliers, navigated municipal restrictions and weathered an imbroglio between union and non-union workers. But at its base, the work was no different from his other jobs.
“In construction, there are 25 steps,” he says. “Step one is planning, and step 25 is cleanup. Whether it’s a home or a pizza place, you go through the same process all the way through.”
The Jobs Picture
The restoration of Rockford’s Turner School and its transformation into a functioning police station was no small job. But then again, that’s just the way Schmeling Construction Co. likes it.
“The harder the project is, the more successful we are,” says Stephen Schmeling, company president. “We go into hospitals and many places where the more rules and regulations there are, the more we enjoy the work.”
Restrictions ran aplenty on Turner School, as Schmeling’s crews worked through historical preservation boards, painstaking removal and repair of architectural elements, the scars of the building’s sordid history and an eight-month deadline required for the client to receive tax credits.
New electrical and climate systems were channeled through foot-thick brick and plaster walls. Mechanical systems were streamed through old chimney shafts. Woodwork was restored and replaced – including individual slats of beadboard on the ceiling.
“It took a lot of time and was honestly longer than we ever thought it would be,” says Schmeling, of the beadboard. “It was a challenge to do, but we have some really skilled carpenters who have the ability to make it look exactly as it did before.”
Finding the crews to do the work, though, is one of the greatest challenges facing area contractors today. While Schmeling retains a dedicated crew of experienced woodworkers and other specialists, a combination of forces is threatening the sustainability of the region’s construction firms.
“We don’t have a shortage yet, but it’s running a little thin,” says Schmeling, whose firm was founded in 1903. “We don’t have young people getting into the industry, and that is a problem for our future. Just as an example, we’ve got three superintendents who are going to retire in the next three years. To replace them is a challenge. They’re leaving the industry with 20 or 30 years of experience.”
At the same time, Schmeling is also dealing with the effects of cutbacks made in the recession.
“We lost a great number of people in our industry – people who were just getting into it, people who were close to retirement, people who weren’t working full-time,” he says. “The recession forced a lot of people to find something else to do or retire early.”
Compounding it is a lack of interest from young people.
“It still takes people out in the field physically doing the work, and that makes it a bit old-school still,” he says. “We can’t have robots putting our buildings together – yet.”
Heinrich sees a similar problem, especially among high schoolers who take up internships or make office visits.
“You hear a lot of, ‘Oh, I don’t wanna do that. I don’t want to go and sweat all day. I’d rather sit behind a computer,’” he says.
Heinrich says he’s regularly in need of qualified office workers who can manage projects, do accounting and provide other support. But experience in the industry is often a prerequisite.
“It’s not for everybody, but many, many friends and acquaintances of mine have made a great living doing this, and they love it,” says Heinrich. “Some of our key people have been here for more than 30 years working in the trades.”
LaLoggia, who maintains a staff of just three, finds himself in constant need of salespeople. Often, he relies on someone who works part-time in the office and part-time in the field.
“You need an amount of industry, product and design knowledge, and you need to understand a calculator, measurements and talking to people,” says LaLoggia, who worked construction sales before launching his business in 2005. “If you sell a half-million dollars worth of business, you can make a good living.”
Reversing the Trend
Many construction jobs require some degree of education, often provided through trade schools and apprenticeships. Area contractors say the local trades unions are doing their part to raise the alarm, but Schmeling believes it’ll take a wider education effort. He’s joining with other area contractors to push the trades among Rockford Public Schools students and give them hands-on examples when possible.
“They can see what we do and say, ‘Wow, this is really cool. This is what I want to do,’” he says. “Or, they can see that this is the focus they want to take for their remaining years of school. It can motivate the kids.”
Stenstrom’s Jarrett believes the effort has to extend beyond unions and beyond public schools.
“How many parents are saying to their children, ‘You should really consider being a plumber, or a carpenter or an electrician. It’s a great profession and you’re going to do well’?” says Jarrett. “What we’re talking to our children about has changed over the years. As a community, we need to be having these kinds of conversations.”
Where challenges exist, Scandroli sees plenty of opportunities for ambitious young workers entering the field. For one, retirements are sure to create rapid career advancements. He believes it’s also an ideal time for young people to learn from their elders.
“The greatest opportunity is for those who can pair the older skill set with that younger skillset,” Scandroli says. “We should get the experience and the technology working hand-in-hand because there’s value in both. Not everyone realizes that.”
Getting ‘The Squeeze’
Cost pressures remain a stubborn reality in this recovering economy. Schmeling says every player in the construction process is “getting squeezed” by a market demand for cheaper, faster, better work. Heinrich believes it may grow worse.
“If inflation and interest rates start to creep up, that always affects our industry,” he says. “People will pay more for the money they borrow, and construction material costs will also affect people’s decisions.”
Heinrich also hears from potential clients who worry about Illinois’ high-tax environment, especially when compared with conditions just across the border in Wisconsin – which, unlike Illinois, is a right-to-work state.
Scandroli believes uncertainty about Illinois’ lingering budget issues may further compound the issue, especially for projects that rely on state funding. In his firms’ work on AAR, local bankers had to intervene and cover for state funding that was promised, but withheld.
“There’s always that question in the back of your mind: ‘Is that going to affect our project?’” he says. “With the budget shortfall and dysfunction downstate, state-funded schools are probably tight with dollars because they don’t have a reliable budget. So, they’re not spending what they typically would on building projects.”
Adapting to the Times
From boom through bust and back to boom, area contractors have adopted new strategies and efficiencies so they can remain viable. For Scandroli’s firm, which self-performs concrete and masonry work, that’s meant the introduction of new office technologies and a special line of concrete paving materials.
Its alliance with the producer of Ductilcrete has helped Scandroli to take a new approach to large-scale concrete slabs because of the product’s ability to reduce curling, cracking and joints.
Prior to and during the recession, Stenstrom invested heavily in additional revenue streams, through construction-related services such as plumbing, heating and pest management. Now, it’s investing heavily in technology, particularly building information management software that enables detailed 3-D modeling and on-the-job planning. Jarrett believes the software is still in its nascent stages, yet it’s proving to be a powerful tool.
For other contractors, an enduring dedication to age-old principles remains a driving force into the future.
“There’s a trust factor,” says LaLoggia. “Even if they haven’t seen what we do, when they know you as a person, they put faith in the fact that we’re going to perform the way we act. We try very hard to do this.”
Schmeling believes relationships are the most valuable currency, and his firm’s been building them for 115 years. He believes a strong part of the firm’s enduring relationships has to do with a commitment to honesty, integrity and quality work – values that have remained unchanged since his great-grandfather hung out his shingle.
“We pride ourselves on the experience that the owner has when they work with us,” says Schmeling, whose son, Peter, recently joined the firm. “The last thing you ever want is a customer who says it’s a great-looking building, but that was a horrible experience. For us, the relationship and future work are more important than making a dollar today.”