CNR Executive Summit: 2009, A Year of Risks

A panel of business leaders had some sobering news for the construction industry at the CNR Executive Summit on risks and rewards in the construction industry in 2009. Risks more than rewards dominate the horizon for next year.

Mike Flavin, president of The Business Bank of St. Louis, hit the topic that has everyone concerned: the recession. Flavin, who said the recession will either be long or deep, hoped for a "short, deep" recession instead of a long, shallow one.

Flavin laid the blame for the recession on the popping of a credit bubble, and said a series of irresponsible decisions by mortgage originators, bankers, investment bankers, insurance companies, and credit raters came together to create the bubble and the current credit crunch.

The CNR Summit Panel.  Front Row (L to R): Len Toenjes, AGC of ST. Louis; Richard WaRD, Zimmer REal Estate; Walt BazAn, Bazan Painting. Back ROW, Tom Finan, St. Louis CNR; Steve Gillen, J.W.Terrill; Andy Manuel, Greensfelder, Hemker, and Gale; Mike Flavin, The business Bank of St. Louis.

Richard Ward, vice president - development management, Zimmer Real Estate Services, predicted slow growth in the coming years. He said the St. Louis economy mirrors the national economy. For the long run - measured in decades, not years - that means, "slow, but steady growth" for the metro region as a whole, he said. Within the region, however, he predicted "a dramatic redistribution of jobs and population to Illinois," driven by the relative abundance of easily developed land in the Metro East area as compared to the western parts of the region.

Ward raised two caution flags on his modest growth outlook: floods and gridlock.

"We are paying insufficient attention to flood plain management ... [such that] we are creating the potential for the biggest disaster to ever hit the United States," he said.

And Metrolink, he said, "is critical to the region's future." St. Louis County voters' rejection of additional funding for Metrolink was a bad sign for the region's willingness to move forward.

Len Toenjes, president of the Associated General Contractors of St. Louis, picked up on the transportation theme. Called the Metrolink vote, Missouri's unwillingness to pay for a Mississippi River Bridge, and a shortage of federal funding "symptoms of a bigger disease" that threatens the continued viability of metropolitan St. Louis. "We need to improve the transportation system to remain competitive so we don't get all the hubs going north or south of us," he said.

Without new funding, he said, transportation projects in Missouri will be cut in half in 2009 or 2010. He urged everyone to get behind a new effort by the RCGA and the Regional Business Council to do something about transportation.

Walt Bazan, Bazan Painting and the American Subcontractors Association Midwest Council, talked about significant risks facing subcontractors. Moving up the list of subcontractor concerns is worry about getting paid. "We now have to find out how projects are financed and underwritten to see if there is enough cash," he said. "Banks are no longer accepting real estate as down payment on loans from developers," he explained.

Andy Manuel, shareholder, Greensfelder, Hemker and Gale, PC) talked about new risks and old: liability issues for contractors and designers in green building and BIM, and getting paid. "Going forward, we'll see a lot of disputes where one party cannot pay," and that is where mechanics' liens are important

Steve Gillen, from J.W. Terrill, described why the insurance market is hardening and told the audience that they can expect their premiums to go up.

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