Construction time again

Michael Tobias shared his expert views as one of the five Georgia Tech alumni magazine on the commercial building boom in Atlanta and beyond.

Original article written by- Roger Slavens

The message is clear: The commercial building and real estate development business is flourishing, and it has been for a few years now. Office buildings, apartment complexes, university facilities, civic structures and sports arenas are all going up at rapid speeds.

 Q: The signs seem to be around us—often literally. Commercial construction and development is booming. Why now?

MICHAEL TOBIAS: Why is it happening in Atlanta? Just follow the leading indicator to construction. The population growth of Atlanta from 2017 to 2018 was 1.5 percent, according to the census. Compare it to America’s population growth of 0.7 percent over that time, the city is growing twice as fast—making Atlanta one of the fastest-growing cities in America. All those new people need to live somewhere, work somewhere, play somewhere. That’s a lot of building to support all this

Q: What are some of the biggest opportunities and, conversely, challenges your industry and your business face for 2019 and the near future? What role, if any, do rising labor and material costs play in this? 

TOBIAS: The construction industry is the final frontier for tech disruption. There’s still a lot of inefficiency and redundant work being performed—repetitive tasks that could be automated. There’s also a lot of customer dissatisfaction with the construction industry. People almost automatically assume projects will take longer then expected and cost more. What other industry has clients thinking that? There’s a big opportunity to heal these pains, not with advanced artificial intelligence, but merely simple automation. Streamlining the whole process is a big opportunity, aligning the dozens of companies needed to complete a project with competing motivations to all row in the same direction. Believe it or not, New York Engineers works best when construction material and labor costs increase. It makes our engineering design that much more valuable when we design our construction cost and time from the project entirely.

Q: One of the biggest potential opportunities that have lain dormant has been the push to fix the crumbling infrastructure in the United States. Do you see a possibility for a pick up in activity in this area? 

 TOBIAS: Just traveling abroad, it’s very apparent to me that the U.S. is falling behind the rest of the world with our infrastructure maintenance and capital improvements. There’s a big opportunity here: Has any city enjoyed less traffic over the past few years? As infrastructure complaints mount, politicians will hopefully devote more budget to construction. My company has completed some major infrastructure projects like providing emergency power for JFK Airport’s air traffic control tower. We have completed dozens of MEP [mechanical, electrical and plumbing] engineering infrastructure projects for city, state and federal government agencies. Seeing how public projects work is eye-opening. I think there needs to be much more pressure on cost control of these projects. We’ve gotten to the point where it just takes so long and costs so much to get these projects done that we’re at a major disadvantage compared to other countries. For example, a long time ago we built the Empire State Building in just one year, but One World Trade Center took nine years and cost over $1,000 a square foot. Compare that to the Burj Khalifa, the tallest building in the world, which cost under $500 a square foot to build and has 64 more floors than One World Trade. Granted, much of the cost savings was due to bringing in thousands of migrant workers from other countries. Working three shifts of construction, 24/7, definitely speeds buildings along. Whether that’s good or bad for the country is a different story. But purely for infrastructure construction, we have to recognize almost all other countries are playing by different rules that allow them to build their infrastructure quicker and more affordably than us.

Q: Speaking of the international arena, how does the U.S. real estate development market compare to the global market, from your point of view? What’s happening abroad as compared to here in the States and vice versa? 

TOBIAS: In our space, virtual building with BIM is approaching CAD as our primary design tool. New York Engineers is working on developing instant, automatic cost estimates using BIM software, so the design engineer gets immediate feedback about how much his design costs to build. Typically, this feedback takes months to get after the project was bid out to contractors. By that time, changing the design causes delays and is usually too late to do. So knowing the instant cost and quantities of material would be a huge benefit to the client.

Q: Some onlookers worry there’s a bubble about to burst in commercial construction and real estate development with what they say has been a rush of overbuilding, especially in urban settings like Atlanta. Do you think one is looming, or is this fear largely unfounded?

TOBIAS: We’ve been riding the high cycle for an extended period now. Timing-wise, we are probably overdue for a downturn. However, the high period wasn’t as high as expected, so maybe it’s reasonable for its duration to be longer. Empty office and apartment spaces are the lagging indicator for a downturn. Once vacancy rates hit a time of sustained decreases, demand for the space falls and new building construction will decline quickly. That doesn’t seem to be the case at the moment. The leading indicator for the market health is design filings, which are still strong. Once this starts dipping down, a construction dip usually follows about a year later. In Atlanta population is increasing, jobs are increasing, for now everything is looking OK. I do predict in a year or so we’ll start to see a softening in the construction market. It starts at the high end—the luxury high-rise condo market always seems to soften first—then moves to market-rate residential and commercial spaces, while smaller renovation projects are minimally affected. When this happens, planning that new 50,000-square-foot manufacturing facility may get cancelled or postponed, but the office space reconfiguration, or HVAC boiler and chiller replacements, will continue through a recession.

Q: What should we understand about the commercial construction and real estate industry that most people likely don’t?

TOBIAS: Construction seems like an easy, sexy thing to do, from the outside. People are in the buildings and homes we create every day of their lives and naturally start thinking, “Hey, I could build a home or space like this—it would be simple.” This can’t be further from the truth. They don’t understand that construction is one of the most risky businesses, and notoriously litigious. In addition, the stakes are very high: Almost nothing is as expensive as construction. I can’t tell you how many times I’ve heard of husbands and wives building their dream home and by the time it’s completed, they’ve divorced. For a project to go smoothly it requires a strong, experienced leader who can lead dozens of design professionals, real estate brokers, lawyers, general contractors and subcontractors. All these parties have underlying competing interests and you need to make everyone play nice to get the project done. Over a two-year construction project timeline, there will be many ups and downs. A very clear budget and schedule must be set on day one, and tracked weekly.  Clear communication channels must be set.  Weekly meeting rhythms with the whole project team is the heartbeat that keeps the project forging ahead, blasting through obstacles. Forcing this type of collaboration and communication among a dozen companies that just met is critical. Your success depends on how well you can manage all this and avoid internal conflict. When your team is in conflict, the only loser is you.  My words of advice: If you want to enter this arena, you better understand what you’re getting into. 

Q: If you could predict something that will take your industry by storm in the near future, what would it be?

TOBIAS: It’s hard to predict any new technology or practice that will suddenly and unexpectedly revolutionize the industry. After all, adoption of anything new is painfully slow in the construction industry. Revit, the leader in BIM software, was released in 2000, and 19 years later, it’s still not the predominate design tool. AutoCAD was released in 1982, and it overtook paper hand drawings in about 10 years. If I had to point to one thing, modular building is likely the big item that is starting to gain popularity. But the construction cost savings are barely present now compared to site-built buildings. The company that really figures modular building out and scales it to a point where materials can be bought in bulk for multiple projects will be a game changer. I think this is 10 years out. Drone surveys are starting but only for exterior pipelines and cool marketing videos. I look forward to one day throwing a handful of yellow jacket-sized drones out my office window to autonomously survey interiors of construction sites nearby, but that’s probably 20 years away.