Fragile Foundation

Construction looks good for 2003

January, 2003

2002 was a good year for the construction industry, particularly in the single-family residential area. According to projections compiled by the Pacific Resource Partnership (PRP), a collaboration of Hawaii’s unionized labor and participating builders, the value of building permits worth $50,000 and above, contracts awarded and bid results will have generated about $2.1 billion dollars in 2002. That’s about the same as the previous year, with more than 70 percent of work coming from the private sector.

“I consider it a good year for Hawaii, considering we’ve had 12, 13 years of crap,” says Bruce Coppa, president of PRP. “I think 2002 did a couple of things for us. Act 221, we really got that rocking and rolling and construction is starting to feel some of the side effects of that. …Considering where we came from, I think 2002 was a heck of a good year.”

Craig Watase, outgoing president of the Building Industry Association (BIA), says, “Right now it looks good. We’re riding high. But that can turn on a dime. It’s a very fragile wave we’re riding.”

CONSTRUCTION CONCERNS
The top concern on everyone’s mind is the health of the state’s tourist economy and the possible impacts of a war in Iraq. “In the construction industry, we recognize that we pretty much all feed off of tourism still,” says Watase. “We like to talk about diversification, but let’s be real. The construction industry only exists because the money that flushes in from tourism provides people with jobs and people can buy homes. It gives the government the tax base they need so they can go put out construction bids to repave roads and things like that.”

PRP’s Coppa says, “I think you’ll see a slight increase [in construction dollars for 2003] if the state and the county governments step up. The county government has really got to step up to the plate and the federal government is definitely stepping up to the plate, but if there’s a war, all bets are off. I think we’re really going to suffer.”

Another big issue Watase sees is the increase in insurance costs for construction companies, sometimes up to 300 percent, or even the inability of companies to get general liability insurance these days. To address this, Watase’s BIA is spearheading the creation of a captive insurance company with interested local companies. At press time, plans were for the new captive to be managed by Aon Insurance managers. “If we don’t do it [in 2003] it will never happen,” says Watase. “It will lose momentum and all the contractors will die when they try to do business and basically all you’ll end up with is just the big guys.”

Dick Pacific Construction Co. Ltd. (No. 22 on Hawaii Business’ list of the Top 250 companies) should finish out 2002 with about $400 million in gross sales and Gerry Majkut, senior vice president and general manager, is predicting a 5 percent increase in 2003. Majkut says he’ll be looking for tax incentives for businesses to modernize and build new facilities and for a better mix of public and private work. “What I’m looking forward to is things taking place with the department of accounting and general services — school projects, highway projects — and then on the private market, things like time shares and the revitalization of Waikiki.”

CONSTRUCTION HORIZON
Expect to see an even more vocal BIA, given the Hawaii State Land Use Commission ruling in 2002, requiring housing developers to build schools. Watase says this could create a housing shortage, if developers say housing projects no longer make financial sense. Says Watase: “We were negligent in our responsibility as an association in all these years that I know of never going to the Land Use Commission and testifying while the Sierra Club and the Outdoor Circle are going over there pounding away, saying don’t give them their land use, make them build a school.”

Coppa, who is also a State Land Use commissioner, says he hopes more money will go into improving Hawaii’s public schools, but the golden egg for the industry in 2003 should be the University of Hawaii’s new medical school and resulting development in Kakaako. “Kamehameha Schools, General Growth, the University of Hawaii and the state of Hawaii have an opportunity to really shake up Kakaako, and I think that’s going to happen whether there’s a war or not, because it’s research and we’ve got the school now, so it’s just a matter of the next steps,” he says.

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