Arkansas Contractors Forecast Trends, Concerns

Nabholz Construction workers pouring concrete for the Children’s Center for Health & Wellness project in Springdale. (Provided)

Jake Nabholz has two main worries for the future of general contracting, and the Nabholz Construction Corp. CEO says they’re exact opposites.

“Looking at the business as a whole, I do worry about the inflation and rising interest rates we’ve had over the last couple of years, so that at some point, it could impact our business,” he said in an interview last week.

Jake Nabholz

“The other concern, the opposite, is that if business keeps going like it is, we won’t have the people to meet the demand. The industry has to do a better job recruiting people and retaining talent.”

Times are still good for Arkansas’ large commercial general contractors, but there’s no guarantee they will stay that way, a survey of builders and construction economists indicates.

“Mission-critical” projects in manufacturing, industrial building, health care and education remain on course, Nabholz and others said. Nabholz Construction is one of seven contractors working on the state’s largest construction project at the moment, the $1.2 billion Walmart Inc. headquarters in Bentonville.

But high interest rates and rising costs have started delaying some developer-driven projects, according to Brad Spradlin, executive vice president of the Arkansas chapter of the Associated General Contractors of America.

“Public work and owner/developer projects are still moving forward,” said Spradlin, who worked with Baldwin & Shell Construction Co. of Little Rock before taking his current job in February.

“Typical developer projects are slowing down unless they have secured internal financing (cash or some other sort of funding),” Spradlin said in an email, adding that inflation, higher rates and other costs are causing some pause. “I haven’t seen a lot of canceled projects yet, but I think contractors are expecting some in 2024.”

Nabholz has a solid feeling about next year, but creeping doubts looking forward.

“Higher interest rates are causing some slowdowns in some markets, but they’re not really the markets we’re in,” Nabholz said. “We’re not in residential; we don’t do a lot of retail. The markets we’re in, I would say they’re stable. You know, ’24 looks good to me. I’m more concerned about ’25, ’26.”

Tighter Credit

Kenneth D. Simonson, chief economist at the Associated General Contractors of America, predicted that developer-financed projects like apartments, warehouses, retail centers and office buildings are likely to decline nationwide next year. “Investors are finding it harder to cover higher interest and insurance costs, and to get loans in the face of tighter credit standards by banks and other lenders, while rents to cover these rising costs are flattening or falling in many markets,” he told Arkansas Business.

Contractors could win projects next year through the Infrastructure Investment & Jobs Act, Simonson said, as federal agencies get procedures and people in place to evaluate and award contracts.

“There is somewhat more clarity now about the applicability and waiver rules for Buy America, apprenticeship and prevailing-wage requirements, which should give contractors more confidence that they aren’t taking on too much risk on these projects,” he said.

#asset_cutline

Though Nabholz and other industry leaders like CEO Bobby Gosser of Baldwin & Shell Construction see hiring and retaining workers as one of contractors’ most critical jobs, since the pandemic Arkansas has performed extremely well in adding construction jobs.

“Construction employment totaled 65,600, seasonally adjusted, in October,” Simonson said. “That was an increase of 7,700, or 13.3%, since October 2022, putting the state second in percentage increase (after Kentucky’s 14.9%) and 11th in number of construction industry employees added,” Simonson said. (See sidebar.)

“Workforce is absolutely still an issue,” VCC Construction CEO Derek Alley said in a recent roundtable discussion on entertainment-retail mixed-use projects. “Frankly, it’s been an issue for 40 years and we act like it’s some new phenomenon. Maintaining a consistent and sustained workforce on a job so that you don’t lose momentum is so critical. So we’ve spent a lot of time focusing on that.”

Repurposing

VCC, founded in Little Rock in 1987 by Sam Alley, Ed DeMoss and Gus Vratsinas, is working on Arkansas’ two largest retail construction endeavors at present, the $112 million Pinnacle Springs and the $100 million Pinnacle Village projects in Rogers.

Sam Alley remains the company’s chairman; his son Derek succeeded him as CEO in 2021. “The state of retail construction and just the retail industry is fundamentally balanced,” Derek Alley said. “We were in a state of overbuilding square-foot-per-capita for many, many years, and then a hard stop was hit. … Frankly, since COVID, more projects have taken some time to get capitalized; it’s not like there’s been rampant leasing activities happening. But the current space is really well leased, and new deliveries are coming. I think looking forward there’s going to be a ton of activity and new development and repurposing.”

One current high-profile repurposing project is the $25 million renovation of downtown Little Rock’s 11-story old VA Hospital into a trendy apartment building, the Flats at SoMa. Developer Pace Burt said construction costs “came in more expensive than we expected,” but Derek Alley sees repurposing as a wave of the future.

“In retail, the repurposing piece is so critical,” Alley said. “We should care as humans and members of our community to do the right things when it comes to sustainability, and engaging and honoring historic places. So as the world continues to move toward becoming more urban and dense, we have to think about how we can utilize current assets in a new way.”

Creativity is the key, he said. “It’s one thing to draw a new project in a greenfield somewhere, but really to understand how a new use might play with an existing structure within a very dense block, and how it’s going to affect that community — not only during the construction process but throughout its life cycle as a use — is critical.”

Advanced Technology

Alley and Nabholz both say that technology and computing power have transformed the construction industry. “The way we harness the power of technology is a big part of our success,” Alley says. “Every technology we use, there’s some tangential benefit to our client, but ultimately it leads to higher-quality delivery, competitive costing and being able to manage the minutiae of this really dynamic and difficult industry.”

The use of robotics and 3D printing in construction is likely to grow, Nabholz said, and computers have revolutionized project planning and management. “I’d say what’s different vs. 10 years ago is that now the majority of our projects are built in 3D models before we start construction. This allows us to do what we call clash detection — finding potential issues in the design and resolving them before we actually start construction. That 3D imaging has really increased our planning capabilities tremendously.”

The central problem now is people, not machines, said Nabholz, whose grandfather started the company 74 years ago in Conway. “The thing I’d like to get across to young people, both in college and in high school, is that construction is a great career.” Construction workers and contractors leave a lasting imprint on the world, and it’s satisfying, he said.

Nabholz has built countless memorable buildings since 1949, including the reenvisioned Arkansas Museum of Fine Arts in Little Rock. Nabholz Construction managed the project, teaming with Doyne Construction of Little Rock and Pepper Construction of Chicago. Forbes called the finished product, which made its debut in April, “America’s most inviting art museum.”

At the grand opening, Nabholz was proud to show the work off to his wife, Marisa. “It’s just a great feeling, knowing that you had a part in it.”