November 5, 2008

Vancouver Regional Construction Association

Credit crunch threatens construction companies of all sizes, McAllister warns

Brian Martin

correspondent

Hang onto your hats for awhile. It’s going to be tough.

Those were among the words Ward McAllister had for a group of about 75 general contractors and trade contractors belonging to the Vancouver Regional Construction Association (VRCA) when he met with them recently.

McAllister is president and CEO of Ledingham McAllister, one of the province’s largest development companies and past president of the B.C. branch of the Urban Development Institute of Canada.

His firm traces its history, originally as Ledingham Construction, to the very roots of Vancouver.

For example, the company built the original Hudson’s Bay store on Georgia Street.

Despite its place in the development industry, it has been badly slammed by the economic and credit crisis.

Smaller firms are in even much more serious danger.

“We, as a company, have borrowed money from the banks for 103 years. Why all of a sudden is everything frozen?” he asked. “Why is it we can get credit terms from the banks – but the credit terms are so unreasonable, we just can’t compete?”

It is, he said, because of the nervousness that has infected all banks following the subprime mortgage mess in the U.S., which brought down some of the world’s largest banks.

“I always thought the world-wide banking system was built on very strong concrete, but it wasn’t,” said McAllister. “It wasn’t even built on quick sand. It was built on a lot of people leveraging on their commitments.”

As a result, he told the group, credit which was inexpensive and easy to get until four or five months ago is now extremely hard to get and very expensive.

“Conditions are very hard if not impossible,” he said.

The local impact of bank collapses thousands of miles away was almost immediate.

One example he gave was the Infinity, an large high-rise residential development in Surrey.

The first phase was to include three 35-storey towers. One is already built and occupied. Two are partially up and two have yet to break ground. About 900 suites were pre-sold.

A second phase would have seen two more towers.

Peter Rezansoff was among those attending the meeting.

He is president of ITC Construction, the general contractor building the Infinity and a member of the VRCA board of directors.

He confirmed that the project was on time and on budget, but unfortunately it was financed by Lehman Brothers, a large New York bank that collapsed.

When that happened, work stopped and several hundred trades people lost their jobs.

No one knows if the developer, a Korean group, will be able to arrange alternate financing or not.

McAllister said it is a story that will no doubt be repeated.

“You will see a lot of smaller players going by the wayside. They just can’t get credit,” he said. “Many projects are being shelved right now.”

He singled out recreation developments in places such as the Okanagan and said it isn’t likely that new projects will get off the ground.

Even large firms such as his, considered among the top 10 in the province, are cancelling projects.

Last year, his company completed 1,483 multifamily housing units.

They will complete slightly more than that this year, but next year is a different story.

Although the company planned to complete 1,700 units in 2009, McAllister said that a lot of those projects will not proceed.

This is despite the fact that Ledingham McAllister has the land and appropriate government approvals.

“The problem is, we can’t get them off the launching pad and it is the same problem for our competitors. We are suffering from a credit crisis that has bound up the system,” he said.

However, McAllister’s talk was not all doom and gloom.

For firms that can ride out the storm, he predicted better days ahead.

The inflow of people to the Lower Mainland, is expected to continue, he said. Currently about 40,000 people a year are arriving. At the same time, the supply of completed, but unoccupied housing units is less than a thousand.

“No where else in North America can you talk about in-migration figures like that. Not in New York. Not in Los Angeles. Not in Las Vegas. Not in Toronto or Montreal,” he said.

“If there is anywhere to be in our business, it is here in Vancouver.”

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