The 50 States of Construction: How competition, steady demand are defining the TX market
Linbeck's CEO explores the state's economic resilience, regulations that could alter the industry and optimism for the public sector.
Editor's note: This article is part of Construction Dive's 50 States of Construction series, in which we talk with industry leaders across the U.S. about the business conditions in their market.
Texas takes pride in its economic resilience — and people are pouring in.
The Lone Star State is home to two of the fastest-growing cities in the U.S., according to a recent report from the American City Business Journals. Houston and Dallas–Fort Worth led a group of 11 major U.S. metros that are each adding more than 1,000 people per week.
Texas' somewhat insulated economy allowed the state to avoid the severe downturn that other states experienced during the Great Recession. However, that also meant that construction companies struggling in other regions of the country migrated to the state to take advantage of its stability — creating an increasingly competitive market there, according to David Stueckler, president and CEO of Houston–based commercial construction firm Linbeck.
Stueckler started out as a project engineer with the company and worked his way to the chief position. Through his 25-year career in the Texas market, Stueckler has seen the ebbs and flows of market demand, which shifts from region to region and from sector to sector.
Construction Dive spoke with Stueckler about the unique nature of the state's economy, the cities seeing the strongest building demand and the connection between the oil and gas industry and construction.
Editor's note: This interview has been edited and condensed.
How would you describe demand in the Texas market currently?
STUECKLER: In Texas, speaking strictly from a vertical building standpoint, the recession did not hit here like it hit other parts of the country. We were working in other parts of the country pre-recession and saw firsthand how other markets just totally shut down. Over the next couple of years, we retracted to working in Texas, where our home base was. The other thing that happened is that everybody else came here. Texas didn’t suffer the big dip that everybody else suffered, so it’s been highly competitive. That tends to drive down fees and limit your opportunities. There is still a lot of work in Texas, but it’s highly competitive. The group of firms we compete against is a pretty large group. Just about any firm that does [non-region-exclusive] work is in Texas actively pursuing work.
How did Texas avoid the extreme crash that other states experienced during the Great Recession?
STUECKLER: It was because of the economic base Texas had at that time. The oil and gas industry was still pretty strong, and that’s where a lot of the domestic product in Texas comes from. The Texas economy was just stronger than others, so therefore not as badly affected.
Within the sectors that Linbeck specializes in, which are seeing the strongest demand?
STUECKLER: Public higher education and public healthcare institutions have still been getting robust funding. It’s something we’ve not always done a lot of, the public side. Once they were able to change the way they procure work to a negotiated construction-manager-at-risk process — as opposed to always a hard-bid, design-bid-build process — that opened the door to firms like us willing to participate in that selection process.
What led to that shift in the state government being open to alternative contract methods?
STUECKLER: The various institutions realized they were missing out on, for the most part, the best builders in the industry. Those of us who were in a position to do a little bit more picking and choosing of what projects we would pursue were choosing not to participate in the hard-bid process, and that was finally realized. They opened the door to a whole new set of builders, and I think they’ve been happy with that.
Which regions and markets in Texas are booming right now, and which are slowing?
STUECKLER: A couple of years ago in Houston, there were tower cranes everywhere, mostly due to oil and gas and a lot of spec office buildings. Well, most of those tower cranes are gone, those buildings are built, and some of them are not full. The entire state is tied to the price of oil and natural gas and the rig count, but Southeast Texas, and Houston in particular, are more linked to that than most. Houston right now is slower than it was a couple years ago. It's still healthy, but slower. In Dallas, for example, you’ll see more tower cranes. It’s still going pretty strong. It doesn’t suffer from the peaks and valleys as much as the Houston market does.
Have you needed to compete with the oil and gas industry for skilled labor?
STUECKLER: It was a big issue for a few years. We were losing professionals to the oil and gas business. They were able to offer a lot more compensation and benefits than our industry could provide. There are even stories of concrete trucks sitting at concrete plants [because] there was plenty of concrete to distribute to job sites, but there weren’t drivers. They all left for the oil patch. We went through a period of time where those stories were prevalent.
Why is it easier now to keep those workers in construction?
STUECKLER: The price of oil is at a point where it’s not particularly profitable for the oil and gas industry. The rig count is way down, so the same people that left to go to that industry are heading back.
Is Linbeck facing a tight labor market currently?
STUECKLER: Most of our hiring for professionals is out of universities, and we still have a lot of good entry-level people to choose from. But in the trades themselves, industry-wide — not just in Texas — finding true skilled labor is becoming a tremendous problem. It’s led to unreliability in the supply chain. It’s led to higher labor costs for us, and those labor costs are increasing at a rate that our fees can’t keep up with. The industry is trying to get that skilled labor back and trying to increase the interest level in construction as a career. It’s a very viable career choice, but it has a reputation of being more vocational. It is a serious problem. I’m involved with the Associated General Contractors at the national level, right now I’m vice-chair of the AGC Building Division, and next year I’ll be chair. I have a lot of interaction with firms across the country. The primary thing we have in common is shortage of skilled labor.
Do you expect labor costs to continue rising?
STUECKLER: I do. Factors like immigration reform, for example, will only make it worse. In Texas, and much of the country, a huge percentage of the workforce is Hispanic. If we begin to lose that, it will only exacerbate the problem. No one knows exactly what’s going to happen, but we’re very concerned about anything that takes people out of the construction workforce. If, in fact, whatever happens with immigration reform does that, it’s going to be a big problem for the industry.
What other challenges is your business dealing with?
STUECKLER: In the state of Texas, there aren't a lot of regulatory things that get in our way. There’s always something we’d like changed or modified, but nothing all that huge. Texas has a reputation of being pretty business-friendly. But at the national level, there are some regulatory things that have been imposed over the last few years, through executive order primarily. Now, under the new administration, there are efforts to get some of those things turned back. Generally the industry is looking forward to that happening.
Which federal regulations in particular are you keeping an eye on?
STUECKLER: The OSHA silica rule, as well as various injury and illness recordkeeping rules, the project labor agreement requirement — which doesn’t affect us because we don’t do federal work — but the requirement to enter into PLAs for some firms is a big deal. Hopefully those things revert back to where they were.
Is there a strong union presence in Texas?
STUECKLER: It’s not as strong as other places, but it is very regional. In Southeast Texas, there is a tradition of strong union labor in oil and gas. In the construction trades, not as much. We, for example, have PLAs because we choose to have them with various trades on some projects and not on others. It depends on what’s in the best interest of the project and that client. Here, the trades have different strengths and weaknesses from region to region. It’s a right-to-work state, so you find both. We’ll have projects that have union labor through a PLA and nonunion labor on it.
What opportunities in the market are you most excited about?
STUECKLER: The public work continues to be pretty strong, and we’ll see if that lasts, but so far so good. The thing about public work over private work is it’s more reliable. Projects get funded, and those institutions need to use that money or lose it. So when you win one of those jobs, you can pretty much count on it happening. In the private sector, it’s less reliable. You may win a job, and then it gets delayed for years or just doesn’t happen. We didn’t realize that until we got to the public work, but it's a nice opportunity. Tax reform, if that spurs more construction spending, would be good for all of us in the industry. We’ll have to see how that plays out. And there’s been talk by the Trump administration about boosting investment in infrastructure. That would be huge for the industry.
Are you optimistic that Trump will be able to deliver on his promise to pass an infrastructure package?
STUECKLER: I'd say cautiously optimistic. The administration throws out numbers like $1 trillion, and that sounds good, but how that is going to happen is a big question. At least the intent seems to be there. The ability to make it happen within all the other budget constraints is not as clear.
Are you concerned about a downturn in the market on the horizon?
STUECKLER: I’m sure it’s possible, but I’m not really concerned about another Great Recession or anything like that. In our world [Houston and Dallas Fort-Worth and Central Texas], when you look at those markets specifically, we’re confident someday that the rig counts will go back up. That’s sort of the normal oil and gas cycle. Things like that will affect us, hopefully positively, in the future in big ways. The [overall market is] probably going to stay flat for a little while in terms of growth, but I don’t see a major downturn coming, at least not for us.