The 50 States of Construction: Why MI's market is rebounding and thriving
Sachse Construction's CEO explores the factors behind Detroit's revitalization and the labor challenges plaguing contractors.
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.
Detroit is seeing a resurgence, and, as a result, construction in the city is booming. With renewed attention to development in the area and an attempt to shed the corruption and economic issues of its past, Detroit is attracting new companies and inspiring a surge in building activity, from sports arenas to historical renovations.
However, that steady flow of work brings challenges common to construction companies across the U.S. — especially involving the lack of skilled labor necessary to meet demand, according to Todd Sachse, founder and CEO of Detroit-based Sachse Construction, one of Michigan's largest commercial contractors. The company operates across the U.S., including Puerto Rico, as well as in Canada.
Construction Dive spoke with Sachse about the friendly nature of Michigan's construction industry, the resurgence of building activity in what he calls "Detroit 2.0," and the need for improved infrastructure amid a period of strong commercial growth.
Editor's note: This interview has been edited and condensed.
How does the Michigan construction industry differ from that of other states?
SACHSE: It’s a pleasant place to do construction. As challenging as it is, the people in our industry are wonderful people. They’re uniquely friendly, warm, collaborative and transparent, and there's a very high level of ethics in our marketplace.
In Michigan, there’s a high level of talent in the trades, however, there’s a huge shortage. Also, from a margin standpoint, as a construction manager and general contractor, it has the lowest margins in the country, particularly in southeastern Michigan. We, unfortunately, have the lowest margins of anywhere else in the country, so it makes it very difficult.
Why are margins so low in the state?
SACHSE: The current companies developed it. Over the last 50 years, because so much construction was driven by the automobile industry — in how they treated, behaved and demanded their margins to their suppliers and the contracting world. They, to some degree, commoditized the contracting world, so it spilled outside of the automotive world to other commercial work.
How would you describe overall demand for construction services in the state?
SACHSE: Backlog is excellent. There’s a steady flow. It’s not as crazy as it was 12 months ago, when the demand for services far exceeded the resources to do it. It’s dropped down a little bit but is still very strong. There was pent-up demand coming out of the recession, then companies were getting their projects together and getting funding together. So all of a sudden, in 2014, 2015 and 2016, big pent-up demand bombarded the market. Now a lot of it has caught up with that pent-up demand.
Which sectors are seeing the strongest demand right now?
SACHSE: Multifamily/mixed-use and, certainly in Detroit, historic renovation. There has been billions of dollars of historic renovation of old buildings that are now getting restored or repurposed.
Why is Detroit seeing such strong building activity?
SACHSE: There’s a great resurgence going on in the city of Detroit — a lot of factors have driven Detroit to become Detroit 2.0. For one thing, the corruption in Detroit is gone. It’s cleaned up now and is a very clean, ethical place to do business, so it’s attracting developers and businesses to do work downtown. The general desire for young people to live in urban areas [has also played a role].
Maybe the most influential [factor] is what Dan Gilbert and his family of companies has done, committing billions of dollars of their money and businesses to renovating buildings and bringing tens of thousands of their employees into the city. That has had a huge impact, and many other companies are following. And, obviously, when Detroit filed bankruptcy, [that also contributed to the current resurgence]. In a strange way, it had a gigantic positive impact because it allowed Detroit to clean up a lot of old issues and right the ship. It now has the opportunity to not have all this legacy debt that has burdened it, and now it will invest in itself.
How would you describe the construction environment among the contracting community in Michigan?
SACHSE: It’s a relatively small group of contractors. If you took the 20 largest contractors in southeastern Michigan, they probably account for 90% to 95% of the volume of construction that exists [in the state]. It’s a very small, collaborative community. I know most of my competitors, and it’s friendly competition. There’s a lot of respect. It’s a very ethical construction market, whereas in some areas of the country it’s not. It’s nasty in some areas. That [ethical environment] exists [elsewhere] in the Midwest, too — Cleveland, Minneapolis and other cities.
You mentioned the labor shortage. Do you expect those conditions to improve in the future?
SACHSE: It’s getting worse. Unfortunately, I think it’s going to take a generation or two to get better. The training of skilled labor is very fragmented, which is unfortunate. The culture of our society doesn’t respect the skilled trades nearly as much as they should. It’s not viewed as a profession, and it should be. An average electrician can make more than an average architect, but for some reason, society doesn’t give the respect to the electrician. That’s an American thing. If you go to Europe or Australia, it’s completely different. The skilled trades are respected [the same as] a physician or an accountant.
Is there a strong union presence in the state?
SACHSE: It’s been declining over the years, and at this point it’s pretty steady and flat. Over the last 40 years, the unions have become less influential. Most of the larger projects are done predominantly union because most of the larger subcontractors are pretty much all union. If you have a large, complicated project that requires a multimillion-dollar plumbing package, there are very few, if any, large enough nonunion contractors that would have the capacity, skill and resources to do the project. Most larger, complicated projects go union because of resources and skill. We adapt our projects to the environment. Having a mix of union and nonunion on projects typically is not an issue.
What are you looking forward to down the road in the Michigan market?
SACHSE: More of the same [in terms of commercial demand], and then seeing the infrastructure to follow. The infrastructure within southeastern Michigan is significantly lagging. Our market, this whole state, needs to invest in infrastructure. That’s not our expertise, we’re not an infrastructure contractor, but we believe that if that happens, then more of what we do will also follow. If the infrastructure does not catch up, it will stymie our continued growth and [that of] all the other commercial sectors.
I’m anxious to see our legislative body, and the public, support investment in infrastructure. It isn’t going to happen for free; you actually have to pay for it. It’s not an expense, it’s an investment, and our market needs to accept that.