| Novak Construction: Boom and Bust |
| Construction | |
| Written by John Zorabedian | |
| Thursday, 31 January 2008 | |
 Before Chicago’s condo market hit the saturation point, this general contractor shifted focus to senior housing and big-box stores.  Jeffrey Kaplan, CEO Chicago and its suburbs have been essentially built out, with a glut on condominiums. Novak still bids on condominium projects in places like Elgin, Ill., a booming city of 100,000 40 miles to the northwest of Chicago, and suburbs in Illinois that aren’t saturated with condominiums. Novak has also built on steady business in the retail sector and sought more projects in senior housing, a growing need everywhere. “We switched two years ago into a lot of other areas of construction,” Kaplan said. “We had amassed quite a lot of condo and retail work, but a lot of those projects just weren’t happening. Seeing that, we began to get into senior living, industrial, and other things.” By getting into the senior living business two years ago, Novak is now getting repeat business while other construction companies late to the game are seeing their condominium work disappear. “A lot of our competitors are going where the work is—senior living,” Kaplan said. “But it’s easier to compete and get more of that work if you’ve already done it.” Whenever the condominium market falters as it has in the past year, developers switch modes into building and remodeling apartments. This work is easier for a contractor like Novak, because apartments aren’t built to the specification of individual owners, as condominiums are. Novak’s experienced condominium project supervisors and managers can easily switch gears into apartment projects and senior-living jobs. “We’re taking our mid-rise residential groups and flipping them into the senior living market,” Kaplan said. “It’s kind of like a juggling act.” The deflated housing market and general economic picture have also affected the retail market, and new malls and retail centers are having trouble renting space. One segment that is still booming, however, is big-box stores such as Target and Costco, two anchors of Novak’s business. “A lot of our mainstay contractors are still viable,” Kaplan said. “Our big-box retail work and our retail work in general did about $110 million each last year, and I think we’ll be at least there, if not more, this year.” Novak also has a negotiated deal to build stores for Whole Foods, as well as several other grocery stores in the Chicago area and Indianapolis. Putting together a bid on a project can cost up to $30,000, Kaplan said, and there’s no guarantee the project will ever be built. Although negotiated projects present opportunities for ongoing business with a client, Novak must still bid for about 20% of its business. “While we’d love to have all negotiated work, it’s not likely to happen,” Kaplan said. “We did a lot of work with a major food store last year, but they’re going to start doing competitive bid work. A lot of our work starts out as competitively bid work and becomes negotiated work as the client comes to depend on us. We have to earn our stripes.” Ground floor Project management that involves the contractor up front is a growing trend in construction for cost saving. This method of planning a development involves the general contractor before a plan is drawn up, allowing the contractor to provide input into budgeting the project. “Owners are realizing that if they let an architect draw a plan and go out to bid without any general contractor input, very often, they’re over budget,” Kaplan said. Redrawing plans to cut costs can lead to problems with municipal planning boards that have already approved a project. If the contractor gives input prior to approval, it saves extra steps in the approval process. This model is especially applicable in the current economic climate, when nobody has any money to waste, Kaplan said. “Things are tightening up quite a bit,” he said. “Material costs are going up, labor costs are going up, but the square-footage cost developers can charge isn’t going up. You have to be a little more clever about how you build your building to be successful.” |
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American Executive is a RedCoat Publishing publication.
American Executive is a RedCoat Publishing publication.
