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California Contractors Remain Cautiously Optimistic in 2011

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It may not be back to business as usual in the California construction industry—due to lingering economic uncertainties and owners' resulting reluctance to proceed with projects—but major contractors see some silver linings in upcoming project opportunities, especially in health care, transportation and other infrastructure.

Photo courtesy of Turner Construction
Turner Construction recently finished the renovation of Terminal 2 at San Francisco International Airport.
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In this year's Top Contractors ranking, total revenue at the top 10 firms dropped 10.3% to $8.1 billion from $9.1 billion a year ago. But many contractors anticipated the slowdown and diversified into new market sectors and that helped stem the recessionary tide. Moreover, the growth of technology firms in the San Francisco Bay Area has led to a welcome resuscitation of the commercial building segment.

Bottomed Out

“I think the market bottomed out last year, and overall our business in California is down 15%,” says Richard Bach, Turner Construction senior vice president, based in San Diego. “We don't see huge increases by 2012, but a steady increase from then on for sure.”

McCarthy Building Cos. also thinks the outlook for the construction market will be difficult to forecast in the year ahead, says Rich Henry, president of the firm's Northern Pacific division, based in San Francisco.

“The market's still very unpredictable for the remainder of this year and into 2012,” Henry says. “The housing market, [which] often drives many of the commercial markets, is still struggling in most areas of California, with some areas not seeing recovery for three to five years or longer.”

Project financing is another issue. Henry says the financing picture is leading to “significant uncertainty in many markets.” He says that in the past, financing questions may have been a factor in private-industry projects, but now, he notes, “in California it is pervasive in the public sector as well.”

Bach agrees that capital is still sitting on the sidelines and that commercial building is limping along. But he sees opportunities in Silicon Valley and San Francisco, where technology companies such as Apple, Google, Twitter, Salesforce, Zynga and Zendesk plan expansions.

Henry says there also is a huge need for infrastructure improvements around the state. These projects are seeking the appropriate financing models and funding and could lead to “enormous opportunities in all sectors of the construction business,” he says.

One firm that has bucked the sliding-revenue trend in the state this year is PCL Construction Services, which recently was named ENR Southeast's Contractor of the Year. Capitalizing on a big backlog, the firm is part of a three-firm joint venture (with Turner and Flatiron) that broke ground on a $470-million Terminal 2 west building project at San Diego Airport.

On its own, PCL also started three major projects at UCLA: the Pauley Pavilion renovation, northwest campus housing and the Terasaki Life Sciences Building.

As a result, PCL's rank jumped to No. 6 this year from No. 21 in the year-ago period, as its California revenue more than doubled, to $705.4 million.

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