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Positioning Your Firm for the End of the Economic Downturn. March 17, 2009. Presented by Kermit Baker, PhD., Hon. AIA Doug Gordon, Hon. AIA Tim Milam, AIA Peter Piven, FAIA. Moderated by.

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slide1

Positioning Your Firm for the End of the Economic Downturn

March 17, 2009

Presented by

Kermit Baker, PhD., Hon. AIA

Doug Gordon, Hon. AIA

Tim Milam, AIA

Peter Piven, FAIA

moderated by
Moderated by

Douglas E. Gordon, Hon. AIA, has been editing and writing on architectural technology and practice for 30 years for the AIA, Architectural Technology, Architecture, Architectural Record, the AIA MEMO, and AIArchitect; the latter in print and electronic form and for which he currently is executive editor. As the staff director of the AIA Practice Committee in 1990, he organized the Institute's "Managing Rapid Change" initiative to help architects face the then-ongoing severe recession.

presented by
Presented by

Kermit Baker is the Chief Economist for the American Institute of Architects in Washington, D.C. In this capacity, he analyzes business and construction trends in the U.S. economy and examines their impact on AIA members and the architectural profession. Kermit originated the AIA’s Architectural Billings Index as well as the AIA Consensus Construction Forecast Panel. Kermit received his Masters degree in Urban Planning from Harvard University and holds a Ph.D. from Massachusetts Institute of Technology in the same field. In 2002, Kermit was named an honorary member of the AIA.

presented by4
Presented by

Tim Milam, AIA, Partner, is FXFOWLE's Managing Director. With over twenty years of experience as an architect and manager in both the public and private sectors, Tim is responsible for contract administration, project management oversight, and general management of the firm. His duties include strategic planning, contract negotiation, human resources, as well as staffing and recruiting. He chairs the firm's steering committee and is a key member of the management committee. Tim received a Bachelor of Architecture from the University of Kentucky and a Master of Urban Planning from City College. Tim can be reached at (646) 292 8202 or via email tmilam@fxfowle.com

presented by5
Presented by

Peter Piven, FAIA is the Philadelphia-based Principal Consultant of The Coxe Group, Inc., the oldest multi-discipline firm providing management and marketing consultation to design professionals. A founding principal of The Coxe Group, Mr. Piven has helped architects and other design professionals improve their practices in the areas of overall organization, strategic planning, valuation and ownership and leadership transition, marketing, project delivery, partnering, financial management, and merger/acquisition assistance. Peter Piven lives and works in Philadelphia where he can be reached at (215) 952 2781 or via email at ppiven@coxegroup.com.

slide6
Poll

How many are attending at your location today?

slide7
Poll

How many employees are there at your firm?

  •     sole proprietor (1 person)
  •     2-9 employees
  •     10-19 employees
  •     20-49 employees
  •     50-99 employees
  •     100 or more employees
slide8
If you wanted only one question answered today, what would that question be?

To ask a question … click on the “question mark icon” in the upper-left corner of your screen.

slide9

Business Trends and the Outlook for Architecture Firms

Kermit Baker, Chief Economist

The American Institute of Architects

agenda
Agenda

Business Trends in Design and Construction

Comparison of Current Downturn to Previous Nonresidential Construction Recessions

Nonresidential Construction Outlook for 2009/2010

slide11

Economic Environment Remains Very Weak

    • • Housing market yet to begin recovery; home prices down about 20%-25% from peak.
    • • Stock market declines wipe-out gains of past decade.
    • • Business payroll declines total 4.4 million since downturn began; unemployment rises to 8.1%.
    • • Architecture firms lose 18,400 positions since August, 2008, or 8.2% of total payrolls.
    • •U.S. economy dragging down most international economies.
    • Outlook for Economic Expansion
  • Annual GDP 2007 2008(e) 2009(f)
  • 2.0% 1.1% -2.5%
architecture firm billings have fallen dramatically since late 2008
Architecture Firm Billings Have Fallen Dramatically Since Late 2008

billings scores since 2007

index: 50 = no change from previous month

Source: AIA Architecture Billings Index

inquiries for new projects likewise have softened considerably
Inquiries for New Projects, Likewise, Have Softened Considerably

billings scores since 2007

index: 50 = no change from previous month

Source: AIA Architecture Billings Index

slide15
Commercial/Industrial Billings Turned Down in Early 2008; Institutional Activity HasRecently Weakened

billings scores by firm specialization; Index: 50 = no change from previous month

Source: AIA Architecture Billings Index

business conditions have deteriorated at firms in all regions
Business Conditions Have Deteriorated at Firms In All Regions

billings scores by region; Index: 50 = no change from previous month

Source: AIA Architecture Billings Index

current downturn is starting off with much sharper declines than 2001
Current Downturn is Starting Off With Much Sharper Declines Than 2001

billings scores during first year of downturn

index: 50 = no change from previous month

Source: AIA Architecture Billings Index

slide19

This Downturn is Starting Out as Severe as Any Previous Nonresidential Recession

Total percent declines in construction starts from peak to 4 quarters after peak, 2000$

Note: 2009-1 figures estimated by McGraw-Hill Construction

Source: McGraw-Hill Construction

by standards of previous cycles current nonresidential downturn still has a distance to go
By Standards of Previous Cycles, Current Nonresidential Downturn Still Has a Distance to Go

Percent change in construction starts, constant 2000 dollars

Source: McGraw-Hill Construction

slide22
AIA Forecast Panel Sees Steep Drop in Most Nonresidential Categories in 2009, With Additional Declines in 2010

annual % change; 2000 $

Source: AIA Consensus Construction Forecast Survey for 2009 and 2010 conducted in Dec., 2008.

commercial outlook all sectors off in 2009 followed by further declines in 2010
Commercial Outlook: All Sectors Off in 2009 Followed by Further Declines in 2010

annual % change; 2000 $

Source: AIA Consensus Construction Forecast Survey for 2009 and 2010 conducted in Dec., 2008

slide24
Most Major Institutional Categories Expected to See Downturn in 2009, But Beginning to Stabilize by 2010

annual % change; 2000$

Source: AIA Consensus Construction Forecast Survey for 2009 and 2010 conducted in Dec., 2008

prospects growing list of federal programs to deal with economic downturn
Prospects: Growing List of Federal Programs to Deal with Economic Downturn

Troubled Asset Relief Program - provides $800 billion pool to draw on to prop up undercapitalized financial sector.

American Recovery and Reinvestment Plan - $787 billion stimulus program to help revitalize economy.

Homeowner Affordability and Stability Plan - $275 billion to help homeowners overstretched by high mortgage payments, and to generate more lending for home mortgages.

summing up
Summing Up

Design firms entering second year of very sharp downturn; steepest declines in commercial/ industrial categories.

Current nonresidential downturn shaping up to be as serious as any of the past 50 years.

2009 projected to see double-digit percentage drop in nonresidential construction activity. Further declines forecast for 2010.

Federal initiatives expected to provide a floor for economic decline and generate recovery by late 2009 or early 2010.

slide27

Repositioning Your Firm

Peter Piven, FAIA

Principal Consultant

The Coxe Group, Inc.

agenda28
Agenda

The bad news and the good news

How architects have been affected

How architects have responded to date

Initiatives to improve and evolve the firm

Ideas and suggestions for overall strategy, markets, clients, and organization and operations

the bad news
The Bad News

1.We are in the midst of a worldwide economic downturn.

2. Financing will be harder to get … by clients and ourselves.

3. The markets are tenuous; most clients are wary.

4. Firms are down-staffing.

5. Profitability will likely decline … for most.

the good news
The Good News

1.There are and will be opportunities.

2. The government has approved a stimulus package.

3. Talent is available and more will be.

4. There are things you can do to position or reposition yourself.

how architects have been affected
How Architects have been affected

+/- 5 % are in trouble

+/- 5% are just fine

+/- 90% are concerned and have taken steps

initiatives to improve
Initiatives to improve

Restructure organization and/or operations.

Pursue different delivery methods.

Redirect marketing efforts.

Promote sustainability.

Seek public funding opportunities.

Enhance existing relationships.

Establish new relationships.

1 restructure org and ops
1. Restructure org and ops

Bench concept: fewer people, less space.

Share promo, photo costs with contractors.

Introduce or move more strongly into BIM.

Add disciplines to improve competitiveness.

Revisit office standards and graphics.

Invest more in research.

Change ownership to qualify as WBE.

Create minority-owned firm to provide project management services.

Seek new and redistribute existing talent.

2 pursue different delivery methods
2. Pursue different deliverymethods

Establish relationships with developers.

Act like a broker: put developers with clients with access to funds.

Push design/build.

Partner with contractors; join design/build teams.

Promote Integrated Project Delivery.

Move to developer mode.

Push AEC capability.

3 redirect marketing efforts
3. Redirect marketing efforts

Open a virtual branch office.

Improve collateral materials, incl. website.

Increase visibility by publishing and speaking.

Expand geographic range: pursue work abroad.

Partner with other firms to remain lean.

Connect with engineers.

Create a stricter “go-no go” protocol .

Leave markets with little expertise.

4 promote sustainability
4. Promote sustainability

Promote infrastructure analysis.

Promote tenant improvements: renovations and LEED services.

EBOM: Existing Building Operations and Maintenance.

Develop prototype LEED-certified small homes.

Incorporate LEED requirements into the planning process.

Install photo-voltaic system as demo.

5 seek public funding opportunities
5. Seek public funding opportunities

Seek sole source procurement projects.

Types: senior living, transportation, schools, healthcare, military.

Create MBE to do project mgmt. for large, publicly funded infrastructure projects.

Assist private-focused clients to seek publicly funded work.

important arra features
Important ARRA features
  • $4 billion for Public Housing Capital Fund
  • $4.24 billion for DOD facilities
  • $8.8 billion for education-related expenditures
  • $5 billion for Weatherization Assistance
  • $4.5 billion to increase energy efficiency in Federal buildings
  • $3.2 billion for Energy Efficiency and Conservation Block Grants
  • $6 billion in loan guarantees for renewable power generation and transmission
6 enhance existing client relationships
6. Enhance existing client relationships

Assist clients to ready projects for the turn.

Provide sketches, feasibility studies to help clients develop projects.

Assist clients with grants and fund raising.

Develop projects in phases.

Help clients take advantage of reduced construction costs, get “shovel ready.”

Offer retainer strategies to spread fees.

Move down the food chain from building owners to building managers.

7 establish new relationships
7. Establish new relationships

Forge new alliances to expand geography; generate regional alliances.

Team with out-of-town firms that can use our expertise.

Connect with some engineers.

Establish relationships with lenders, realtors, builders, even estate planners.

Transport expertise to new end-users.

ideas and suggestions re overall strategy
Ideas and suggestions reoverall strategy

Even while dealing with pursuing work for the near term, position the firm for where the leaders want it to be in 3 years and beyond.

Consider affiliation strategies from project-based to strategic alliances to mergers and acquisitions.

Understand the financial underpinnings of markets and clients, and use it to help clients develop strategies for their facility needs.

Expand services to include things that improve clients’ likelihood of success.

ideas and suggestions re markets and marketing
Ideas and suggestions re markets and marketing

Be aggressive in seeking/creating/ instigating project opportunities.

Sustainability is a high priority.

Planning opportunities are stronger than architecture, and publicly funded work is stronger than private in some sectors.

Alliances can broaden geographic coverage and strengthen service offerings.

Be selective; avoid temptation to go after anything and everything.

Follow market trends closely, and make the necessary moves to change position early.

ideas and suggestions re clients
Ideas and suggestions re clients

The easiest source of work is clients with whom the firm has already worked.

Sustain relationships with clients: past, current, prospective, and stay connected at many levels.

Offer to do work in small increments.

Encourage clients to capitalize on current construction cost reductions.

Offer incentives to get things moving (but not to the extent of devaluing the work).

more ideas and suggestions re clients
More ideas and suggestions re clients

Help clients understand how the things that differentiate the firm benefit them.

Expand the firm’s network to include those who influence and help clients.

Consider becoming a client by becoming a developer; remember it requires financial understanding, market understanding and forecasting, funding sources, risk, and focus.

ideas and suggestions re organization operations
Ideas and suggestions re organization & operations

Position the firm for where the leaders want it to be in three years and beyond.

Find ways to develop and capitalize on such things as WBE/MBE status.

Assess talent and make changes where improvement is warranted.

Use the down market period to increase technical and technology proficiency.

Strengthen expertise, either in-house or through affiliations.

Accelerate efforts towards LEED accreditation.

slide47
Poll

Are you currently:

•        Repositioning Your Practice •        Considering Repositioning•        Neither

slide48

FXFOWLE ARCHITECTS

Repositioning: Lessons Learned

Tim Milam, AIA

Partner, Managing Director

agenda49
Agenda
  • Repositioning Example 1: Short-Term Strategy (resulting from an unexpected change in the market)
  • Repositioning Example 2: Long-Term Strategy

(in anticipation of a change in the market)

49

challenges
Challenges

After 9/11, commercial high-rise development in NYC slowed drastically

Developers responded by adapting to residential market – where demand was still strong

How to secure work in this new market with limited experience?

51

initial steps
Initial Steps

Identify partner and key team to lead efforts

Research current residential market sector

Analyze similarities between residential and commercial high-rise; understand differences

52

implementation
Implementation
  • Strengthen existing relationships with Clients who are also venturing into new sector
  • Collaborate with firms which have expertise
  • Review work to determine if any past projects might be relevant OR any components of projects might be useful
  • Use employees’ individual experience in sector; add new employees with the experience
  • Use expertise in sustainability, local knowledge, technical expertise, quality assurance and client service as marketing tools

53

timeline
Timeline
  • 2002: Started design for 1st residential project (The Helena) – for existing client
  • 2003: Started design for large residential development (Archstone Clinton) – for new client
  • 2005: Construction of The Helena completed; Received 6 new commissions
  • 2006: Started design for first international residential projects (India, Dubai)
  • 2008: Construction complete on 4 residential projects including Archstone Clinton
results
Results

Successfully adapted to residential work – which became busy sector until recent downturn

New design opportunities with different building type

Increased opportunities, new clients

Implemented sustainable design

Expanding services: interior architecture, LEED

55

goals
Goals

Develop practice in an alternative market to offset anticipated downturns in US economy

Pursue and secure work that offers greater design opportunities and the possibility to expand services into other sectors

Expand firm’s sustainable design goals outside US

Leverage international work to reposition our brand in the US

57

initial steps58
Initial Steps

Get buy-in from firm leadership: time/effort/$

Identify partner to lead efforts: requires giving up other commitments; a willingness to travel extensively; a long-term position with slow results

Conduct extensive research

Identify useful connections and alliances (networking)

Develop strategic plan

58

implementation59
Implementation

Cast wide net, then focus on specific geographic areas

Be adaptable to different expectations from clients, working processes; cultural differences; business practices, etc.

Enter open competitions – and use work product for marketing to other clients

Review work to determine if any past projects might be relevant OR any components of projects might be useful

Be willing to hire a business developer with connections in targeted areas

Attend international conferences/events

Set up regional office, relocate employees

59

challenges60
Challenges

Remote clients and project locations

Differences in: culture, construction materials and methods, business practices, liability/insurance

Branch office complications: communication, recruiting & training staff, etc.

Unpredictable results

Getting paid in a timely manner – OR getting paid at all

Current economic recession – is GLOBAL

60

timeline61
Timeline
  • 2005: Developed plan & started implementation; received first commissions (master planning and feasibility studies)
  • 2006: Hired full-time business developer and set up office in Dubai; started design for large projects
  • 2007: 12 new commissions; expanded services
  • 2008: Expanded office in Dubai; started design of first bridge project; started work on major project in Saudi Arabia
  • 2009: Readjusting to economic slowdown – different geographic areas and project types
results62
Results

Projects in various countries – with a concentration in Dubai/India/Saudi Arabia

Lots of press, new opportunities, expanding client base

New opportunities in US – using international experience

62

slide63

“Our vision of the future is to achieve a position in the industry where we are able to define the design issues for projects independent of current fashion; where we are known for, respected for, and sought out for the quality of our design; where we are acknowledged in the industry as leaders in design and environmental sensitivity.”

from FXFOWLE’s Strategic Plan 1996

63

questions and answers
Questions and Answers

To ask a question … click on the “question mark icon” in the upper-left corner of your screen.

slide65
Poll

Which of the following lessons have you've learned from this discussion (check all that apply):

- I now have a better understanding of the current economic climate and the probable impact of the economy on my practice.

- I can take action to position my firm for the end of the economic downturn.

- By taking proper and timely actions with respect to my practice, I will respond to reap the benefits of the next upward economic swing in any way.

webinar evaluation
Webinar Evaluation

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Please visit

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ces credit
CES Credit

AIA members and nonmembers should report 1.5 learning units and download certificate of course completion via online form http://info.aia.org/aia/CESCertificate.cfm at the conclusion of the live webinar. The URL will be available until March 23, 2009.

instructors
Instructors

Kermit Baker, PhD., Hon. AIA

Chief Economist

The American Institute of Architects

1735 New York Ave., NW

Washington DC, 20006

Email: econ@aia.org

Peter Piven, FAIA

Principal ConsultantThe Coxe Group, Inc.201 Queen StreetPhiladelphia, PA 19147Phone: (215) 952 2781Email: ppiven@coxegroup.com

Tim Milam, AIAPartner, Managing DirectorFXFOWLE

22 West 19th Street

New York, NY USA 10011 Phone: (646) 292 8202

Email: tmilam@fxfowle.com

Douglas E. Gordon, Hon. AIA

Executive Editor, AIArchitect

The American Institute of Architects

1735 New York Ave., NW

Washington DC, 20006

Phone: (202) 626 7344

Email: dgordon@aia.org

thank you for joining us

Thank you for joining us!

Positioning Your Firm for the End of the Economic Downturn