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Positioning Your Firm for the End of the Economic Downturn

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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Positioning Your Firm for the End of the Economic Downturn

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  1. 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

  2. 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.

  3. 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.

  4. 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

  5. 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.

  6. Poll How many are attending at your location today?

  7. 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

  8. 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.

  9. Business Trends and the Outlook for Architecture Firms Kermit Baker, Chief Economist The American Institute of Architects

  10. Agenda Business Trends in Design and Construction Comparison of Current Downturn to Previous Nonresidential Construction Recessions Nonresidential Construction Outlook for 2009/2010

  11. 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%

  12. Business Conditions at Design Firms: AIA Architectural Billings Index

  13. 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

  14. Inquiries for New Projects, Likewise, Have Softened Considerably billings scores since 2007 index: 50 = no change from previous month Source: AIA Architecture Billings Index

  15. 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

  16. 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

  17. Comparisons of Current Conditions to Previous Nonresidential Cycles

  18. 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

  19. 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

  20. 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

  21. NonresidentialConstruction Outlook: 2009-2010

  22. 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.

  23. 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

  24. 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

  25. 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.

  26. 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.

  27. Repositioning Your Firm Peter Piven, FAIA Principal Consultant The Coxe Group, Inc.

  28. 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

  29. 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.

  30. 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.

  31. How Architects have been affected +/- 5 % are in trouble +/- 5% are just fine +/- 90% are concerned and have taken steps

  32. 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.

  33. 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.

  34. 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.

  35. 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.

  36. 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.

  37. 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.

  38. 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

  39. 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.

  40. 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.

  41. 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.

  42. 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.

  43. 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).

  44. 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.

  45. 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.

  46. GOOD LUCK

  47. Poll Are you currently: •        Repositioning Your Practice •        Considering Repositioning•        Neither

  48. FXFOWLE ARCHITECTS Repositioning: Lessons Learned Tim Milam, AIA Partner, Managing Director

  49. 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

  50. Repositioning Example 1: Pursuing NYC Residential Sector in 2001 50

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