3 min read April 2023 — In an interview with Invest:, Blane Stoddart, president and CEO of BFW Construction Project Managers, talked about a shift in the market from vertical construction to infrastructure, the demerits of remote work and the slowdown in single-family housing alongside the affordable housing crisis that is present throughout the country.
What have been some of the highlights for the company over the last year?
We are one of the smaller companies within this region, yet we are very impactful because of how we deal with relationships, market our company and do our work. As a small business, we have around 27 people in total. We are situated at the Philadelphia Navy Yard, right next to the Airport, and we work in New Jersey, Pennsylvania, Delaware and Maryland. We are launching a satellite office in New York City with our partner Certified, and as such we expect the company to keep growing. BFW is a construction project management company, not a contractor. We do not swing a hammer — we provide construction project management, owners’ representation, construction administration, staff augmentation, move management, and land development consulting to developers, non-profits, government, schools, healthcare, religious and other types of institutions. Additionally, we are experts in creating capital stacks for multifamily and affordable housing projects in the Mid-Atlantic region. As land development experts, we raise public-private financing to fund these various projects by utilizing our expertise in low-income housing tax credits, new market tax credits, state capital assistance, HOME, CDBG, HUD, and the American Rescue Plan (ARP) grant and financing options.
Finally our company has grown 100% since the pandemic as we’ve been able to source more government and institutional work. The real estate market hasn’t slowed in healthcare, education, or affordable housing sectors, so we expect to target and grow within those market segments.
Could you speak to the current situation of affordable housing?
There is an affordable housing crisis in the nation. Even though the federal government is putting billions into infrastructure, inflation reduction, the green economy and affordable housing, the market has not responded because those dollars are bogged down in the bureaucracy. For example, in places like Philadelphia, there is a 30% poverty rate and about 50% of residents are housing cost-burdened, which means that over 50% of people are spending more than 30% of their gross yearly income on housing. Affordable housing is as big a crisis as COVID, but we have not addressed it in a proactive manner because even though the money is there for affordable housing, the regulations have gotten more onerous. It is becoming more and more difficult to get a shovel in the ground. Developers are leaving Pennsylvania and building in other states because of non-responsiveness from the government; and nimbyism by cities, townships and community groups. Every successive government has said that they are going to remove red tape, but every successive government has increased it. Additionally, government employees working from home have exacerbated the problem. We strongly advocate for workers to work at least four days a week because when you work in a team environment, you are more productive. A recent study was released this weekend that showed that working alone is a factor for increased mental health challenges.
How has the rise in interest rates affected the multifamily and single-family housing sectors?
There has been a slowdown in single-family housing and a slight slowdown in multifamily housing due to interest rates. Single-family mortgage rates have gone from a 3% interest range, to 6% or 7% depending on your credit score. We are expecting close to a 6% growth in housing prices year over year versus 12% one year ago.
The multifamily market is facing a 4.3-million-unit shortage by 2035. This shortage was precipitated by underbuilding by the industry since 2008. Because of high demand, the markets seem to be surprisingly strong as developers continue to build. We are surprised that rents and interest rates continue to accelerate simultaneously. Nationally, we are seeing rent increases between 30% to 200% in places like Florida. While Philly is not experiencing these high rents, still they continue to be robust in terms of percentage increase year over year.
In terms of institutional healthcare, we have not seen a significant slowdown. Hospitals continue to build patient towers and new outpatient facilities. As for education, we’ve seen that the ARPA funds have powered the K-12 market in most school districts resulting in robust capital spending. In terms of colleges and universities, alumni continue to give large amounts of money to build new buildings, so we are seeing an active market there as well.
In terms of transportation and airports, they continue to build because of the federal and infrastructure funding that continues to go for airports, roads, bridges, public transportation centers and systems such as the Southeastern Transportation Authority (SEPTA).
The office markets are in full pullback. Philadelphia is seeing a 50% reduction in office leases as we attempt to bring people back into the central business district or develop strategies for adaptive reuse.
Overall, the real estate markets continue to be robust in the aforementioned sectors because the economy has not gone into full recession. The job market and the worker shortage are major factors fueling our economy. Six million people resigned during COVID. There is a shortage of workers resting in businesses like Target and Walmart paying $15 to $20 per hour with benefits. The worker shortage has kept the economy going and employers are still hiring.
Some sectors like banking and technology have seen major corrections, but the rest of the economy has been strong despite interest rates spikes to tame inflation. The American economy is stronger than we think as long as we have leaders who can perform at a high level.
For cities like Philadelphia, we are in need of leadership from the Mayor, City Council and the Business community to rebuild our economy, our K-12 education system, and to lead out in the areas of public safety. We must create safe spaces for us to enjoy the amenities and benefits of this great City. Staying at home by every objective indicator is not good.
What is your outlook for the next two to three years for BFW specifically and the real estate market more generally?
BFW will continue to grow in the vertical construction industry and look to expand into the infrastructure markets as a project management consulting firm. We will hire staff and buy expertise to get into those markets because infrastructure is a huge area for growth. One of the only things that both Democrats and Republicans can agree on is infrastructure. We will also seek to expand into the affordable housing markets.
In terms of the economic outlook, I do not know and anyone who claims to know is just “fibbing.” We have to stay in business, try to keep employees active and gainfully employed, and buy expertise to pivot as the market pivots. For example, six months ago, the tech industry was in a crisis, right now we have a banking crisis, so we do not know what the next industry will be. The economy is day-by-day, so we need leaders — governmental, business and institutional — to lead us through this trepid time. We will try to be the best that we can be, navigate these waters and deliver the highest levels of customer service so that our customers want to work with us through unpredictable times.
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