Writer: Max Crampton-Thomas
2 min read May 2021 — Stephen Schoch, managing principal of Kitchen & Associates, is very bullish about the next two years for his company and the business sector, especially because “in the next 24 months there will be more opportunity in affordable housing than in the last two decades,” he told Invest:.
What differentiates K&A from some of its competitors in the region?
One of the things that differentiates us is we’ve been able to maintain most of our workforce. That means we’ve got capacity and expertise that hasn’t walked out the door. We’ve had less than 10% turnover. That’s a big deal because when people are coming out of something like the pandemic, they want to act fast. They don’t want a team that hasn’t worked together. They want people who have the experience and know what they’re doing. At K&A, we have planning, architecture, engineering, interior design – all under one roof. Having both that scope of services and a consistent pre-pandemic experience to back it up is very much a differentiator right now. That’s where being a little bit bigger helps us. Some of the smaller firms that are in the same space are struggling with having lost staff, and finding replacements has been difficult.
What are some of the unique opportunities in South Jersey that make it a good location to do business?
The fundamentals of South Jersey are not affected that much by the pandemic itself. It’s still about physical location and convenience. You’re close to the city but not necessarily right in the city. You’ve got very easy access to New York, Philly, Washington, and Baltimore. The fact that people realized they can effectively work remotely is an opportunity in the residential sector. A lot of people are looking for housing, whether it be multifamily housing or even single-family houses, in locations farther away from their workplace as commuting becomes less of a factor.
The notion that I can live in a small footprint because “the city is my living room” is changing. Every single project is rethinking things like unit square footage, and whether to have that extra area for the home office so it doesn’t feel like you’re working on the kitchen table anymore. As a result, the market now is very active. If you don’t look and put an offer in on a new home or condo that goes on the market within 24 hours, you’re done. There’s so much demand on the for-sale side. It’s a real opportunity for residential development – especially entitled projects that are ready to start.
How has demand for your services shifted compared to pre-pandemic levels?
We’re seeing an increase in market-rate multifamily rental projects, but we’re also seeing a lot more activity on affordable housing. Part of the affordable housing increase is because it’s considered infrastructure. I’m seeing many more opportunities and developers interested in doing things in Southern New Jersey because they know more resources are likely coming to the table and because of the land price. South Jersey is still the bargain of the East Coast and that is an incentive to do affordable housing. There is also a greater sense of urgency on the part of the individual municipalities to make good on their promises of affordable housing that have stalled during the pandemic.
How is your business doing compared to 2019 levels?
As we sit here today, I would say it’s probably 80% recovered but as I look at our projections and the really solid projects that have not yet received their funding, the potential pipeline by six months out is probably 10% over pre-2019 levels.
What are the biggest challenges for your business today?
Rising costs are a huge challenge. A lot of what we do typically starts with the conversation to keep the building small enough so it can be built out of wood because that is traditionally cost-effective. But now the cost of wood-frame construction is going way up. Lumber has doubled – or more – in price in some areas. It’s not just lumber, it’s drywall, it’s all the basic building materials that you need to buy. It’s especially a challenge for affordable housing projects because the contractor must give a price before applying for the funding. You apply for the funding and don’t know whether you have a real deal or not until about six to eight months later – and none of those prices are able to hold in this climate of price escalation.
There are also supply chain issues. There are issues with the timing of delivery. We’ve had projects that were ready to complete but had to be delayed because the kitchen cabinets were not available. Labor in the construction industry is still a challenge for most GCs. It’s exacerbated now because of some of the distancing protocols that contractors must put in place in the field. The combination of price increases, supply chain disruption, and the need for skilled labor is a huge concern that results in more risk for market investors.
What’s your outlook for K&A and the overall construction sector in South Jersey for the next 18 months or so?
I’m an optimist. There’s a lot to be optimistic about, whether it be the loosening of restriction protocols or the abundance of vaccinations. I think that we now can foresee a return to whatever normal is going to be like. We’re in an environment where things will happen. I think affordable housing is going to get more resources. One developer I know just recently said that in the next 24 months there will be more opportunity in affordable housing than in the last two decades. That’s a bold statement. Towns are now forced to be more open to it; more resources are coming to the table, and there are more people in need of quality housing they can afford. All these things add up to a very good outlook for K&A on both the affordable and the market rate side.
There is also a lot of opportunity in the student housing sector. There’s no way that the college experience is going to go 100% remote. There is too much infrastructure and money invested in the current academic model to let that happen. If you look at enrollment numbers, the demand is picking up and that means student housing is going to grow.
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