March 2019 - Sachse Construction

Five Below to Open 145 to 150 Stores

Teen and tween value retailer Five Below isn’t backing down from its rapid store expansion anytime soon.

The company on Thursday said it will open 145 to 150 stores in fiscal 2019, up from 125 new locations last year.

Five Below, which currently has 750 stores in 33 states, sees the potential for 2,500-plus stores in the United States.

“Our 2018 store openings are on track to be another record class with first year average unit volumes expected to be over $2 million,” said CEO and president Joel Anderson. “We are excited to continue our high growth with a record number of new store openings and remain confident in our 20/20 through 2020 goals and our ability to reach our 2,500+ U.S. store potential.”

The retailer’s store opening plans were included in its fourth quarter results. Net income totaled $89.3 million, or $1.59 per share, for the quarter ended Feb. 2, up from $67.4 million, or $1.21 per share, last year. Analysts had expected earnings per share of $1.57.

Sales surged 19.4% to $602.7 million, up from $504.8 million last year. (Excluding the third week in fiscal 2017, sales rose 23.2%.) Analysts had been looking for sales of $601.1 million. Same-store sales rose 4.4%.

For the full year, Five Below’s net sales increased 22.0% to $1.559 billion, or 23.5% excluding the extra week last year. Same-store sales rose 3.9%.

“Our strong fourth quarter performance capped off a great year for Five Below,” said CEO Joel Anderson. “For the year, we delivered comparable sales growth of 3.9% on top of last year’s record results. We saw broad-based strength across our worlds as our incredible, trend-right value offering and fun in-store experience drove both new and existing customers to Five Below.”

Five Below expects first-quarter sales in the range of $361 million to $366 million and EPS in the range of 32 cents to 35 cents. The FactSet consensus is for sales of $364 million and EPS of 35 cents. For the year, the company expects sales in the range of $1.865 billion to $1.885 billion and EPS in the range of $3.00 to $3.07. FactSet forecasts sales of $1.891 billion and EPS of $3.08. Five Below expects to open 145-to-150 stores in fiscal 2019, which would bring the total number of stores to 895 to 900. It is also testing a limited selection with a higher price point, up to $10. CFRA says the company has “‘Amazon-proof’ positioning” and maintains its buy stock rating and $135 price target.

BIM and Design-Build Pair Well, but New Habits are Needed

Building information modeling is a useful tool in the arsenal of a design-build team. It fills the space where traditional silos between designers and contractors have been broken down, facilitating collaboration and reflecting real-time changes to the plans within a digital environment.

With design-build expected to deliver almost half of U.S. projects by 2021, contractors may benefit from exploring progressive workflows that can help them meet DB’s aggressive schedule requirements while mitigating its cost-related risks.

DB proponents say that the best time to target cost savings and efficiencies on a project is while the design is still evolving and before construction has begun, and this is one area where BIM can really shine.

Controlling costs as designs evolve

Under the delivery method, value engineering takes place during a project’s early stages, Zhuting “Claire” Mao, BIM Manager at LAX Integrated Express Solutions, told Construction Dive. BIM can be useful not only as a three-dimensional representation of the design during this process, but also as a means to measure the impact that any changes to that design will have on schedule and cost. When these data are linked to the model, they add a 4th and 5th dimension, respectively.

Mao and her team took this approach on the $4.9 billion automated people mover system at Los Angeles International Airport, which broke ground earlier this month. They used model-based cost estimating and scheduling for the design and construction of a $2 billion guideway with six stations. The remaining funds will go toward operations and maintenance, for which BIM data can also be utilized, she said.

In addition to ensuring that design intent matches owners’ vision for a project, using BIM to quantify the cost and schedule impact of a range of options “can help us illustrate our ideas specifically through the model to the owner,” Mao said. Plus it’s a clear visual tool, meaning that an “owner who doesn’t have a very solid construction background can understand our deliverable and our method.”

But then the owner takes a step back. Unlike the design-bid-build method that places significant risk for design errors on the owner, design-build transfers this exclusively to the DB team. So tools like BIM that help with cost control become not only useful, but essential to keep risks and unexpected costs at bay.

For example, the cost per foot of conduit can be loaded into a family in the model, Rosendin Electric’s corporate director of Building Information Systems Fred Meeske told Construction Dive. Users can then “design the system while seeing in near real time the effects of different routes on the cost of the system — or better yet, the effects of other systems being designed that may negatively impact your budget, allowing changes to occur before actual system installation and the need for rework,” he said.

Rob Smedley, design-build manager at RS&H, an architecture, engineer and consulting firm, has been an advocate of BIM since its beginnings. More and more contractors are seeing its value for staying on top of project goals, he told Construction Dive, especially large companies that are building out virtual design and construction teams.

But some projects are running into obstacles as newer technology mingles with old habits.

“A lot of design-build still isn’t reaching its full potential because some contractors aren’t fully engaged in the design process — they kind of just are waiting for it to get done,” he said, as would be the norm under a design-bid-build framework.

In contrast, when contractors are part of the weekly conversations and have someone on their team who can work with the architect, engineer, BIM manager and others throughout the development of the model, Smedley continued, that’s “taking BIM to the next level of utilization and the success that can come from it.”

But well before DB partners start pursuing work together, they should make sure that the chemistry is right to allow for this sort of collaboration. Making sure companies’ core values, processes and contracting are in alignment is as important as understanding the terms and conditions of the project contract, according to Smedley.

“The worst time to figure out that you don’t have alignment in any of those things … is after you’ve decided to go after [a project], and even worse — after you found out you won it.”

“Bringing on the right members who are open-minded and willing to share knowledge is key,” said Mao. “If we got the wrong people who just want to be in their silo, that’s not going to work in design-build.”

Growth areas

Contractors come in all shapes and sizes, Smedley notes, and some firms are further down the path of using BIM effectively than others. A number of collaboration tools on the market are advancing and helping the construction industry along in this digital journey, especially those platforms that loop in workers from the field, he said.

Field teams don’t necessarily need to implement the most complex BIM products on the market, according to Mao. While the design team may be working heavily in Navisworks, for example, the field staff can work more comfortably from BIM 360’s simplified files while still keeping up with the latest model updates, she said.

The point is not to hand off some fancy deliverable, Mao said, but to leverage BIM to benefit every player on the project team. Even when emerging technologies like augmented reality and virtual reality are married to a BIM model, stakeholders tend to start with the low-hanging fruit.

VR gives owners or end users a more immersive way of experiencing the model, helping them feel out the space and make more informed suggestions, she said. The tech, according to Meeske, can also be used to settle on sequencing. “We are just scratching the surface” for opportunities that can be added on to BIM capabilities, he said.

Laser scanning for as-built conditions can be tacked onto building information data, Mao added, and photogrammetry offers many of the same benefits at a lower price point. Rosendin likewise uses these to quantify the productivity and time requirements of different design options.

Chain Retailers Piggy-Back on the Health and Wellness Sector to Draw Foot Traffic

Who would have thought just a few years ago that shoppers could walk into a DSW store and not only buy a new pair of sandals or heels, but also get pedicure or manicure?

Or that consumers could drop in at their local CVS drugstore for a weekly yoga class?

But big, national retailers are piggy-backing on the red-hot health and wellness sector to draw foot traffic into their stores at a time when more and more consumers are shopping online. Retailers are looking to create a customer experience that can’t be duplicated online and give people reasons to continue to come back into their stores.

 And health and wellness happens to be an enormous business. Globally, the “self-care sector” is a $4.7 trillion industry, reports the Global Wellness Institute.

However, the question becomes whether chain retailers’ ventures into the sector will work.

“Retailers do well with what they’re good at: a good product, great service, stellar marketing, etc. It will be interesting to see how this will work for these concepts,” says Jen Helm, a managing director specializing in retail real estate in the Twin Cities, Minn. office of real estate services firm Newmark Knight Frank.

“I think it’s going to be challenging to get their customer base to think in a different direction from who they already are,” Helm says. “I wouldn’t think to go take a yoga class at a CVS or get a pedicure at a DSW and maybe buy a new pair of shoes on my way out.”

DSW experiments with alternative uses

Columbus, Ohio-based DSW Inc., which operates more than 500 locations, is expanding its in-store nail salons with the goal of beefing up footwear sales.

 The giant off-price footwear retailer has been testing nail salons in two of its Columbus stores since 2017, after partnering with Columbus-based W Nail Bar, and is now expanding with five new stores in Austin, Texas; Dublin, Ohio; and Washington, D.C. Customers can get manicure and pedicure services, waxing services and even beer and wine at some locations.

“The nail bar services engage customers and create loyalty by inspiring self-expression,” said Bill Jordan, president of DSW, in a statement. “They also create repeat visits to the DSW brand.”

In another effort to drive consumers to its stores, DSW is selling CBD-infused personal care products. CBD is short for cannabidiol, a chemical produced by the cannabis plant, but without the THC. CBD has been touted as helping to treat pain, sleeplessness and anxiety.

DSW has been testing selling Green Growth Brands’ Seventh Sense CBD-infused muscle balms, body lotions, body washes and foot creams in 10 stores. The company said during the first 10 weeks of the test period, 74 percent of Seventh Sense’s products on its shelves were sold, significantly exceeding expectations.

Now DSW plans to sell roughly 55,000 units of Seventh Sense’s CBD products across 96 of its U.S. stores.

The chain is also making moves to build exclusive brands and products. Last October, DSW partnered with brand management company Authentic Brands Group to acquire shoe manufacturer Camuto Group, for about $375 million. Camuto owns licensing rights for the Jessica Simpson footwear business, as well as the footwear and handbag licenses for Lucky Brand.

With DSW continuing to expand its offerings, it announced a corporate name change to Design Brands Inc. and will change its ticker symbol to DBI on April 2.

All of these moves come at a time when Amazon has been boosting its market share in the footwear business. Also, DSW’s main competitor Payless ShoeSource filed for bankruptcyand is closing all of its 2,500 stores in North America, which could be a big boon for DSW if it can capture those customers.

CVS launches new HealthHUBs

 Following CVS Health’s $70 billion acquisition of Aetna  last year, CVS announced it would transform the consumer healthcare experience. CVS has now unveiled three new health-focused concept stores, called HealthHUBs, in the Houston area, that are designed to make drugstores more than simply a place to pick up prescriptions or run in for milk.

The new store design boasts wellness rooms for yoga, space to consult with dieticians and services to help people with chronic conditions, like diabetes and asthma. (CVS already runs a network of MinuteClinic locations inside its stores).

HealthHUBs offer digital tools and on-demand health kiosks to measure and track blood pressure, weight and BMI. The newly created spaces can also host group events like health classes and nutritional seminars.

With the new format, more than 20 percent of the CVS store is dedicated to health services.

“We believe that transforming the consumer health care experience begins with creating a new front door to health care,” said Alan Lotvin, chief transformation officer for CVS Health, in a statement. “Our new HealthHUB locations are just that—helping to elevate the store into a convenient neighborhood health care destination that brings easier access to better care at a lower cost.”

As more people are shopping online, drugstores are seeking to become “healthcare destinations” that can attract consumers. Amazon made its foray into the prescription drug delivery business after acquiring online pharmacy PillPack in 2018, which put even more pressure on existing drugstore chains.

Simple strategy

“It’s super simple. Retailers need to start generating traffic one way or another,” says Ricardo Rubi, retail marketing specialist and partner at New York consulting firm Simon-Kucher & Partners. One way is through the health-and-wellness category.

But, Rubi adds, retailers have been dabbling in this with different forms in the past. He points to when the now-defunct Borders bookstore started to see its traffic slow and pursued its café concept more aggressively.

 “People think that they put in the café so people go and get their book and then they get coffee,” Rubi says. “No. It’s the other way around. People go and get coffee and then they buy books.”

CVS and DSW are “two retailers that are in peril from disruptive entities in the marketplace,” according to Rubi.

CVS’s traffic driver is drugs. “We see that falling more and more as more people are getting their drugs online, so they need to do something that will drive people to the store that cannot be replaced by something online,” he notes.

And as for footwear, Amazon is becoming a bigger player with $3.7 billion in shoe sales in 2017.

“I can imagine [DSW and CVS] have a team in a little room thinking about what are different potential ideas that we can use in order to bring more people into the stores,” Rubi says. “If people come in, they will buy other stuff as well.”

Retailers are also targeting the millennial generation, according to Rubi, because “they’re the ones that have the money.”

By 2020, global management consulting and professional services firm Accenture predicts that millennials will account for nearly $1.4 trillion in spending power. Millennials tend to use their disposable income to pay for experiences, including health and wellness, self-care, travel and technology, rather than tangible goods.

Could retailers face challenges as they move into the health-and-wellness sector?

Helm says adding health and wellness into these stores may be challenging, but she suggests that retailers could team up with health and wellness companies or events and market together to associate the brand with a healthy lifestyle.

Examples can could include a “DSW-sponsored popular marathon or shoppers can receive a coupon from CVS for certain healthy items from the yoga studio that they frequent,” Helm says.

“It will also be interesting to see how they navigate the use with the landlords,” Helm says, pointing out issues like exclusive use clauses in leases.

“Many of these shopping centers have nail salons, fitness and yoga studios or the health-and-wellness mix of tenants, and giving a large tenant such a broad exclusive could be challenging for a landlord to fill other vacancies in a shopping center,” Helm says.

Health and wellness uses are great tenants for small-shop spaces and it would limit the landlord’s ability to lease spaces in their centers, she adds.

Bill Introduced to Fix Major Glitch Related to Remodeling Investments

Retailers are cheering a bill that would allow retail stores and restaurantsto write off the full cost of improvement projects immediately.

The National Retail Federation and the Retail Industry Leaders Association urged Congress to support bipartisan legislation introduced Tuesday in the House that would fix a drafting error in the tax reform law that took effect in 2018. The error relating to depreciation rules is delaying millions of dollars in job-creating investments in stores and restaurants across the country, the NRF said.

Under the Tax Cuts and Jobs Act, remodeling and other improvements to stores or other buildings were supposed to be fully depreciated in the first year the work is done. Instead, a mistake in the legislative language requires that depreciation be done over 39 years. As a result, companies can only deduct 2.5% of costs in the year the investment is made and must deduct the remaining 97.5% over the following 38 years.

The Restoring Investment in Improvements Act, introduced by Representatives Jimmy Panetta, D-Calif., and Jackie Walorski, R-Ind., would correct the error in the tax law and allow retailers and restaurants to write off the full cost of improvement projects immediately, dramatically reducing the expense and making it far more likely that the projects — and the economic benefits that come with them — would go forward, according to the NRF.

“After more than a year of uncertainty for retailers and restaurants caused by this tax bill error, we’re pleased to see momentum building in the House and Senate to finally resolve this issue,” NRF senior VP for government relations David French said. “This unintended error is forcing many businesses to delay remodeling projects and decline opportunities to purchase or lease new retail locations that require improvements.”

RILA  also expressed its support of the bill.

“RILA is thankful for Representatives Panetta and Walorski’s leadership in introducing bipartisan legislation that would update QIP,” said Jennifer Safavian, executive VP of government affairs for RILA. “Since the passage of comprehensive tax reform, retailers have followed through on their promise to invest in their workforce and their businesses. The drafting error in this provision has stifled growth and innovation across the industry.”

Shortage of Skilled Construction Workers Resulting in Missed Deadlines

A shortage of skilled construction labor is impacting the bottom line for contractors, according to the first-quarter 2019 Commercial Construction Index report by USG Corp. and the U.S. Chamber of Commerce.

The labor shortage has made it difficult for contractors to meet schedule deadlines. Seventy percent of contractors are struggling to meet project deadlines, the report says.

Forty percent of contractors said they have had to turn down project offers because they didn’t have enough people to do the work. The labor shortage has forced 81% of contractors to require employees to do extra work, and 63% say it has increased costs for new work.

Survey respondents said the key to attracting new workers is to emphasize the potential for high pay, good benefits, potential for career advancement, and the chance to work with advanced technology.

Special Report: Reinventing Construction Project Schedules

When Ken McBroom lays out a schedule with his on-site tradespeople, he wants any changes or delays in the plan to hurt as much as possible.

Using Post-it notes, Sharpie pens, and a whiteboard, he has each trade assigned to a project write down, in their own hand, exactly what they need to do on the job and how long they need to do it. Then he has them assemble all the different colored Post-it notes in neat columns on the whiteboard and shows the entire team what the game plan is for the next two to four weeks on-site.

Once that schedule is set, any changes are met with howls of pain and derision. “If one person doesn’t hit their dates, everybody else has to physically move their Post-it notes. You’d think they were getting a root canal,” says McBroom, director of planning and scheduling in the Southern California office of St. Louis-based McCarthy Building Companies. “Peer pressure isn’t good in high school, but it is in construction. Because now the rest of the team wants to know why they have to move their tags, and they look at the trade that’s late, not me. Even though it just takes five minutes, I want it to hurt. I don’t want there to be an easy button.”

McBroom’s decidedly low-tech approach to scheduling, which uses the Arlington, Va.-based Lean Construction Institute’s (LCI) trademarked Last Planner System, gives a deceptively simple view into the state of construction project scheduling today and where it’s headed in the future. Technology, software, and hardware are converging to change how schedules are planned out, implemented, and then measured in real-time to report on-site progress today. But the way teams and different stakeholders physically come together to collaborate during the scheduling phase of projects has evolved, too.

A Lean construction charrette at McCarthy Building Companies utilizes Post-it notes and the Lean Construction Institute’s Last Planner System. McCarthy Building Companies

“Having that group talk about different ways to accomplish a task and then make commitments to each other has been the most effective schedule improvement technique I have seen,” says Tom Becker, regional vice president of Minneapolis-based design-build developer The Opus Group. “The technology and process definitely play a role, but it’s the collective approach that’s been effective at reducing cycle times and improving schedules.”

 The Holy Grail of scheduling is now literally about getting everyone—from the trades who work on-site to the superintendent hunched in the trailer to the general contractor overseeing the job and even the owner who’s ultimately paying for it all—in the same place, and on the same page, at the beginning of a project. Once you do, it’s then about getting those people to leverage the best tools and technology to streamline the process even more, while coming up with the best solution for the task at hand to get it all done better, faster, and more efficiently.

That could mean using McBroom’s Post-it notes and the LCI’s Last Planner approach to knock out what needs to be done on-site today; employing the time-tested Critical Path Method (CPM) of project management to map the big picture timeline of a build upfront; 3-D scanning, radio-frequency identification beacons, and drones to measure actual progress on-site against benchmarks to keep schedules updated and on track once work begins; and, increasingly, integrating off-site construction and prefab components to shave off cycle time. Ideally, the future of scheduling means a blending of all of the above.

Reassess your existing scheduling approach.
To really get a grasp on the future of scheduling in construction today, it’s good to consider where we’ve been. For years, the dominant approach to construction scheduling has been the Critical Path Method, which uses Gantt charts and relational diagrams to map tasks that impact the overall completion date of a project. Its predecessor was employed during the Manhattan Project, and CPM had its modern coming-out party when it was used to build New York’s Twin Towers, which broke ground in 1966.

CPM has been the domain of large enterprise management and scheduling software, such as Oracle’s P6 and Microsoft Project. Just as a power user of Excel can make a spreadsheet sing, those solutions can be powerful when deployed by the right people but can be baffling for others not specifically trained on them.

“A lot of times, those tools are only helpful for the scheduling nerds who know how to use them,” says John Armstrong, senior scheduler in the Phoenix office of Hong Kong-based global construction firm Rider Levett Bucknall, whose notable projects include the Sydney Opera House. “They weren’t built for the masses.” Adds McBroom, “If superintendents can’t get it in the first five minutes, it’s a fail.”

Consider if top-down scheduling creates the results you’re looking for.
CPM is great for seeing the big picture and outlining important phases of a project: site work; foundation; structural steel. It’s also effective at tracking progress over the long term versus taking shorter duration snapshots to gauge headway over days or weeks.

But it can get bogged down when bigger jobs are broken down into their individual parts—specific grading and dirt work needed to prep a site, constructing the forms required to pour a foundation, or shoring up girders and beams with the right fasteners in the structural phase. In other words, there comes a point where getting too detailed in a master schedule can lead to TMI: too much information about how exactly electrical conduit will be run, for example. That’s useful information for an electrician to have, but it can make the schedule indecipherable to a superintendent or general contractor.

CPM also tends to be a top-down approach, where direction comes from the general contractor or superintendent on a project dictating what needs to be done without getting input from the skilled tradespeople on-site who are doing the actual work. Indeed, with CPM representing the prevailing method of scheduling within the industry, 70% of projects still come in late and over budget, according to LCI.

Incorporate all parties in the planning and scheduling of a job.
Those challenges have helped lead to the rise of Lean construction and LCI’s Last Planner methodology, the hallmarks of which are the Post-it notes on a white board that McBroom and others proselytize. Originally developed inside Toyota to take a more holistic approach to manufacturing, Lean methodologies have been adopted by other industries, including construction.

While construction’s approach is decidedly low-tech, the method gets results by getting all stakeholders in a room early on and making a commitment to one another about exactly which tasks each person or trade is responsible for. Indeed, Lean projects are three times more likely to come in ahead of schedule and two times more likely to be under budget, according to Dodge Data & Analytics.

The rise of Lean has led to more collaboration among all parties in the planning and scheduling of a job, usually marked by a charrette-like gathering of trades, suppliers, subcontractors, superintendents, and even design and back office personnel early on in a project. Leveraging Building Information Modeling (BIM) software, the parties can go through a project step by step, build its “digital twin” within the model itself, root out any clashes of different mechanical systems beforehand, and then have a detailed plan of attack on the first day on the job.

“That allows us to hit the ground running and not have to try to create a plan once we get on-site, which is how it was done 20 years ago,” says Mark Weisner, senior vice president of pre-construction at Greenbelt, Md.-based Bozzuto Construction, a builder and developer of large-scale multifamily projects.

Todd Sachse, CEO at Detroit-based Sachse Construction, notes that it also lets crews eliminate issues before they become problems. “BIM and 3-D modeling helps detect clashes ahead of time,” Sachse says. “It shows you where duct work or fire suppression piping is supposed to go and, if there’s a conflict, lets you develop a solution before anyone is even on the job site.”

Blending approaches can offer the best of both worlds.
But while Lean construction methods are effective at bringing in projects on time, the process can also miss the forest for the trees. It’s great for two-, three-, or four-week “look aheads,” but because it’s so focused on the details, it isn’t as strong at plotting out schedules over a number of months or years. For that reason, more and more companies are trying to marry these two dominant approaches to scheduling in construction today.

“By blending the ‘rival’ scheduling methodologies in a single platform, construction firms can have a holistic view of the project,” Jenkins writes in a blog on the topic, “i.e., both the long-view analytics they need to accurately determine project milestones and completion dates, as well as prescriptive roadmaps for how to reach project completion as efficiently and economically as possible.” Oracle touts its Prime Projects software, integrated with P6, as capable of doing just that.

Fuse scheduling approaches with the best features from different software providers.
Meanwhile, other solutions, such as Acumen Fuse, Asta Powerproject, Phoenix Project Manager, Procore, Smartsheet, Steelray, and Synchro have emerged to either integrate or compete with P6 and Microsoft Project, while overlaying more task-level visibility that’s accessible to a wider range of users, both in the office and on-site. The result has been companies using different platforms in conjunction with one another to leverage best-of-breed features while tapping into the strengths of both CPM and Lean scheduling.

For instance, using Primavera P6 for the big-picture CPM schedule, Synchro Software for on-site Lean tasks, and Autodesk’s Revit software for BIM modeling, Bozzuto was able to trim three months off the schedule of its 955,000-square-foot Chevy Chase Lake mixed-use retail, apartment, and condominium project outside Washington, D.C.

“Our owner wanted to get the building sooner, so our goal was to rethink the way we were looking at the project,” Weisner says. “Using that combination of software, we were able to get in there and re-sequence and re-plan the project to have more float. We took it from 39 months down to 36.”

The project is currently under construction, slated for completion in 2021, and running ahead of schedule.

Leverage technology for objective measurement of progress on-site.
While Bozzuto’s three-month savings at Chevy Chase Lake shows how today’s schedules can be tweaked before a project ever starts to save time, the other big hurdle in scheduling has always been measuring a project’s real-world progress once work begins.

“Before any major project, plenty of really smart people spend a lot of time and effort mapping a project’s completion three, five, or even seven years out,” says Drew DeWalt, chief operating officer of San Francisco-based workforce management software provider Rhumbix. “Then, as soon as the first shovel goes in the ground, that schedule almost instantly becomes wrong.”

Indeed, industry jokes abound about the disconnect between the outlook of scheduling on paper and what’s happening in the real world. Question: How do you know when your schedule is out of date? Answer: As soon as you hit print.

For that reason, getting better synchronicity between a project’s plans and its ultimate outcome is also getting a lot more attention today. “The future of project scheduling is all about closing the feedback loop between what’s actually happening on the ground after work begins and the original plans,” DeWalt says.

Pros say the problem has always come down to getting accurate, objective measurement back in the office of what’s happening on-site. “Schedulers need to track progress, so they’ll call the project engineer for the roofing system and ask, ‘How are you doing?’” says Chris Bell, vice president of marketing at construction management software company e-Builder, which was acquired by Sunnyvale, Calif.-based construction technology firm Trimble in 2018. “Well, that engineer sticks his thumb in his mouth, holds it up in the air, and says, ‘I’m about 18% done.’ Suddenly a well-thought-out schedule becomes a very subjective tool. What you need, instead, is objective progress measurement.”

To overcome that hurdle, firms are increasingly using drones, 3-D laser scanners, and RFID fobs to catalogue and document exactly what work gets done on-site. For example, by taking before and after shots of a site, firms can now know how much dirt work is complete. “Heavy equipment that’s outfitted with Trimble hardware will accurately measure against a 3-D model precisely how many cubic yards of soil have been moved that day,” Bell explains.

A graphic from Trimble highlights the elements of what it calls “The 3 C’s of the Future of Construction:” connected, content-enabled, and constructible. Trimble

Scanners and beacons installed on-site and matched with RFID fobs on workers’ hardhats can also track the exact number of hours worked. Used in conjunction with the “mixed reality” Trimble Connect for Microsoft’s HoloLens 2 virtual reality goggles, companies can keep tabs on the amount of material that’s been installed to give an accurate measurement of time plus materials put into a project.

“Those optics will laser measure the amount of conduit and HVAC ventilation that’s been installed on the sixth floor of a building,” says Bell. “Then you can feed that data into a project management system to get accurate, objective progress.”

Having that kind of precise measurement of work that’s been completed and comparing it back to the original schedule also helps companies bid future projects more accurately while identifying problem areas for improvement.

“Firms are starting to turn past schedules into templates and running post-mortems after the project,” says Stephanie Viers, customer success manager at Bellevue, Wash.-based software provider Smartsheet. “That gives them visibility into the impact different tasks have on each other, which leads to more accurate scoping and schedule building in the future.”

Prefabricated manufacturing techniques compress schedules and reduce schedule uncertainty.
Reducing cycle time and shortening the overall duration of a project is, of course, the ultimate goal of the future of scheduling. One increasingly common way to achieve that comes not in the scheduling itself but in the manufacturing of the components that go into a build beforehand.

For instance, McBroom was recently pleasantly surprised when he asked his structural steel subs for an estimate of how much time he should allocate for them in his schedule. When they told him a week, he thought they were being overly optimistic—his experience told him to expect closer to four to six weeks. But then he discovered the steel was being delivered by Pleasanton, Calif.-based ConXtech, which manufactures and installs prefab steel members.

“Structural steel for a two-story building is not done in a week,” McBroom says. “And yet, ConXtech came out and did it in that timeframe because of the way they design and prefab all the members to slide together.”

Indeed, using off-site construction has some of the most promising potential to impact the future of scheduling to the upside, by allowing different aspects of a project’s various tasks to be completed before construction even begins.

That’s the case at Ripon, Calif.-based off-site house framing firm Entekra, which is disrupting the homebuilding industry with its prefabricated manufacturing techniques for framing, roof trusses, floors, and panelized wall systems. The firm was able to condense one national homebuilder’s cycle time from 105 days to 57.

Chain of Command

Jacobs Engineering Group is in the vanguard of AEC firms that are committed to exploring the potential of blockchain technology for the construction industry.

The blockchain committee within Jacobs’ practice meets monthly and has discussed use cases ranging from the monetization of smart meter data to using blockchain for water compliance reporting. Jacobs is currently testing the applicability of blockchain for assessing the risk of equipment failure and predicting obsolescence, where the value of the blockchain’s information would derive from optimizing the process, balancing operating and capital expenditures by pooling knowledge, and showing evidence of cashflow improvements.

Its clients in the power industry want to know if blockchain could affect distributed power generation in areas like metering and billing. And the firm’s transportation group is gauging whether blockchain can be used to make toll payments and develop smart contracts.

Jacobs is also a co-founder of the Integrated Engineering Blockchain Consortium (IEBC), which last year launched its CoEngineers blockchain whose purpose is to price risk by establishing the value of engineering in the built environment.

None of these initiatives, however, is close to being fully realized, and there remain questions about blockchain’s efficacy versus other, more conventional transaction methods.

“We’re in the very early stages for our industry,” says Thomas Wendling, PE, Systems Manager in Jacobs’ Englewood, Colo., office. He notes specifically that CoEngineers has yet to come up with token functionality that is seminal to incentivizing a blockchain’s participants.

Still, Wendling has urged Jacobs’ innovation leadership to adopt CoEngineers as an experimental platform for finding and placing the right talent for its clients. CoEngineers, says Wendling, could be a first layer of a platform that ultimately gives the participating community access to collaborative BIM, and could also involve automated contracts for construction management and the Internet of Things (IoT).

Hopeful Signs

Jacobs’ experiences with blockchain technology pretty much mirror where the rest of the industry seems to be at the moment: hopeful that blockchain might revolutionize the industry’s transactional relationships, but also frustrated that blockchain’s development for the construction industry isn’t evolving more rapidly—or has yet to attract anywhere near the interest or investment that the industry has been lavishing on, say, artificial intelligence.

Optimists within the AEC industry can point to the fact that blockchain technology is gaining wider acceptance within financial and banking spheres, and that several brand name companies, such as Walmart and Nike, are using or exploring how blockchain can enhance their supply chains.

The construction industry isn’t ignoring this trend, either. On its website last April, eSub Construction Software, which provides construction management software for subcontractors, posted an article that portrayed blockchain and construction as a “natural pairing” that boils down to four steps: project modeling, smart contracts, inspections, and delivery. The successful verified completion of each step would lead to expedited payments.

Last September, Brickchain, a Los Angeles-based data management and blockchain firm, signed its largest-to-date supply chain management agreement with ProBuild, one of Australia’s largest construction firms. Brickchain’s suite of blockchain applications helps contractors track their assets and streamline facilities management. In ProBuild’s case, its blockchain is triggered by Ynomia’s BLEAT IoT technology, which physically connects and tracks construction site resources with sensor networks.

For the past three years, Don Bowden, a former subcontractor, has been developing BuilderChain, which uses blockchain technology to efficiently confirm and verify information about homebuilding subs that, ideally, would reduce or even eliminate the paperwork subs fill out when they’re bidding for jobs.

Bowden explains that contractors would issue validation tokens after subs and suppliers verified their bona fides. And once a contract is awarded, the GC would use commitment tokens for a micro-draw system for paying subs by task or project. Bowden says he’s planning to create a third-party merchant that would provide the validation service and issue tokens.

BuilderChain’s blockchain could also record “reputational” information about a project’s scheduling patterns, inspection history, and other product issues. Right now, Bowden’s blockchain is focused on residential GCs, but he foresees applications for nonresidential contractors, too.

‘Fear of Change’ Still a Barrier

Joan Zhong-Brisbois, PhD, PE, a bridge engineer with WSP USA in Seattle, sees blockchain as a way to make the design process more efficient for projects related to transportation by facilitating a “knowledge transaction” and reducing the friction within a project. In early 2019, WSP planned to embark on a test that would use blockchain “like a handshake,” she says, for validating agreements and consensus.

Zhong-Brisbois acknowledges that a broader application of blockchain technology requires a cultural shift “in how we think and what we do.” There are “competing interests” that need to be assuaged, and IP protections that need to be sorted out. The biggest roadblock, she says, is the industry’s “inertia” and “fear of change.”

Arup has been studying blockchain since 2013. And in early February, the firm released its second research report about this technology, examining blockchain’s use in five sectors: cities, property, transportation, water, and energy.

“Blockchain has not been a transformative disruption for the AEC industry yet, but we are seeing early use cases emerging and showing real promise,” says Bella Nguyen, PhD, Senior Research Consultant in Arup’s London office.

Nguyen thinks more testing is needed before users can make informed decisions about blockchain and the specific problems it might solve. The industry also needs to get a better handle on the types of products and services that can be built on top of the infrastructure. “Without an infrastructure in place, we won’t be able to unlock the true potential of blockchain,” she says.

That being said, several of Arup’s clients are already expressing interest in blockchain as an autonomous decentralized system that eliminates middlemen to reduce transaction costs and facilitate greater exchange. Arup’s research indicates that early adoption within the AEC industry might begin in earnest in 2025. “The trajectory of blockchain is quite clear. But in this industry, it’s not going to happen overnight,” says Nguyen.

Revaluing Engineers by Pricing Risk

Can blockchain reframe how the industry values work? That’s what Daniel Robles, PE, a former Boeing engineer and founder of the Integrated Engineering Blockchain Consortium, is trying to discern.

Robles’ thesis is that infrastructure is a value “upon which we utterly depend.” Engineers play a critical role in reducing risk in infrastructure projects. But engineering value is “invisible,” he contends. “How many airplanes do not crash? How many buildings do not burn? You cannot directly measure an event that never happens,” he says.

Consequently, engineering is undervalued, and engineers take a back seat in calculating risk to bankers, developers, politicians, and other entities whose traditional metrics—land, labor, and capital—often don’t provide complete information.

Robles views blockchain technology as a tool that can measure risk, with the engineer as the focal point. His CoEngineers blockchain is set up to do just that. He notes that one of the industry’s problems is that “there’s no Big Data for measuring engineering for life cycle analysis. The challenge is to get enough data into a database.”

To feed that database, the CoEngineers system uses game theory to create two kinds of incentives. First, an engineer makes a claim and receives a “mass” token. Then, another engineer verifies that claim and receives a “gravity” token. Mass tokens can be sold on an exchange, but gravity tokens represent reputation, and serve as a variable for calculating the payout of mass tokens.

“CoEngineers is a peer-to-peer transaction between two engineers, nothing more and nothing less,” explains Robles.

And since gravity tokens can’t be traded, the incentive to purchase influence is eliminated. The blockchain acts as a “big clock,” against which all of these transactions are synchronized. “So now we can visualize the value, and with a time function, we can use quantitative analysis to derive all sorts of valuable information,” he says.

Insurers, lenders, and developers would purchase tokens to gain access to this information, which they could use, suggests Robles, to assess the life of the building and its component parts, say, after a flood or during the sale. The value of the tokens would rise or fall depending on demand and urgency. And because engineers are selling tokens, they would receive a dividend for the assessed value of their work.

The integrity of the system is enhanced by “witnesses” who have exact copies of the database, thereby thwarting cyber attacks. Witnesses are also block producers on a Delegated Proof of Stake chain, but without the energy requirements.

Witnesses generally would have an intrinsic incentive to preserve the integrity of the blockchain. Jacobs’ Wendling estimates that when fully functional, CoEngineers could have as many as 100 witnesses.

“What this system is trying to do is simple: pricing risk,” says Robles. And the engineer’s new role, via blockchain, would be as an “adjudicator” of risk who reconciles the physical world with the virtual world. “We cannot cede blockchain to computers.”

Aggregating Trustworthy Data

IEBC has raised enough money to build CoEngineers as its operational blockchain and “test bed.” The consortium has approached several professional associations—including the National Society of Professional Engineers—as well as CETYS University in Mexico about running witness nodes on the CoEngineers blockchain.

Robles spends much of his time proselytizing CoEngineers and IEBC via presentations and attending events like IBM’s Think 2019 Conference in February. IEBC has gotten this far operating on a shoestring budget, and is trying to raise new capital from engineering, financial, and insurance sources to advance its research and development. AEC firms, so far, “have been slow, or cautious” to invest, he states.

Such investment, Robles contends, is a lot cheaper than what companies would spend to develop their own blockchains. Coming up with a better mousetrap to measure risk is essential, he says, because the industry is at a crossroads “of digital twin and its physical siblings. You need engineers on the ground to validate that the siblings [i.e., sensors] are working and providing accurate data.”

Nyugen says that Arup is unlikely to build its own blockchain or participate in other platforms until the technology is refined. But she anticipates an eventual nexus of blockchain, BIM, and “the next wave of IoT.” And if blockchain becomes a big database, “can we apply machine learning to it?,” she asks.

That’s one of several questions the AEC industry is pondering as it lurches, slowly, toward this technology.

Lower Interest Rates Should Drive More Acquisitions in the Multifamily Sector

 Borrowers have an unexpected second chance to get low-interest financing to buy or re-finance apartment properties, thanks to growing worries about the slowing U.S. economy.

This month, officials at the Federal Reserve cancelled plans to raise benchmark interest rates in 2019, after a weak jobs report and lowered expectations for economic growth.

 “The markets are pretty liquid right now,” says Chris Moyer, a managing director at real estate services firm Cushman & Wakefield.

Changing course

Economists have predicted for years that long-term interest rates would finally begin to rise.

In the fall of 2018, that moment seemed to have come. Typical borrowers received interest rates of roughly 4.75 percent for permanent loans covering 75 percent of the value of typical apartment properties through the lending programs of Freddie Mac and Fannie Mae, according to Moyer. But by March 2019, those interest rates had fallen back to 4.25 percent.

Changes in the broader U.S. economy have been pushing the interest rates for apartment loans in difference directions. The yield on benchmark 10-year Treasury bonds swelled more than 30 basis points to reach 3.2 percent in September and again in November. Rates seemed likely to keep rising.

 “Last year, all the forecasts were for 4.0 percent,” says Dave Borsos, vice president of capital markets for the National Multifamily Housing Council (NMHC).

Since then, interest rates have fallen back as Federal Reserve officials switched course and signaled they are likely to put off further rate hikes until after 2019. The benchmark yield on 10-year Treasury bonds was just 2.4 percent on March 25, the lowest level since January 2018.

The yield on the 10-year bond is now close to the yield investors receive on Treasury bonds with shorter terms, which economists call a “flat” or “inverted yield curve.” That’s often a sign that bond investors are worried a recession is coming that would make short-term investment riskier than usual.

“When people start to talk about flat or inverted yield curves, people start to talk about recession,” says Borsos.

Strong demand

Despite these worries, the apartment sector appears to be doing well. “People are looking at a continued, growing demand for apartments,” says Borsos. He cites a recent NMHC report that calls for 4.6 million new apartments by 2030.

With that in mind, investors are likely to use the lower interest rates to pay for a new wave of property purchases. The lower rates should also allow borrowers to take out larger loans. “The properties can afford more debt service—that allow buyers to get more aggressive,” says Moyer. “That should drive and continue to support pricing for multifamily housing.”

Lenders are also likely to compete to make these loans, cutting the spreads that they add to the interest rates of the loans.

“Because interest rates are low and are expected to stay low, lenders are also tightening their spreads,” says Moyer. “When lenders are confident the business is doing well and will do well for a while, spreads come in.”