Construction Industry Conference

Thursday, May 31, 2018, 8–11:30 a.m.

Hyatt Regency Sonoma Wine Country, 170 Railroad St., Santa Rosa, CA 95401

Details and registration: nbbj.news/const18

Read interviews with the conference speakers.

Doug Hilberman came to Santa Rosa from Portland, Oregon, in 2003 as an associate and project architect at Axia Architects and became a principal a year later then president in 2006.

He’s been actively involved in Santa Rosa business, construction and local government organizations such as the American Institute of Architects Redwood Empire chapter, The Construction Coalition, Sonoma County Alliance, Santa Rosa Metro chamber of commerce and city of Santa Rosa’s Design Review Board. The Tubbs Fire that destroyed thousands of homes in and around Santa Rosa in October also claimed Hilberman’s residence.

Hilberman is set to be on a panel of local industry experts at North Bay Business Journal’s Construction Industry Conference in May 31. He talked with the Journal about the actions local government has taken to spur the rebuild, which of these streamlining policies could be beneficial beyond the recovery, and the impact of such actions on current and future development elsewhere in the North Bay.

What are the biggest problems you face in getting projects built?

North Coast Builders Exchange and (American Institute of Architects Redwood Empire chapter) has looked at a number of the constraints. Certainly, it’s labor and materials, but labor is going to be the capacity constraint for the region. In addition to the 5,300 homes that need to be rebuilt there was just over $1 billion in school bonds passed, and the bulk of that work is being performed in 2017 through 2020. We have both commercial and residential markets straining to meet the needs of the region.

On top of that, we have an economy that is in full gear, so we have the private sector wanting to grow and expand their facilities and grow. In many ways, we have the perfect storm in terms of needs in the North Bay in terms of building infrastructure.

Are the projects coming across your firm’s desks mostly residential, school or commercial projects?

Yes. (Laughs) Our firm is diversified in what we do. We see demand coming from all sectors. That includes a number of school projects, a number of private-sector corporate projects, a number of winery projects and some residential.

Are those residential projects in addition to rebuilds?

We’ve been incorporating rebuild clients into our mix at a level we can provide quality and attention, a few at a time. We also have residential clients not directly related to the rebuild. Having personally been affected by the firm myself, we want to provide as much as we can. We’ve been providing free advice to help people get bearings and settle in as they move through the steps of this process to get back into their homes.

How are the construction-related policies from local governments affecting the flow of your projects?

Both the city and the county have to be commended. They have hired firms to look for precedents and best practices, but they have found we are truly breaking ground in a unique situation.

We’re going to look back and be proud on the efforts of our individuals, agencies and organizations. I’ve been impressed with the aggressive steps that have been taken to both clear the runway and at the same time have a basic element of regulatory review. Bringing in the third-party plan-checkers has been good, because their turnaround times have been commendable.

Construction Industry Conference

Thursday, May 31, 2018, 8–11:30 a.m.

Hyatt Regency Sonoma Wine Country, 170 Railroad St., Santa Rosa, CA 95401

Details and registration: nbbj.news/const18

Read interviews with the conference speakers.

We have not seen the bulk of the projects get submitted yet, because a number of them are working their way through the design and code-update process. I’ve also met with a number of individuals who are just starting the process.

The other piece I’ve been pleased with in the community is aggressively moving toward the 2020 codes with zero net energy on a voluntary basis. Sonoma Clean Power, PG&E, the city and county have provided incentive programs with those who have the capability and the desire to move forward for efficiency and better building processes.

The flip side of the coin is all our regular clients. The rebuild is extremely important, but also important is keeping the rest of our economy moving by allowing businesses to expand their facilities and constructing housing beyond the rebuild. With the third-party plan checks at the city and county, that provides capacity to allow those projects to proceed. We’ve had results where those projects are moving forward.

They’ve found a very delicate balancing act and should be commended that they’re managing to get both done at the same time.

We’ve heard in past boom business cycles that when third-party plan-checkers are brought in, the building industry can get conflicting signals on what’s required.

There’s a little bit of a difference in how it’s structured now versus the past. In the past with third-party plan check, a client could go to one of approved consultants to get a plan check, but it went back to staff for final processing. In this case, both the city and county in a sense set up a different department that has been given the autonomy and authority to process permits.

Should this be the way it continues beyond the recovery?

There are things we can learn from the model that’s currently occurring due to need, efficiencies we can look at. The city and county made fairly big investments in third-party plan check, so I don’t see that model continuing.

But as far as the policy rollbacks, we went through a similar situation during the economic downturn. (Santa Rosa Community Development Director) Chuck Regalia put together an aggressive economic-incentive package that rolled back some of the regulatory requirements as a way to incentivize both developers and commercial entities to move forward with projects.

Some of the most successful were car dealerships on Corby Avenue, rolling back design review to expedite car dealerships to come into town and ramp up quickly. There is a certain amount of self-governance on the car dealerships, because they all want to present their best foot forward, and they were isolated from neighborhoods and next to other auto dealers. We had half-dozen or so dealerships come into town in that timeframe, and it is a big revenue stream for the city.

He also had a number of other incentives, like length of stay for nonconforming uses because getting space leased was difficult. There were about 35 items in the package, and they all had sunsets when they would expire. When we got to 24 months into the process, the department did a careful evaluation on which ones were successful. About one-third of the successful programs became incorporated into the zoning code.

If I look at that model, we’re at another crossroads similar to it, where there has been a lot of good thinking outside the box. Sometimes, a crisis requires a paradigm shift. Appropriately, a lot of these policies have a sunset clause, but just as appropriately, the county and city before the sunset occurs should step back and evaluate which ones have been successful and benefit our community moving forward. I would not be surprised to see some of these policies incorporated into the zoning code.

Which of the new provisions would you lobby to keep?

The answer will be made apparent 12 or 18 months down the road. It’s important to see how these will benefit the community. Some of the work done to streamline the extent of the entitlement process we may want to evaluate to see, if it’s been successful, if can work its way into the more regular zoning code.

Two pieces that the city and county will want to watch carefully is, first, the streamlining of the review process for boards and commissions and, second, which zoning use category elements are allowed outright as a use and those which require a conditional use permit. A number were moved toward outright use and away from conditional use permits, which require a greater level of review.

In that looking-back period to see what’s been effective, could there be room for regular review of permits, similar to what Napa County does with winery use permits?

Reviews are extremely helpful, whether it’s a review to incorporate it long term, or whether, once it’s incorporated, to determine if it’s working. It’s worth noting, though, that we have been in a regulatory climate that has been extremely conservative, in the sense that it wants to make sure everyone has an opportunity to weigh in on a project. That is a choice as a community we’ve made over the years.

But the byproduct of that is we’ve made it extremely difficult and extremely expensive to develop. Recently, we’ve seen the results of that in that we are significantly short of where we should be housingwise. And for a business climate we have a number of organizations that have had development challenges growing. A little bit of recalibration that acknowledges we’ve been in a conservative climate of significant regulatory overview. There is room to recalibrate the needle back to a more balanced situation that provides both public input but provides a climate where it does not require deep products to approach development.

I have a number of clients that are concerned about approaching development because of the horror stories they hear about the depth of expense that goes into the regulatory process because of the number of layers of review, many of them with public input and the byproducts of that.

Some of what we’re seeing in the need for out-of-the-box thinking with the rebuild and the crisis we’re currently in, I hope, will find its way into that balancing point long term. Some may not be appropriate for long-term but some may be, like streamlining and shortening the review process.

Is there a sense with your clients that the construction-labor situation is getting better or worse? Some contractors are saying the slow start to the rebuild has eased it recently?

They are correct. We’re only at the front end of the wave. Both Tennis Wick (head of Permit Sonoma) and David Guhin (head of Santa Rosa Community Development) with permit starts in the low hundreds. It will hit us, and we will be challenged.

But what may happen is we won’t see 5,000 homes in two years. We’ll probably see 5,000 homes scattered over five or six years. From that standpoint, I don’t think we’ll need worker camps to support that, but I do think we’ll be talking about labor constraint for a while.

Another piece is people are thinking outside the box in how to approach that. Both on multifamily side and the single-family side, an awful lot of folks are exploring modular homes or units as a way to get the labor for those units out of the local level, so they can tap into the Central Valley labor pool. Some of the multifamily firms are looking at Oregon and Washington for modular companies. Those are some of the creative ways to distribute that labor.

People are looking at panelization and products that don’t have a big onsite requirement. Any of those are means people are trying to mitigate some of the challenges of the labor shortage.

What have you seen happening with construction-materials costs?

We’re seeing an increase in materials prices. How much of that is reactive and how much is long-term is still trying to be determined. From my crystal ball: We had several years ago a challenge because China as in a building boom, and we had price increases because a vast majority of the world’s materials were going to China. That was a global situation.

The size of China’s demand dwarfs the North Bay rebuild. The material price increases for (China) were steep but not outlandish. We’re seeing some price increases, some of which has to do with concerns about future tariffs, and some are capacity constraints in getting materials here to stage for the local level.

I expect the materials (prices) will settle down on a little bit. We’ll see inflation but not at an outlandish rate.

The labor side is where we have to be very careful long term. Labor is a local issue, whereas materials are something nationally manufacturers can ramp up to support.

What else is happening in local construction?

Great efforts on the part of the Sonoma County Office of Education, CTE Foundation Sonoma County and North Coast Builders Exchange in working hard to project forward in revamping the regional labor pool, starting with high school programs to create a local workforce.

We lost an awful lot of good construction workers in the last downturn because of the severity and longevity of it. In order to deal with the challenges we’ll have in the next six or seven years, this is a very exciting local development.

Contact Jeff Quackenbush at jquackenbush@busjrnl.com or 707-521-4256.