'Strong demand' for hotels, multifamily housing, says Santa Rosa contractor Hugh Futrell

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CEO and co-shareholder of the eponymous Santa Rosa-based corporation, Hugh Futrell has seen a number of business cycles over his four-decade career in land-use planning, development and construction, and asset management.

Under construction is Hotel E, the reworking of the Empire Building in downtown Santa Rosa. The 39-room first phase with meeting rooms and wine bar is set for late June, and set for a year from now is completion of 32 rooms and suites, rooftop terrace and other amenities. Also in construction is the four-story Art House on Riley and Seventh streets, with 15 each of residential and hospitality suites.

Hugh Futrell Corp. is managing the interior postfire rebuild of Santa Rosa Community Health’s 45,000-square-foot Vista campus in Fountaingove. And the 107-apartment, 115-foot-tall, seven-story 888 Fourth St. upscale project was recently proposed.

In the following interview ahead of his speaking at the Business Journal's May 29 Building the North Bay conference, Futrell talks about challenges in recruitment and building affordable housing. It has been edited for clarity.

What is the construction outlook?

There’s strong, strong customer demand for hotels, multifamily units, and other things. Construction costs are high. That makes pro formas difficult.

And anyone who guesses what the future will hold is probably making a mistake.

How are you mitigating costs?

Well, part of it is you try to ensure that you don’t overdesign. That’s No. 1.

No. 2, (have a) broad as possible bid umbrella. That’s also important.

Those things can be helpful, but nonetheless, we’re subject to rising costs like everyone else in our industry.

What do you mean by “overdesign”?

Not so much the exterior design. I’m talking about the detailing of the mechanical systems, the electrical systems, architectural specifications, and those other things which we rely on good designers to put together. And which sometimes can be done less expensively than at other times.

Is that “lean construction”?

It is in theory what people have done for a long time, which is make sure you’re not spending more than you need to. But there is great urgency about that now, because of rising costs.

Are you in employing technologies to deal with labor, such as offsite construction or modularization?

We’re not doing prefab modular units now.

What are your greatest opportunities?

We have an unusual range, because we do all kinds of things, ranging from single-family subdivisions to more intense urban uses, market-rate housing, low-income housing, which we build and manage, as well as various commercial projects and hotel/hospitality projects.

So, the opportunities change based on the economy. And the one thing that is sure is that things do change. And that’s one reason my company is flexible.

We do particularly like to focus on lower-income housing during recession times, because those kinds of projects are relatively immune to adverse market factors.

Because of the array of funding sources they get?

Because the rents in the projects are well below market, your income stream is reliable. Construction costs tend to be lower in the middle of a recession, so it’s easier to make those kinds of projects work.

How are you making your affordable housing projects work in this environment?

It takes a lot more public subsidy.

Are those sources robust?

They would have been pretty robust if the supermajority of (Santa Rosa) voters had approved the (Measure N housing) bond that was on the 2018 ballot, but they did not. The city does have some funds, but they’re limited, given the demand.

Is there hope in initiatives like Santa Rosa Metro Chamber’s housing council of employers?

I’m not counting on those having a meaningful result. If it does, good.

Is that because of the pool of capital?

None of this is very complicated. In the area of land use and housing, in general, there is an excess of talk and a deficit of productive action. So that leads me to be very cautious about initiatives and their potential to accomplish anything.

Other challenges?

A big challenge is recruiting and hiring highly qualified and competent personnel. That is something that almost every industry is facing right now, and the construction industry in particular. There are labor shortages in the construction trades that really affect everybody in the business. But there’s also a shortage of skilled and qualified management personnel too.

We have a very, very good team here. But it is difficult to find competent and qualified people, even at a very attractive pay scale.

How do you find those qualified people?

Someone who merely has a degree is no use to us. It requires not just academic knowledge, but it requires analytical skills and practical, intensive experience.

So that would take recruiting people from management positions?

It’s no different than it is for any other industry. You recruit. You network. We certainly do not poach on our competitors, because that’s unethical, in my opinion. But we do try to reach out beyond our area, for sure, to see who we can find.

What’s behind that difficulty?

That’s two things. One, yes, cost of living here. There are other attractions, of course, for living here, though the biggest problem is there’s just far more demand than there is supply for qualified people.

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