Example Geographic Market Overview · Market competitor landscape Leading contractors and...

1 Example | Market Assessment Study© 2017 FMI Corporation

Example Geographic Market OverviewConstruction spending forecast and market characteristics


$-

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$1,000

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$1,800

Forecast construction spending in the company’s target segments is expected to range from

approximately $1.25 billion to $1.5 billion over the next five years.

Target segment construction spending put-in-place forecastCommercial (i.e., retail), Office, Health care, and Manufacturing segments; Millions of current dollars

Source(s): FMI, Global Insight, Reed Construction Data

History Forecast

2-period moving average

Linear trend line

(R² = 0.322)

Aggressive forecast

(1.7% 6-yr CAGR)

Conservative forecast

(-1.2% 6-yr CAGR)

Construction spending is

forecast to follow the historical

trend, peaking in three to five

years.


Forecast construction spending is largely dependent on developments in the overall national and

state economies due to local market’s industry base.

ForecastSupporting Arguments

Assumptions and Potential

Implications

Aggressive • Demand for commercial space remains strong as national retailers have

announced plans for new construction and redevelopment projects in the

area. Markets like this one have become even more attractive to investors

pursuing higher yields.

• Speculative development in the manufacturing segment and downward-

trending vacancy rates bode well for continued growth in the coming years.

• Decreasing office vacancy rates and high price per square foot from landlords

show that the market is tightening. Lack of large blocks of space are forcing

tenants to consider build-to-suit options or wait until space becomes available.

Vacancy rates are at their lowest point and rental rates are at their highest

point since 2009.

• Commercial construction is also being driven by the rise in multi-use

development as a result of inflow of millennials and the market’s thriving multi-

family market.

• The local market could defy emerging

signs of stalling economic expansion at

the national level, creating an opportunity

for modest growth in the company’s target

segments.

• Recent labor challenges in the local

market would likely be exacerbated.

• Competition may increase as more out-of-

market contractors consider the local

market an attractive location for business

expansion.

Conservative • Interest rate uncertainty lingers, and if rates are raised, it could cast lots of

uncertainty over owners.

• The status of the national and local economy are always impacted by the

outcome of federal, state and local elections.

• Local unemployment rates fell because of a shrinking labor force at the end of

2014; stagnant wages continue to throttle the pace of growth; and the local

market’s housing market, though appreciating, has not bounced back when

compared to its 20 peer metropolitan areas.

• The spike in office construction could be attributed to construction of larger

projects

• Construction spending in the company’s

target segments could be reaching their

respective peaks and begin to decline

within the next three years.

• Project postponements and related delays

may become more common.

• Competition could ease if one or more

recent entrants decides to leave the local

market.

Construction spending forecast assumptionsAggressive vs. Conservative views

Source(s): FMI analysis of multiple sources


The company’s target segments,

which include the commercial

(i.e., retail), office, health care, and

manufacturing segments, represent

approximately 15% of total construction

spending put-in-place in the local market

for 2014. However, this should not be confused

with the company’s “addressable” market. In other words,

it is assumed that the company would not pursue nor be considered for all project opportunities

within its target segments (e.g., preferred project size, contract/delivery method). As such,

the company should consider what its true “addressable” market is within this volume.

Construction spending in the company’s target segments represents 15% of total construction

spending in the local market and roughly 25% of the state total.

Target segment opportunity comparisonsLocal market and statewide (2014)


Total construction

$9,550 million

Nonresidential buildings sector

(includes multi-family)

$3,556 million (37% of total)

Target segments

Commercial, Office, Health care, and Manufacturing

$1,980 million (21% of total)

28%

72%

Nonresidential buildings

sector (includes MF)

35%

65%

Commercial segment

33%

66%

Office segment

23%

77%

Health care segment

22%

78%

Manufacturing segment

MSAStatewide


The majority of construction spending in the company’s target segments (on a dollar basis) has

been negotiated construction management and design-build.

11%2%

33%

54%

17%

35%

48%

33%

33%

33%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Open Prequalified Invited Negotiated General contract Design-build Construction

management

<$500 $500-$1,300 >$1,300

By contract method By delivery method By project size

Construction spending distributions in the company’s target segmentsPrior 36 month trend; Dollar basis

Source(s): FMI, Reed Construction Data

$USD Thousands


There is relative parity of forecast construction spending in the company’s target segments.

$-

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$1,000

$1,200

$1,400

$1,600

$1,800

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015f

2016f

2017f

2018f

2019f

2020f

Commercial

Manufacturing

Office

Health Care

History Forecast

Construction spending by segment (Conservative basis)Millions of current dollars



Commercial construction spending is forecast to range between $300 million and $400 million per

year through 2019.

Commercial (i.e., retail) construction spending put-in-placeMillions of current dollars


2012 2013 2014 2015f 2016f 2017f 2018f 2019f

History $237.27 $272.76 $325.92

% change 12% 15% 19%

Aggressive $237.27 $272.76 $325.92 $364.57 $380.09 $389.20 $396.59 $400.99

% change 12% 15% 19% 12% 4% 2% 2% 1%

Conservative $237.27 $272.76 $325.92 $334.51 $361.07 $365.07 $311.64 $313.12

% change 12% 15% 19% 3% 8% 1% -15% 0%

$-

$100

$200

$300

$400

-10%

-5%

0%

5%

10%

15%

20%

25%

2012 2013 2014 2015f 2016f 2017f 2018f 2019f

% chg. $Definitions

Includes buildings and structures used by the

retail, wholesale and selected service industries.


Most economic indicators illustrate the influence of national trends on the local economy.

$30,000

$34,000

$38,000

$42,000

$46,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Per capita wages

8.7%

4.0%

7.6%

10.2%

7.9%

-0.9%

3.0%

-3.7%

3.6%

7.6%

3.4%

6.5%

4.3%

3.4%

4.9%

6.6% 6.7%5.8%

4.5%

1.6%

-2.1%

3.8% 3.7% 4.2% 3.8% 3.9%

-6%

-3%

0%

3%

6%

9%

12%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

GDP growth

2,223,894

2,257,149

2,295,879

2,337,339

2,380,314

11.0%

9.8%

8.8%

6.4%5.0%

0%

2%

4%

6%

8%

10%

12%

2010 2011 2012 2013 2014

Population and Unemployment Rate

MSA

U.S.

MSA

U.S.

Over the last 5 years, the population in the metropolitan area has

grown annually at a rate of 1.4%, however, the per capita income

for the MSA is approximately 7% less than that of the rest of the

United States. The unemployment rate has also steadily

decreased, reaching 5% in 2014, its lowest rate since the

recession.

The local market’s reputation of having a highly educated

workforce and its position as a desirable location for millennials to

thrive in a work/play/live is expected to attract talent to the area.

Economic indicators for the local marketSource(s): Census, FMI, US Bureau of Economic Analysis


The leading local market contractors have market shares ranging from 13% to 3%.

Ma

rke

tsh

are

Mu

lti-

fam

ily

Lo

dg

ing

Off

ice

Com

me

rcia

l

Hea

lth

ca

re

Ed

uca

tio

na

l

Relig

iou

s

Pu

blic

sa

fety

Am

use

me

nt &

recre

atio

n

Tra

nsp

ort

atio

n

Com

mu

nic

atio

n

Ma

nu

factu

rin

g

CONCORP 13% ● ● ● ● ●

ABC 9% ● ● ● ● ● ●

American 8% ●

Southern

Builders7% ● ● ● ● ● ●

Eagle 6% ● ● ● ● ● ● ● ● ●

Brown & Co. 4% ● ● ● ● ● ●

Excel 3% ● ● ● ● ●

Smith Inc. 3% ● ● ● ● ● ● ● ●

Big Builder 3% ● ● ● ● ● ● ● ● ●

General

Contracting3% ● ● ● ●

Estimated market share and primary segment coverage for the 10 largest contractors in the local marketRevenue basis; Nonresidential buildings (including multi-family)

Source(s): Local Market Business Journal, FMI, Global Insight, public corporate press

The top 10 non-residential building contractors in

the local market have estimated market shares

ranging from a high of 13% (CONCORP) to a low

of 3% (General Contracting). Should the

company desire to establish a permanent

presence in the local market, it is assumed that it

would do so only if the company could achieve a

market share on par with the leading competitors.

Those contractors with a broader range of

segment coverage demonstrate no greater

overall market share than those with a narrower

focus. the company has indicated interest in four

primary segments; Commercial (i.e., retail),

Office, Health care, and manufacturing. As such,

FMI assumes a target market share for the

company in the range of 3% to 5%. Should this

be a reasonable estimate, then the company

could expect annual revenues generated from a

permanent local market presence of $50 million

to $60 million over the next five years.

the company must determine the Return on

Investment associated with establishing

permanent local presence vs. it’s current model

of serving the market from its current location

(similar to the model employed by General

Contracting).


Market shares reflect current/ recent potential estimates more so than definitive or static

figures. These market potentials were determined by estimating the trade-related revenue

range for each firm based on publicly-available sources and interviews with local industry

stakeholders (e.g., general contractor estimating and/or preconstruction staff, trade

associations) by FMI. The market potentials and trade-related revenues are limited to the

nonresidential building and multifamily construction

segments only.

23%

18%

16%

7%

3%

3%3%

3%3%

3%

16%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Market competitor landscape

Leading contractors and self-performing CM/GCs in the MarketLocal market share potential (recent years basis); Nonresidential building and multifamily construction spending only


Other trade contractors and self-

performing CM/GCs identified include

but are not limited to the following.

• Company

• Company

• Company

• Company

• Company

• Company

$__M

Total estimated trade spend (2015)Market

Nonresidential building and

multifamily construction segments

Source(s): FMI

Specialty trade contractor

Self-performing CM/GC

2%


Market competitor landscape

Project size association Firm Estimated revenue Local market perceptions

Large Company $50 Notes

Company $40- $45 Notes

Company $32.5- $37.5 Notes

Medium Company $12.5- $17.5 Notes

Company $7.5- $12.5 Notes

Company $7.5- $10 Notes

Small Company $5- $7.5 Notes

Company $5- $7.5 Notes


Company <$5 Notes

Company <$5 Notes

Company <$5 Notes

Company <$5 Notes

Self-performing CM/GCs Company $5- $7.5 Notes




Other self-performing CM/GCs identified include Company, Company, and Company. These three firms were estimated to self-

perform $2M to $4M in the local market.

Identified trade contractors and self-performing CM/GCs in the MarketLocal market revenue estimates (millions)*; Nonresidential building and multifamily trade construction only


*These revenue estimates reflect the typical for each firm.

However, annual revenues can vary significantly (e.g., 50%-

100%) by year depending on the award of a major project.


Rank (

by 2

013 lo

cal

revenue)

Competitor

Comparable

company

NPS; average

likelihood to

recommend

score

2013 local

revenue

(millions); %

change from

2012

Estimated

market

share

Estimated

success

rate

Construction segments served*

Air

po

rt

Hosp

ita

lity

Ind

ustr

ial

Infr

astr

uctu

re/

pu

blic

wo

rks

Institu

tio

ns

Ma

nu

factu

rin

g

Off

ice

Resid

en

tia

l

Reta

il

Sp

ort

s

facili

tie

s

Oth

er

1CONCORP

100%

9.5

$649.0

-20.8%

5%-7% 30%-40%

2ABC

0%

7.5

$629.2

7.0%

7%-9% 15%-25%

5American

70%

9.0

$446.2

-2.6%

3%-5% 25%-35%

6 Southern

Builders

86%

9.6

$438.1

-34.9%

4%-6% 40%-50%

11Eagle

100%

9.9

$279.1

7.2%

2%-4% 30%-40%

14Brown & Co.

82%

9.4

$235.9

-25.2%

2%-4% 35%-45%

19Excel

70%

9.2

$170.0

1.2%

1%-3% 30%-40%

24Smith Inc.

100%

9.5

$132.6

43.2%

<2% 45%-55%

Leading competitor characteristics (Local Market)Source: FMI, Crain's; Survey questionnaire response (n=51)

* These are the reported segments by Crain’s. The light blue shaded cells indicate the construction segments served by each competitor. The dark blue shaded cells indicate those

construction segments that the competitor was most often associated with the company according to survey questionnaire responses.

No leading local competitor appears to have more than 10% market share in the company’s pursued

construction segments (and most average less than 5%).


Relatively few nonresidential building contractors have achieved revenues in excess of $100 million

in recent years.

Company 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014CAGR

09-14

CONCORP 80 83 139 116 156 254 270 497 774 414 415 441 418 306 399 -0.7%

ABC 220 171 128 125 108 126 134 294 322 305 282 328 292 189 279 -1.8%

American 69 139 165 209 224 227 144 195 164 65 108 134 292 325 236 22.5%

Southern

Builders125 140 184 119 125 109 241 251 272 309 221 201 232 151 223 -6.3%

Eagle 117 129 159 153 155 167 199 208 174 125 117 147 172 212 188 8.5%

Brown & Co. 175 178 180 223 217 149 221 248 284 122 65 128 1.1%

Excel 267 458 407 53 102 86 125 140 129 112 63 55 95 146 97 -2.9%

Smith Inc. 72 86 75 92 105 110 115 106 138 140 71 78 102 82 94 -7.6%

Big Builder 80 91 136 102 106 134 264 191 60 97 45 48 54 70 87 -2.2%

General

Contracting92 111 77 76 116 131 138 121 126 106 87 71 65 63 70 -7.9%

Runner Up 134 263 103 73 157 140 124 109 166 110 68 76 60 71 69 -8.9%

Last Place

Co.28 32 24 27 32 59 56 91 95 37 30 62 65 61 69 13.1%

Largest non-residential buildings contractors (by 2014 revenue rank)local market revenues; Millions of current dollars

Source(s): Local Market Business Journal, ENR Southeast Top List, FMI


Several of the leading contractors in local market have been recent entrants, typically via

acquisition.

$-

$100

$200

$300

$400

$500

$600

$700

$800

$900

1 2 3 4 5 6 7 8 9 10 11 12

1 acquires A in 2007 and

B in 2009.

3 acquired C in

2004.

7 acquired D in

2000.

6 has transitioned to a pure program manager role in the

local market following its recent award to manage the

entire capital program for Big Owner.

The grey bar indicates the range

in annual revenue the company

has experienced from 2000 to

2014. The orange diamond

indicates 2014 revenue.

Revenue trends for the largest non-residential buildings contractorslocal market revenues; Millions of current dollars

Source(s): local market Business Journal, ENR Southeast Top List, FMI investigation of multiple sources.

In addition to the contractors presented in this chart, the following additional contractors should be

noted (2014 local revenue estimate).

• 13 ($107M); State headquarters located in Big City. Appears to be pursuing opportunities in the

local market more aggressively.

• 14 ($95M); Opened its local market office in 2008 in conjunction with a $20M plant for MFGI INC.

in Metropolis. The company purchased the backlog of 18 (which filed for Chapter 11 in 2011).

• 15 ($62M); Little City-based contractor that appears to be pursuing projects beyond the Hillside

market more frequently in the past three to five years.

• 16 ($22M); Established a local market office in 2007 upon following long-time client .

• 17 ($21M); Opened its local market office in 2001 and acquired local contractor, XYZ, in 2011.


The share of nonresidential building construction spending has steadily been taken by the largest

local contractors.

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

All others Top 10 contractors

Share of nonresidential buildings construction spending put-in-place (including multi-family) by the 10 largest local contractorsMillions of current dollars

Source(s): Local Market Business Journal, ENR Regional Top List, FMI, Global Insight

1993-2000

2000-20072007-2014

The top 10 contractors in terms of

revenue have increased their combined

share of nonresidential buildings construction spending put-in-place in the

local market by roughly 10 percentage points every seven years since

1993.

~30% share(1993-2000)

Average non-residential building

construction spending put-in-place

(including multi-family)







~40% share(2000-2007)

~50% share(2007-2014)

Example Geographic Market Overview · Market competitor landscape Leading contractors and...

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