NDAA-Based Changes to Subcontracting Rule Will Affect Set-Asides

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At the end of December 2014, the Small Business Administration issued a proposed rule to implement provisions of 2013’s National Defense Authorization Act which require significant modifications to the subcontracting limitations for small business concerns. Specifically, the modifications concern the Limitations on Subcontracting Rule (13 C.F.R. 125.6). The proposed changes may leave small businesses having to rethink how they do business.

Currently, the Limitations on Subcontracting Rule limits how many subcontracting obligations prime contractors can relegate to outside entities, for example large companies that do not qualify for set-aside government contracts. The proposed rule suggests changes that would require companies to change how they determine subcontractor compliance, certify compliance in the bidding process, and impose serious fines for delinquencies.

As of now, the compliance ratios are based on the costs of the project and require the prime contractor to incur at least 50% of the cost and personnel expenses of each subcontractor’s part of the project. Section 125.6 provides different cost-based ratios to determine that 50% which are determined by the type of contract and type of set-aside.

The proposed rule would shift the calculations to an income-based metric. Prime contractors would be required to keep in-house a certain percentage of project income–including passive income–from set-aside contracts paid by the government. It would also limit distinctions based on the type of set-aside. Service and supply contracts would allow no more than 50% of contract income to be passed on to subcontractors. Construction would allow no more than 85%, and specialty trade would allow no more than 75% of income to be passed on.

There are two important exceptions to the proposed rule. The first is for “similarly situated entities.” Bearing in mind the philosophy behind the set-aside program, prime contractors will be allowed to contract out to companies who also qualify under the same set-aside category, but the financial considerations of that relationship would not be counted toward the income limit. But sub-contracts made with much larger entities that do not qualify for set-asides will still be counted toward the income limit. The second major exception is that the rule would not apply to contracts valued under $150,000, which smaller companies–that qualify for set-asides–are more likely to bid on.

Ultimately, this rule change closes a loophole under the current 125.6 rule that only accounts for the first prime-sub contractor relationship when assessing and accounting for all levels of a contractor’s subcontractor relationships. Presently, companies can get around the subcontractor limitation through sub-subcontracting out under the prime subcontractor. The new rule forces companies to address the new limitations in their contract bids for set-asides by: Certifying that they can satisfy the rule’s income conditions, identifying any similarly situated entities they plan to subcontract through, and noting what percentage they plan to subcontract to which entities. The contracting officer’s approval would be needed to make any post-award changes.

This new rule change would also impose steep penalties for failure to comply with the Limitations on Subcontracting Rule. Violators would be subject to “the greater of either $500,000 or the dollar amount spent in excess of the permitted levels for subcontracting.”

The Small Business Administration’s proposed changes may seem daunting to companies that have carefully structured their business relationships to be in compliance with current law. However, the changes will do much to ensure the future viability of the SBA’s set-aside programs. When smaller, disadvantaged prime contractors subcontract out the bulk of projects to large corporations, they are defeating the purpose of the set-aside structure.

The proposed changes are available for public comment through February 27, 2015. Comments on the Limitations on Subcontracting Rule section 125.6 may be made on the regulations.gov website.

Spring Home & Garden Show at The Woodlands!

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After a hard winter, we’re ready to see the latest home and garden trends, just in time for the Spring building season! The Woodlands, TX is holding their biannual Home & Garden Show on Saturday, March 7, from 9 a.m.-7 p.m. and Sunday, March 8, from 10 a.m.-6 p.m. The Show will be held at the Woodlands Waterway Marriott Hotel & Convention Center, on 1601 Lake Robbins Drive.

Event producer Tony Wood says that “Spring in The Woodlands is the perfect setting for our home improvement show,” adding that, “residents throughout the area have come to depend on us to introduce them to new products for their homes–inside and out–and for the 13th straight year that’s exactly what we intend to do.”

Domestic gourmets will be excited to see the trends in kitchen remodeling and renovation featured at the show. Wilsonart is sponsoring an extensive quartz countertop feature area, where they will debut their new quartz line of countertops alongside their traditional floor laminates and decorative surfaces.

New for 2015 is the Ferguson Kitchen & Bath Lighting Gallery Thermador Cooking Stage, featuring Chef Robbie, the expert on Thermador appliances. He will give four demonstrations each day, alternating between “Thermador’s Quick Weeknight Dinner from Start to Finish,” and “Sizzl’n Seafood in the Thermador Convection Steam Oven.” Molly Fowler, the Dining Diva, and Chef Austin Simmons of Hubbell & Hudson will share recipes and tips during their live-cooking demonstrations at the Cunningham Gas outdoor cooking stage.

Kohler is shaking things up a bit with this season’s show by bringing a mobile version of their testing lab from Wisconsin to Houston. Show visitors will be able to enter Kohler’s “Trust the Flush” custom motor coach and see for themselves how the company tests their toilets.

Perennial favorite Stewart Land Designs will be on hand to showcase 2015’s new landscaping trends. Creating unique and functional outdoor living spaces in a home’s natural environment is the company’s specialty. Show-goers who enjoy organic gardening should be sure to catch Nature’s Way Resources‘ In-Show Garden Center.

The Woodlands’ Spring Home and Garden Show tickets are $9 for adults, $8 for seniors, and free for children 12 & under. Free covered parking is available behind the convention center next to the Cynthia Woods Mitchell Pavilion at Six Pines and Lake Robbins. A skywalk will take pedestrians from the 4th floor of the parking garage to the hotel/convention center for the show. Follow the signs and take the escalator down to the show floor lobby and entrance.

For more information about the show, call 832-274-3944 or visit WoodlandsShows.com, where a downloadable discount coupon for $1 off admission is available.

Healthy Living a Luxury Amenity for New Miami Development

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With the upswing in WELL certifications and Universal-Access features, it was only a matter of time before developers realized that a healthy lifestyle could be also be a luxury amenity. Nicholas Nehmas of the Miami Herald reports that the new $200 million mixed-use development going up near Aventura mall is dedicated to healthy living. According to architect Bernard Zyscovich, “an active lifestyle is an attraction” that will make his Aventura ParkSquare project very sought-after.

Central to the development is the idea of a comfortably walkable community core. Instead of driving around or sitting in the air-conditioning, residents will be able to navigate the 7.5-acre community on spacious sidewalks that are shielded from rain and heat by a landscaped protective canopy. The walkways will not have curbs, which Zyscovich hopes will encourage joggers and strollers, walkers, and the wheelchair-bound, to roam free from the beaten path.

Integra Investments principal Victor Ballestas says, “we want people walking from location to location…Ultimately walkability is good for business.” Integra is one of the project’s development partners.

Consultant Dr. Karen Lee, formerly of the New York City Department of Health, specializes in public health consulting for urban planning. Public health-informed urban planning and architectural design has evolved into its own discipline: “active design.” When asked about the role of active design in the Aventura ParkSquare project, Dr. Lee explains that, “There’s now a strong base of evidence that when you design physical activity into your buildings and streets and neighborhoods, it can increase people’s physical activity.” As America’s current epidemics are obesity and diabetes, “creating healthy streets and neighborhoods can be an incredible tool for improving public health,” she says.

 The development will include Class-A office space, restaurants, retail shopping, a hotel, a small medical office, a residential tower with 131 units, and a senior living facility. The community will feature fitness studios, a roof-top pool, and an urban garden where residents can grow their own food. Inclusion of natural light in the wide stairwells and corridors will give residents “the option of walking comfortably instead of taking the elevator,” Zyscovich said. The residences range from 1,000 to 1,800 square feet in size, with a price range of $400k-$800k.

Located at the corner of 2900 Waterways Boulvard and Northeast 207th street, Aventura ParkSquare is expected to break ground during the first quarter of this year, and is slated for completion in early 2017.

Dallas’ Legacy West Mega-Development Breaks Ground Thursday

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The Legacy West mega-development will break ground tomorrow, according to Steven Brown of the Dallas News. This greatly anticipated project, a collaboration between Karahan Companies and Columbus Realty Partners, will occupy 34 acres at the intersection of the Dallas North Tollway and Legacy Drive. The development is just east of the site where Toyota Motor Corporation’s new $350 million North American headquarters will be built. The proximity of this high-density, mixed-use urban village was a key factor in Toyota’s decision to expand into the Legacy business park. The project is expected to create 1,500 commercial construction jobs over the next 18 months.

Developer Fehmi Karahan says that the Gensler–designed project is “going to build the project all at once,” with “about 280,000 square feet of retail and restaurant space and 621 apartment units initially.” Karahan adds that, “there will be about 240,000 square feet of offices over the retail space.” Karahan hopes “to have everything open in October of 2016.”

“There is a tremendous amount of interest,” said Karahan, whose  representatives with Open Realty Advisors have already begun the leasing process with several large retailers and restaurants.  Toyota will begin moving its 4,000 workers from Southern California into the nearby campus in 2017. It will be one of the largest domestic corporate relocations in American history.

Legacy West’s residential apartment section is headed by builders Robert Shaw and Roger Staubach of Columbus Realty Partners. The $82 million, 300-unit Renaissance Hotel will soon be underway at the northeast corner of Legacy and Headquarters drives. The 7 acres on the north side are slated to become either a condo tower or an office building. Alongside the commercial development, a 12-acre high-density private residential neighborhood will be built on the west side of Communications Drive next to J. C. Penney’s corporate campus. Plano’s BR Homebuilding Group has been tapped to construct this urban, single-family dwelling community. The Legacy West urban village has an estimated value of $400 million, according to Karahan.

The plans for Legacy West began soon after the outrageously successful launch of Legacy Town Center. In 2014, Karahan Companies and Columbus Realty reached an agreement with partners KDC and J.C. Penney to develop the vacant 240 acres surrounding the department store company’s West Plano headquarters. Soon thereafter, KDC had also signed on to build a new 265,000-square-foot headquarters for FedEx Office as part of the Legacy West project. An estimated 1,200 FedEx employees will move into the Legacy West apartments later this year. KDC is also building the Toyota project.

 

Growth in Florida Home Starts for 2014 Despite Land Shortage

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The home building rates in Palm Beach and Broward Counties have slowed to a crawl for lack of lots. According to HBWeekly’s market stats reports, Palm Beach County saw 2,132 starts on single-family homes, townhomes, and duplexes in 2014, a 3% increase year-over-year from 2013. Broward County’s starts reached 1,194, a rise of 7%. The growth came as a pleasant surprise, because both counties face severe land shortages which are impeding the development pipeline.

The housing boom of 2000-2005 saw 7,000-10,000 in housing starts for both counties, because there was land available then. The land constraints have resulted in a niche market which isn’t predicted to improve anytime soon. The available land in Palm Beach County is concentrated in the west-central corridor neat Boynton and Delray beaches. The land has yet to enter the development pipeline, and is as yet un-zoned and un-permitted pending several levels of government approval before construction can begin. Broward County is seeing construction in Tamarac, Pembroke Pines, and Parkland, the latter of which will see hundreds of new homes built over the next few years. Excepting those areas, the real estate market in Broward is set to focus on redevelopment.

Jim Carr, president of CC Devco in Palm Beach ,says that the lack of lots has led to bidding wars in Palm Beach and Broward counties. According to Carr, “Land prices are up dramatically, which is affecting home prices.” Carr adds that CC Devco is “doing very well in Palm Beach, but we have nothing else in the pipeline, and I’d like to have that very much. But prices have been driven up so far there hasn’t been anything we feel comfortable buying.”

Labor shortages are also a point of concern, though to a lesser extent. The housing market collapse drove subcontractors out of the industry and into new careers. This has left some small builders struggling to complete homes. Laborers prefer to work for the volume builders like D.R. Horton, Lennar, and KB Homes, rather than small local outfits, because the work is steadier. Scott Worley of the Gold Coast Builders Association says that existing subcontractors are able to charge more due to labor shortages, but that they aren’t willing to hire more help because the homebuilding market growth just isn’t there. “There’s a hesitation to take on additional employees to do more volume,” Worley says, “because they went through the traumatic downturn that has changed their perspective.”

HBW serves building trades professionals in Georgia, Alabama, Florida, Texas, and Oklahoma. Building professionals who are proactive and informed can count on HBW’s newsletter to deliver the latest in building trends, construction technology innovation, and regulatory activity. To show you how we can help your business succeed, HBW is glad to provide you with complementary building data report or one of our specialized White Paper Reports. Contact us today and start making your business more profitable!

 

WELL takes the LEED in Building Standards

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In only 14 years, LEED has become the worldwide gold standard for eco-friendly, energy-efficient construction, but it hasn’t made the same strides in human health-consciousness.  Delos Corporation aims to change that with its release of the latest version of the WELL building standard. The new health-conscious construction standards will cooperate with LEED to enhance the impact that our built environment has on human health and wellness.

According to Paul Scialla, a founder of Delos and of the WELL Building Standard, “Our intention was to push the sustainability notion in real estate beyond the environmental considerations and into human or biological considerations in the built environment,” by “combining elements of health, well-being, and preventative medicine into architecture, design, and construction.”

WELL’s goal is to create buildings that work passively, 24/7, to improve human health. “[T]hink of a house that could effectively be a 24-hour car wash working on your body just by living in it,” says Scialla, “We’re taking the largest asset class in the world, real estate, and we’re infusing it with the growing industry of health and wellness. People are spending money on preventative medicine and alternative healing” and Delos believes that if they can “properly codify a standard to work toward those intentions of infusing health and preventative medical practices into four walls and a roof, people will pay for it.”

The WELL standard currently awards three levels of certification: silver, gold, and platinum. The standard itself is based on technology and design criteria from seven categories of building performance that impact human health and well-being:

  • Air- To achieve optimal indoor air quality by removing airborne contaminants through prevention and purification
  • Water- To achieve optimal water quality as required for each particular use, and removes contaminants through filtration and treatment
  • Nourishment- To achieve healthy eating habits through design features, behavioral cues, healthy options, and knowledge of healthier food choices
  • Light-To creates task-specific illumination levels and enhanced light quality that improves mood, visual acuity, energy, productivity, and sleep using design, customizable controls, and light therapy
  • Fitness-To increase physical activity and ensure access to aerobic, strength, and flexibility training that fits the occupants’ daily schedule
  • Comfort-To create a distraction-free, productive, soothing environment using design standards that incorporate control of the acoustic and thermal comfort levels
  • Mind-To support mental and emotional health through continual feedback regarding occupant’s professional and personal environments, accommodation of relaxation spaces, and soothing design elements

The International WELL Building Institute will launch the WELL Accredited Professional (WELL AP) credential this year. WELL AP is an advanced credential intended for real estate, building, and design professionals with a bachelor’s degree and five years of experience or 10 years of professional experience plus 12 hours of WELL AP instruction and the successful completion of the WELL AP exam.

For 2015, Lennar Will Wait-and-See about Houston

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Lennar has noted a slight pullback in the higher-end housing market, and the company expects “further reconciliation” within the housing market. The dip is no doubt attributable to the recent drop in oil prices, as much of the city’s job growth was related to the energy sector. In last week’s fourth-quarter earnings call, Lennar Corp. CEO Stuart Miller is hopeful that Houston’s diversity will offset the petroleum decline, but also said the company would adopt a “wait-and-see” approach to the Houston homebuilding market. The following excerpts from the earnings call were provided to the Houston Chronicle from Seeking Alpha.

In response to queries about Lennar’s position in Houston, Miller acknowledges that there are more questions than answers at the moment. “Houston, of course, is at least in part, as an economy dependent on the oil complex and the oil complex is going through a reconciliation,” says Miller, “we haven’t seen a significant change in that market condition. We are seeing a little bit at the higher end of a pullback but we have anticipated in our internal projections that there will be further reconciliation in that marketplace.”

When asked about the potential for a housing market slowdown for the entire state of Texas, Miller cites that existing cross-currents are affecting the economic picture for the state which should negate the impact of the oil slump. “I think that the downside, even in a market like Houston, the downside is kind of defined by a change in the employment structure of the market where you start to see the oil complex really shed some jobs and that affects confidence and home sales,” says Miller, “but I think that there are some countercurrent kind of considerations.”

Miller does go on to add that, “while the oil complex moves down, gas prices come down and Houston is a more diversified platform than it has been in prior oil downturns. So we are not looking, we are not expecting a very sizable downturn, but I think that the way that we have configured our company and we have focused on purchasing assets.” The real estate assets Lennar has acquired have demonstrated that, “even in a downturn scenario, are the locations that hold up the best, that continue to perform the best in the market and we think that any downturn ends up being fairly shallow and we move forward.”

 

 

D. R. Horton’s Express Strategy Shift

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Development giant D. R. Horton’s latest quarterly results, these numbers are a strong indicator that the U.S. homebuilding industry is shifting in ways that will benefit the national economy, even if the trend does irk investors. By market closing on Jan 26th, D. R. Horton posted a 35% increase over a year ago in orders for its first fiscal quarter ending Dec. 31. Each of Horton’s regions gained 26% on a year-over-year basis, demonstrating a widespread improvement over analysts’ expectation of a 25% gain for 2014.

While markedly improved over 2013’s rates, new-home sales for 2014 slumped intermittently throughout the year and average only 57% of the national housing market. But the uptick in new construction bolsters job creation and the U.S.’s GDP. The outlook for 2015 is bullish, with January sales already picking up and an inventory of 1,000 more spec homes ready for sale than last year.

  1. R. Horton Chief executive David Auld says that “I think we’re better positioned this year coming out of the blocks than we were last year, and we are well positioned to capture what we think is going to be a good spring.” The economic climate for home-buying has improved in all regions, which leaves the developer optimistic about the 2015 market. Lower gas prices and consumer confidence gains due to federal pledges to ease mortgage-lending qualifications standards are also contributors to the rosy outlook.

The part of the story which irks investors is D. R. Horton’s shift from upscale higher-end homes to entry-level starter homes beginning in 2015. The majority of home builders spent 2011-2014 building big, high-priced homes because the more affluent citizens were the only creditworthy homebuyers during that time. The lower inventory of pricier homes has translated to thick profit margins for the company. But entry-level buyers are expected to return to the market in 2105 as federal mortgage criteria relax for first-time buyers. Key to enticing these new buyers is the quality of the incentive package being offered to new homeowners. The incentives also cut into profit margins.

Margins are also being squeezed by the decelerating home prices coupled with increased construction costs. The land currently exiting the development pipeline was purchased in 2012-2013 when lots were becoming pricey. Materials costs and labor shortages also contribute to the shrinking profit margin. D. R. Horton avoided the fate of KB Homes by fully disclosing its predictions of margin decline months ahead of the downturn, and their predictions about rate of shrinkage were accurate.  The overall effect, according to  Raymond James analyst Buck Horne is that although “the entire home-builder industry has been under pressure as margin expectations have been ‘reset’ due to increased incentives and higher-cost land that will weigh on profitability (this year),” Horton’s margin decline “was well communicated and likely better than many had feared.”

To capitalize on the entry-level boom predicted for 2015, D. R. Horton founded its Express line of new homes.  As a high-volume builder, D. R. Horton has the resources and strategic wherewithal to begin the entry-level home building trend.  Selling for an average of $169,000, Express homes accounted for 13% of Horton’s bottom line for 2014. Horton’s entry-level home gambit is essential for developing the homebuilding market’s long-term capacity to draw new buyers.  Securing customer loyalty early on will translate to brand loyalty in the following decade as buyers upgrade into pricier homes.

USGBC Elects New Board of Directors

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The United States Green Building Council has finally announced the members of its 2015 Board of Directors. The following five directors will each serve three-year terms:

Stephen Bushnell, of Stephen Bushnell & Associates will serve as the  Insurance Director (incumbent)

Linda Chipperfield, of Green Seal, Inc. will serve as the Environmental Nonprofit Advocate Director (newly elected)

Amy Costello, of Armstrong World Industries will serve as the Product Manufacturing Director (newly elected)

Denise Grabowski, of Symbioscity will serve as the Urban/Regional Planning Director (newly elected)

Christopher Schaffner, The Green Engineer, Inc. will serve as the Sustainable Practice Leader: Engineer Director (newly elected)

USGBC founding chair and CEO Rick Fedrizzi says that, “USGBC’s Board of Directors provides invaluable direction and perspective, collectively bringing decades of experience to the table and using their individual expertise to shape the future of the organization, the community and the green building movement as a whole.”

In its recent New York Meeting, the USGBC appointed two directors to fill the two-year appointed positions:

Mark James, of Urban Green LLC, will serve as the Director of Sustainable Community Leadership (formerly in the Green Affordable Housing seat)

Vance Voss, of Principal Real Estate Investors will serve as the Director of Commercial Real Estate Executive Leadership (newly appointed). During his 22 years as portfolio manager for Principal Green Property Fund I at PRI, Voss has managed the oversight of over $1 billion in Leadership in Energy and Environmental Design (LEED) projects nationwide.

Of his prior experience and its impact on his new role, Voss says that “Principal Real Estate Investors has a long-standing commitment to corporate stewardship and an established track record in responsible property investing. It is an honor to be chosen to help further the idea of a sustainable future through green buildings.”

According to Fedrizzi, “Delivering on the promise of developing buildings that sustain and enhance the vitality of life within a generation is no small undertaking. Our Board of Directors is comprised of representatives from many different segments of the building industry and will undoubtedly make great strides in the coming year. I know that Vance will be a valuable contributor in his role, given his wealth of experience and knowledge.”

Florida Realtors Summit 2015 Reports Strong Market

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The state’s economic and realty markets in 2014 had experts from the MarketWatch asking, “Has Florida found the secret to saving the economy?” That year saw the state’s market recovery level since the 2008 meltdown outperforming nearly every other housing market in the nation. According to Florida Department of Economic Opportunity Executive Director Jessie Panuccio, the picture looks even brighter for 2015.

Panuccio addressed the Florida Realtors’ 2015 Summit, the kickoff event for the recent Florida Realtors’ Association Mid-Winter Business Meeting. He was joined by Dr. Brad O’Connor, economist and director of economic research for Florida Realtors, and Ted Jones, chief economist and senior vice president for Stewart Title Guaranty Company.

“Things have changed quite remarkably for this state,” says Panuccio. “The U.S. Census recently announced that Florida has officially become the third most populous state … about 800 people move to the state each day now. Why are they moving here? We’re a destination state again – people feel they can make a future here, and that’s good for Florida, the economy and the real estate industry.”

The past 12 months has seen Florida’s private sector growth rate reach 3.4%, and the broad-based recovery has buoyed across all industries and all fields in each region of the state. Panuccio states that “Our labor force is growing over four times faster than the national labor force [over the past years]. Of the 10 largest states, we are the fastest-growing labor force in the country.”

Economist Ted Jones is “bullish on what’s ahead for 2015” for the state and national economies. Job growth dominated by an increase in higher-earning positions, are a major factor. “There were 2.95 million total jobs added in the U.S. over the last 12 months,” Jones says, “To beat that growth period, you’d have to go back to 1999. We created 246,000 jobs in each month of the last 12 months. Here in Florida, we expect between 2.2 to 2.4 percent total job growth in the next year. I’m trying to tell y’all you’re setting yourself up for a great year next year.” Jones also says that affordable mortgage rates, and demographic shifts that will increase the market pool are all expected to help make 2015 a strong year for the market.

Dr. Brad O’Connor discusses how the Florida market is now showing normal, balanced growth, as the pace of sales, median home prices, and other statistics indicate a sustainable level of growth. “For the first time in a couple of years, we’re seeing new listings outpace sales. Months supply has returned to hover between 5 to 6 months, which historically we say is a ‘balanced’ market.” In contrast to the 2013 market, O’Connor says that “in 2014, we saw a return to more historic levels of 4 to 5 percent price increases. Investor participation has started to decline again, slightly. However, as house prices have gone down, rents have gone up, so some of these investment properties remain attractive to rent out.” The investment property submarket will continue to be strong in Florida through 2015.