The construction industry has rarely been acknowledged as the third pillar in a market driven by financial services and tourism, but Ian Pairaudeau, general manager at McAlpine Ltd., has little patience with that idea.
“The construction industry has a much wider impact on Cayman’s economy than it’s given credit for,” says Pairaudeau.
“Many Caymanian households have at least one family member either directly employed in the industry or employed in an associated industry … [and] when the industry is active, everyone benefits,” he says.
No one need look beyond Hurricane Ivan in 2004 to imagine what Cayman might look like without the construction industry. The island recovered from the category 5 storm – which damaged 80 percent of the buildings and did a billion dollars’ worth of damage – because the builders set to work.
In fact, the demand for post-Ivan construction services was so overwhelming that it spurred dozens of fly by-night operators who were under-financed, under-qualified and unable to meet baldly unrealistic deadlines and abandoned families and homeowners mid-project.
Ultimately, the Ivan re-builds, fueled by insurance payouts, worked through the system, restoring a measure of equilibrium to the industry – just in time for the worst recession in decades in 2007/2008. Investment dried up, unemployment soared, and the construction industry was \another casualty.
Only now, after weathering some lean years, is recovery evident, and it’s been a long haul for Cayman’s largest builders, McAlpine and Phoenix Construction.
“Construction,” says Phoenix general manager Barbara Anley, “is not for the faint of heart.”
She should know, having navigated the company through some of its toughest times. “The economy has been improving painstakingly slowly for the building sector since 2011 and, with gratitude, 2016 was the first year that builders could say with a degree of certainty that we were finally seeing consistent growth since the recession.”
Pairaudeau echoes the sentiment: “We have had several profit-neutral years since 2012, but with the industry picking up, we hope to improve that situation. That being said, construction is not a significant profit-making business, and generally, annual profit percentages are in the mid-single to low digits.
“Historically, McAlpine has been the primary contractor for large commercial projects,” he says. “Over the last few years, this sector of the construction market has been relatively stagnant. Our challenge has been to find suitable projects outside of the home residential market.”
Traditionally, McAlpine has stayed away from home building, preferring that “the country’s small and medium-sized contractors undertake this work,” Pairaudeau says. “we really only do very large homes or homes for selected clients.”
A stagnant commercial sector, in 2012, for example, forced McAlpine to lay off at least 90 staff locally, while work continued on a hospital in Bermuda and the company bid for a $100 million airport and runway expansion in the British Virgin Islands.
At the time, Pairaudeau pegged McAlpine’s workforce at “about 60 percent to 70 percent Caymanians,” out of a peak of 180, but estimated post-layoff numbers between 20 employees and 30 employees.
Those figures have since recovered, however, and, and as the economy strengthens, he says, “We will increase our workforce as our workload increases.”
Currently, Anley, of Phoenix, says residential construction dominates the market, underlining realtors’ recent observations that the sector – particularly in South Sound and Seven Mile Beach – “is on fire.”
“The biggest increase in the construction industry post-recession is in residential construction,” she says. “There are numerous new homes going up all over the Island, with the coastal areas being the most popular.
“Many of the clientele are wealthy professionals seeking to build the home of their dreams, to raise their families in a safe environment, with the reassurance that the education and health amenities are of a high caliber, with the added benefit of numerous options for extracurricular activities for all age groups.”
Pairaudeau agrees: “The residential boom is driven mainly by professionals in the finance industry and wealthy families relocating to Cayman. This market has been booming over the past few years, and many architectural and quantity surveying firms have expanded into construction management due to the demand. I think the trend will continue, but maybe not at the same pace.”
McAlpine does not lack for work, however. He lists some of the company’s heavyweight projects: a new office building at Cricket Square and a $20 million private office building for the Flowers family.
“Earlier in 2016 we won the Owen Roberts airport expansion and John Gray High School gym contracts … [and] we recently completed the concrete frame on block 5 south at Camana Bay for DECCO,” Dart Enterprises’ construction outfit.
“In 2015/16,” Pairaudeau says, “we completed the concrete frame, site utilities and roof at the Kimpton hotel,” which opened in November. “We completed the Tomlinson Building, the civil work for the new Caribbean Utilities Company generator and several fit-out projects at Willow House,” the Shedden Road Cricket Square office block.
He says McAlpine will seek similar work in the coming year.
Anley lists a dozen Phoenix projects, and predicts growing competition in 2017.
“We have built numerous projects for various government departments, built a good majority of our grocery stores, built and/or renovated corporate offices, retail spaces, constructed distribution facilities, gas stations, sports fields, condominiums and completed wonderful homes for our clients,” Anley says.
“We’ve achieved great success in completing major hotel renovations while they remained operational, built award-winning restaurants, medical clinics, and just about everything in between.”
Anley notes that “The industry still faces strong competition, with both large and small contractors all vying for the same projects. As should be evident (but often isn’t), the large contractors offer greater assurance that the projects will be completed and not left abandoned due to lack of funding.”
That security has a cost, however, “a higher cost than the smaller one-to-two-man companies,” she says. “Most clients would like a $3 million project for a $1 million budget. So, a few less-reputable builders will take on the project, [but] end up running into financial difficulties once they realize they cannot complete what the client wants for the sum they have agreed to do it for.
“This results in their workers not getting paid and the client left with an unfinished project and very little recourse because the builder closes his door and opens up a new one the next day under a different name.”
The Builder’s Bill, legislated exactly one year ago, creates a 10-member board to license builders and contractors in five categories: general contractor; building contractor; residential contractor; sub-trades contractor; and civil contractor.
The law also seeks to counter abuses such as non-payment of health and pension benefits and hiring unqualified personnel.
“It will be a requirement for all builders and contractors to qualify at their appropriate level, then be registered through the Builder’s Board,” Anley says. “The Builders Board and members of the Contractors Association will continue to encourage all contractors, large and small, of the need to have project insurance to protect themselves and their clients and to purchase workers compensation insurance in the event of an accident on their sites.
“Those of us who have been playing by the rules for many years will be grateful to have a more level playing field,” she says.
Pairaudeau is upbeat, if guarded, about 2017. A strong economy is never guaranteed.
“An improving economy means more business activity, which will require more employees, which increases the need for new accommodation for both expanding businesses, new businesses and employees of these businesses,” he says, but “expansion must always be looked at from a long-term perspective, not for short-term profitability or short-sighted political reasons.
“[I’m] not sure we will ever have a non-shaky economy in the current worldwide climate,” he added.
“When the industry is active, everyone benefits. The difficulty is the balance between new developments, the environment and the effects it will have on the current business operating in Cayman.”