The construction and real estate industries are currently navigating an era of rapid change coupled with significant risk. With skilled labor shortages and fluctuating interest rates, companies in these sectors must engage in strategic planning and remain adaptable. The growing demand for sustainable practices and the integration of new technologies adds further complexity, pushing businesses to innovate while carefully managing costs and resources.
To gain a deeper insight into these challenges, we sat down with Nancy Cox, our Construction & Real Estate Industry Leader. Nancy shares her journey into the construction and real estate industry, discusses the current state of the sector, and offers valuable advice on how businesses can mitigate the risks they face.
Meet Our Construction & Real Estate Industry Leader
As a key leader within our firm, Nancy is responsible for business development, client/project acquisition, geographic expansion activities, and determining how and where each of their industry clients is best serviced within our Construction & Real Estate Industry.
Nancy specializes in financial statement auditing and consulting related to the real estate and construction industries. Additionally, she is a member of the Bonadio Board of Directors and the Bonadio Audit Committee, along with numerous industry and community boards.
With nearly 20 years of experience as an auditor, Nancy is well-versed in the unique requirements and regulatory challenges facing businesses today.
Why Construction & Real Estate?
Before her employment with Bonadio, Nancy was an auditor with KPMG in Pittsburgh, PA right out of college, primarily working within the financial services sector at the time.
Following her move to Buffalo, NY, after getting married, Nancy sought a regional firm that aligned with her values. “I interviewed with many firms and just felt as though culturally I fit best with Bonadio,” shared Nancy.
Initially focused on a variety of clients at TBG, Nancy’s career trajectory shifted towards real estate, including both residential and commercial sectors, as well as property management. Over the years, she has played a key role in developing TBG’s real estate and construction practices, leveraging her expertise in tax credits and overseeing the firm’s established real estate and construction team.
Current Risks Facing the Industry & Strategies for Mitigation
Nancy outlined two of the most critical issues facing construction industries as 1.) the lack of skilled labor and 2.) the increasing interest rates.
Lack of Skilled Labor
Since 2014, the recurring theme for the most critical issue facing the construction industry is the lack of skilled labor resources, according to our biennial New York Contractors State of the Industry Study. From not having qualified personnel or being unable to retain qualified personnel, the labor shortage is hitting the industry hard, creating competition over labor between competitors as well as impacting productivity and project timelines.
Addressing the labor shortage demands proactive recruitment strategies. As Nancy explains, “now is the time to engage with underutilized workforce segments and invest in robust workforce development initiatives. Cultivating a supportive company culture and offering resources for career advancement are vital for attracting and retaining talent in this competitive landscape.”
Nancy emphasized the importance of active recruiting methods as well. Rather than waiting for workers to come to you, it’s crucial to identify and engage with individuals who are already in the workforce and could be good candidates for your organization.
In addition to active recruitment, many construction companies are investing in workforce development programs. These companies either have in-house programs or collaborate with external workforce development initiatives. By engaging individuals early in their careers and providing them with the necessary resources, companies can help employees advance from entry-level positions to more skilled roles.
Increasing Interest Rates
Another significant challenge currently affecting various industries, particularly commercial real estate, is the rising interest rates. Recent reports have shown that over $1 billion in commercial real estate loans are set to mature in the next few years. “Refinancing these loans in the current economic climate will be significantly more expensive due to the increased interest rates, presenting a substantial challenge for the real estate industry as a whole,” shared Nancy. “This challenge extends to the construction industry as well, as higher interest rates make the cost of everything more expensive,” she added.
Given these circumstances, banks are eager to help companies navigate these hurdles. The best approach is to proactively engage with your bank, recognizing the imminent loan maturity and starting discussions early. Banks want to collaborate with businesses to facilitate refinancing or repayment.
Additionally, exploring alternative financing options, such as private equity or additional capital resources, can provide vital support. Check out our recent article here for more strategies.
Additional Considerations for Future Success
Looking ahead, Nancy highlighted the growing importance of two additional critical areas for companies with the construction and real estate industry to focus on: cash flow management and Environmental, Social, and Governance (ESG) standards.
Be Mindful of Cash Flow
Managing cash flow is paramount, especially in the current economic climate. Nancy emphasized the need for companies to be proactive about their cash flow. “Working closely with clients, we have built models that allow them to understand the impact of various scenarios on their cash flow. For instance, if they decide to sell a property, they can immediately see the potential effects on their financial standing. Being mindful of cash flow and actively seeking ways to maximize it is more important than ever,” shared Nancy.
Companies should collaborate with their financial providers to regularly review and optimize their cash flow, ensuring they are prepared for any economic fluctuations.
ESG is Coming!
The early integration of ESG principles is becoming increasingly important and can position companies favorably for future regulatory requirements and market reputation enhancement. “We have observed that ESG reporting standards are already in place in Europe, and what starts internationally often makes its way to the United States (and already has in certain states, such as California). Companies need to start paying attention to these standards now, even if they are not yet mandatory throughout the US,” she added. Learn more here.
By embracing these strategies to mitigate the risk of ongoing challenges as well as preparing for emerging trends, industry leaders can navigate uncertainties and position their firms for growth and success in an evolving market environment.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
