Monday, August 10, 2009

Commercial property execs expect more bad news

This article appeared on Reuters the other day. Since in one my recent posts I talk about Non-Res Real Estate Developers and their inability to finance projects and how the availability of financing impacts the R.E. development industry - - and, thusly, reprographers - - I thought this article would be appropriate to post on my blog-site:

“Commercial property execs expect more bad news”
Wed Aug 5, 2009 4:03pm EDT

* 93 pct say real estate values are lower than last year
* 82 percent say values will continue to deteriorate

By Ilaina Jonas
NEW YORK, Aug 5 (Reuters) - An overwhelming majority of U.S. commercial real estate executives believe their industry is suffering and expect it get worse, according to a survey by the Real Estate Roundtable released on Wednesday.
Some 93 percent of the 120 chief executives, chairmen, presidents, board members and others polled said commercial real estate prices are lower than they were a year ago, according to the Roundtable, which represents commercial real estate owners, developers, lenders and managers.

Eighty-two percent expect values to remain roughly the same or erode further in the next 12 months, the survey said.
Hotels, office buildings, shopping centers, warehouses and apartment building owners and lenders have been grappling with declining rents and rising vacancies. Meanwhile, prices for these assets have sunk has the credit crisis has dried up sources to finance sales or refinance maturing loans.

Colin Dyer, chief executive officer of Jones Lange LaSalle, one of the world's largest real estate services companies, on Wednesday said that prices for U.S. assets have fallen by as much as 50 percent.

"Over the last year or so the commercial real estate industry has been stuck between a rock and a hard place," Jeffrey DeBoer, Roundtable chief executive said. "The rock that we see is the fundamentals, which continue to create problems for the industry. The hard place is continuing to not move and that is the frozen credit markets, in terms of getting the ability to finance or refinance debt."

So it's no surprise that the new overall sentiment index reading of 49 is well below the ideal of 100. The index questions about how responders feel about their business today in terms of values, and access to credit and capital, and how they believe their situation will be in a year.

"We're still in a very, very stressful situation," DeBoer said. "We continue to have a lot of problems in commercial real estate."
The Roundtable is pushing four proposals that could help get the lending market rolling. The Roundtable wants the federal government to establish a loan guarantee program to insure loans to make securities sold against those loans in the secondary market more attractive to investors. That would encourage lenders to continue to make loans.

The Roundtable also wants the federal government to set up public/private funds to buy new as opposed to legacy loans.
Additionally, the group is asking the government to modify the Real Estate Mortgage Investment Conduit (REMIC) rules that allow loans that have been securitized into commercial mortgage-backed securities (CMBS) to be extended and modified without risking the tax exempt status of the securitized trust.

Finally, the industry anticipates that hundreds of billions of dollars will be needed to fill the gap between mortgages that are maturing and new lower mortgages that would be provided if the lending market does return. The Roundtable is urging Congress to revamp the Foreign Investment in Real Property Tax Act of 1980 to attract more foreign equity to U.S. commercial real estate. (Reporting by Ilaina Jonas, editing by Leslie Gevirtz)

Sunday, August 9, 2009

Articles about BIM on a Construction-related blog-site

What you'll read below (if, in fact, you take the time to read it)..... comes from a blog I came across this morning. That blog is located at

The author (a construction professional) wrote this as part of an article he posted on July 30, 2009. Since I've written posts about BIM in the recent past, I thought I'd post this guy's comments:

Can anyone say 3-D?

The capabilities of three dimensional CAD programs, otherwise known as building information modeling (BIM), are just beginning to become known and explored. There are of course the obvious benefits of conflict resolution with everything from a door swing to MEP and steel coordination, but the benefits reach much further.

I’ve seen millions of dollars thrown in the street due to lack of drawing coordination and conflict resolution in the field is extremely expensive. Often times the conflict will be partially fixed or not fixed at all which detracts from the quality of the project.

Beyond conflict resolution, the entire job can be estimated and viewed in three dimensions prior to lifting a shovel. The construction process can even be modeled in 3-D to look for conflict of equipment. I recently worked on a casino where concrete cranes and steel cranes were working in very close proximity. We didn’t use BIM but it would have helped significantly to avoid delays caused by cranes being too close. The steel contractor submitted a $200,000 change order for delays caused by the concrete cranes.

I just found another article about BIM that he posted on his site (on March 25, 2009), so here goes.....

BIMing our way to better building

If the construction industry was the auto industry, then the advent of Building Information Modeling would be the equivalent of the invention of the assembly line. And if the construction industry was the textile industry, then BIM would be the equivalent of (dare I say) the cotton gin.

But since this is reality, and the construction industry could arguably be more similar to the entertainment industry than manufacturing or textiles, BIM is in the very least a technology that could produce great advancement in construction practice.

While BIM is in fact an underground rock band from Bangladesh, for our purposes, BIM is a method of modeling a building in three dimensions that integrates design and construction. This means that not only is every item in the building its own independent object, but the construction schedule can be modeled as well, producing a virtual construction illustration prior to breaking out a shovel. If you add an accounting element to this, BIM becomes 5 dimensions of valuable information in one model.

I attending a BIM conference and panel discussion in Philadelphia last week put on by Stephen Jones with McGraw-Hill Construction. Also giving presentations were representatives of contractors, architects and even law firms. The benefits of BIM were not difficult for this panel of professionals to illustrate, there was even talk from the legal side of making three dimensional models legal contract documents. However, the biggest problem presented was the reluctance of members of the AEC world to adopt this technology and feel comfortable with using it.

The construction industry has historically been very resistant to change and a new technology is often perceived as risky and when something has perceived risk, contractors treat it as a deadly tsunami of uncertainty.

Stephen talked about the glut of baby boomers at the management level in companies that are perhaps stalling the advent of new technology in hopes of it surfacing after their departure and hefty retirement payout. But as a baby boomer himself, Stephen is a strong proponent of BIM and suggested its use to be pushed rather than stalled. The benefits in coordination of design consultants and subcontractors as well as conflict prevention lead to undeniable cost saving to the owner, and far fewer headaches for designers and builders.

After working for nearly three years on the Arrabelle Hotel construction in Vail, CO, I saw literally millions of dollars thrown away from lack of coordination between the MEP trades with structural, architectural, and interior design work. BIM would not only have saved the cost of this conflict resolution but perhaps could have reduced impact to a project that was woefully behind schedule.

We need to embrace this change rather than shun it. It is obviously the direction in which our business is moving and the more time we spend stalling, the more time we spend in the two dimensional world of mediocre building and stagnant business practice.

Saturday, August 8, 2009

Why I've always liked the "Reprographics" business better than the "Printing" business

I think I mentioned in one of my early posts (around the time I began my blog-site) that the "reprographics" business is different from the "printing" business. One of those differences, and this has long been a key difference between the reprographics industry and the printing industry, is "profitability". Simply put, it has long been known (by the owners in the reprographics industry) that reprographics companies are, pound for pound, more profitable, than printing companies.

I began my career in the reprographics business. A few years after I got involved in what was then a small family business, I decided to expand our reprographics company's business to include "offset printing" services. What did I know, anyway? Why not try something new? What, me worry? (Note that "digital" was not yet a word used in the Printing & Graphics Industry way back then.) So, we bought a couple of offset presses, a platemaker and the rest of the "stuff" that one needs to be in the offset printing business. (All of that proved to be a minor headache, but, whatever, I was young and had a ton of energy.)

Although it was not difficult to grow the offset printing part of our company's business, it proved to be a real drain on focus and time, and the money (profitability) was not worth the aggravation. Later on, shortly after we completed what was a "key merger" transaction (at which time I acquired two partners, Gary Rowley and John Scher Zeller), our senior partner, Gary Rowley (a very astute business person and, still today, I have not yet met anyone - in the industry - who has the sales and marketing sense and prowess that he had), suggested to us that we discontinue our offset printing operations - - so that we could focus all of our time and efforts on growing our then rapidly growing reprographics business. Instead of simply discontinuing our offset printing operations, we sold them. That was nice, gave us some extra cash to invest in our reprographics business. Okay, enough of the old-time nostalgia crap.

ARC just reported its April-June 2009 QTR results. ARC is "primarily" a reprographics company (yes, I know, it also has technology offerings, including software and services.)

Consolidated Graphics recently reported its April-June 2009 QTR results. CGX is "primarily" an offset printing company.

Both ARC and Consolidated Graphics have grown by acquisition (roll-up) and by internal growth.

Both have taken on debt to leverage growth.

Key differences, however, are:

1) Pound for pound, ARC is more profitable than CGX (gross profit-wise and pre-tax-income-wise)

2) ARC's Total Net Sales declined 29% from the QTR one year earlier. In spite of that significant percentage decline in sales, ARC remains profitable. CGX's Total Net Sales declined around 21% from the QTR one year earlier. And, that decline pushed CGX into a loss position.

3) Check out the comparative Gross Profit percentages of the two companies - huge difference in GP's. Check out the comparative Pre-Tax Income percentages of the two companies - huge difference in Pre-Tax Profit percentages.

4) This comparison should also give comfort to ARC shareholders that ARC's management team is doing an outstanding job, so far, managing the business through a very difficult recession.

Sorry, but I've not yet figured out how to cut and paste tables into my blog-site post window. So, the numbers below will be bit difficult to read.

American Reprographics (Symbol: ARP)
June Qtr June Qtr
2009 2008

Total Net Sales 131,054 100.0% 184,941 100.0%
Cost of Sales (81,899) 62.5% (105,853) 57.2%
Gross Profit 49,155 37.5% 79,088 42.8%
SG&A Expense (30,039) (39,499)
Amortization of Intangibles (2,914) (2,813)
Income from Operations 16,202 12.4% 36,776 19.9%
Other (Expense) Income 38 43
Interest Expense (5,836) (6,559)
Pre-Tax Income 10,404 7.9% 30,260 16.4%

Net Sales June Q 2008 184,941
Net Sales June Q 2009 131,054
Sales decline YOY 53,887
Sales decline %age 29.1%

Consolidated Graphics (Symbol: CGX)
(Reformatted to fit my presentation)
(Amortization of Intangibles is included in SG&A expense line item)
Consolidated Graphics
June Qtr June Qtr
2009 2008

Total Net Sales 225,861 100.0% 285,194 100.0%
Cost of Sales (181,032) 80.2% (214,554) 75.2%
Gross Profit 44,829 19.8% 70,640 24.8%
SG&A Expense (44,004) (50,681)
Amortization of Intangibles *
Income from Operations 825 0.4% 19,959 7.0%
Other (Expense) Income 54 (5)
Interest Expense (2,484) (4,211)
Pre-Tax Income (Loss) (1,605) -0.7% 15,743 5.5%

Net Sales June Q 2008 285,194
Net Sales June Q 2009 225,861
Sales decline YOY 59,333
Sales decline %age 20.8%

Okay, so now you know why "us" in the reprographics industry have long been glad that we weren't in the offset printing business.

Does the Fed's Economic Stimulus Plan Provide Benefit to Reprographers?

Recently, I had the opportunity to get together with the CEO of a large engineering firm. His firm is not completely "nationwide," but it is one of the larger firms in the U.S. (and they have operations outside the U.S. as well, although the substantial bulk of their business is in the U.S.)

Getting to the gist of his comments about the Fed's Stimulus Plan and its effect on the transportation engineering and construction business (not his exact words, I'm paraphrasing), what's happening is that Stimulus funding is being used to fund transportation projects that were already ready to get underway, construction-wise. These projects were already designed (meaning already printed, whether printing was done in an FM environment or outsourced), but on hold for construction until funding was available. Stimulus funding made funds available, so these projects are be released for construction. MY COMMENT ABOUT THIS: THIS DOES NOT PROVIDE ANY BENEFIT TO REPROGRAPHERS. AND, IF MANY OF THE PROJECTS, NOW BEING PUT INTO CONSTRUCTION, WERE ALREADY DESIGNED, THEN THIS DOES NOT PROVIDE MEANINGFUL RELIEF TO ENGINEERING FIRMS WHO DO TRANSPORTATION ENGINEERING PROJECTS.

One of the biggest problems reprographers faced as the current recession began - and was then exacerbated by the calamity that hit the financial/lending community around the time Lehman Brothers was let fail - was the virtual "shutdown" of lending (financing available) to non-residential developers. When funding dries up, projects dry up. When projects dry up, Architects (and their Engineering consultants) feel that - and feel that in a big way. The same exact thing happens to reprographers; that's the "trickle-down" effect when the real estate development community hits the skids, for whatever reason. Real estate developers are in the driver's seat. When they can't get money, they won't and don't build. When office and retail vacancy rates rise - which is, of course, what happens when companies cut jobs and when consumers don't spend as much money at retail as they did before, development dries up. That's what our reprographics community is experiencing, beyond the tremendous fall-off in residential development. Perhaps some of the Fed's Stimulus funding (our taxpayer dollars) should go towards relaxing the money-financing-lending environment - forcing lenders to lend to developers who are still in a position to go forth with projects.

I invite your opinions!

Thursday, August 6, 2009


Can business conditions in the reprographics industry get any worse than they were during the first six months of 2009?

Although many in the financial world are already beginning to say that, U.S.-economy-wise, the worst of the recession is behind us and that the beginning of the recovery appears to be not too far ahead of us, it has long been history that recovery in the A/E/C reprographics business lags recovery in the general economy.

Take a look at these numbers, reported in (or extrapolated from) ARC’s financials just released for Q2 2009 and for the First Half of 2009, compared to ARC’s 2008 numbers

For Q1 2009, compared to Q1 2008:
ARC’s revenues from “reprographics services” were down 29.98%
ARC’s revenues from “facilities management” were down 9.09%
ARC’s revenues from “equipment and supplies” were down 16.54%
and, ARC’s total revenues were down 25.59%

For Q2 2009, compared to Q2 2008:
ARC’s revenues from “reprographics services” were down 33.26%
ARC’s revenues from “facilities management” were down 20.22%

ARC’s revenues from “equipment and supplies” were down 8.75%
and, ARC’s total revenues were down 29.14%

Comments and Conclusions:

From an industry-wide, historical perspective, 2nd quarter revenues are typically higher than 1st quarter revenues. Running contrary to typical, ARC just reported Q2 2009 total revenues at $131,054, compared to Q1 2009 revenues at $139,483. (Remember to add 000 to all $ amounts.)

The deterioration of ARC’s revenues from “reprographics services” accelerated from Q1 to Q2, comparatively speaking:
Q1 2009 vs. Q1 2008 saw a decline of 29.98%
Q2 2009 vs. Q2 2008 saw a decline of 33.26%
Wow, an unbelievable 33% decline in reprographics services sales, year over year.

The deterioration of ARC’s revenues from “facilities management” accelerated from Q1 to Q2, comparatively speaking:
Q1 2009 vs. Q1 2008 saw a decline of 9.09%
Q2 2009 vs. Q2 2008 saw a decline of 20.22%
The “doubling” of the percentage decline in FM revenues was caused (this, of course, is only my personal opinion about this) by:
(a) A/E firms have downsized (fewer employees, fewer FM users, lower FM revenues), and
(b) lower levels of design activity at A/E firms, due to fewer new projects and a drop-off from projects that were on the boards, but which, by now, are over and done with. (I believe this also links up to the decline in the ABI Index (the Architectural Billing Index.)

ARC’s revenues from “equipment and supplies”, the latter being ARC’s least significant revenue segment, did not decline from Q1 to Q2, comparatively speaking:
Q1 2009 vs. Q1 2008 saw a decline of 16.54%
Q2 2009 vs. Q2 2008 saw a decline of “only” 8.75%
Apparently, the Q2 sales level is “bottom”; not expected to decline much further than it already has.

And, the “bright side,” ……….., if there is one ………….,

(1) In spite of VERY challenging business conditions, ARC continues to earn a profit. That, in spite of the fact that total sales were down 29.14% (Q2 2009 vs. Q2 2008)
(2) In spite of VERY challenging business conditions, ARC continued to generate positive cash flow and free cash flow and managed to pay-down long-term debt.
(3) If ARC’s management team is doing a great job weathering this “perfect storm” recession, will not stockholders be rewarded when ARC finds its way out of the recession?

Congratulations to ARC’s management team (and entire team) for another incredible quarter in the most challenging economic environment the reprographics industry has faced since the early part of the Great Depression.