Date: Jul 01, 2014
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In the world of agriculture, cycles are a way of life.  Crops cycle in and out and markets do the same thing.  Not surprisingly, that is also the pattern for ag construction, and one expert in the field thinks a building boom may be on the near horizon.

Troy Eckard, president of Eckard Commercial Construction, El Centro, CA, said there are reasons to believe that the construction of facilities in the fresh vegetable business is headed for a new boom period.  Or at least a lot more activity than it has had over the past six or seven years.

“The heyday in this business stretched from 1997 to about 2007,” said Eckard, who has been involved in agricultural construction projects for almost a quarter of a century.  “During that time period we were doing three to five major projects every year.”

For the last half dozen years, he said there has been about one project a year being built from the ground up with the majority of business centering around expansion or building out existing facilities.  Eckard said the ag construction industry does follow a cycle and it makes sense.  He said there is a period of growth when new facilities are being built.  Following that the company does work expanding those facilities or adding pallet racks to expand the capacity.  Eventually, all of the building has been expanded and it seemingly is time to build another facility.

In his professional opinion, Eckard said there has not been very much new capacity since 2007 which would lead one to believe that the need is out there.  “I think we are going to enter a new cycle of building in the next year or two.”

He distinguishes “building footprint” (new facilities) with “racking it up” (adding capacity to an existing footprint).  “In the last few years, the industry has absorbed its growth by racking, but I’m not sure it can do that anymore.  We may be entering that cycle where more building is necessary.  How robust will this cycle be?  I don’t know.  But I know of several projects under discussion.”

Eckard said the new lending protocol that has been adopted since the real estate crash of 2007/08 will take its toll on some borrowers.  “There are two different worlds out there,” he said.  “There are the people that are well financed and they won’t have too much of a problem.”

For that group of borrowers money is cheap and they won’t have any trouble meeting the newer more stringent requirements.  In this group are established firms with good balance sheets.

On the other side of the coin (literally) are companies relatively new in the business or those trying to move into a new commodity without much of a track record.  They may have trouble borrowing money at all or at least getting it at the very favorable rates that are being quoted today.  Eckard said he has also seen some projects stopped in their tracks during the appraisal process.  “Appraisers,” he said, “are much more reluctant to give an appraisal at the high end of the range.”

He said for the type of building he is talking about (cold storage facilities, processing plants, packing sheds), there are not very many comps out there and so the appraisers are more inclined to give an appraisal based on costs, which might not get to the level needed by the borrower.  He reiterated that “there is cheap money (low interest rate) but it’s not easy to get it.”

He added that when the ag building industry was booming, it was being fueled by a lot of small guys getting into the business with their own facilities.  Consolidation and regulations have created a different environment and Eckard said building a new facility from the ground up is a time-consuming and daunting process for many.

“There are regulatory obstacles and companies are also looking at higher health care costs, taxes and food safety costs.”

They all impact the bottom line and greatly impact the decision of whether to build a new facility.  “What we were building 20 years ago and what we are building today are two different animals,” Eckard said, leaving no doubt as to which is the more complicated.  “If your building is 15 to 20 years old, it’s probably obsolete.  At that point the only thing to do is gut and remodel.”

Eckard said he is not telling the industry something it doesn’t already know.  In the last handful of years, he said the facilities that were subpar from a food safety standpoint have had to be upgraded and they have been.  But back to the regulatory obstacles that have to be overcome, Eckard said it is difficult to build in California, much more difficult than in Arizona.  “California is just flat out difficult, but it’s not impossible,” he said.  “Twenty years ago, you could go into Salinas and get something (building plans) through the permitting process fairly quickly.  You just can’t do that anymore no matter where you are building.  It takes time and it takes more money.”

Part of the additional cost, Eckard said is the hiring of experts to shepherd a project through the permitting process.  He never had to do that years ago, but now “you have to hire someone to handle that process.  It’s just too time consuming.  Arizona is better.  It’s more straight forward and easier to get it done.”

But part of the difficulty in California is what allows a firm like Eckard Commercial Construction to survive and thrive.  “The regulatory process is difficult but it is knowledge based.  We have that knowledge now but it was hard won and hard earned.”

His best advice to a company looking to build is that they do long range planning and build in enough time to go through the laborious process.  He added that working with agricultural companies is a challenge but one he loves.  “The good news is that the ag industry are great customers.  They are great people and they pay well.  Though we do sign contracts, it is true that in this industry you can work on a handshake and a phone call.”

He also likes that the industry members understand risk and reward and can work through a project scenario to know what’s possible and what can’t get done.  He said the time frame when working with agriculture is all-important.  “When they (ag customers) say a project has to be done by a certain date, they mean it.  They have crops that will be in the ground and have to go into that facility.”

Eckard prides himself on never missing a deadline.  If he promises he can get it done, he does so.  He admits to occasionally having to disappoint a customer in the planning stage by telling them that their timetable can’t be done.  But more often than not, he said facilities in agriculture are put up very quickly and the seemingly impossible time frames are met.

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