Wichita-area building slows to crawl

Wichita builders have their "work wanted" signs out.

With credit largely frozen and commercial builders forced to the sidelines by a struggling economy, building has dramatically slowed, according to the latest building permit numbers.

And while residential home starts appear to have bottomed out, it could be at least a year before commercial developers take on any new building projects.

"We're scared to do anything because we don't know where the country's going," said Johnny Stevens, a Wichita commercial developer who worked with Steve Clark on the Waterfront in east Wichita among other projects.

"That's the same reason we don't have a lot of tenant prospects at the moment. People are scared to make a commitment. Everybody's hunkered down."

The good news: New home starts are flat from 2009 across the region, with seven more in Wichita over last year.

Flat is good in the eyes of homebuilders, said Wess Galyon, president and CEO of the Wichita Area Builders Association.

"We're seeing a change of attitude in the people coming through the new home subdivisions," he said.

"Things are trending upward, we think, but I don't see a dramatic trend upward because the economy hasn't turned the corner."

Now, the bad news: Commercial building has slowed by almost half in the Wichita area, and a key market indicator — expired building permits — rose significantly in 2009.

At first blush, commercial building permit values were down only slightly in 2009, according to figures compiled by Grubb & Ellis/Martens Commercial Group, a local broker.

But almost half the 2009 number was the nearly $138 million permit for Intrust Bank Arena. Other commercial projects totaled only $176 million, about half of 2008 numbers.

Even more significantly, expired commercial permits — or permits filed but not completed, generally for economic reasons — jumped from $19.9 million in 2008 to $29.8 million in 2009.

"It's a bad risk environment," Stevens said. "We don't want to risk our money. We're sure not building anything new, and we've virtually leased up all of our vacant space. We're just managing our properties and trying to make sure we're as liquid as possible."


Galyon said he thinks new home starts are ready to take off once Wichita's aviation companies resume hiring.

"What we're telling our builders is take a good look at the segments of the market," he said. "Take a good look at the profile of your market in terms of demographics, psychographics and all the other stuff that goes along with it, and then look at where your competition is in those segments and outside those segments and position your product accordingly."

Wichita residential developer Jack Ritchie said buyer activity rose dramatically in March.

"I'm cautiously optimistic that maybe things are slightly improving and we can start making process," he said.

"Am I starting new developments now? No. But maybe the worst is behind us."

Galyon said new home inventories in the Wichita area are at 10 to 12 months, up from historic norms of between 5 1/2 and 7 1/2 months.

"It's a little high right now, and that's not uncommon coming out of winter," he said.

Stan Longhofer, director of Wichita State University's Center for Real Estate, said he thinks custom home building rebounds first in the Wichita area.

"In a more normal environment, builders typically try to maintain a new inventory," he said. "They'd like for people to come in looking for a custom home and see this one in the ground halfway and want it now.

"But credit is extremely difficult, and the churning isn't at the level in the market to move spec homes through. So before you see any substantial increase in permits, you'll have to see that level of market churning come up to where homebuilders, developers and banks are confident that when they build homes, people are ready to buy them."

It'll be a year before home starts pick up on their own, Galyon said.

"Based on where we're at right now with inventory, the times we're going through, the financial regulatory environment," he said.

"Things appear to be getting better. The fundamentals of the market are holding. We're on the upside, but we're not there yet."

But Ritchie thinks builders might begin building spec homes fairly soon.

"Just because as a developer, I'm encouraging my builders to get to work. We don't have the inventory if a lot of people start wanting homes.... If the market comes back, what we have could be snapped up really quick."


It may be a year or two before the economy steadies enough to restore confidence to local commercial markets.

"In the current environment, anything has to be a rock-solid deal with all the pieces in place to move forward," Longhofer said. "Any uncertainty in any aspect of a deal is going to cause it to be put on hold.

"Whether we're talking leases of tenants, uncertainty about the financial condition of subcontractors or the ability to maintain or close on financing, everything has to be very cautious right now."

Stevens said commercial market opportunities have been swallowed up by federal government intervention.

"Right now, the government is consuming all the oxygen in the business and economic field," he said. "They're such a big part of the economy that there's no room for the entrepreneur. They've put a ceiling on the market, because they're taking such a big piece of the pie, from the Fed on down to the schools."

It'll be "at least 2011," Longhofer said, before commercial markets rebound.

The Wichita commercial market will get a boost this year from the public sector. Curtis Gibson, Grubb & Ellis' director of research in Wichita, said he expects work on the Wichita school district bond issue this year to approach the $176 million value of last year's building permits.

"Commercial is still in our local market a very, very difficult place because the economic environment in terms of employment has to stabilize before you'll see businesses out there needing more space," Longhofer said.

"Even when there's a need for space, there's inventory people can absorb. If it weren't for the school bond and the public sector, the market would be in real trouble."