IRS Releases Guidance for Energy-Efficient Building Tax Deduction
On June 2, 2006, the Internal Revenue Service (IRS) issued initial guidance (IRS Notice 2006-52) concerning the use of the new tax deduction for energy-efficient commercial and certain multifamily residential buildings. The deduction is a good tax opportunity for NAHB members who own or lease commercial and high-rise multifamily properties and plan to install new building infrastructure and components.

The IRS notice can be found at: http://www.irs.gov/pub/irs-drop/n-06-52.pdf

Housing Glides to Soft Landing, Rentals Solidify, and Condos Cool
The single-family housing market is gliding toward a “soft landing” in 2006, as rising interest rates, affordability issues and a reduced role for investors/speculators contribute to a softening in demand, according to economists speaking at NAHB’s Construction Forecast Conference in Washington, D.C. on April 27.

“After topping out in the third quarter of last year, it is pretty clear that the housing sector is in a period of transition. Sales and starts are trending lower toward more sustainable levels,” said NAHB Chief Economist David Seiders. Even so, the slowing housing market is not likely to derail the expansion as housing yields its position as the economy’s major growth engine to other sectors, he added.

Of particular interest to commercial builders, the multifamily market — which has remained “eerily stable” since the late 1990s — will likely continue the same pattern in 2006, with starts dropping slightly to 351,000 apartment units from 355,000 last year, according to Seiders. The rental market has solidified, and is expected to regain some ground while the red-hot condo markets start to cool.

Looking to the future, Seiders said new home sales in the first quarter of this year were down 10 percent from the fourth quarter in 2005, though he expects them to ease further in the coming months before leveling off in 2007. NAHB is forecasting that new home sales will hit 1.13 million units in 2006, down 12% from last year’s all-time high of 1.28 million units, and then move down slightly in 2007 to 1.09 million.

“Hopefully, most of this decline will be due to investors and speculators stepping out of the market. What we don’t want to see is investors dumping homes on the market,” said Seiders.

After posting a record 1.716 million single-family starts in 2005, NAHB is predicting that new home construction will level off to 1.595 million units in 2006 and 1.488 million in 2007, which would still rank high by historical standards.

Commenting on the dramatic home price increases in many markets in recent years, Seiders said home price appreciation is expected to fall from an average 12% in 2005 to about 4 percent in 2007 and that mortgage rates should move up to 6.7% later this year.

Seiders is also predicting that residential remodeling expenditures will continue on an upward trajectory, in part because "an immense amount of home equity will continue to support this spending."

For more information, contact Paul Lopez at plopez@nahb.com. [return to top]

Immigration Reform Takes Center Stage
Immigration reform that makes good sense for the building industry was passed by the Senate on May 25. The Comprehensive Immigration Reform Act aims to protect and secure our borders, establish a guest worker program that will keep the economy moving forward, help employers verify the legal status of their employees and create a legal path for foreign workers to apply for citizenship. Sponsored by Senators Chuck Hagel (R-NE) and Mel Martinez (R-FL), the legislation would create a tiered system for the nation's illegal immigrants, dividing them into three categories:

1. Those who have lived in the U.S. for at least five years
2. Those who have lived here for two to five years
3. Those who have lived here less than two years

Illegal immigrants in the first group would be offered eventual legal residency without having to leave the country after passing national security and criminal background checks, paying a fine and proving they have paid all federal and state taxes.

Those in the second group would have to travel to a U.S. border crossing and apply for a temporary work visa. They would have to meet all requirements for temporary workers, and could apply for permanent residency and citizenship after a certain time.

Those in the third group would have to return to their native country and apply for a temporary work visa from there, with no guarantee of acceptance. NAHB supports this fair approach as a way to ensure an appropriate labor supply at a time when more than 20% of the residential construction workforce is made up of foreign-born employees.

The next step will be to ensure that critical parts of the Senate bill are included in final legislation hammered out between the House and Senate. Read more about this in Nation's Building News, or contact Jenna Hamilton at x8407.

Click here for a brief summary explaining the benefits of NAHB's efforts on immigration reform to our members. [return to top]

Council Awards of Excellence Deadline Approaching
Each year, the National Commercial Builders Council sponsors an awards program to bring recognition to commercial building projects from less than 5000 to more than 100,000 square feet. This year's deadline is July 25, 2006.

Projects must have been completed after December 31, 2003 and may be entered in retail, commercial, institutional, medical, industrial, recreation or mixed use categories. Entires may be submitted by the builder, developer, architect or contractor of the project.

We hope you’ll take advantage of this opportunity to be recognized by the commercial building industry.  Recognition includes an attention-getting desk obelisk, your project’s photo in the Commercial Builder Headquarters at the International Builders Show in January, 2007, and the opportunity to participate in educational sessions at the Builders Show. 

For more information and to download an entry form, please visit the NCBC 2007 Awards of Excellence page on the NAHB Web site. 
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Don't be Lulled into Waiving Bond Rights!
Susan McGreevy, chairman of the Construction Practice Group for Husch & Epenberger, LLC, has some words of caution for builders about the dangers of waiving bond rights.

McGreevy says that owners and upper-tier contractors often pay a lot of money to obtain surety bonds on contractors. Subcontractors and suppliers typically rely on the presence of a bond to make sure they will be paid, she notes, particularly on public work where they can't file liens. So it is critical they follow all the time limitations in the bonds or in the statutes that control the bonds.

To explain her point, McGreevy cites the following case: In United States f/u/o East Coast Contracting, Inc. v. U.S.F.&G. (4th Cir. 2005), a contractor lost out on its right to collect on a bond because it didn't sue within 12 months of the last work (as required by the statute that applied). The contractor had corresponded with the surety, who told the contractor that it was "looking into" the claim, but still included language in its letter saying that it was "reserving all rights." The contractor was lulled into waiting too long, thinking it would be able to work things out with the surety. The surety's cooperative attitude changed after the 12 months were up.

If you are in the position of even possibly needing to go after a bond, McGreevy says, “Don't wait until the last minute.” Even though it’s not the easiest thing to do, get a copy of the bond well in advance. Learn what time limits apply, she suggests, and then “build in extra time just in case." Follow the instructions in the bond and send it by certified mail. Better yet, if you have the option, use your own bond form. This is not something to be taken casually, she concludes.

The U.S.F.&G. opinion is unpublished, but if you would like a copy, e-mail Susan McGreevy at susan.mcgreevy@husch.com.
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New Commercial Builders Council Chapter Forms in Sunshine State
Florida is the location of the Commercial Builders Council newest chapter—if you are an NAHB member and interested in commercial construction, this news item is for you!

The mission statement of the council is to address regulatory and legislative issues and provide educational and information services to all NAHB members who are commercially active or diversifying into commercial building and commercial remodeling. The new council plans to hold commercial builder seminars at the 2006 Southeast Building Conference, Aug. 3-5 in Orlando. Among the topics to be covered: Improving Subcontractor Relations; Effective Contracts; Bonding and Lien Law; and Safety and Risk Management. In addition, the council will meet three times a year at FHBA’s spring, summer and fall conferences.

FL HBA President Len Tylka of West Palm Beach and First Vice President John Wiseman of Sarasota were the driving forces behind the creation of the state council. FL State HBA senior vice president Paul Thompson and National Commercial Builders Council Trustee Ken Ringe were also instrumental in the council’s formation. Ken will serve as the council’s first chairman.

To learn more, contact Paul Thompson at PThompson@FHBA.com.
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Reed Economist: Non-residential Construction Growth to Continue
Nonresidential building starts have increased progressively since last spring, rising 15.6 percent over 2005 in the commercial sector, 8.6% in institutional building and 8 percent in manufacturing, according to Jim Haughey, director of research & analytics of Reed Construction Data.

Haughey presented his outlook for 2006-07 at the annual meeting of the Construction Specifications Institute, held in late March. The economist’s predictions for the construction industry were largely positive. Total construction spending was up 9.1% in 2005, and he projected it will be up 7.4% in 2006 and 5.7% in 2007. He said the growth can be attributed to capacity needs in commercial markets, high public budgets for institutional building and civil projects, credit costs that will rise but remain cheap, and material price increases that won’t be as hefty as 2004 or 2005.

Most sectors of nonresidential building will see an increase in starts, though manufacturing has fallen 52.4% through February, he said. However, healthcare starts are up nearly 20%, lodging is up nearly 114%, office starts are up almost 23% and commercial starts are up nearly 13%. [return to top]

Energy Act Includes Credits for Commercial Building
The Energy Policy Act of 2005 contains several provisions of interest to commercial builders, including credits for improvements to existing buildings as well credit for construction using certain energy efficient methods and equipment.

It allows a tax deduction of up to $1.80 per square foot for energy efficient upgrades or for new construction using certain HVAC, lighting, hot water systems and building envelope practices, and $0.60 per square foot for building subsystems that reduce annual power consumption by at least half. It also allows a tax credit for installing qualified fuel cells, microturbine power plants and solar equipment.

For more information, visit the Association of Energy Engineers’ website at www.AEEcenter.org.
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Rate Hikes: Nearing the End?
The Federal Reserve has hiked the federal funds rate by 25 basis points at each of the 16 Federal Open Market Committee (FOMC) meetings held since mid-2004, and the funds rate now stands at 5.0%. The Fed’s objective has been to remove the massive monetary policy “accommodation” poured into the economy between mid-2003 and mid-2004 and get policy back to “neutral” before the economy generates serious inflation pressures.

The Federal Reserve has been fretting about gathering inflation pressures for some time, and recent core inflation rates are close to the upper end of the Fed’s apparent “tolerance zone.” Indeed, the threat of inflation was the key factor behind the quarter-point increase in the federal funds rate at the May 10 meeting of the Federal Open Market Committee.

The statement issued at the conclusion of the May 10 FOMC meeting reinforced the Fed’s anti-inflation resolve but emphasized that future monetary policy adjustments will be highly data-dependent. The Fed wants to see a slowdown in economic growth, more slack in labor markets, firm limits on unit labor costs and containment of inflation expectations —key factors behind core inflation down the line.

NAHB economists currently assume that the Fed will hold the current policy stance for some time, with a nominal funds rate of 5.0%.

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Failure to Attach Crane Causes Three Deaths
The failure to attach scaffolding to a crane during dismantling was the cause of an accident in Boston that caused the death of two workers and one person driving past the construction site, a report by the construction company said.
 
Without a crane, the scaffolding was balanced precariously atop a single unsupported mast, which caused it to eventually topple, crashing into a busy downtown street, according to the report.
 
The accident occurred as workers were taking down the scaffolding set up on a construction project for a college dormitory at Emerson College. The report says a procedural error resulted in removal of the metal tie that secured the three-ton platform of the scaffolding before a crane was attached to secure that platform.
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Warranties Book Helps Remodelers Avoid Costly Mistakes
"Warranties for Builders and Remodelers" is a new publication from NAHB that provides important knowledge regarding the basic elements of a warranty. Armed with this knowledge, builders, remodelers, contractors, suppliers and other industry professionals involved in remodeling can avoid costly mistakes.

Written by NAHB’s legal experts, this publication explains the rights, responsibilities and recommended practices and procedures for developing a warranty program.

Also included are: clear explanations of implied warranties, statutory warranties, warranties imposed by courts and more; sample language and formats for warranty documents; tips for drafting warranties; a state-by-state list of cases and statutes applicable to construction claims; and an appendix of pertinent cases affecting liability law.

To order "Warranties for Builders and Remodelers" online, click here, or call BuilderBooks.com at 800-223-2665. [return to top]

NAHB Trade Mission to Vallarta/Nayarit
Mark your calendars for a first-hand look at the booming housing market in Mexico during NAHB’s Trade Mission to Vallarta/Nayarit from August 13-15, 2006. Explore business opportunities in this growing high-end residential, resort and retirement market north of the Puerto Vallarta resort-area on Mexico's Pacific Coast.  

Highlights of the Trade Mission include one-on-one meetings with developer / builder members of Mexico’s Construction Industry Chamber (CMIC), private briefings by officials from the State of Nayarit, OPIC, Export-Import Bank, and experts on property and contract law. Site visits to developments in various stages of completion will round out your experience. 

To download registration form, please visit www.nahb.org/trademissionreg. For more information, e-mail Marco Amaro in NAHB's International Department at mamaro@nahb.com. [return to top]

Fall Board Meeting Schedule
The National Commercial Builders Council Fall Board meeting will coinicide with NAHB's Fall Board meeting this September in Salt Lake City. The NCBC Trustees, who oversee the council, will address council business as well as issues on the horizon that are of direct relevance to commercial building. The preliminary schedule is as follows:

• Wenesday, September 13   
  9:00-10:30 a.m. – Joint Council Chairs
  12:00-5:00 p.m. – NAHB Executive Board Meeting 
• Friday, September 15   
  8:30-9:30 a.m. – Membership Subcommittee
  9:30-10:30 a.m. – Communications Subcommittee
  9:30-10:30 a.m. – Issues Subcommittee
  3:00-5:30 p.m. – Board of Trustees Meeting
• Saturday, September 16   
  8:00-10:00 a.m. – Area Caucuses
  10:30 a.m.-12:00 p.m. – NAHB Executive Board Meeting 
  1:00-5:00 p.m. – NAHB Board of Directors
• Sunday, September 17   
  8:00 a.m.-12:00 p.m. – NAHB Board of Directors

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