Hard Times Take Toll on Architects and Firms in S.D.
David Rodriguez wasn’t expecting what happened when he returned to his office at Lorimer-Case Architects after a meeting with a client on the last Friday of August.
“The VP of personnel just came up to me and said, ‘Can I talk to you?’ We walked into his office, he closed the door, and he said, ‘Well, we’re going to have to give you two weeks’ notice. There’s no planning work coming in.’ One quick stroke, and Rodriguez, the company’s director of planning for the past five years, was gone.
Rodriguez is just one example of the tough times that have hit San Diego’s architectural offices. The recession, which architects say began 12 to 18 months ago, has drastically reduced the amount of work available. Business is way down, and layoffs are standard procedure.
“It’s depressing to talk to architects,” said Mike Marshall, a partner at Conwell-Marshall, a mid-sized San Diego architecture company. “I hate to go to their functions, because times are tough right now. I think we’re at the bottom, coming out, but I think it’s going to be a slow recovery.”
Conwell-Marshall has cut its staff from 20 to nine during the past 18 months. During that same period, SGPA Planning & Architecture cut down from 90 to fewer than 50 employees; BSHA, from 75 to 65; Lorimer-Case, Rodriguez’s former employer, from 57 to 28; and Hope Architects and Engineers, from 75 to 65--down from its peak of 120 around 1986.
Companies are also eliminating some departments. Hope dropped its mechanical and civil engineering divisions. With Rodriguez’ layoff, Lorimer-Case eliminated the last of its planning department.
“I always thought we were safe from a recession because we had three market areas: military-government, big companies like Solar (Turbines Inc.) and Science Applications Inc., and speculative-developer,” said Marshall. “Usually, when one’s down, the others hold us up.
“But we found a little over a year ago that all three were hit. Defense budget cuts hurt our defense contracts. With overbuilding and the financing crunch, developers were just not doing anything. And a lot of our big corporate clients are cutting back.”
Marshall and other architects said that mid-sized companies like Conwell-Marshall, those with a dozen to 25 or so employees, have been among the hardest hit.
“When you’re between small and large, overhead really hits you,” Marshall said. For example, his company had planned to move from its Mission Valley offices, but decided to stay put when the recession hit. It renegotiated a sweetheart lease at $1.25 a square foot--10 cents less than the company was paying nine years ago.
Larger companies are looking for similar savings. Hope, for example, cut its overhead by moving from downtown San Diego to the Golden Triangle last month. The move reduced the company’s monthly rent for 18,000 square feet of office space by about 30%, Bruce Oveson, the company’s president, said.
One of the most detrimental side effects of the recession, especially for larger architecture companies, has been the death of the big, 1980s-style speculative development. With savings and loans in a crisis, and with even once-prolific Japanese sources of financing drying up, developers can no longer find financing for large, speculative office buildings, shopping centers and residential projects.
Competition is fierce for the work that remains.
“A lot of architects are doing work on a speculative basis,” said architect David Lorimer, a partner at Lorimer-Case, which specializes in designing tract housing. “They only get compensated if a project goes, and even then, it’s at a reduced rate.
“We try not to take any speculative projects, but I can’t say I never would. Some architects are cutting fees by about 30%. Basically, we can’t even break even at that. We spend a lot of time on design. We put the hours in because we feel it takes time to do proper design. So our profit margin isn’t that great.
“Clients recognize it’s a good time to get architects bidding against each other, and architects are just cutting their own throats, because there are too many willing to take projects on at no profit.”
Without the burden of high overhead, independents have an advantage over larger firms. Architect Drex Patterson left a job at a small San Diego architecture company last June to go on his own, just as the recession hit.
Patterson, who specializes in designing expensive custom homes, said his clientele is largely recession-proof.
He is now at work designing four houses in San Diego and three in the Virgin Islands, where he lived and worked for 10 years before moving to San Diego 2 1/2 years ago.
Many architects are changing their orientations, aggressively pursuing different types of work to compensate for projects eliminated by the recession.
“The horizon looks bright,” said Gordon Carrier, president of BSHA. “Projects are smaller, but they’re out there. Before the recession, we saw a lot of major mixed-use--private developments funded by private sources. Now, projects are much smaller--strip shopping centers and small residential developments, $5-million projects versus $25 to $30 million. Smaller projects are easier to lease, and when a developer can lease, he can get financing.
“An example of a pre-recession project would be Village Hillcrest,” Carrier added, referring to the $40-million project being built at 5th and University avenues, on which BSHA took a lead design role. Village Hillcrest includes a medical building, movie theaters, shops, live-work loft spaces and restaurants.
“I dare say there would not be a great chance of securing a project of similar size now,” Carrier said.
BSHA had a stroke of premonitory luck, reorienting its marketing toward public and institutional projects in 1986 and 1987. As a result, it landed jobs as the lead architect on the renovation of the main library at UC San Diego (in association with Michigan architect Gunnar Birkerts) and on the $25-million sports arena to be built at San Diego State University. BSHA is also designing a new branch library in Mira Mesa.
Work outside San Diego has been another lifesaver for several local companies.
BSHA has projects in Mexico, Czechoslovakia and Hawaii--including a 400-room resort hotel scheduled to begin construction next year in Waikiki, and an office headquarters for a major insurance company in Sacramento. SGPA is designing a large mixed-use project in Ensenada, and Lorimer-Case has three projects in Mexico.
Many firms are surviving partly on large, long-term projects they landed before the recession hit.
Although fewer large new residential projects are moving ahead, Lorimer-Case is still at work designing homes for the middle and late phases of tracts that began development before the recession. Hope has been busy with Camp Snoopy, a 7-acre theme park in the middle of the giant new Mall of America being built in Bloomington, Minn. On any given day, the project employs as many as 10 people in the Hope office.
Meanwhile, out on the streets, the job market for architects is tough.
“I’m looking for work, except there’s no work,” said Rodriguez, a married father of three children. “I’ve contacted have a dozen firms, but everybody’s kind of slow. If I didn’t have substantial savings, I’d be in deep trouble, there’s no way I would be able to make my mortgage and car payments.
“It’s pretty obvious to me I’m going to have to create my own job. I’ve been trying to set up some consulting work, and it looks like something will work out in the next few months. How successful it will be is a gray area.”
Gray, too, is the outlook for the future for architects. Although some economists are saying that the worst of the recession is over, architects are holding their collective breaths.
“The economic recession in the U.S. will begin an upturn in the months ahead,” predicted Mike LaBarre, a principal at SGPA. “But, in the much bigger picture, this country is going through a major real estate transformation that will continue to exist beyond the recession.
“I think you’ll see virtually no speculative real estate development. Buildings in the future will have a definite purpose and will have to adhere to tighter budgets. They will have to be pre-leased, with occupants identified in advance. And for probably the next several years, you’ll see real estate as an investment vehicle in the form of buying properties, upgrading them and repositioning them as investments, as opposed to new development.”