Positioning Your Firm for the End of the

Positioning Your Firm for the End of the Economic Downturn March 17, 2009 Presented by Kermit Baker, Ph. D. , Hon. AIA Doug Gordon, Hon. AIA Tim Milam, AIA Peter Piven, FAIA Good design makes a difference

Moderated by Douglas E. Gordon, Hon. AIA, has been editing and writing on architectural technology and practice for 30 years for the AIA, Architectural Technology, Architecture, Architectural Record, the AIA MEMO, and AIArchitect; the latter in print and electronic form and for which he currently is executive editor. As the staff director of the AIA Practice Committee in 1990, he organized the Institute's "Managing Rapid Change" initiative to help architects face then-ongoing severe recession. Good design makes a difference 2

Presented by Kermit Baker is the Chief Economist for the American Institute of Architects in Washington, D. C. In this capacity, he analyzes business and construction trends in the U. S. economy and examines their impact on AIA members and the architectural profession. Kermit originated the AIA’s Architectural Billings Index as well as the AIA Consensus Construction Forecast Panel. Kermit received his Masters degree in Urban Planning from Harvard University and holds a Ph. D. from Massachusetts Institute of Technology in the same field. In 2002, Kermit was named an honorary member of the AIA. Good design makes a difference 3

Presented by Tim Milam, AIA, Partner, is FXFOWLE's Managing Director. With over twenty years of experience as an architect and manager in both the public and private sectors, Tim is responsible for contract administration, project management oversight, and general management of the firm. His duties include strategic planning, contract negotiation, human resources, as well as staffing and recruiting. He chairs the firm's steering committee and is a key member of the management committee. Tim received a Bachelor of Architecture from the University of Kentucky and a Master of Urban Planning from City College. Tim can be reached at (646) 292 8202 or via email tmilam@fxfowle. com Good design makes a difference 4

Presented by Peter Piven, FAIA is the Philadelphiabased Principal Consultant of The Coxe Group, Inc. , the oldest multidiscipline firm providing management and marketing consultation to design professionals. A founding principal of The Coxe Group, Mr. Piven has helped architects and other design professionals improve their practices in the areas of overall organization, strategic planning, valuation and ownership and leadership transition, marketing, project delivery, partnering, financial management, and merger/acquisition assistance. Peter Piven lives and works in Philadelphia where he can be reached at (215) 952 2781 or via email at ppiven@coxegroup. com. Good design makes a difference 5

Poll How many are attending at your location today? Good design makes a difference 6

Poll How many employees are there at your firm? • sole proprietor (1 person) • 2 -9 employees • 10 -19 employees • 20 -49 employees • 50 -99 employees • 100 or more employees Good design makes a difference 7

If you wanted only one question answered today, what would that question be? To ask a question … click on the “question mark icon” in the upperleft corner of your screen. Good design makes a difference 8

Business Trends and the Outlook for Architecture Firms Kermit Baker, Chief Economist The American Institute of Architects Good design makes a difference

Agenda • Business Trends in Design and Construction • Comparison of Current Downturn to Previous Nonresidential Construction Recessions • Nonresidential Construction Outlook for 2009/2010 Good design makes a difference

Economic Environment Remains Very Weak • Housing market yet to begin recovery; home prices down about 20%-25% from peak. • Stock market declines wipe-out gains of past decade. • Business payroll declines total 4. 4 million since downturn began; unemployment rises to 8. 1%. • Architecture firms lose 18, 400 positions since August, 2008, or 8. 2% of total payrolls. • U. S. economy dragging down most international economies. Outlook for Economic Expansion Annual GDP 2007 2008(e) 2009(f) 2. 0% 1. 1% -2. 5% Good design makes a difference

Business Conditions at Design Firms: AIA Architectural Billings Index Good design makes a difference

Architecture Firm Billings Have Fallen Dramatically Since Late 2008 billings scores since 2007 index: 50 = no change from previous month Source: AIA Architecture Billings Index Good design makes a difference

Inquiries for New Projects, Likewise, Have Softened Considerably billings scores since 2007 index: 50 = no change from previous month Source: AIA Architecture Billings Index Good design makes a difference

Commercial/Industrial Billings Turned Down in Early 2008; Institutional Activity Has Recently Weakened billings scores by firm specialization; Index: 50 = no change from previous month Source: AIA Architecture Billings Index Good design makes a difference

Business Conditions Have Deteriorated at Firms In All Regions billings scores by region; Index: 50 = no change from previous month Source: AIA Architecture Billings Index Good design makes a difference

Comparisons of Current Conditions to Previous Nonresidential Cycles Good design makes a difference

Current Downturn is Starting Off With Much Sharper Declines Than 2001 billings scores during first year of downturn index: 50 = no change from previous month Source: AIA Architecture Billings Index Good design makes a difference

This Downturn is Starting Out as Severe as Any Previous Nonresidential Recession Total percent declines in construction starts from peak to 4 quarters after peak, 2000$ Note: 2009 -1 figures estimated by Mc. Graw-Hill Construction Source: Mc. Graw-Hill Construction Good design makes a difference

By Standards of Previous Cycles, Current Nonresidential Downturn Still Has a Distance to Go Percent change in construction starts, constant 2000 dollars Cycle Time Period Early 1980 s (1980: 1 -1982: 4) Early 1990 s (1989: 3 -1993: 1) Early 2000 s (2000: 1 -2004: 1) Current (2008: 1 -2009: 1) Nonresidential Total Commercial / Industrial Institutional -27. 5% -33. 6% -12. 1% -30. 9% -47. 8% -7. 3% -24. 9% -29. 2% -20. 6% -19. 0% -33. 4% -3. 0% Source: Mc. Graw-Hill Construction Good design makes a difference

Nonresidential Construction Outlook: 2009 -2010 Good design makes a difference

AIA Forecast Panel Sees Steep Drop in Most Nonresidential Categories in 2009, With Additional Declines in 2010 annual % change; 2000 $ Source: AIA Consensus Construction Forecast Survey for 2009 and 2010 conducted in Dec. , 2008. Good design makes a difference

Commercial Outlook: All Sectors Off in 2009 Followed by Further Declines in 2010 annual % change; 2000 $ Source: AIA Consensus Construction Forecast Survey for 2009 and 2010 conducted in Dec. , 2008 Good design makes a difference

Most Major Institutional Categories Expected to See Downturn in 2009, But Beginning to Stabilize by 2010 annual % change; 2000$ Source: AIA Consensus Construction Forecast Survey for 2009 and 2010 conducted in Dec. , 2008 Good design makes a difference

Prospects: Growing List of Federal Programs to Deal with Economic Downturn • Troubled Asset Relief Program - provides $800 billion pool to draw on to prop up undercapitalized financial sector. • American Recovery and Reinvestment Plan - $787 billion stimulus program to help revitalize economy. • Homeowner Affordability and Stability Plan - $275 billion to help homeowners overstretched by high mortgage payments, and to generate more lending for home mortgages. Good design makes a difference

Summing Up - Design firms entering second year of very sharp downturn; steepest declines in commercial/ industrial categories. - Current nonresidential downturn shaping up to be as serious as any of the past 50 years. - 2009 projected to see double-digit percentage drop in nonresidential construction activity. Further declines forecast for 2010. - Federal initiatives expected to provide a floor for economic decline and generate recovery by late 2009 or early 2010. Good design makes a difference

Repositioning Your Firm Peter Piven, FAIA Principal Consultant The Coxe Group, Inc. Good design makes a difference 27

Agenda • • • The bad news and the good news How architects have been affected How architects have responded to date Initiatives to improve and evolve the firm Ideas and suggestions for overall strategy, markets, clients, and organization and operations Good design makes a difference 28

The Bad News 1. We are in the midst of a worldwide economic downturn. 2. Financing will be harder to get … by clients and ourselves. 3. The markets are tenuous; most clients are wary. 4. Firms are down-staffing. 5. Profitability will likely decline … for most. Good design makes a difference 29

The Good News 1. There and will be opportunities. 2. The government has approved a stimulus package. 3. Talent is available and more will be. 4. There are things you can do to position or reposition yourself. Good design makes a difference 30

How Architects have been affected +/- 5 % are in trouble +/- 5% are just fine +/- 90% are concerned and have taken steps Good design makes a difference 31

Initiatives to improve 1. 2. 3. 4. 5. 6. 7. Restructure organization and/or operations. Pursue different delivery methods. Redirect marketing efforts. Promote sustainability. Seek public funding opportunities. Enhance existing relationships. Establish new relationships. Good design makes a difference 32

1. Restructure org and ops • • Bench concept: fewer people, less space. Share promo, photo costs with contractors. Introduce or move more strongly into BIM. Add disciplines to improve competitiveness. Revisit office standards and graphics. Invest more in research. Change ownership to qualify as WBE. Create minority-owned firm to provide project management services. • Seek new and redistribute existing talent. Good design makes a difference 33

2. Pursue different delivery methods • Establish relationships with developers. • Act like a broker: put developers with clients with access to funds. • Push design/build. • Partner with contractors; join design/build teams. • Promote Integrated Project Delivery. • Move to developer mode. • Push AEC capability. Good design makes a difference 34

3. Redirect marketing efforts • Open a virtual branch office. • Improve collateral materials, incl. website. • Increase visibility by publishing and speaking. • Expand geographic range: pursue work abroad. • Partner with other firms to remain lean. • Connect with engineers. • Create a stricter “go-no go” protocol. • Leave markets with little expertise. Good design makes a difference 35

4. Promote sustainability • Promote infrastructure analysis. • Promote tenant improvements: renovations and LEED services. • EBOM: Existing Building Operations and Maintenance. • Develop prototype LEED-certified small homes. • Incorporate LEED requirements into the planning process. • Install photo-voltaic system as demo. Good design makes a difference 36

5. Seek public funding opportunities • Seek sole source procurement projects. • Types: senior living, transportation, schools, healthcare, military. • Create MBE to do project mgmt. for large, publicly funded infrastructure projects. • Assist private-focused clients to seek publicly funded work. Good design makes a difference 37

Important ARRA features • • • $4 billion for Public Housing Capital Fund $4. 24 billion for DOD facilities $8. 8 billion for education-related expenditures $5 billion for Weatherization Assistance $4. 5 billion to increase energy efficiency in Federal buildings • $3. 2 billion for Energy Efficiency and Conservation Block Grants • $6 billion in loan guarantees for renewable power generation and transmission Good design makes a difference 38

6. Enhance existing client relationships • Assist clients to ready projects for the turn. • Provide sketches, feasibility studies to help clients develop projects. • Assist clients with grants and fund raising. • Develop projects in phases. • Help clients take advantage of reduced construction costs, get “shovel ready. ” • Offer retainer strategies to spread fees. • Move down the food chain from building owners to building managers. Good design makes a difference 39

7. Establish new relationships • Forge new alliances to expand geography; generate regional alliances. • Team with out-of-town firms that can use our expertise. • Connect with some engineers. • Establish relationships with lenders, realtors, builders, even estate planners. • Transport expertise to new end-users. Good design makes a difference 40

Ideas and suggestions re overall strategy • Even while dealing with pursuing work for the near term, position the firm for where the leaders want it to be in 3 years and beyond. • Consider affiliation strategies from projectbased to strategic alliances to mergers and acquisitions. • Understand the financial underpinnings of markets and clients, and use it to help clients develop strategies for their facility needs. • Expand services to include things that improve clients’ likelihood of success. Good design makes a difference 41

Ideas and suggestions re markets and marketing • Be aggressive in seeking/creating/ instigating project opportunities. • Sustainability is a high priority. • Planning opportunities are stronger than architecture, and publicly funded work is stronger than private in some sectors. • Alliances can broaden geographic coverage and strengthen service offerings. • Be selective; avoid temptation to go after anything and everything. • Follow market trends closely, and make the necessary moves to change position early. Good design makes a difference 42

Ideas and suggestions re clients • The easiest source of work is clients with whom the firm has already worked. • Sustain relationships with clients: past, current, prospective, and stay connected at many levels. • Offer to do work in small increments. • Encourage clients to capitalize on current construction cost reductions. • Offer incentives to get things moving (but not to the extent of devaluing the work). Good design makes a difference 43

More ideas and suggestions re clients • Help clients understand how the things that differentiate the firm benefit them. • Expand the firm’s network to include those who influence and help clients. • Consider becoming a client by becoming a developer; remember it requires financial understanding, market understanding and forecasting, funding sources, risk, and focus. Good design makes a difference 44

Ideas and suggestions re organization & operations • Position the firm for where the leaders want it to be in three years and beyond. • Find ways to develop and capitalize on such things as WBE/MBE status. • Assess talent and make changes where improvement is warranted. • Use the down market period to increase technical and technology proficiency. • Strengthen expertise, either in-house or through affiliations. • Accelerate efforts towards LEED accreditation. Good design makes a difference 45

GOOD LUCK Good design makes a difference 46

Poll Are you currently: • Repositioning Your Practice • Considering Repositioning • Neither Good design makes a difference 47

FXFOWLE ARCHITECTS Repositioning: Lessons Learned Tim Milam, AIA Partner, Managing Director Good design makes a difference 48

Agenda • Repositioning Example 1: Short-Term Strategy (resulting from an unexpected change in the market) • Repositioning Example 2: Long-Term Strategy (in anticipation of a change in the market) Good design makes a difference 49

Repositioning Example 1: Pursuing NYC Residential Sector in 2001 Good design makes a difference 50

Challenges • After 9/11, commercial high-rise development in NYC slowed drastically • Developers responded by adapting to residential market – where demand was still strong • How to secure work in this new market with limited experience? Good design makes a difference 51

Initial Steps • Identify partner and key team to lead efforts • Research current residential market sector • Analyze similarities between residential and commercial high-rise; understand differences Good design makes a difference 52

Implementation • Strengthen existing relationships with Clients who are also venturing into new sector • Collaborate with firms which have expertise • Review work to determine if any past projects might be relevant OR any components of projects might be useful • Use employees’ individual experience in sector; add new employees with the experience • Use expertise in sustainability, local knowledge, technical expertise, quality assurance and client service as marketing tools Good design makes a difference 53

Timeline • 2002: Started design for 1 st residential project (The Helena) – for existing client • 2003: Started design for large residential development (Archstone Clinton) – for new client • 2005: Construction of The Helena completed; Received 6 new commissions • 2006: Started design for first international residential projects (India, Dubai) • 2008: Construction complete on 4 residential projects including Archstone Clinton Good design makes a difference 54

Results • Successfully adapted to residential work – which became busy sector until recent downturn • New design opportunities with different building type • Increased opportunities, new clients • Implemented sustainable design • Expanding services: interior architecture, LEED Good design makes a difference 55

Repositioning Example 2: Developing International Practice Good design makes a difference 56

Goals • Develop practice in an alternative market to offset anticipated downturns in US economy • Pursue and secure work that offers greater design opportunities and the possibility to expand services into other sectors • Expand firm’s sustainable design goals outside US • Leverage international work to reposition our brand in the US Good design makes a difference 57

Initial Steps • Get buy-in from firm leadership: time/effort/$ • Identify partner to lead efforts: requires giving up other commitments; a willingness to travel extensively; a long-term position with slow results • Conduct extensive research • Identify useful connections and alliances (networking) • Develop strategic plan Good design makes a difference 58

Implementation • Cast wide net, then focus on specific geographic areas • Be adaptable to different expectations from clients, working processes; cultural differences; business practices, etc. • Enter open competitions – and use work product for marketing to other clients • Review work to determine if any past projects might be relevant OR any components of projects might be useful • Be willing to hire a business developer with connections in targeted areas • Attend international conferences/events • Set up regional office, relocate employees Good design makes a difference 59

Challenges • Remote clients and project locations • Differences in: culture, construction materials and methods, business practices, liability/insurance • Branch office complications: communication, recruiting & training staff, etc. • Unpredictable results • Getting paid in a timely manner – OR getting paid at all • Current economic recession – is GLOBAL Good design makes a difference 60

Timeline • 2005: Developed plan & started implementation; received first commissions (master planning and feasibility studies) • 2006: Hired full-time business developer and set up office in Dubai; started design for large projects • 2007: 12 new commissions; expanded services • 2008: Expanded office in Dubai; started design of first bridge project; started work on major project in Saudi Arabia • 2009: Readjusting to economic slowdown – different geographic areas and project types Good design makes a difference 61

Results • Projects in various countries – with a concentration in Dubai/India/Saudi Arabia • Lots of press, new opportunities, expanding client base • New opportunities in US – using international experience Good design makes a difference 62

“Our vision of the future is to achieve a position in the industry where we are able to define the design issues for projects independent of current fashion; where we are known for, respected for, and sought out for the quality of our design; where we are acknowledged in the industry as leaders in design and environmental sensitivity. ” from FXFOWLE’s Strategic Plan 1996 Good design makes a difference 63

Questions and Answers To ask a question … click on the “question mark icon” in the upperleft corner of your screen. Good design makes a difference

Poll Which of the following lessons have you've learned from this discussion (check all that apply): - I now have a better understanding of the current economic climate and the probable impact of the economy on my practice. - I can take action to position my firm for the end of the economic downturn. - By taking proper and timely actions with respect to my practice, I will respond to reap the benefits of the next upward economic swing in any way. Good design makes a difference 65

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CES Credit AIA members and nonmembers should report 1. 5 learning units and download certificate of course completion via online form http: //info. aia. org/aia/CESCertificate. cfm at the conclusion of the live webinar. The URL will be available until March 23, 2009. Good design makes a difference 67

Instructors Kermit Baker, Ph. D. , Hon. AIA Chief Economist The American Institute of Architects 1735 New York Ave. , NW Washington DC, 20006 Email: econ@aia. org Peter Piven, FAIA Principal Consultant The Coxe Group, Inc. 201 Queen Street Philadelphia, PA 19147 Phone: (215) 952 2781 Email: ppiven@coxegroup. com Tim Milam, AIA Partner, Managing Director FXFOWLE 22 West 19 th Street New York, NY USA 10011 Phone: (646) 292 8202 Email: tmilam@fxfowle. com Douglas E. Gordon, Hon. AIA Executive Editor, AIArchitect The American Institute of Architects 1735 New York Ave. , NW Washington DC, 20006 Phone: (202) 626 7344 Email: dgordon@aia. org Good design makes a difference

Positioning Your Firm for the End of the Economic Downturn Thank you for joining us! Good design makes a difference