September 17, 2007
Healthy niche | Ledgewood Construction relies on health care construction for roughly a third of its annual revenue. As Maine's population gets older, that business plan looks wise beyond its years
By Sara Donnelly
Ledgewood Construction, one of the state's largest contractors, has a history of excellence in commercial, industrial and residential building. In 2005 and 2006, the South Portland company's projects won Build Maine awards, given out by the Maine Construction Careers Alliance for project excellence, and last year Ledgewood worked on over $60 million in new construction and renovation projects around the state, up from $25 million just five years ago.
Ledgewood's steady success is due in part to a uniquely particular niche: health care construction. Roughly 30% of the company's annual revenue comes from renovation and construction of hospitals, medical office buildings, assisted living facilities, nursing homes and hospice centers. Ledgewood's very first project in 1978, in fact, was a 7,000-square-foot medical office building on Western Avenue in South Portland. Revenue from health care construction outweighs all other types of contracting that the company performs, and the volume of Ledgewood's health care contracts have grown this year alone by 10%.
At a time when residential construction is seizing, commercial construction nationally remains strong ˆ in July, according to the U.S. Census Bureau, residential construction spending fell 1.4%, while nonresidential spending climbed 0.6%, the 10th consecutive monthly gain. Health care projects, a subset of commercial construction, rose by 14.5% nationally from July 2006 to July 2007. In Maine, the value of health care construction starts has more than doubled since 2000, from $88.5 million that year to $179.2 million in 2006, according to McGraw-Hill Construction, an industry analyst in Lexington, Mass.
But health care building in Maine has occasionally suffered bouts of illness. Since 2000, health care construction here has grown in fits and starts, plummeting by as much as 76% from one year to the next only to regain its strength and then some the following year, McGraw-Hill says. The variation is likely due to the value of just one project ˆ a hospital wing built one year can mean millions in inflated revenue. So far this year, Maine's health care contracts are down 21%, but all that could change with the next big project.
Mainebiz sat down with Peter Benard, president of Ledgewood Construction, to talk about the health of health care construction.
Mainebiz: Health care projects make up the single biggest portion of your revenue. What's unique about this kind of construction?
Peter Benard: They are very different. When you go into a health care facility or hospital, these buildings are built for specific uses. They're basically designed to save lives. Whereas if you walk into an office building, they're made for work. So it's a totally different environment, much more heavy on the mechanical and the types and techniques we use to build these types of buildings. HVAC [for example], the heating and air conditioning, is all specialized. It's much more sensitive to the environment because of the type of hazards in the air and so forth. But also there's medical gases that we have to deal with and the plumbers need certain types of certification and training just to install those types of medical gases. It's almost a specialty trade within the company.
How does Ledgewood make sure it understands the ins and outs of the specialty?
We have certain superintendents and project managers that are familiar with the health care industry and they only work on health care projects. We have two project managers and four superintendents that only work on health care projects. Some of the items that we remove have to be removed like a surgeon ˆ we have to go in there, make special cuts around certain pieces of equipment, see what's up there. So actually, we kind of do surgery within the building. It's sensitive.
Many of Ledgewood's health care projects are renovations of occupied facilities, meaning patients and doctors are in the building while you're working. How do you pull something like that off?
The challenges involved with occupied spaces is you need to work very closely with the people you're on the floor with ˆ managers, nurses, doctors, hospital administrators. So we need to know at what point there are certain deliveries coming through, certain patients, we need to know the operating schedule, we've been in situations where we can be remodeling one area and in the room right next door to it would actually have a doctor performing surgery. We may have to slow down in that area or work in a different area, so it becomes extremely sensitive. We don't want a loud noise going on while somebody has a scalpel. There's a lot of coordination that goes on. The biggest part is preserving the patients' care.
Ledgewood began focusing on this type of work almost 30 years ago. Why has the company pursued it so pointedly?
It's difficult work; a lot of people aren't well suited for it and it's a feather in our cap that we're able to do this type of medical work. But also if you look at it historically, it's always been there ˆ good times, bad times. In the health care profession, there's always something going on. There's new technology coming out. As the population expands, so does the health care segment. We're seeing health care projects throughout the state right now. We're seeing the older workforce, and we're also seeing Maine becoming a retirement destination, so we're seeing this influx of people that need services.
You became the president of the company in 2002. Was improving the company's health care capacity and going after these contracts on your radar back then?
Yes it was, because if you read the newspapers and the magazines, everybody kind of predicted [the Maine population would age quickly]. We saw it as an opportunity to gain or expand our health care portfolio, which it has.
Basically, we've been averaging around 30% of our annual revenue from health care, so that's been kind of a staple for us. But the interesting thing that we're seeing now is probably five to seven years ago there was an influx of assisted living being built and so forth, but it slowed down, and now we're seeing another regeneration of it. We have two or three projects now in the pipeline for assisted living facilities.
But figures from McGraw-Hill Construction for January through July of this year show the number of new health care projects in Maine is down 21% from last year. Does that spell trouble? Could the health care market be cooling off?
No. Even though the actual dollar volume is down, it is probably due to a few larger jobs that have skewed the figures for that particular year. But I always feel strong with the current demographics [from Maine's aging population] that the health care segment of our market will be there. I know that there are some other projects on the books that will be coming up so I'm sure that we're just seeing just a small decline ˆ it takes quite a bit of time to get these projects approved.
Now that residential construction is slowing down, are you finding more contractors are going after health care projects? Is it more competitive?
It's always been competitive. There are several good contractors that have a good portfolio and are looking for work. There are some that are trying to break into it, that see it as a good opportunity. But, then again, there's a learning curve with it and you really have to understand what you're getting into. This isn't just going in and putting things together quickly, there's a lot of thought involved, there's a lot of people involved, plus there's patients. So it's very gentle. You have to be aware of your surroundings at all time. Even when you leave at night, you've got to make sure that the area is very secure, people are satisfied, check in with the nurse managers. Because you're inside a facility that's operational 24 hours a day, seven days a week.
One of your projects now is a $10 million, 80,000-square-foot medical office building along Portland's Fore River for Mercy Hospital. It's part of one of the biggest health care expansions in the state right now. How did you land that job?
They contacted us. On this particular project, [the developer, Landmark Healthcare Facilities of Wisconsin] came from out of state, they actually asked around, "Who are the players? Who's capable of doing this?" So we actually interviewed for the project with them, showed them our experience and how we do things, and we were awarded the project on that basis. [It's] the same thing if we get into a hospital setting. They'll usually interview three or four construction managers, find out what their philosophies are, their experience, how they've worked in other situations. And then they'll hire one from there. And then they'll go into the budgeting stage and so forth. So it's a lot different than just bidding it out. Most health care work is not bid out because the owners want a team atmosphere. They don't want an adversarial relationship, they understand that with construction management you're just going to get a better product at the same price.
Ledgewood's steady success is due in part to a uniquely particular niche: health care construction. Roughly 30% of the company's annual revenue comes from renovation and construction of hospitals, medical office buildings, assisted living facilities, nursing homes and hospice centers. Ledgewood's very first project in 1978, in fact, was a 7,000-square-foot medical office building on Western Avenue in South Portland. Revenue from health care construction outweighs all other types of contracting that the company performs, and the volume of Ledgewood's health care contracts have grown this year alone by 10%.
At a time when residential construction is seizing, commercial construction nationally remains strong ˆ in July, according to the U.S. Census Bureau, residential construction spending fell 1.4%, while nonresidential spending climbed 0.6%, the 10th consecutive monthly gain. Health care projects, a subset of commercial construction, rose by 14.5% nationally from July 2006 to July 2007. In Maine, the value of health care construction starts has more than doubled since 2000, from $88.5 million that year to $179.2 million in 2006, according to McGraw-Hill Construction, an industry analyst in Lexington, Mass.
But health care building in Maine has occasionally suffered bouts of illness. Since 2000, health care construction here has grown in fits and starts, plummeting by as much as 76% from one year to the next only to regain its strength and then some the following year, McGraw-Hill says. The variation is likely due to the value of just one project ˆ a hospital wing built one year can mean millions in inflated revenue. So far this year, Maine's health care contracts are down 21%, but all that could change with the next big project.
Mainebiz sat down with Peter Benard, president of Ledgewood Construction, to talk about the health of health care construction.
Mainebiz: Health care projects make up the single biggest portion of your revenue. What's unique about this kind of construction?
Peter Benard: They are very different. When you go into a health care facility or hospital, these buildings are built for specific uses. They're basically designed to save lives. Whereas if you walk into an office building, they're made for work. So it's a totally different environment, much more heavy on the mechanical and the types and techniques we use to build these types of buildings. HVAC [for example], the heating and air conditioning, is all specialized. It's much more sensitive to the environment because of the type of hazards in the air and so forth. But also there's medical gases that we have to deal with and the plumbers need certain types of certification and training just to install those types of medical gases. It's almost a specialty trade within the company.
How does Ledgewood make sure it understands the ins and outs of the specialty?
We have certain superintendents and project managers that are familiar with the health care industry and they only work on health care projects. We have two project managers and four superintendents that only work on health care projects. Some of the items that we remove have to be removed like a surgeon ˆ we have to go in there, make special cuts around certain pieces of equipment, see what's up there. So actually, we kind of do surgery within the building. It's sensitive.
Many of Ledgewood's health care projects are renovations of occupied facilities, meaning patients and doctors are in the building while you're working. How do you pull something like that off?
The challenges involved with occupied spaces is you need to work very closely with the people you're on the floor with ˆ managers, nurses, doctors, hospital administrators. So we need to know at what point there are certain deliveries coming through, certain patients, we need to know the operating schedule, we've been in situations where we can be remodeling one area and in the room right next door to it would actually have a doctor performing surgery. We may have to slow down in that area or work in a different area, so it becomes extremely sensitive. We don't want a loud noise going on while somebody has a scalpel. There's a lot of coordination that goes on. The biggest part is preserving the patients' care.
Ledgewood began focusing on this type of work almost 30 years ago. Why has the company pursued it so pointedly?
It's difficult work; a lot of people aren't well suited for it and it's a feather in our cap that we're able to do this type of medical work. But also if you look at it historically, it's always been there ˆ good times, bad times. In the health care profession, there's always something going on. There's new technology coming out. As the population expands, so does the health care segment. We're seeing health care projects throughout the state right now. We're seeing the older workforce, and we're also seeing Maine becoming a retirement destination, so we're seeing this influx of people that need services.
You became the president of the company in 2002. Was improving the company's health care capacity and going after these contracts on your radar back then?
Yes it was, because if you read the newspapers and the magazines, everybody kind of predicted [the Maine population would age quickly]. We saw it as an opportunity to gain or expand our health care portfolio, which it has.
Basically, we've been averaging around 30% of our annual revenue from health care, so that's been kind of a staple for us. But the interesting thing that we're seeing now is probably five to seven years ago there was an influx of assisted living being built and so forth, but it slowed down, and now we're seeing another regeneration of it. We have two or three projects now in the pipeline for assisted living facilities.
But figures from McGraw-Hill Construction for January through July of this year show the number of new health care projects in Maine is down 21% from last year. Does that spell trouble? Could the health care market be cooling off?
No. Even though the actual dollar volume is down, it is probably due to a few larger jobs that have skewed the figures for that particular year. But I always feel strong with the current demographics [from Maine's aging population] that the health care segment of our market will be there. I know that there are some other projects on the books that will be coming up so I'm sure that we're just seeing just a small decline ˆ it takes quite a bit of time to get these projects approved.
Now that residential construction is slowing down, are you finding more contractors are going after health care projects? Is it more competitive?
It's always been competitive. There are several good contractors that have a good portfolio and are looking for work. There are some that are trying to break into it, that see it as a good opportunity. But, then again, there's a learning curve with it and you really have to understand what you're getting into. This isn't just going in and putting things together quickly, there's a lot of thought involved, there's a lot of people involved, plus there's patients. So it's very gentle. You have to be aware of your surroundings at all time. Even when you leave at night, you've got to make sure that the area is very secure, people are satisfied, check in with the nurse managers. Because you're inside a facility that's operational 24 hours a day, seven days a week.
One of your projects now is a $10 million, 80,000-square-foot medical office building along Portland's Fore River for Mercy Hospital. It's part of one of the biggest health care expansions in the state right now. How did you land that job?
They contacted us. On this particular project, [the developer, Landmark Healthcare Facilities of Wisconsin] came from out of state, they actually asked around, "Who are the players? Who's capable of doing this?" So we actually interviewed for the project with them, showed them our experience and how we do things, and we were awarded the project on that basis. [It's] the same thing if we get into a hospital setting. They'll usually interview three or four construction managers, find out what their philosophies are, their experience, how they've worked in other situations. And then they'll hire one from there. And then they'll go into the budgeting stage and so forth. So it's a lot different than just bidding it out. Most health care work is not bid out because the owners want a team atmosphere. They don't want an adversarial relationship, they understand that with construction management you're just going to get a better product at the same price.
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