Updated State of the ESA Industry
It has now been nearly five full months since this blog's inception and during this time I have made fourteen entries. Three of these entries included my comments and thoughts regarding the state of the ESA industry; an industry that has clearly been directly impacted by the credit crunch. Now that the calendar fourth quarter has concluded and the numbers are in, I thought I would share what EDR is seeing in the U.S. due diligence market.
First and foremost, transactions are down. After showing strong year-on-year growth for most of 2007, ESA projects contracted in the fourth quarter by 7.4%. During the same time frame however, the number of environmental consulting firms ordering from EDR moderately increased. So at the end of the day it appears that a larger number of environmental consultants are competing for work in a transactional market that has gotten smaller.
This decline in transactions started off in the CMBS arena and for a while the only environmental consultants being directly impacted were those who focused on portfolio securitization projects. As evidence of this, only $6.2 billion in securities were issued in October as compared to over $34 billion in August. However, the situation quickly spilled over into other due diligence sectors including small balance lending, M&A and corporate real estate development. McGraw-Hill Construction is forecasting a 6% decline in commercial construction in 2008.
Today the type of commercial real estate buyer or investor is changing as well. Gone are the highly leveraged buyers and replacing them are the all-cash and low-leverage buyers. As a result, many environmental consulting firms are redirecting their sales and marketing efforts towards the foreign investor, REIT and institutional markets. This seems to be playing out most notable in the retail and hospitality asset classes.
Nearly everything I am reading is forecasting more of the same for 2008. The U.S. economy has certainly slowed with some predicting a 50/50 chance of recession this year. But whether we go into a recession or not almost doesn't matter. Even if we avoid a technical recession, the business and lending environments have changed and the ESA market this year will not look like it did last year.
These cycles are inevitable and seem to occur roughly every 7 years. During these times a few things tend to occur. First, there will likely be some consolidation in the environmental consulting industry. Second, as already mentioned, consultants will redeploy their sales teams to target markets that are relatively active. And third, firms will closely analyze their business processes to identify work areas that could be further automated.
My guess is that the companies who execute the best in these areas will come out of this cycle stronger and better positioned for the next phase of expansion.
First and foremost, transactions are down. After showing strong year-on-year growth for most of 2007, ESA projects contracted in the fourth quarter by 7.4%. During the same time frame however, the number of environmental consulting firms ordering from EDR moderately increased. So at the end of the day it appears that a larger number of environmental consultants are competing for work in a transactional market that has gotten smaller.
This decline in transactions started off in the CMBS arena and for a while the only environmental consultants being directly impacted were those who focused on portfolio securitization projects. As evidence of this, only $6.2 billion in securities were issued in October as compared to over $34 billion in August. However, the situation quickly spilled over into other due diligence sectors including small balance lending, M&A and corporate real estate development. McGraw-Hill Construction is forecasting a 6% decline in commercial construction in 2008.
Today the type of commercial real estate buyer or investor is changing as well. Gone are the highly leveraged buyers and replacing them are the all-cash and low-leverage buyers. As a result, many environmental consulting firms are redirecting their sales and marketing efforts towards the foreign investor, REIT and institutional markets. This seems to be playing out most notable in the retail and hospitality asset classes.
Nearly everything I am reading is forecasting more of the same for 2008. The U.S. economy has certainly slowed with some predicting a 50/50 chance of recession this year. But whether we go into a recession or not almost doesn't matter. Even if we avoid a technical recession, the business and lending environments have changed and the ESA market this year will not look like it did last year.
These cycles are inevitable and seem to occur roughly every 7 years. During these times a few things tend to occur. First, there will likely be some consolidation in the environmental consulting industry. Second, as already mentioned, consultants will redeploy their sales teams to target markets that are relatively active. And third, firms will closely analyze their business processes to identify work areas that could be further automated.
My guess is that the companies who execute the best in these areas will come out of this cycle stronger and better positioned for the next phase of expansion.
Labels: CMBS, ESA, McGraw-Hill, REIT, Securitization
posted by Rob Barber at
1/10/2008 11:03:00 AM
1 Comments:
I hear a lot of doom and gloom out there, and talk of recession is a self fulfilling prophecy. Our industry depends on movement, whether up or down. Here in the Midwest, construction continues at a record pace because our developers recognize that a buyer's market allows them to pick up a discounted value. Let's remind our clients of the value of both sides of the equation and keep things moving!!!
Post a Comment
<< Home