Recently the claim department of the Design Professional group of XL Insurance has seen an up tick of onerous public contracts. Public entities are using tough new contracts as a way to transfer inordinate amounts of project risk onto design professionals’ shoulders, jeopardize their insurance and make demands that design firms cannot reasonably fulfill.

Best advice: Read the contract. It sounds obvious, but many A/Es assume that the contract for a new project is the same one they received from the same entity on the last project. Onerous clauses and phrases that you negotiated out of one contract have a way of finding their way back into another.

In many contracts, engineers are accepting risk that their insurance will not cover. Worse still, many engineers don’t realize what they’ve done. It’s important, as an industry, to negotiate out those portions of the contract that transfer risk and responsibility to the engineer that the engineer has no control over. Often times this includes statements such as taking responsibility for the contractor’s actions, even if construction administration is not part of the contract. By accepting these unreasonable provisions in contracts, engineers are setting precedent for bad terms that will be carried forward in the future.

XL Insurance even makes the following strong statement regarding municipal contracts:

Public agencies have tremendous power and many delight in using it. [Emphasis added] However, persistence, reason and the knowledge that you were chosen based on your track record can get you past more than a few government attorneys. When you’re tempted to sign on the dotted line, think about your exposure to serious liability for circumstances you’d be rendered powerless to control. As tough as it may be to get a good public contract, it’s even more difficult to defend yourself under a bad one.

John McIlwain, ULI Senior Resident Fellow for Housing, describes the U.S. housing market, and how it will be affected by demographic trends. John’s talk was recorded at a gathering of ULI trustees on Jan. 26, 2010.

At the end of 2009, the area had 149,277 lots, down slightly from 149,782 in 2008, but above the 143,253 lots in 2007.

The inventory of lots kept rising because even has Atlanta’s housing market crashed, lots continued to be developed, said Eugene James, director of the Atlanta division of Metrostudy Inc., a residential real estate research firm.

“We were watching developments being reluctantly finished up,” James said.

In the 12 years Metrostudy has been recording data from metro Atlanta’s housing market, the area had the fewest new home starts — 4,400 — in 2009, James said.

That means in 2009, effectively only 500 lots came off the market in the metro Area, or about 1/3 of 1% of the available developed lots. Doing the math on new starts, 3,900 lots were developed last year in Atlanta.

At 4,400 new homes a year equates to a 34 year supply if no new lots were developed. A reasonable number of starts for the metro area in a normal economy is probably in the 20,000 unit range, meaning there is about a 7 year supply of lots. However, the reality is that anywhere between 10-20% of the current developed lots will likely never see houses on them either because of location or other factors including poor configuration and environmental concerns.

A good article from Inman News highlighted the area that many investment funds are headed to – residential lots.

As a result, finished lots are being dumped back into the market at 50 cents on the dollar — or much, much less — by builders and banks, which took back the properties due to loan defaults.

In bigger developments, investors have been buying these lots at 30 cents on the dollar, notes Nate Nathan, president of Scottsdale, Ariz.-based Nathan & Associates. In fact, well-funded investor groups have been sweeping up these long rows of unfinished lots by the dirtful leaving individual investors with no other option than to haunt smaller projects. And that, too, has been a worthwhile use of time and resources because, as Nathan points out, customized lots are selling for 10 cents to 20 cents on the dollar.

Think of it this way, lots are being acquired below finishing costs, which if new construction proceeds means the land cost is negligible, if not zero-valued.

The article noted that investors are expecting to hold the unfinished lots for 3 to 4 years and that they aren’t expecting significant new building to start until 2012. It also notes that we’ll need 1.2 million housing units in the next 10 years for population growth alone. (1.1 million units were built in the previous two years.)

Residential News

The WSJ says we don’t need to get worked up about Monday’s home sales report. Meanwhile, the ENR reports that while there won’t be a recovery in housing in the immediate future, one person believes that we’ll see 15%+ growth towards the end of the year and into 2011. In line with the weak housing numbers, Tom Royce reports that the Builders Confidence Index has dropped. Finally, not surprisingly, the WSJ reports that the number of subprime mortgages currently with negative equity is 6 in 10 borrowers on both the national and Atlanta level.

Commercial News

CIRE magazine highlights market trends for all sorts of markets and Atlanta is mentioned several times. The AJC summarizes the Atlanta office market. Finally, the WSJ thinks the worst is over for the commercial real estate market.

GA DOT

Lots of news on the transportation front this week for Georgia. Maria Saporta says that if we can’t do transportation funding right, then don’t do it at all. The ABC reports that DOT is changing its accounting practices in an effort to get projects moving. B King at Terminal Station comments on both the Saporta article and the fact that the statewide sales tax to fund transportation is dead. Finally, it what seems to be a never ending string of articles on ranking traffic, this week’s flavor ranks Atlanta a modest 22nd worst, which is actually pretty good.

Gwinnett Airport Privatization

A story that will probably be in the news a lot this year is the possibility of the privatization of Gwinnett County’s Briscoe Field. The Board of Commissioners is proceeding with studying the topic and reports on this can be found here, here, here and here.

Miscellaneous

Poverty is rising in Atlanta’s suburbs. A small business snapshot in the southeast. A look at a potential huge mixed-use project on Atlanta’s south side.

The region’s homebuilders and Realtors both reported the pace of home sales had softened slightly since August. Despite this, homebuilders noted an increase in traffic with several reporting the credit quality of potential buyers had improved as well. Demand for low- to mid-priced homes remained relatively strong, supported by the first-time home buyer tax credit and increased interest by investors. However, most continued to note downward pressure on home prices from foreclosures and short-sales. The majority of homebuilders and contractors observed construction remained very low. The sales outlook among both builders and Realtors over the next three months was less upbeat than reported in August.

Private-sector commercial real estate activity in the Southeast weakened further in September. Vacancy rates continued to rise across all segments, and contacts continued to cite downward pressure on rents. Developers reported fewer backlogs and more projects were delayed or canceled. Contractors expected activity to continue to decline into 2010.

This panoramic picture of downtown Lawrenceville captures many of projects Taylor Anderson has worked on for Mr. Morsberger. Picture taken from atop McCray's rooftop dining deck, another project Taylor Anderson provided engineering services for. (Click for full size image.)

To say that Emory Morsberger has bold vision is quite the understatement.  Assisting him in bringing his vision of historic downtown Lawrenceville back to life proved to be among the most challenging and rewarding projects that Taylor Anderson has had the opportunity to work on.

Having provided engineering services on three sides of downtown Lawrenceville’s main block provided numerous opportunities to tackle the issues that will likely face developers going forward – meeting the stringent requirements of development regulations within the context of redevelopment projects. The crown jewel thus far in Mr. Morsberger’s revitalization of Lawrenceville was the redevelopment of the old Wachovia bank site at the corner of West Crogan Street and Culver Street to the new Cornerstone on the Square. The project features condos, townhomes, and courtyard residences along with upscale retail space.

McCray's Tavern features unique outdoor dining on its rooftop deck.

As the development landscape continues to evolve, redevelopment of city centers provides unique challenges and opportunities. Blue Landworks extensive experience allows clients to maximize those opportunities while understanding and addressing those challenges.

Just a few of the projects that services have been provided for in downtown Lawrenceville:

• Cornerstone on the Square
• McCray’s Tavern
• Sperata
• Dominicks

“You all have done an exemplary job on our projects including… Cornerstone on the Square in Downtown Lawrenceville, a historic redevelopment project.” – Emory Morsberger, Chairman, The Morsberger Group regarding services provided by Taylor Anderson.

BrandsMart USA store in Gwinnet County is LEED certified.

The 118,000 square foot retail building is LEED certified, sporting some of the most cutting-edge green building techniques available today. That includes a sophisticated rain harvesting system that provides water to not only the landscaping, but the building’s restroom lavatories.

Many other green aspects of the building are discussed in this article from the Gwinnett Business Journal. The Gwinnett Daily post also profiled the grand opening and the building in a recent article.

Turns out that the US Geological Survey is actually saying that in many cases, this was a 500-year event.

“It is epic!” said Brian McCallum, assistant director for the USGS Water Science Center in Georgia. “The USGS can reliably say just how bad these floods were.”

They are calling this a 500-year flood because of the likeliness of it occurring is so rare, said McCallum. “We could have another flood next year, or floods back-to-back and still be considered 500-year floods because of the probability.”

Here is where the big problem for flooding in homes of people who didn’t have flood insurance comes in. The National Flood Insurance Program offers insurance to those who have property in the 100-year floodplain, not the 500-year floodplain. The 500-year floodplain is actually shown on many FEMA FIRM (Flood Insurance Rate Map) panels. If you’re curious to see where you property sits relative to a floodzone, you can search for flood maps at this FEMA website.

The Army Corps of Engineers, which has been a frequent target of criticism in Georgia, once again is on the defensive with regards to water releases from Lake Lanier during the floods. The Corps had this to say:

“The corps curtailed its operations on Sept. 19, and only minimal releases of approximately 670 cubic feet per second released through the small house unit have continued,” Coghlan said.

Those releases, about 300,000 gallons per minute, equated to less than an inch at a gauge 30 miles south of the dam in Vinings, according to the corps.

“Releasing from the small unit did not contribute to the localized flooding in the metro Atlanta area,” Coghlan said.

Coghlan said the flow out of large dams is rarely halted completely due to adverse impacts on river environments. The small unit generates power for the dam and project offices and “assisted in maintaining viable conditions for essential habitat below the dam,” Coghlan said.

As is usually the case with the Corps, their statements usually lead to more questions. While I doubt that releases of 670 cubic feet per second did much to exacerbate downstream flooding, the Corps apparently does have the ability to cut off all flow from Buford Dam according to Coghlan. Under what circumstances would the Corps actually do this? Coghlan correctly points out that cutting off all flow from Buford Dam would have some fairly bad consequences for the immediate area below the dam – the river would essentially be dry immediately below the dam. But what is the “essential habitat” and is 670 cfs the minimum amount of maintain “viable conditions”? Coghlan maintains that releasing did not contribute to the localized flooding downstream, but hardly seems like an accurate statement. If it’s a matter of adding no water versus adding water, then releasing certainly would contribute to the flooding. It may have been immaterial, but it certainly did contribute. By its own admission, the release added an inch to a gage 30 miles away, so on one side they say the didn’t contribute, but then acknowledge that their gage data shows they did. Of course, the Corps has earned a reputation for gage reading too.

Unfortunately for the Corps, they’re stuck in a pretty difficult position given the current legal battles going on between Georgia, Alabama and Florida. The fact they’ve become a common target doesn’t mean they’re at fault every time the weather gets wacky in Atlanta – be it drought or flooding. However, their communication of what they’re doing, how they’re doing it and why they’re doing it leaves them open to criticism. They would be wise to be more open about their operations and less defensive about their actions.

That this is even an issue, despite the fact that the drainage basin of Lake Lanier is minuscule in comparison to the the total drainage basin at either the Alabama or Florida border, is stupefying.

As an side, Lake Lanier is getting closer and closer to full pool. Earlier this year, a state climatologist predicted that Lanier would reach full pool after a dry late summer and fall and wet winter due to the effects of El Nino. Obviously that prediction didn’t include the previous week’s rains which has moved the lake to within 3 feet of full pool this morning.

The rains dropped 5.51″ as recorded at my house on Monday, which is the equivalent of a 10-year storm event. However, with a total of 5.28″ of rain occurring over the previous six consecutive days, the event manifested itself as more like a 100-year event (7.7″ of rain in 24 hours) because of the saturated ground being unable to absorb much of the rain. The rain we got Monday is the most I’ve ever recorded at the house, which includes the 2005 tropical storm season and remnants of Hurricanes Ivan and Katrina, which both dropped less than 5″ of rain. Because of the nature of the week long rain events culminated by a 10-year storm, chances are that was a once-in-a-lifetime weather event. While we’ll certainly see flooding again at some point, the incredibly unique situation that occurred last week will likely not be repeated again anytime soon.