Finance & Commerce - Q&A: AP CEO talks about headwinds, opportunities in construction

Jeff Hansen

By: Brian Johnson | July 30, 2021

Just a year after the end of World War II, George Adolfson and Gordon Peterson were onto something big when they founded a small construction business in the basement of Adolfson’s Richfield home.

The business, which became known as Adolfson & Peterson Construction, has grown dramatically from those modest beginnings. Now with 600 employees and offices in 11 states, Adolfson & Peterson is a top 100 national contractor.

Adolfson & Peterson provides preconstruction, construction and contracting services. The company is celebrating its 75th anniversary this year with events ranging from employee recognition activities to community service projects.

The celebration comes at a busy time for Adolfson & Peterson, which is working through a backlog of projects. The company is active in segments that include commercial, education, health care, hospitality, industrial, multifamily, recreation and senior living.

In the following interview, Adolfson & Peterson CEO Jeff Hansen talks about the company’s beginnings and growth trajectory. He also discusses challenges and opportunities for the industry as a whole as it emerges from the pandemic.

The interview has been edited for length and clarity.

Q: I know that Adolfson & Peterson is celebrating 75 years in business this year. Talk a little bit about the history of the company and how it got to where it is today.

A: Well, it started because George Adolfson had emigrated from Sweden. That’s a story in and of itself. But when George and Gordy [Peterson] started the business back in 1946, they literally started it in the basement of George’s house in Richfield. In many cases they were doing remodeling work, building houses, things like that.

It’s interesting how you go from that to now building high-rises, projects in excess of $150 million, etc. And to see the organization grow over those 75 years is remarkable in and of itself. This has continued to be a family-owned organization — second, third and fourth generation owned. Being family-owned comes with a lot of responsibilities. I’m not a family member, but I have a responsibility to the shareholders as being CEO of the organization, and being the steward of what their grandfather, father, great-grandfather had started 75 years ago.

Q: How long was George active in the business?

A: George was active in the business until probably 1981 or ’82. When he stepped away, that became kind of step-off point for the next level of leadership in the organization, especially at the family level, in which three of his sons and one son in law were extremely active in the business.

Q: How many locations do you have now?

A: We have 11 locations throughout the country. We operate with a hub-and-spoke mentality. So the hubs would be Minneapolis, Denver, Dallas, and Phoenix. And then from there, we have the spokes that come out that service other parts of those regions too. For example, we have offices in Austin and San Antonio to service the central Texas market.

Most of our business comes from really the heart of and the core of the U.S., right down the Midwest. Not really a presence up in the northeast. But we’re licensed in 36 of the 50 states in the U.S. because we have traveled there with our customers.

Q: As someone who is active throughout the country, you must have a good sense of where we’re at with the construction economy. How does Minnesota or the Midwest compare to some of those other markets you mentioned?

A: I think the Midwest market is still healthy regardless of what happened during the pandemic, because everyone suffered in the same way. And I think a lot of people have come out of this in the same way.

You know, there are some markets that might be a little bit stronger than Midwest, but you look at Phoenix and Dallas, for example, even Denver, for that matter. There’s a migration of population taking place today. It’s coming from the coast, into these other communities. And that’s where we’re still seeing those markets be extremely strong.

But I would say this market has weathered what has taken place in the pandemic very well. Part of that, I think, is you’ve got that level of Midwest mentality where we’re going to do this, we’re going to get through this, we’re all going to band together because the business is going to come back even stronger than what it was coming in.

I think it’s crazy for all of us to see what’s happened on the residential side, single-family and multifamily. I think that is going to continue to be strong. I think there’s a lot of unknowns that I see as it relates to the office market, and how people are going to come back. I don’t think it’s a matter of coming back. It’s how we’re going to come back. We’re even working through that ourselves. What does return to work look like? What does that look like really moving forward? Because a lot of people have proved you can be remote and be very productive in your jobs.

When you look at how this particular market, the Midwest, has responded, I would say it really came together. And despite everything else that was taking place, I believe this market will continue to be strong.

Q: The labor shortage has been an ongoing issue for a number of years in the industry. What are some of the other things that keep you awake at night in terms of the overall business conditions out there? The cost of building materials, perhaps?

A: The number one concern that everybody has … is the supply chain challenge. Back when the economy shut down, factories were shutting down production. We didn’t have people transporting goods and services, because there was no production taking place. And to get that fired back up, it’s almost like you’re in traffic and you have a stoplight and you’re 20 cars back. You know, just because the light turns green doesn’t mean you can hit the gas right away. There’s this latent effect that takes place to get things moving again. And that’s where we’ve seen the biggest challenges right now.

The lead time that’s taking place is a big thing. To get joists and deck on our projects typically might be a three- to four-month lead time. It’s eight to 10 months out right now. And that’s putting pressure on the schedule.

We all have heard the story what’s happened with wood prices, how that’s affected the cost. I mean, it’s up 400% from a couple years ago. We’ve seen a decline in it. But I don’t think anyone expects the price of materials to be much less, especially for the near future, compared to what it was pre-pandemic, because things were starting to increase then. So what does that do? It puts pressure on the owners for their ability to manage to their budgets, it puts pressure on our subcontractors, it puts pressure on us to be able to do this.

Q: On the plus side, there’s talk of a bipartisan deal for a federal infrastructure bill. That could be good for the industry. What are your reasons for optimism?

A: I think infrastructure is going to be a big injection, especially from a construction perspective. For heavy-highway people especially, that will be a big deal. Because when we start dealing with infrastructure, there’s still a very high need and very high demand. And I think that from a federal perspective, to support where the state budgets are, I think that’s going to help accomplish even what some of our needs are here.

The second piece is, with interest rates being where they are today … I think it helps everybody having those interest rates low to compensate for where these price increases are.

The third one in my mind is, as it relates to the optimism, is the backlog. There were a lot of projects that were put on hold. AP itself, I mean, we saw about almost $500 million worth of work get put back up on the shelf because of what happened with the pandemic, the uncertainty, and we all dealt with that uncertainty.

I can’t think of anyone who is unaffected by the uncertainty. But now we’re seeing as those projects come off the shelf, the architectural billing index for the last five months has been positive. In fact, it was at a record level just a month ago. That index is very important for the construction industry, because that is the leading indicator of work that’s going to start in 12 to 18 months.

Share this article.

Related News