HVAC manufacturers feel chill from the deep freeze in construction and lending

May 01, 2010 | 06:16 AM | Lisa Gordon

Heating, ventilation and air conditioning (HVAC) manufacturers are bracing for the cold spell to continue until banks ease lending restrictions and the residential and nonresidential construction markets warm up.

Lending practices and fluctuating appraisal values on projects are making it more difficult to break ground, according to John Sedine, president of Engineered Heating & Cooling Inc., Walker, Mich., and chairman of the Arlington, Va.-based Air Conditioning Contractors of America (ACCA), the nation's largest association of HVAC contractors.

"Banks have tightened up lending practices and we have to recover from the flywheel effect we have seen. A project has a two- or three-year phase where it is developed and budgeted. Then two things happened there was a drastic drop in appraisal of property, and banks required more," he said. This meant that a million-dollar project was re-appraised at $750,000, thus making it no longer a viable investment for builders; and banks, which previously required a 10-percent down-payment, now require 20 to 30 percent before it will agree to a loan. It was a double whammy for HVAC manufacturers, who use galvanized sheet and coil to fabricate ductwork.

"I see Texas doing better, California is hard hit and Florida is up and down. The market is not only defined by your geographical area but by what segment of HVAC you serve," Sedine said. His company has fared well during the downturn because it doesn't rely on single-family residential construction, instead making ductwork for use in living quarters for the elderly, office buildings and hotels.....

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