By Kerry Hall Singe, The Charlotte Observer, N.C.
Sep. 15--As more commercial construction projects stall, an increasing number of subcontractors are finding they're not getting paid for their work.
Liens filed against general contractors and developers are on the rise in North Carolina and Mecklenburg County. And the numbers are expected to grow since work shut down unexpectedly on The Vue in uptown. About 500 construction workers had been laboring on the 50-story luxury condo tower until two weeks ago, when work stopped six floors shy of being finished.
After staying flat for much of the mid-2000s, the number of liens filed in Mecklenburg County spiked by about 70 percent in the last two years to 10,121 for the fiscal year ended June 30, government figures show. Real estate attorneys predict the number of filings will continue to rise as the commercial development sector wheezes.
Subcontractors are having a "horrendous" time finding work and, increasingly, being paid for work, said Linda Burkett, executive director with the American Subcontractors Association of the Carolinas. She said some of her group's 300 members have closed shop recently because they ran out of cash.
After years of rapid growth, commercial and residential construction has fizzled. Condo sales have slowed and fewer companies are signing leases for new office, retail and warehouse space -- creating stress for construction projects begun in better times. Developers also are struggling to meet loan covenants for projects under way.
When subcontractors aren't paid, they can file a mechanic's lien against higher-level contractors and the owners of a project. A lien attaches to the property and structures. Until the debt is paid, the property owner does not own a clear title.
Subcontractors have about three months after they've stopped working to file a lien. They then must enforce that lien by filing a lawsuit to force a foreclosure or the lien expires. It can take about a year for such a lawsuit to wind its way through the Mecklenburg County courts, attorneys say.
This year, Charlotte attorney Jack Taylor of Nexsen Pruet has filed a personal record 35 liens, which he said was more than any similar period in his four decades in construction law. His firm has filed at least four liens on behalf of subcontractors who said they weren't paid for work performed for The Vue.
Most liens Taylor files involve commercial projects ranging from parking lots to skyscrapers. Filing both a lien and a lawsuit can cost about $5,000 he said.
Liens rarely result in a foreclosure, Taylor said. Ultimately, people get paid, but sometimes it's less than they are owed.
"It's a long complicated process," he said. "But it usually gets worked out,"
As of Tuesday, five subcontractors had filed liens against The Vue's owner, Chicago-based MCL Cos., the general contractor, R.J. Griffin & Co. and Griffin's parent, Dunn Southeast.
The amounts owed were $1.7 million to The Vue's mechanical contractor, MCC Mechanical of the Carolinas; $838,166 to Otis Elevator Co.; $531,664 to Avalon Flooring; $197,300 to Concrete & Materials Placement, and $153,433 to Designer Kitchens of Myrtle Beach. The businesses either didn't return calls or declined to comment.
R.J. Griffin sent subcontractors an e-mail notifying them it was shutting down The Vue worksite Sept. 1 because owner MCL hadn't paid its bills for two months. MCL has said it is working through "issues" with its lenders.
Both MCL and R.J. Griffin declined to talk about liens and subcontractors, though Griffin issued a statement that noted "there are a lot of companies that are impacted by the events occurring at the Vue, including not only the subcontractors but R.J. Griffin & Company as well."
R.J. Griffin has since hired a security guard to monitor the high-rise. Behind the tower's glass facade, subcontractors have installed granite countertops, designer wood cabinetry, soaking tubs and marble floors.
Subcontractors tend to be smaller businesses and even a short delay in payment can devastate a company, said Burkett, with the subcontractors' association.
A sign of the industry's woes: The trade group now offers payment plans for memberships, which range from $800 to $1,550, because so many subcontractors are struggling, she said.
Getting stiffed by contractors and developers means more subcontractors can't pay their workers. That, and the lack of new projects, has a growing number of construction workers filing for unemployment benefits.
In the Charlotte metro area, 29,000 employees worked in specialty trades as of July, nearly 20 percent less than a year ago and nearly 30 percent down from its high two years ago. Specialty trades include subcontractors who work on buildings but aren't responsible for the entire project.
One subcontractor who is owed more than $100,000 for work on The Vue said he relies on a line of credit with his bank to pay for labor and materials to keep his business going. If he doesn't get paid, he said: "We will go under." He said he had to lay off more than a dozen workers when work at The Vue stopped.
"I can't take more than a $100,000 loss," said the subcontractor, who declined to be identified for fear of losing future work. "We're not a big enough company to do that."
When marble and granite fabricator Luna Stone wasn't paid for about $47,000 worth of work it completed at StrikeCity bowling alley at the EpiCentre in uptown, "it ruined us," said owner Karen Codespoti.
She says she pleaded with the contractor, Advanced Construction and Consulting, to pay what was owed, writing in an e-mail to the company: "You are aware that the bank wants to close us down, and my employees are without pay. All I want is what was promised. PLEASE."
She and her husband have since sued ACC and the EpiCentre's developer, Pacific Avenue and Ghazi NC LLC, part of the Charlotte-based Ghazi Co.
ACC ultimately offered Luna Stone 50 cents on the dollar, which the company refused. In an e-mail to Codespoti, an ACC official said his company was hurting, too, adding: "I am trying to squeeze every penny I can and considering we are not getting all our money either, I am trying to create a compromise."
ACC declined comment citing pending litigation. ACC has said it is owed money by the EpiCentre's developer, Afshin Ghazi.
Ghazi said he does not owe ACC any money. He said EpiCentre tenants hired ACC to do upfits and that ACC failed to properly pay its subcontractors.
"It's not my bill to pay," he said. "My general contractors have all been paid."
Codespoti said she had to lay off five employees to lower her monthly $30,000 operating cost when she didn't get paid. She dove deeper into credit card debt to pay company bills. She and her husband spent $35,000 of their savings to pay off subcontractors they'd hired to help with the job. The 2-year-old company survives in part because its landlord has let it fall behind on the rent, Codespoti said.
"You can't recoup that money when you're just starting out," she said. "It pretty much did us in. For some reason, we're still alive. I don't know why."
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