Dwelling on the bottom: executives of top Tar Heel private companies hope things start looking up soon. But many aren't so sure they will.

• Author: Maley, Frank
• Position: FEATURE - Company overview

With a bedroom as the office and his garage the warehouse, Bob Luddy started what became Captive-Aire Systems Inc. 33 years ago in Raleigh. His company, which installed fire-suppression equipment in commercial kitchens, boomed, landing on Inc. magazine's list of the nation's fastest growing a couple of times in the '80s.

It evolved into a manufacturer of ventilation equipment for commercial kitchens. Customers include Red Lobster, Olive Garden and Golden Corral. Captive-Aire grossed $224 million last year, up 6%, and climbed three spots to No. 35 on Grant Thornton's annual ranking of North Carolina privately held companies. But it might have trouble hoisting itself higher. "We've never had a down sales year," Luddy says, "but we will ... this year, primarily because of the general economy and its impact on commercial construction."

To battle weak demand, the company is cutting costs, rolling out more products and pushing its sales team harder. And like most executives, Luddy hopes the economy turns around soon. Last spring, Federal Reserve Chairman Ben Bernanke said that should happen by year-end and told an audience in late August it would soon start growing again--albeit slowly. More than half of the responses to a survey of this year's companies on the list agreed, expressing some degree of optimism about the economy's direction.

But a significant minority isn't sure better times are at hand. Nearly a third of those surveyed proclaimed themselves neutral in their 12-month outlook, and 15% were pessimistic. Luddy, for one, is confident his company can increase business through its new products, but he's not as sanguine about the big picture. "I think the economy has stabilized at a lower level than we were."

Scott Davis, a partner in Grant Thornton's Corporate Advisory and Restructuring Services practice in Charlotte, is among those who fear the economy isn't on the brink of bouncing back. "What tipped us in here in the first place was all of the creative financing around home mortgages, and we are just getting to the point where the equivalent instruments in commercial real estate are getting ready to mature." He expects that to happen by the end of the year. It might not worsen the recession but could delay recovery until late next year. If he's right, it will be more bad news for Tar Heel business owners, many of whom already struggle with shrinking margins, changing customer demand and reduced access to capital.

Lenders, still smarting from last year's financial meltdown and under tighter scrutiny from federal regulators, continue to move cautiously, putting a damper on business expansion and other construction projects. Clancy & Theys Construction Inc., a Raleigh-based general contractor, moved from No. 10 to eighth place by grossing $577 million in 2008, but it won't beat that number in 2009, Vice President Scott Cutler says. "In our 60 years in business, we had never laid anybody off, but when there is attrition we're not rehiring, and a couple of our divisions have had to let some people go. And that's been very painful."

Since 2000, Clancy & Theys has been shifting focus from commercial to publicly funded projects, more because of market forces than strategic design. While revenue has more than doubled, that coming from public projects rocketed from 10% to 70%. But in the past year, some public projects have been delayed by an unfavorable bond market, Cutler says, while money for commercial projects is still hard to come by. In the second quarter, few banks loosened standards for commercial real-estate loans or increased lines of credit for commercial construction, according to a recent Fed survey of loan officers.

Like Captive-Aire, Clancy & Theys is trying to boost business by trying something new. It has been educating itself on how to win federal contracts, a business with a long learning...