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Better Economic News

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This morning’s report from the Bureau of Labor Statistics (BLS) showed employers added 255,000 jobs in June, growth that was almost 50% higher than expected. Adding to the good news was an upward revision of the June growth to 292,000 and May’s to 24,000 from 11,000. BLS also reported that 400,000 more people joined the workforce, which left the unemployment rate at 4.9%. Wages maintained the 2.6% growth rate year-over-year.

BAsed on the July estimate, the U.S. economy added an average of 182,000 jobs per month through the first seven months of 2016 and 202,000 monthly since July 2015.

The growth of jobs doesn’t immediately jibe with the fact that GDP growth seems stuck below 2% over the past six to nine months; however, when you consider that productivity growth has actually fallen during that time, the added payrolls make sense. During recessions people work more hours for the same pay, either out of fear for their jobs or because their employer cuts staff. Productivity drops as the economy recovers, especially as oppoprtunities to leave overworked positions arise.

All this is good news if you are an employee, especially when you consider that wages are probably still on a rising trajectory. The dark cloud in that silver lining is the reality that upward wage pressure – espeially when significant numbers of unemployed are rejoining the workforce – signals the end of slack in the economy. Recessions don’t necessarily follow these kinds of developments but a recovery like this one is getting long in the tooth.

Construction news is slow in August and this year is no exception. Nonresidential starts topped $2.8 billion through July and the forecast of $3.4 billion for the full year looks conservative at this point. Westmoreland Community College selected Turner Construction as CM-Agent for its $42 million campus expansion program. In a surprising move, Carnegie Mellon pulled the plug – at least for now – on its 425,000 square foot Gateway Project.

Could It Be Amazon?

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A trip by the airport yesterday revealed a major dust cloud pluming up from the Chapman Westport development. After stopping by the project site, I found a massive excavation job being undertaken. A little digging around at Findlay Township’s offices uncovered applications by Chapman Properties for four items to be acted upon at the July 26 planning commission meeting. Those actions included the subdivision of 427.4 acres, including the creation of an 84.6 acre parcel, labeled Parcel A. There is also the application for approval of a land development on that parcel that involves construction of a 1,015,740 square foot warehouse/office, along with a 48,000 square foot building on another parcel.

That’s not a typo. There are two commas in that warehouse square footage.

Last week’s Pittsburgh 2Q2016 Industrial Market Report by Newmark Grubb Knight Frank alluded to a million square foot user in the market without naming the company. It would seem that user has landed. Tony Rosenberger, Chapman’s president, politely acknowledged that Chapman was planning a 48,000 square foot spec building – known as 110 Building – and that Foley Excavating was doing a major dirt job to prepare for the expansion of the Westport park. Beyond that, he had no comment on the construction or the applications to Findlay Township. Of course, I would have been shocked if he had.

There aren’t that many million-square-foot users out there. Civic leaders have speculated about those kinds of companies following the Shell cracker as downstream manufacturers; but with the plant’s opening date set for “early next decade,” it seems unlikely that a related plant would be getting underway now. The proximity of the site to GE Plastic’s new facility gets the imagination spinning but, again, it seems unlikely that GE could have created enough economic activity in six months to have spawned a million-square-foot neighbor. The most likely user at Westport is Amazon, especially since Dick’s Sporting Goods announced today that it was building its big distribution center in Conklin, NY.

When Amazon signed the lease for 250,000 square feet in Crafton back in Summer 2014, logistics experts talked about the “Amazon effect” that would attract other big distribution and fulfillment companies. But at the time, the brokerage community talked about the deal as being a search for 250,000 to 300,000 sqaure feet with future need for a million or more. That’s the size that is typically associated with Amazon Robotics’ fulfillment centers, which employ as many as 1,000 people.

Perhaps the end user will be revealed at the Findlay Township planning commission meeting, although that wouldn’t be necessary for the review or approval. In some ways, it could be even better if it’s another big company, since it would make Pittsburgh that much more attractive to kindred businesses. Chances are it won’t be a secret long.

June Jobs: Not Such a Surprise

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Friday’s June jobs report was not the surprise that business media made it to be. Employers added 287,000 new hires in June, according to the Bureau of Labor Statistics, which was well above the 175,000 consensus estimate, but the long-term trend is a strong one and the big jump in June was merely a reversion to the mean. It’s also not a surprise that the trend continues to move lower as economic expansion reaches its eighth year.
Within the report were two noteworthy items. First, the categories of employment that grew the most were higher-paying sectors like IT, education and health services and professional services. Second was the continued growth in wages. Pegged only one-tenth percent higher in June compared to May, wages were nonetheless 2.6 percent higher year-over-year. That represents healthy growth over price inflation and a steady – if unspectacular – trend upward over the past year.
job creation history
In project news, Turner Construction was selected by the RIDC to perform preconstruction services for a 65,000 square foot commercial building planned for Almono in Hazelwood. Dick Building Co. was awarded the 104-room, $12 million Hotel Indigo proposed for Second Avenue.

Some Small Project Updates

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Tuesday’s bid results for the new playing fields at Pitt’s Trees Hall were very tight. The bids were for the largest piece of the $12.5 million upgrade. The 3 lowest bids were:

Mosites:    $8,377,222

PJ Dick:    $8,400,000

Mascaro:    $8,495,000

City Works Restaurant was awarded to A. Martini & Co. The $2.5 million buildout will take 10,750 square feet in 2 PPG Place. Martini was also successful in landing the $2.2 million tenant improvement for Eckert Seamans, which is renewing its lease for 89,500 square feet in USSteel Tower.

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Massaro Corp. broke ground last week on the $13.7 million UPMC Hampton ambulatory center. Photo courtesy IKM Inc.

RIDC is in the process of selecting a pre-construction manager to help with the planning of its 65,000 square foot first building at Almono in Hazelwood. Vertical construction won’t occur until late 2016 or 2017.

 

 

Optimism Returns

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Yesterday I was on a panel speaking about the impact of the Shell cracker project on the regional construction industry at the Northeast Petrochem Conference in Pittsburgh. It was very interesting to see how another industry is reacting to the project. Construction and real estate players have been awaiting the final investment decision for at least a year but it turns out so have all the players in the petrochem industry. Shell Chemical’s exec in charge of the Appalchian region, Ate Visser, spoke about an hour before our panel. Let’s just say the room cleared out quite a bit after he finished.

What we learned from Visser was actually nothing really new. He mainly used the time to speak about the lag between the FID three weeks ago and the start of construction. From what I could tell, the delay won’t actually stop construction at the site but will slow down the execution of contracts already in place and extend the preliminary work being done.

The most interesting presentation was from a process engineer who explained a lot of chemical details about the cracker to a glazed-over crowd. The upshot was that he predicts there will be another intermediate chemical processing plant or two built in the region, the kind that takes the byproduct chemicals that aren’t converted to polyethylene or other plastics. His estimate of these kinds of plants was in the $4-5 billion range.

Even without factoring in another petrochemical plant, here’s how the Shell project is showing up in my intermediate forecast:

nonres forecast chart

All of the talk of the petrochem opportunities left the attendees in a real upbeat mood. They aren’t the only ones apparently. The MBA pre-released its Commercial Contractors Condition Index for the second quarter, which was above 2.5 (out of 4) for the first time in its four-year history. The big driver was a huge jump in optimism about business projections for the coming year. Don’t think that is a coincidence, following just a week or two after Shell’s announcement. The better news out of the C3 Index was that the backlog reading was up significantly too.

The Shell Game

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I thought I would wait 24 hours after the announcement of the final investment decision by Shell to let the newspapers have at it before a follow up post. Yesterday’s news was certainly good for the regional economy and helpful for the recruiting and training efforts that will go into attracting labor. It also wasn’t that big a surprise.

As we reported last week, Shell has been moving more publicly in recent months, even talking openly about the Monaca project (which Shell refers to as the Pennsylvania chemical project) in its earnings call. Wesex has begun site preparation for a 200,000 square foot warehouse for C. J. Betters Enterprises that will be leased to Shell for storage. Shell has also leased land from Betters in Aliquippa that will be used for parking and overflow from the plant construction.

The players in Monaca once the plant gets started – and construction is continuing to proceed, regardless of the 18-month timeline given to the press – are Bechtel as the main EPC entity, along with Babcock & Wilcox for the plant itself and McCarl’s.

Shell’s announcement wasn’t the only big news in Pittsburgh’s energy market yesterday. Westinghouse announced it had secured agreements (although not signed contracts yet) to build six nuclear power plants in India. Westinghouse has received other contracts for plants around the globe, a signal that fears about nuclear plants are abating. After a bid employment build ten years ago, followed by a right-sizing through layoffs and attrition, Westinghouse’s new contracts should spur new hiring. Having subleased one of its buildings to PPG and vacated at least two off campus buildings, Westinghouse will find its space pretty tight if many new hires occur. That could be a nice boost to the Cranberry office market, which is beginning to show signs of life again.

Milhaus, ANSYS, Shell Making News

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Milhaus Development has given notice-to-proceed to Franjo Construction for the first phase of its Arsenal Terminal mixed use development. Franjo still needs to finalize a GMP for the $40 million, 250-unit apartment complex, which will be the first part of what shuold be a $120 million investment. Even with the growing supply of apartments entering the market, Arsenal’s proximity to the Strip and Oakland make the project’s prospects for success better than average.

In Oakland, another tech-related development is moving ahead at Carnegie Mellon. CMU and simulation software designer, ANSYS, announced a partnership that will include a 30,000 sq. ft. new building on campus.

While of course no one will confirm or deny it, Aliquippa-based C. J. Betters Enterprises is rumored to have inked a deal to do a 200,000 square foot build-to-suit warehouse for Shell.

 

Catching Up with Work Underway

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There is a noticeable lull in bidding – not out of character with Memorial Day – and prospects are for a slow summer before a promising run up to 2017 later this year. Election year uncertainty seems to be setting decisions back but architects and engineers remain very busy. Until that backlog of designed projects breaks free, work will be potential rather than backlog.

Following up some of the projects that recently bid, Chartiers Enterprises awarded MBM Contrcting the contract for the new $2.5 million facility for Atlas Wholesale in Carnegie. Pitt selected Allegheny Construction Group for renovations to Cost Sports Center, part of a $5.3 million program. Al Neyer Inc. is building a 20,000 square foot addition to DeBro America at the California Technology Park.

Groundbreaking May 25
Groundbreaking was held by Eden Christian Academy for its new 25,000 square foot classroom building being built by BRIDGES & Co. in Ohio Township.

UPMC is reported to be working with Massaro Corp. and Rycon Construction to select the contractor for the new $12 million Hampton Ambulatory Care Center. Mosites Construction is preparing to start work on a $7.5 million expansion of St. Alexis Church & Catholic School in Wexford. Jendoco Construction is working on the budget for the $3.5 million addition to Desmone Architects office in Doughboy Square.

CRE Finance: Supply vs. Risk

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The first quarter of 2016 was rocky for the permanent real estate financing markets, said a couple of Pittsburgh-based veterans of the industry at this morning’s NAIOP Pittsburgh breakfast. HFF’s Mark Popovich and Jim Scalo of Burns & Scalo Real Estate Services expressed surprise that the spreads and rates for CMBS and life company lending jumped up during the first three months of the year. Popovich attributed the rise in cost to a rise in fear of global disruption by a Chinese crash – a crash which never happened. Both expected conditions to remain stable the balance of the year.

IMG_20160519_081634
Mark Popovich (left), John Fetsko, Jim Scalo and M & T Bank’s Steve Olsavsky.

Liquidity and capital supply are also running ahead of demand. Banker John Fetsko from Wesbanco noted that his bank (and others) had seen their fill of apartment, hotel and office deals and would be more selective about projects, even though capacity exists. Popovich said that capital supply was running well ahead of deals because of uncertainty but that there was more than ample liquidity to deploy. Scalo echoed the sentiment about uncertainty, going further to predict that presidential elections, oil/gas declines, and fears about China, interest rates and terrorism would slow down development and sales until 2017.

In project news, Excela Health held a groundbreaking for its new $40 million Excela Square ambulatory care center in Latrobe that A. Martini & Co. is building. BRIDGES & Co. started work on the new 110,000 square foot self-storage center for Guardian in Hampton Township and the new $5 million Eden Christian Academy school in Ohio Township. The Cranberry Supervisors approved contracts for the $42.7 million Brush Creek treatment plant upgrade. Mascaro is the general contractor.

Another large treatment project bid earlier this week and again highlighted the hypercompetitive nature of the public market. Port Vue Plumbing was the low general/mechanical contractor for Canonsburg Houston’s plant expansion at $18.7 million, some 15% lower than Kokosing’s $21.5 million bid. In a bit of a surprise the project only attracted two bidders. The week before, Mike Coates Construction was the low general on the $44 milllion Chartiers Valley High job at $28.9 million. That was $3.6 million – or 11% – lower than Rycon Construction second low bid. The low HVAC number was also 10% under the next bid, although the remaining contracts bid tightly.

The tight market worked to Char Valley’s advantage. The school board was able to accept over $3 million in add alternates on the $29.7 million middle school (awarded to Mucci Construction) and $650,000 in alternates to the $48.5 million high school (awarded to Rycon). At the same time Mike Coates Construction pulled low bids on both jobs, a situation that always creates confusion in the market.

Hotel Projects Continue to Proceed

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Another sector of the market making lenders nervous is hospitality. Here again, the news isn’t taking hold in Pittsburgh. Alphabet City owner Tony Dolan has taken a plan to the city to add five stories to a building on Reedsdale Street to create a 130-room hotel. Just a few blocks away, Matthew Shollar is proposing to convert the former Burns White building on Isabella Street into a hotel. Both of those sites are just a few blocks from where Oktober Development is planning to convert the former ARC Building into hotel use.

Across the Allegheny River, new boutique hotels at the former Kaufmann’s flagship store – also planned by Shollar – and at the Granite Building are stuck on financing. It will be interesting to see if either, or any of those proposed for the North Side, get enough lender or investor interest to come to fruition.

The pace of suburban hospitality projects has slowed but in Cranberry, the construction still goes on. With the Marriott Town Place topping off in Cranberry Springs, Summit Development and Nittany Cranberry Inn LP have proposed a 101-room Best Western at the site. Bear Construction will build the project. Creative Real Estate is hammering out final details with Franjo Construction for the proposed 116-room Homewood Suites to be built at the Village of Cranberry Woods near Franklin Road. The 124-room Wood Spring Suites hotel is well under construction in the township as well.

In other project news, Volpatt Construction was awarded a $2 million contract to renovate St. Peter Parish on the North Side. The Exel Logistics/Wesex Construction team is about to start construction on a 260,000 square foot warehouse for Phillips Respironics in East Huntingdon Twp. near New Stanton. Berlin Packaging is reported to be near an agreement to lease all of the 250,000 square foot spec warehouse that Al Neyer is developing at Clinton Commerce Park in Findlay Twp.