Making a Bigger Hole in Oakland

The demolition of the remaining former Children’s Hospital (mentioned in a post earlier this week) is a bit more complicated than it might seem. The work involves separating the building from where it meets Presbyterian University Hospital, which means essentially building a new exterior wall inside Presby before pulling down Children’s. I haven’t heard any budgets yet but this would seem to be in the tens of millions to pull off.

UPMC has requested CM proposals from dck, PJ Dick, Gilbane, Mascaro, Massaro and Rycon by March 16. Architectural selection is going on concurrently with IKM and GBBN the finalists.

Two more public school projects have come out to get ahead of the spring construction season. The Hayes Design Group is the architect for both projects: $15.3 million addition to the Carmichaels Jr./Sr. High due on March 20; and the $13.4 million expansion/renovation of Wilson Elementary School in West Allegheny School District due on March 12.

What’s Out to Bid?

The year’s first big project opportunity, the new home for Tepper School of Business at Carnegie Mellon, is advancing. On Feb. 21 the university short-listed three architects and construction managers for the $80 million +/- project. Staying in the hunt for the CM role are Mascaro, PJ Dick and Turner. Interviews are scheduled for mid-March.

Tepper may be the only large project opportunity available this spring but the market has been a little more friendly for contractor who serve the $1-$10 million slice of construction. Particularly for the private sector there has been activity in commercial and hospital projects. Hospital work will be a bit lean again this year – especially by historical standards – but between the handful of hospital systems in the region the pie should still be around $400 million. As promised, UPMC has bid a flurry of projects since the beginning of the year and issued the demolition package for the remaining former Children’s Hospital structure in Oakland. AHN has roughly $100 million in modernization projects in design.

The $4.5 million black box theater expansion to Duquesne’s Mary Pappert School is bidding March 4 to Jendoco, Massaro, PJ Dick, TEDCO and Turner.The first phase of Crown Castle’s $20 million expansion into the former Mylan HQ in Southpointe is out to bid to A. Martini, Massaro and Shannon Construction. PJ Dick has the in-line retail phase of McCandless Crossing – 10 buildings totaling 93,000 sq. ft. – out to bid.

On the public side of the ledger, the new 89,000 sq. ft. state office building in Clarksburg WV is bidding March 14. Freedom Area School District’s $12 million primary center bids on March 6.

Pittsburgh Market Correction?

In the stock markets, when buyers push prices higher faster, there is often a correction that brings prices back down to levels that are attractive to new buyers so the market can go back up that much more. There are more than a few observers who see this as blatant manipulation of the markets but the reality nonetheless is that bull markets have a number of these 5% corrections in them. They aren’t bad things, until they turn into selloffs anyway.

Wednesday’s announcement by VerizonWireless that they were closing 2 Pittsburgh operations that would mean the loss of 1,000 jobs may have been a similar correction. Perhaps because we Pittsburghers haven’t been trained to think good things will happen here, the litany of good news about the region seemed like it was a bit much. We were long overdue for some good news but no region of the country is immune to ebbs and flows of growth. And when a city experiences a steady stream of successes, the leadership can sometimes get complacent or too aggressive. A dose of reality – not every business in any region is going to be on the way up – can be a very healthy thing. It’s not healthy for the people who have to find new jobs but when a business contracts it reminds us all that good times aren’t a certainty.

Regional confidence aside, the weather is making a quick start to 2014 almost impossible. Cranberry Twp. approved Sippel Development’s major mixed-use development at I-79 & Route 228 this week. The first of the projects to go forward will be the $45 million Pens practice facility/UPMC sports medicine complex, which PJ Dick should get rolling on in March. PJ Dick is also close to starting the $20 million Homewood Suites in the Strip District.

Hotel D2 has selected Franjo Construction to build its $5 million Cobblestone Hotel in Connellsville. The developer is still negotiating the contract for the Cobblestone in Millvale. Waukesha Pearce Industries selected the design and construction team for its new 38,000 q. ft. facility in Alta Vista Business Park on I-70. Desmone & Associates is the architect and General Industries will build it.

Clapp Hall Comes in a Little Over

The first project over $20 million bid Friday. The renovations to the Clapp Hall portion of the Clapp Langley Crawford complex came in at $25.7 million, which was higher than the DGS allocation for the project. The low bidders were:

Mosites Construction for the general construction. Its bid of $9,801,000 edged out Massaro Corp. by 0.6%.

EMCOR/Scalise was low on both the HVAC at $10,387,000 and the plumbing at $2,246,000. The HVAC budget was reportedly almost $3 million lower.

Kirby Electric was the low electrical bidder at $3,299,000.

Firms looking for the next $20 million project to bid can check out the Fox Chapel High School, bidding on March 5. The project is a $26 million renovation to approximately 300,000 sq. ft. of existing school with a 30,000 sq. ft. addition.

GDP Grows 3.7% in Last Six Months

Gross domestic product grew at a seasonally adjusted annual rate of 3.2% in the fourth quarter, the Commerce Department reported on January 30. The latest figures show the economy expanded at a 3.7% pace in the second half of 2013 compared to the 1.8% pace in the first half of the year. The last year in which there was stronger growth in the last six months was 2003. The growth during that period marked the beginning of a four-year expansion. For the full year, the economy grew by 2.7% compared to 2012.

GDP growth in the fourth quarter is even more impressive when you factor in the government shutdown that lasted for the first three weeks of the quarter. Growth was also offset by an even lower rate of inflation, which fell to 0.7% during the last three months of 2013.

In local construction news, Brandenburg has been selected for the demolition of the Horseheads plant in Monaca. The former zinc facility, which is in the process of decommissioning and shutdown, is on the site that Shell has identified as its preference for a world-class ethane cracker. Reports from Beaver County real estate sources indicate that Shell has acquired or is in negotiations to acquire at least two additional parcels adjacent to the Horseheads property. No decision to proceed with the project has been announced yet.

Fairchance Construction was selected to build the $14 million Yester Square Apartments in McKeesport. BRIDGES & Co. is the successful contractor for the new 37,000 square foot Salvation Army store in Uniontown.

The North and the South

One of the best real estate forums done each year is the Viewpoint presentation that Integra Realty Resources does each January. At last Thursday’s Viewpoint event, the analysis pointed out just how strong the markets in the far north and south are right now.

The most amazing stat was that Southpointe had a net positive absorption of space of 600,000 sq. ft. in 2013. The presenter noted that was a volume that exceeded the entire Pittsburgh market most years. What makes the number more amazing is that there were new buildings delivered last year. Right now, Horizon and Burns & Scalo have another 600,000 or so under construction, at least one-third of which is already leased.

In the north, the construction of the Highmark Wellness Pavilion has sparked three new buildings within a three-wood of the site on Route 19. UPMC is planning a 24,000 sq. ft. spine center between two 40,000 sq. ft. offices.

And in Cranberry – which has been softened a bit by the downsizing at Westinghouse – the market is shifting into higher gear. With construction of the Penguins/UPMC facility about to begin, four projects over 100,000 sq. ft. are going through the planning process. Sampson Morris is planning a 125,645 sq. ft. mixed use project called Ehrman Square. Developer Sippel Enterprises is getting approval on the 190,000 sq. ft. Pens/UPMC project. Diversified Productivity Group is planning a 189,000 sq. ft. recreational facility that will include the Ellwand Shooting Sports Academy.

Chaska Property Advisors is proposing construction of buildings 280 & 290, adding roughly 100,000 sq. ft. to the Cranberry Business Park. Chaska’s Dick Donley explains that his plans are to get the projects entitled for future construction, rather than to build upon approval.

Rays of Sunshine

This was the week for speaking about the 2014 outlook for construction. I had the occasion to hear 2 different perspectives on the economy and the regional market, both of which were surprisingly upbeat.

PNC’s Kurt Rankin presented a look at the macroeconomy that was especially bullish on job creation and had an overriding message that the US economy had finally shaken off the shackles of the Great Recession and was poised to expand. That would be good for Pittsburgh too, of course. As an economist, Kurt was pretty conservative but surprised me when asked what he thought were the “things he didn’t know that he didn’t know” – in other words what things might be lurking in the weeds. Rather than pointing to potential disasters his response was that the surprise was the upside potential.

Thursday morning I attended Integra Realty’s annual Viewpoint conference, a must-see for anyone interested in the commercial real estate market. Here again the message was decidedly upbeat, especially for the long haul. IRR’s managing partner, Paul Griffith, looked out to the future and forecasted job growth for the region in the 20,000 range. He joked that he had a hard time bringing himself to be so optimistic but that the economic drivers were there.

I happen to agree with these actual experts. The construction market in 2014 will still be tough but I think the assignment for most executives may be shifting towards analyzing the opportunities to bid with an eye to avoiding the risk of taking on bad work instead of worrying about not having enough work.

One of the sub-markets already seeing a mini-boom is Wexford. The job driver is healthcare. With Highmark’s medical mall under construction, three new office buildings – two of which are expressly medical in purpose – are being planned within half mile of the mall. UPMC will build a $4-5 million spine center at 12670 Perry Hwy., roughly a block away from a 39,500 sq. ft. office being developed by John Baun. Currently out-for-bid is a 40,000 sq. ft. office for Connected Health, which will be located in between the other two at 12620 Perry Hwy. Bridges, Jendoco, Landau, Martini, Massaro and A. W. McCay are bidding that project.

More News for Oakland, Downtown, Southpointe

One of the details in the recently passed Federal budget was an increase in the National Institute of Health grants of $1 billion. NIH grants have been critical to the growth of UPMC/Pitt and to a degree, Carnegie Mellon. It’s estimated that the increase will result in an extra 385 grants in FY 2014 and given PA’s share that means an extra $340 million for the Commonwealth. The decline in NIH grants is one of the big reasons that UPMC shelved its $394 million Center for Innovative Science.

Carnegie Mellon issued a request for proposals to five contractors to compete for the construction management of its new $75 million Tepper School of Business. The project involves an extensive site package, as Tepper involves new utilities and preparation for the first part of its North Campus expansion. The contractors responding are dck Worldwide, PJ Dick, Gilbane, Mascaro and Turner.

CMU is still interviewing architects. The finalists are Boora Architects, BNIM, Moore Ruble Yudell, William Rawn Associates and Skidmore Owings & Merrill. Selection of both professionals will take place by spring, giving the design/construct team the ensuing year to work through design and budgets.

Budget was apparently exceeded on the parking garage and retail space being developed on the former Saks Fifth Avenue site by Millcraft and McKnight Development. Proposals were taken from PJ Dick, Mascaro, Massaro, Mosites and Turner. No word has come from the owners but a re-bid seems likely.

Rycon Construction has started construction on the $20 million, 207,000 sq. ft. office at Southpointe Town Center. The building has been marketed as the Town Square Office but will be the new home of Noble Energy, which was looking for 150,000 sq. ft. or so.

Housing Hits New High in 2013

Driven by a 239% jump in new apartments, the Pittsburgh housing market reached 6,002 units started in 2013. That’s a new high since at least before the steel industry bust in the 1980’s. Demographics, rising rents and investment appetite combined to make a perfect storm for apartment construction. There were 3,838 multi-family units put under construction in 2013 compared to 970 units in the previous year.  Another 2,000 or so units remain in the pipeline for the market but those projects not started in the first half of the year may get a yellow light.

There are still very favorable demographics and low vacancy levels to support rising rents in 2014 but the problem is what will happen to the market in 2015 and 2016, when most of any new units will come on the market. Should home ownership rebound more than expected in 2014, the existing projects could feel a bit overbuilt.

Permits for single-family homes “only” increased by 11.7% to 2,164 in 2013. The market has been struggling with a lot shortage on top of the unfavorable house market issues over the past few years but the improving conditions have spurred a big increase in residential development since late 2012. Those new subdivisions will just be available for builders this year. I expect that a combination of tight existing home inventory, along with rising rents and better economic conditions, will give a boost to home construction in 2014. Don’t look for the type of storm that blew the apartment market up but 2,500 new homes is not out of the question. The best sub-markets for new construction are shown below.


Good Start to the New Year

The first few weeks of the year have historically been a reasonably good indicator for the kind of year that will follow – maybe a 60/40 track record. When I owned the Pittsburgh Construction News it was normal for bidding activity to trickle in for the first couple of weeks and then take off in February some time. Judging from the Pittsburgh Builders Exchange list of active projects, that appears to be the case in 2014. Volume is about half what it will be in March/April.

What is unusual thus far in 2014 is the number of bigger projects that are out to bid at the beginning of the year. There’s a little something across the board. Forest Hills School District outside Johnstown has a $46 million new school bidding at the end of January and the $15 million Carmichaels Elementary bids Feb. 10. The new $20 million state office building in Clarksburg WV bids Feb. 7. There are a couple $10-15 million PennDOT jobs in the western PA letting on Jan. 30 (along with a $250 bridge outside Philly). Pitt has the $23 million upgrade to the Clapp-Langley-Crawford complex out to pre-qualified bidders on Jan. 30.

In the private sector, CMU is expected to ask for construction management proposals shortly for its $75 million + Tepper School project, which is still in the architectural selection phase. Jacobs Engineering took qualifications from contractors this week for what it described as a large project in western PA. Jacobs has been reportedly hired to handle the demolition/decommissioning of the Horseheads plant and preparation for the petrochemical facility for Shell in Monaca. This would be consistent with what Shell announced when it extended its option for the property with Horseheads Corp. None of the activity means Shell is committed to the project – Jacobs could even be pre-qualifying contractors for another project – but activity is preferable to inactivity.