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First Quarter Data

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For all the concerns about the slow start to the year, contracting for the first quarter actually showed improvement over the same period in 2012. Non-residential contracting for January through March totaled $479.1 million, an 8.7 percent increase over the same period last year. Bidding activity and sentiment in the early second quarter pointed to an upward trend. Construction in the first quarter is typically between 15 and 20 percent of the year’s total. Using that ratio and analysis of the trend, a total of $3 billion in contracting for 2013 is realistic.

Residential construction was improved even more so over 2012. Permits for new single-family dwellings were up over 14 percent compared to the first quarter of last year. Given the poor weather – which impacts housing construction more – and the limited lot inventory, such an increase in the first three months was a surprise. Overall housing starts were down slightly, with 741 units compared to 804 units in 2012. The decline in attached and multi-family housing was due mainly to timing. Because of the projects in the pipeline, permits for this category of home will outpace the full year of 2012 by at least 400 units.

The top municipalities for home building in the first quarter are below.

Topmuni2013-1

The Big Jobs Are Out There

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With no fanfare (or public announcement of any kind) Gordon Food Services has apparently chosen the Findlay Industrial Park as the site for its 500,000 sq. ft. refrigerated distribution center. Gordon is taking design/build proposals from Dan Vos Construction, Tippmann & Whiting-Turner around May 22. I haven’t seen costs for a refrigerated warehouse in a while here but they typically run as much as double a normal warehouse cost. That would put this project at $75 million or more.

The 302-unit Cranberry Woods apartments being developed by Trammell Crow is out to bid, due on May 22. The contractors invited to bid the $35 million project are Adolfson & Peterson, Dynamic, Facchina Construction, Fortune-Johnson Inc. & Mistick Construction.

And finally, in follow up to the buzz about Chevron’s regional headquarters last week, the company has issued a request for proposals to six construction managers or teams, due back at the end of the month. The firms involved include a mix of local & national players. Proposing are Balfour Beatty, Gilbane, Mascaro/Skanska, Massaro/Clark, PJ Dick & Whiting-Turner. The project is a campus on Montour Run Rd. that may be done in phases but should be in the $250 million range.

The Chevron Project etc.

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Yesterday’s announcement that Chevron had closed on the rumored Roy Johns Montour Run Road site and the KMart brought public attention to a project that has been tracking towards construction for three-quarters of a year. The requirements that had been bandied about in the real estate community were for a campus of 250,000 sq. ft. all the way up to one million sq. ft. That would put the project ultimately at about the same size as the Westinghouse corporate campus, which cost about $300 million all in (of course that took a few phases & a few years). The Chevron project has been going through design at HOK’s Houston office & the RFP for construction mgt. services is to be released imminently to 6 contractors or teams of contractors. I would expect Turner, PJ Dick, Mascaro, Massaro, perhaps Gilbane, Walsh & some national players teaming with some of the local generals.

The public bid market has picked up surprisingly for May. Considering that there was very little in the way of meaty projects out in the late winter this may be the shot for 2013. Most of those projects are outside the city, including the site package for the $80 million Ag Sciences Building at WVU.

Among the projects awarded recently (although not all are inked) Mascaro was selected to build a new $5 million residence hall at Pitt Bradford and the $70 million Village Green Apartments. MBM Contracting was chosen for a $1.2 million clinical project at Weirton Hospital & $15 million expansion at Excela Healthcare in Westmoreland Co. The latter project won’t start until later this year. Nello was selected to do the expansion & renovation at Memorial Park Church in McCandless.

One of the big projects announced at Southpointe II last year is breaking loose. The Ansys Corp. HQ and the accompanying spec office building that Burns & Scalo is developing is going through the design/build process with Clayco Construction from St. Louis. Bids for the early packages are out right now. Site work is expected to start in June with steel arriving in Sept. – assuming all is in budget.

Your Friday Update

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This morning’s Bureau of Economic Analysis report on GDP showed that US economic growth was still sluggish but better than expected. After Jan/Feb data showed that the US economy was not taking much notice to the sequestration cuts, economists had upgraded their expectations for the first quarter GDP. The BEA estimated the quarter at 2.5% GDP growth and revised the 4th quarter GDP from negative to 0.4% growth. Most economists were expecting growth on that order (some even as high as 3%) but most of those same economists predicted sub-2% growth just 2 months ago.

The other release this AM was the consumer sentiment index, which fell to 76.4. That’s down from March but not as far down as economists expected (are you sensing a theme here). The takeaway from the report was that consumers were now starting to feel the effect of that Social Security withholding increase and were feeling less spunky. If that is a correct assessment then it’s not good for the economy, since consumer spending in the 1st quarter was 3.2% higher than the previous quarter. On the other hand, using an index of emotions that looks backward to predict the future is not a precise method either.

On the local front, PJ Dick was selected to be the CM on the $30 million Embassy Suites being built out within the Henry W. Oliver Building downtown. CMU selected Mosites Construction as CM on their University Center project, which won’t get underway until early 2014. Repal Construction is the low bidder on the Paramount Exchange Building renovation in the Lower Hill. Dynamic Building Co. & TBI Construction are negotiating the contract for the 35,000 sq. ft. new building in Alta Vista Business Park for Scientific Drilling.

Where Are These Lists Coming From?

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I suppose it’s a sign of the competitive times but the list of bidders on privately-funded projects have become longer & less logical than the crazy public market. At the bottom of the downturn in 2009 it was common to see 15-20 contractors chasing even small public jobs but that returned to the ‘normal’ 10-12 after a year or so. Now the demand for opportunities from contractors seems to have given owners (maybe their architects too?) the idea that having 10 bidders on a so-called ‘select list’ of bidders is good for them. Two projects out this wee illustrate just how questionable that strategy is.

The $7 million East Suburban YMCA job in Penn Hills has 10 contactors on it, ranging in size from PJ Dick & Mascaro to Kacin Construction, with a handful of $10-30 million/year contractors sprinkled in. The bidders are mostly union contractors but there are a few non-union generals so the range of subcontractors who will bid is going to be broad.

An even more illogical list is the group invited to re-bid the $3.5 million Aquinas Academy job in Hampton Township. This project bid a year or so ago & was awarded to Graziano but never started. Now it bids again to 10 contractors, including Graziano. The list also includes BRIDGES, Busse, Franjo, Landau, TEDCO, Just-Mark, W. K. Thomas, Nello & Turner Construction. If you worked all day to come up with a group of contractors that is more dissimilar I doubt you could do so. Turner is a $6 billion global contractor. Just-Mark & Thomas are almost never in a hard bid situation. According to the Builders Exchange this is the 2nd job in two years that Just-Mark has appeared on.

What owners don’t seem to realize is that extending the lists like this only creates an environment that hurts them once construction starts. It’s not just that the generals can’t reliably judge how their competition is going to approach the job, it’s that putting together such different kinds of contractors with radically different rosters of subcontractors means that numbers will be out on the street that are not actually competitive. In a reasonable market, the smart generals (and subs) who have some work will just walk away from this job (and still may), meaning the owner is left with a much better chance of getting a low bidder that has bad sub numbers, is counting on buying out the job hard & taking advantage of any weakness in the documents to extract money as the job progresses.

The problem with bidding in general is that it tends to reward the least understanding of the project at hand. If a bad number is on the street, the price (and performance) for that category slips to that level. It only takes a few of those to make a competitive job become a bad job. History had shown that putting together a list with 3-4 contractors of similar size & approach provides enough competitive incentives to get to the best price for the project. That price may not be the one the owner wants to hear but it’s almost always the right price. Asking more contractors to bid until you can hear the number you want isn’t going to change the right number.

End of Week Tidbits

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For those wondering what the big earthmoving job is that you can see from I-79 at the Cranberry exit, construction has started on the first of two 63,000 sq. ft. office buildings that Landmark Properties is developing on Dutilh Road. L. S. Fiore Inc. from Altoona is the general contractor. On the North Side, Dynamic Building Co. has been given the nod to build the 150-room Fairfield Inn that Kratsa Properties is planning to go behind their Springhill Suites on General Robinson St.

The general trades package of the Highmark Medical Mall in Wexford has gone out to bid to Landau, Mascaro, Massaro, PJ Dick & Rycon. Although the overall project will probably cost about $80 million, this package has been pared back to less than a full shell & core package, likely $8 million or so.

More Project Information

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Rycon Construction is the successful contractor on UPMC Childrens Hospital’s new $13 million Bridgeville satellite hospital in South Fayette Twp. Massaro Corporation’s CM Division was selected by Fox Chapel Area School District to act as the construction manager for its $80 building program. Oxford Development is seeking approvals from the URA to change its planned office project at 2900 Sidney Street in South Side Works to a 171-unit apartment building. Oxford is teamed with PJ Dick on the construction.

It’s Not That Bad

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I got several calls from local news outlets within the last 10 days following McGraw-Hill’s press release showing $38 million in new construction contracts in February, a huge drop from last year’s $70 million or some such thing. Like many in the industry I have been puzzled at the lack of construction activity in light of our region’s economic vitality and the activity level of architects and engineers, however this data seemed completely shocking. It turns out there is a good reason: it’s not remotely accurate.

The City of Pittsburgh’s permits alone totaled $40 million plus for non-residential construction in February and most of the region’s construction takes place outside the city. Even with less than half the data entered into the Tall Timber database the February totals exceed $100 million. In fact, the YTD totals at the end of the 1st quarter probably won’t be far off the $440 million during that period in 2012 and may be a bit higher.

A lot of the design activity from summer/fall 2012 is getting into the pipeline now. Their is still a sweet spot for contractors who can compete effectively for 30,000-40,000 sq. ft. buildings, which are still popping up in the natural gas supply chain. In the Mon Valley several projects like that are out or coming out to bid shortly, including new buildings for Waukesha Pierce, Duquesne Light and Gardner Denver. A new 35,000 sq. ft. facility for Scientific Drilling is out to bid to Dynamic, Nello, New Belle & TBI.

Massaro Corp. Construction Management group has the $35 million Henderson Health & Human Development Building bid package #3 out due May 1 and a $63 million expansion and renovation project for the Ohio Facilities Construction Commission that is part of the consolidation of the Northcoast Behavioral Healthcare Campus between Cleveland and Youngstown, due on May 2.

Construction is still slower than it should be and will be for as long as their is uncertainty about healthcare reform or interest rates or Federal spending. 2013 will not be the year of the turnaround but it’s also not going to be the year the bottom dropped out.

Friday’s News

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The morning started off with some good macroeconomic news for the U.S. market. The Labor Dept. reported that 236,000 jobs were added in February, well above the 160,000 forecasted by economists. Construction, primarily home building, was an improved category, with 48,000 new jobs. You can read Marketwatch’s report on the new hiring at http://www.marketwatch.com/story/us-economy-adds-236000-jobs-in-february-2013-03-08-81034917?dist=beforebell

Hiring was expected to be dampened by the blizzards, concern about the sequesters and the 2013 tax increases. Instead, employers seemed to power through, bringing the unemployment rate down to 7.7%. That’s the lowest since Dec. 2008.

In another national development, the Federal Reserve’s stress test of the 18 largest banks found only Ally (the former GMAC) couldn’t withstand the hypothetical nine-quarter scenario with an unemployment rate of roughly 12%real GDP declining by around 5% and equity prices falling by more than 50%. While that is good news, banks as a category are still behaving with much more caution than the economic state implies. Cost cutting has increased for even the healthiest banks – like PNC- and that makes me worry about what banks see on the horizon or what they know about their own balance sheets that we don’t.

Getting to the regional construction scene, there was news from two of the bigger projects being planned for hospital construction. Highmark is pre-qualifying contractors for the building packages of its $100 million medical mall in Wexford. RFQ’s were sent to virtually every contractor with hospital experience. Responses will be interesting since the project is apparently going to bid to at least separate general, mechanical and electrical contractors. Mosites Construction was awarded the foundation package for the 174,000 sq. ft. building.

WVUH selected Yates Construction from Mississippi to act as CM for their $140 bed tower addition, part of a multi-phase $250 million expansion of the South Tower of Ruby Hospital.

CM proposals have also been requested from Continental, Mascaro, Massaro, PJ Dick and TEDCO for the conversion of a portion of the Oliver Building downtown into a 240-room hotel. The project should run in the $30 million range.

Hospital News

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Depending on your point of view the hospitals have been a hot project type in recent weeks. On the upside, the West Virginia University Hospital system interviewed 4 contractors/teams Feb. 22 for a big phase of its South Tower expansion. The candidates for this $140 million +/- package were teams from  Gilbane, Massaro, PJ Dick & Yates. There doesn’t appear to be a shoe-in or inside track team and the WVUH was expected to make a decision this week.

Highmark has the foundations and structural steel packages out for bid for its $100 million Wexford medical mall. After taking bids for these packages, Highmark and Astorino and said to have a general construction package for the remainder of the project. Contracts were let earlier for some site prep and utilities.

Now for the bad news. The federal deficit/budget/sequestor fiasco is way overblown for its true impact on the economy – at least in the short term. With the fiscal year 40% gone, the actual reduction in spending for 2013 is going to be less than 1% of the total discretionary spending. For the Pittsburgh economy, however, the impact is more direct in that the NIH research grants that are in the crosshairs are vital to UPMC’s research. That hospital system isn’t the only one effected of course, but it’s the one with a $250-300 million capital budget that has been put on ice. The $394 million CIS project at Shadyside Hospital is the biggest victim, although it appears that the 1,000-car parking garage will go forward as a hard bid within a month or so. Projects like the $40 million St. Margaret’s expansion or the $100 million-plus Magee expansion have ben shelved. Apparently any human resources for these have been pulled off the projects. Plans for the $70 million Mercy energy plant have been put on hold for 6 months or so. The FY2013 budget was already scaled back compared to recent years so this latest development is unwelcome for firms doing business in the healthcare sector.

The one significant project moving ahead is the $18 million Children’s Hospital outpatient facility in South Fayette Twp. Bids will be taken on March 21 from Landau, Mascaro, Massaro, MBM, PJ Dick & Rycon.

The potential loss of grants is one of three hits UPMC took recently. The hospital was somewhat prominent in last week’s Time article about the costs of healthcare, which was critical of executive pay and called out UPMC’s top exec among the non-profits. Competition in the insurance and hospital sectors were also highlighted as reasons why UPMC’s income over expenses shrank significantly in the first half of their fiscal year.

These pullbacks pose a challenge for Turner Construction, which had been selected to do pre-construction as CM for the CIS/Shadyside garage projects with the expectation that work would start later this year.