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Pittsburgh Market Correction?

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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.

GDP Grows 3.7% in Last Six Months

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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

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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.

More News for Oakland, Downtown, Southpointe

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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

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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.

Topmuni2013-4

Good Start to the New Year

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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.

Shell Extends Option But Plans Demolition

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At the same time she cautioned that the company was still evaluating a final decision to proceed with its ethane cracker, Shell spokesperson Kimberly Windon announced yesterday that the oil & gas producer had extended its option to buy the 300-acre-plus zinc plant site from Horseheads again (as expected) with one unexpected provision. Shell has included the right to demolish buildings on the site & Windon confirmed that the company plans to do so in early 2014.

Aerial view of the Horseheads zinc plant
Aerial view of the Horseheads zinc plant

Multi-national Bechtel will be the project’s EPC contractor but no announcements have been made to formalize that or any of the other agreements. Rumors have linked Fluor to the project, as well as Jacobs Engineering, which is supposed to be managing the demo & decommissioning of the Horseheads plant.

If those reports are true, look for contractors with past relationships with Jacobs & Bechtel to be involved in the competition for packages of the multi-billion cracker.

Forward movement of the cracker, along with continued surprising growth of the U. S. economy are two factors that would push construction in 2014 from a flat line to upward trajectory.

Former Saks Site Out fo Bid

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Developers McKnight Realty and Millcraft Investments have invited contractors Mascaro Construction, Massaro Corp., Mosites Construction, PJ Dick Inc. and Turner Construction to bid on their new development for the former Saks Fifth Avenue site on Smithfield St. at Oliver. The new $14 million project is called 350 Oliver and it includes 25,000 sq. ft. of ground floor retail plus a 590-car garage. Bids are due Jan. 13.

Millcraft is staying busy in downtown. Their $73 million Gardens at Market Square project is finally ready to get underway. Closing on the deal is expected before year’s end and work on the mid-rise should be visible in January.

Out With a Bang

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As 2013 comes to a grinding end there were a few projects of interest that had selections made at the end of last week or today.

After a few weeks of deliberation, Gilbane Building Co. was chosen as the CM for the exterior remediation of Westinghouse’s headquarters building in Cranberry.

WVU announced the results for its new $11 million baseball stadium and the team of Mascaro/DLA+ Architecture/Populous scored the highest in the design/build proposals. Mascaro also hit one out of the park at the University of Pittsburgh, where their $7.3 million design/build proposal scored the highest with the Dept. of General Services for the Cathedral of Learning’s elevator modernization program.

The Butler Eagle reported late last week that Oxford Development had purchased the land that is the VA’s preferred site for its $60 million outpatient center from Westar Development. Westar was awarded the build-to-suit project late last year but was unable to get the project started. Oxford would seem to be in the driver’s seat to put the project back on track, assuming the VA agrees.