Category: Real estate news

What the Heinz/Kraft Merger Means

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This week’s announcement of the merger between Kraft Foods and Heinz has made Pittsburgh civic leaders a bit nervous, and for good reason. After watching what 3G Capital did to slash overhead with its acquisition of Heinz 19 months ago, leaders should expect significant executive layoffs and reorganization to consolidate operations. While that should be better news for Pittsburgh than Chicago – where Kraft has an impressive corporate campus – there is one significant factor that could make a higher-cost headquarters in Chicago more desirable: air travel.

As the Wall Street Journal reported Wednesday, Chicago has dozens of direct flights to destinations around the world daily, including 3G’s home country of Brazil. Pittsburgh’s only current year-round international flight is to Toronto. The disparity of serving 216 cities daily versus 35 from PIT, gives Chicago the kind of edge that the Allegheny County Airport Authority has been fighting to regain after USAirways reneged on its promise to maintain its flights.

Let’s hope that lower costs for commercial space and much lower costs of living win the day because it seems unlikely that 3G will maintain “co-headquarters” for very long.

Following up on some recent projects of interest, Burchick Construction was awarded the contract for the Victoria Street parking garage by UPMC, a $9 million structural renovation. Google selected Perkins Eastman for the design of its interior fit-out in the Bakery 2.0 office building. Gurtner Construction was awarded the general trades portion of the new $7 million Ross Township public works garage complex. Rycon Construction was the low bidder on the Cathedral of Learning Suite 910 renovation at $419,000, beating out TEDCO at $448,000 and A. Martini & Co. at $461,800.

Massaro CM Services is in the process of putting three North Allegheny schools out to bid as part of the $22 million program to upgrade the Marshall Middle and Elementary School, and the Bradford Woods School. The projects are due April 9, 14 and 17. In Ohio, the new $30 million Canton South High School is out to bid.

More Manufacturing Coming

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The civic leaders have been telling the public for more than 2 years that the real payoff from having multiple ethylene production facilities – ethane crackers – was in the downstream manufacturing that would arise. Today, GE announced what had been alluded to in an earlier blog post last week – a new plant in Pittsburgh.

The company acquired a site in Chapman Westport, along Rte. 576 in Findlay Twp. with the intention of building a 180,000 sq. ft. advanced manufacturing facility. GE will get proposals from three development teams, including Chapman Properties, Al Neyer & Clayco, to build the plant. The project will be a crunch, with work starting in March if GE gets its way. GE’s announcement was a little vague about the building’s purpose but I was told last week that the plant would manufacture resins, one of the key ingredients to the plastics recipe. (As a reminder, ethylene is the mother feedstock of plastics).

Although there has been no confirmation, Ensinger Plastics has reportedly chosen a site for a new facility, a plant of more than 250,000 sq. ft.

Perhaps Shell wasn’t the only company waiting for the dust to settle before sharing its plans with the region.

The Ellwood City Ledger earlier this week reported some specifics about the early work at the Shell site that buildingpittsburgh alluded to last week. The paper listed Trumbull Energy Services as having won a contract for earthwork. The successful contractor is actually a joint venture between Trumbull and Mascaro Construction is expected to land significant pieces of the site preparation.

Reflections on a Week Out on the Town

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This is the time of year for “annual” events and this week has already been full of them. A few observations:

I admit to being a fan of the Allegheny Conference’s work and their announcement of the goals of their next three-year strategic plan hasn’t changed that view. The top goal addresses a problem I’m hearing about with shocking frequency – not enough good (meaning appropriately skilled) workers to hire. If this is a problem for construction today, it will be a crisis when work picks up next year. Attracting qualified people from IT to iron workers is a “must win” for Pittsburgh to remain on the current growth path.

The buzz at Thursday night’s Night at the Fights, put on each year by NAIOP Pittsburgh to benefit Habitat for Humanity, was amazingly upbeat. A lot of commercial real estate brokers there and while they are a positive bunch, in public brokers usually talk poor. It seems there are just too many deals and users right now to suppress the optimism. The talk was of a Walgreen’s operations center, Ensinger Plastics, mysterious 250,000 sq. ft. users ready to sign and, of course, the Shell cracker.

The team from Continental Office enjoying NAIOP Pittsburgh Night at the Fights.
The team from Continental Office enjoying NAIOP Pittsburgh Night at the Fights.

Shell’s Ate Visser told the Post-Gazette this morning that the company was exercising its option to by the site from Horsehead Corp. (http://tinyurl.com/mr46xkb). That’s a big deal in and of itself but the crowd last night seemed to be looking for more. If I assimilate what I heard from dozens of people who seem to be in the know about Shell’s plans (all of whom can’t actually be in the know, of course), I would say that our collective impatience will be satisfied next week. Commercial real estate people have been known to spin self-fulfilling prophecies before. We won’t have to wait long to find out on this one.

The other heartening takeaway from two nights of rubbing elbows with regional leaders and real estate execs is that it’s clear that more investors and industries are looking at Pittsburgh than we even know at this point. At the risk of sounding like a sunshine pump, it’s hard to imagine the region being better positioned.

It feels like the polar opposite of 1983. Back then, we couldn’t imagine that the steel industry was really gone for good. Now it seems unreasonable to think that another industry might come back and replace the ones that left 30 years ago. If there is an industrial train pulling into the station right now, there will need to be a monumental coalition of government, foundations, labor and business owners to move the dial on infrastructure, pensions, immigration, etc. Solutions will need to rise above politics or Pittsburgh’s growth will be stunted.

Are There Users Out There?

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Yesterday’s announcement by CBRE of a new 600,000 sq. ft. office complex on the North Shore proposed by Merrill Stabile looks for the most part to be a well-crafted effort to market a good site (it certainly attracted the media attention). According to the Tribune Review, Stabile is hoping to attract a Google-like company to Pittsburgh. From time to time developers or property owners are willing to pay an architect or broker for some preliminary work so the owner can float ideas about a piece of ground. In recent years there have been similar announcements about the former Pittsburgh Brewing site or the Burns & Scalo site on First Avenue. There are project looking for an anchor. Sometimes the marketing works and sometimes it doesn’t.

RenderingWithTB

The Stabile announcement is probably no different except that most of the real estate people I talked to after the press release were truly puzzled by the size of the project given the location. On some level, that’s how brokers react about projects they aren’t working but the secondary reaction was also one of curiosity about who might be out there looking.

Over the past few months there have been rumors of several big users looking for space in excess of 200,000 sq. ft. at places like ALMONO or Oxford’s new building. USX has been tied to the Strip District and the former Civic Arena site.  Wednesday’s announcement may be just a marketing exercise but it’s timing raises the level of optimism about 2015 if there is indeed the hope that the North Shore project is competing for actual users in the market. With so little supply in the market since 2011, expansion or relocation or attraction of an anchor user for the office market would set off some dominoes. It would certainly mean more construction than the market has seen in a while.

The Amazon Effect

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Monday night Jackson Township reviewed Doug Sippel’s plan for what will be a FedEx distribution center on 60 acres north of Zelienople. The 305,000 sq. ft. facility is exactly the kind of industrial project that has been missing from the region until recently. The FedEx project will be the third big user over 250,000 sq. ft. to enter the Pittsburgh market since last year (Gordon Foods and Amazon are the others). Sippel’s development may be another one-off (although by definition that is already impossible) but my guess is that it is part of a trend that was included in our industrial feature in DevelopingPittsburgh last month – a trend that Jeffrey Ackerman of CBRE spoke about two weeks ago.

Amazon’s lease is for a fulfillment center that is a mini-distribution model aimed at handling their overnight and same-day fulfillment goals. Amazon’s vision of selling everything to everyone is creating tremendous logistical needs in markets that are below the super distribution center size. Ackerman talked about the trend at the CBRE Real Estate Symposium and predicted that the Amazon lease would draw the attention of other logistics providers like FedEx and UPS. Let’s hope this is the start of a wave. Even better, let’s hope it inspires some big spec warehouse space construction.

Some noteworthy commercial construction updates: WVU short-listed Mascaro, PJ Dick and Turner on the $30 million Milan Puskar Stadium upgrade. The proposers on the $30-50 million Union Trust Building renovation will interview this week. Beaver Area Heritage awarded $1.1 million in contracts for the Beaver Station restoration. Arcon was the low general. Franjo Construction got started on a new $2 million Goddard School down in Upper St. Clair and a new 16,000 sq. ft. Aldi’s at the Crossings of South Fayette on Washington Pike south of Bridgeville.

Ray Volpatt, Bill Engel & Dollar Bank's Joe Smith having fun at the MBA golf outing.
Ray Volpatt, Bill Engel & Dollar Bank’s Joe Smith having fun at the MBA golf outing.

Commercial Real Estate Booming

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Commercial real estate is the hottest segment of the construction market in 2014. Spec office projects are moving forward in strong submarkets across the city. Highmark’s medical mall has sparked construction of 3 new medical-related office buildings across Route 19. One of the developers, ACRES, is contemplating another new office building further north in the Warrendale area and there are 2 new 42,000 sq. ft. office buildings proposed at the Brooktree Center in Wexford. Burns & Scalo announced the signing of a 30,000 sq. ft. lease for the second building in its Zenith Ridge project at Southpointe. The developer is more than half leased there and plans to start the third 150,000 sq. ft. building next spring. Burns & Scalo has also leased half of its Concord project in the RIDC Park West.

These offices complement the spec construction at Southpointe Town Center by Horizon Properties, Elmurst’s Schenley Gardens in Oakland, Millcraft’s Gardens project downtown and the Three Crossings and 350 Fifth Avenue projects that Oxford is planning. Expect to hear more about the latter in August, along with possible news about the ALMONO site from Oxford and Millcraft.

The demise of the bricks and mortar retail store hasn’t occurred yet in the far northern and southern suburbs. Dynamic Building Co. is starting construction on The Street, a 132,000 sq. ft. retail town center Horizon is developing near the Meadows. Work is underway on the Field & Stream and Hobby Lobby spaces at the Old Mill, another 100,000 sq. ft. plus being developed by TSG Properties and Mosites Construction. In the north, WalMart is dipping its toe back in the water in Pittsburgh with a 150,000 sq. ft. store planned for McKnight Rd. at Blazier Dr. in McCandless and Dominic Gigliotti is proposing another neighborhood retail center in Cranberry, a 93,000 sq. ft. center similar to the retail portion of the Village at Pine. At the same time, Wexford is seeing a boom in small retail, with a Wendy’s, Auto Zone, Chick-fil-A, new branch bank and a handful of new tenants in the Wexford Plaza. And all of this is in addition to another 90,000+ sq; ft. of new construction at McCandless Crossing.

The other leg of the CRE boom in Pittsburgh is the apartment market. The Business Times reported yesterday that Ambling University Development Group would be presenting a plan to Zoning Hearing Board for 389 apartments at the former Allegheny Health Dept. site at 3333 Forbes Ave. in Oakland. That property is the site of a mixed-used hotel/apartment/office project proposed by MWK Development, a partnership of the Massaro Corp., Gary Wilson of LWE and Tasso Katselas.In the 2 weeks prior to that hearing. The ZHB will also hear plans for a new 7-story, 74-unit apartment Uptown from Castlebrook Development and for a 7-story, 32-unit building at 2607 Murray Ave. in Squirrel Hill being developed by AHI Development. During those same 2 weeks, adaptive re-use projects from Solara Ventures and Collier Development in the Strip will be reviewed. In total, the number of units under construction and in the pipeline tops 5,000.

One legitimate concern about commercial real estate in general is the push to build by investors rather than supply and demand. Fed Chair Janet Yellen addressed this in her comments to Congress yesterday about yield-chasing, even though she didn’t refer specifically to CRE. Most of the recent real estate bubbles have had an element of overzealous investing pushing construction near the top of the boom. Multi-family is the poster child for this right now, although other categories will attract investment soon, at least as long as interest rates remain low.

These dynamics aren’t as important in Pittsburgh. There remains an abundance of demand compared to supply in all segments of commercial real estate. While no one can predict the impact of the ethane cracker plant, its construction will likely kick start another surge in demand for commercial and industrial land and space. Bids are coming in this week for some of the first packages on the cracker, by the way, although nothing has been officially announced. That announcement may still come at a time when such news is politically advantageous to a gubernatorial race, but the real work seems to be moving anyway. Even without that catalyst, it’s a good time for commercial development.

What’s Out to Bid?

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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.

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.

Final Thought on Friday

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The economic news this week has been fairly mixed for the U. S. economy. Consumer confidence soared in Tuesday’s report. Consumer sentiment tanked in today’s report (different survey – different surveyor). The best news was the Case Shiller index for April, which showed that home values had risen more than 10% over last year. That same day RealStats reported that home sales for April in Pittsburgh were up 24% +, with average values outpacing the median value.

Bear Construction is starting on a new 150,000 sq. ft. facility for Jerome Manufacturing at the Fayette Business Park in Georges Twp. near Springfield, PA. The Fay-Penn Economic Council says the project is a $9 million investment.

Pitt opened bids Thursday afternoon on the Phase 2B portion of the ongoing Benedum Hall modernization project. Bids came in at $24.3 million. The low bidders on the four prime contracts were: Volpatt Construction (general) at $7,639,000; McKamish (HVAC) at $10,225,000; Ruthrauff-Sauer (plumbing) at $1,495,000; and TJR Enterprises (electrical) at $4,984,000.

A Little Hospital News

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Most of the news coming out of the hospitals of late has been negative and the prospects for hospital construction have certainly been that way for several months one project moving ahead is the 100-space Luna Parking Deck in Shadyside for UPMC. The $18 million job is due June 6. UPMC has asked Mascaro, Massaro, Mosites, PJ Dick & Turner for bids. You can see details at the Builders Exchange http://www.pbe.org/ipin/ProjectDetail.asp?txtPID=2012-00D0. Highmark’s medical mall in Wexford is apparently over budget but there are efforts to VE the project so that construction can stay on schedule.

On a different front, there was an interesting panel discussion of financing conditions for commercial real estate at NAIOP’s monthly meeting this morning. The takeaway was that earnings pressures are pushing underwriting standards to be looser. Veteran lenders Jack Shelly of Dollar Bank and Claudia Steeb of HFF both expressed concern that lenders were beginning to ‘stretch’ to make deals happen – just like in 2006-2007. Given the underbuilding of 2009-2011, a swing to the loose credit side probably wouldn’t create the crash we experienced at the end of 2008 but few bankers thought we’d be talking about loose credit again in 2013.