Category: Regional construction

Disappointing Results – Brightening Forecast?

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Budgeting for owners/developers and bidding at the subcontractor level has ramped up in recent weeks. Among the general contractors, as many as ten major projects are being budgeted right now for a variety of owners. Construction is getting underway on several large projects that have been in development for a year or more. These developments raise optimism for 2015 and hopes that the fourth quarter will be a boost going into the coming year.

Among those ramping up, Massaro Corp. is doing the demolition and abatement at the former Allegheny Health Dept. site to start the 389-unit Ambling Apartments in Oakland. Mosites is doing the prep work for the $22 million Cohon Center expansion at CMU. Also at CMU, Mascaro is supposed to start work on the $18.5 million Hamburg Hall addition. Mascaro was awarded the Union Trust Building and is awaiting the green light for the $32 million Heinz Field South Plaza expansion in January. Up north of Zelienople, the Jackson Twp. supervisors have approved the 350,000 sq. ft. FedEx Ground distribution center, to be built by Jackson Taylor Contractors.

Setting optimism aside in favor of reality (or at least results) the construction activity through the first 3 quarters of 2014 remains disappointing. The Pittsburgh Homebuilding Report for Jan-Sept shows residential construction down 30% from last year, mostly due to a drop in apartment construction. In part this is a reflection of the unusually high activity levels in 2013, but housing construction in general is softer. Another 1,200 apartment units are expected to get underway in 2014 but the market will still fall short of 2013.

pgh housing 2014-3

Non-residential construction is off 15.4% from the first nine months of 2013, according to Tall Timber Group’s research. Contracting through Sept. 30 totaled $1.92 billion compared to $2.27 billion during the same period in 2013.

 

Tracking the Millennials

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Tuesday’s joint NAIOP Pittsburgh/Corenet presentation on the impact of the Millennial generation was very illuminating, especially in that it partly debunked the theory that this cohort of young Americans was changing the way everything worked. Ian Anderson from CBRE spoke about the Millennials’ use of technology and lifestyle expectations but fit it more into the context of trends that have been in place for some time. Workplace trends towards collaborative and play space or more dense, open office plans have been developing for more than a decade. Likewise, the trend towards more renting and urbanization are rooted in larger context than just the needs of the Millennials.

David Weisberg, Gennaro DiBello and Pete Sukernek at the NAIOP/Corenet event.

The young generation of adults are going to be hugely influential inside of a decade but for now the CBRE research showed that for the most part, Millennials want the same things from work and living that Gen X and Baby Boomers want.

On the project news side, Turner was selected as CM for the $15 million Butler Health System medical building. Davis & Associates selected Mascaro Construction as CM for the renovation of the Union Trust Building.

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.

Something Has to Give

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After doing some preliminary work on construction volume in metro Pittsburgh thru the first three quarters – with an estimate for September – I am expecting that less than $2 billion will have started during the first nine months. Only in 2010 was the volume so low through three quarters, at least since the 2001-2003 slowdown. Architects and engineers continue to be busy but the amount of work getting through the pipeline is still a trickle.

Last Wednesday, CBRE presented its annual real estate symposium at the Westin. The global real estate firm was upbeat about the economy in general and commercial real estate in particular. Local managing partner Jeffrey Ackerman characterized the Pittsburgh market as “booming.” Given the data on high occupancy and absorption of space, his assessment is correct. What isn’t booming is the new construction that should result from such incredibly tight supply and demand fundamentals.

The last time the construction market felt like this was during the summer of 2004. Following the Plan B boom of stadiums and the school construction boom of the late 1990’s, there was an implosion of construction when the 2001 recession hit. That slowdown lasted over three years, breaking in the fourth quarter of 2004. Like then, the fourth quarter of this year will be an indicator for the coming year.

By November, we’ll have elections won and lost. Any owner waiting for signals will have them by then. Look for the opportunities to build backlog before Christmas to get an inkling about whether the pipeline is going to break loose in 2015 or not.

RMU Awards School of Nursing

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Robert Morris University selected Landau Building Co. to be the contractor for its new $6.5 million, 28,000 sq. ft. school of nursing building.

Massaro Corp. was chosen by Phipps Conservatory as contractor for its $3.5 million exhibit and staging space in Oakland. The project will be part of its Living Building Challenge.

Duquesne Univ. put out a $2 million-plus bid to renovate the fifth floor of Libermann Hall for a nursing simulation space. The list of invited contractors for general, mechanical and electrical work is at the PBX at http://tinyurl.com/nkfmsuw

Updating the News

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Mosites Construction was low on the $14.1 million Fort Pitt Tunnel renovation for PennDOT on Thursday, with Trumbull and Joseph B. Fay second and third.

The list of contractors submitting proposals to Davis Companies for the renovation of the Union Trust Building includes PJ Dick, Jendoco, Mascaro, Massaro and Turner. Proposals go in on Friday for the $20 million medical office building planned for the UPMC Altoona Hospital campus. Alexander, Mascaro, Massaro and Turner are the contractors involved.

A Slow First Half

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Construction of all kinds lagged significantly behind the activity in the first half of last year. Housing starts in Pittsburgh plunged 37.3 percent in the first half of 2014 compared to the same period in 2013. The drop in activity was driven by a significant drop in apartment starts coupled with a downturn in single-family permits that is attributable to weather and market conditions.

New home construction is still lagging the pent up demand for housing of all kinds. Some of the decline in starts can be explained by the severe winter, but much of the decline is due to the profile of the custom builder and the lot shortage in Metro Pittsburgh. The average builder is smaller here than most markets and it’s difficult for smaller builders to catch up when weather holds down buying for an extended period. More importantly, the dominant share of NVR’s Ryan/Heartland brands has made it very appealing to develop new lots for that juggernaut and unappealing to develop traditional neighborhoods that feature multiple custom builders.

Total residential starts fell to 1,813 during the first six months of 2014. Because several large multi-family projects got underway in the second quarter of 2013, the year-over-year comparison reflects a steeper decline than the Pittsburgh market might normally support. With another 2,000 units in the multi-family pipeline, permits for attached and multi-family units will still top 2,000 units for the full year, a total that is roughly 25 percent above the historical norm.

The top municipalities for residential construction during the first half of 2014.
The top municipalities for residential construction during the first half of 2014.

Demographics are really behind this part of the market. For as many apartments as have started since late 2012, leasing remains brisk, even accelerated compared to 2013.

Nonresidential contracts reached only $1.02 billion from January to June 2014, down 29.7percent from $1.45 billion during the same period in 2013. The pace of activity seems to be finally increasing, although the market is nothing like the boom of construction that took place after the last recession. Because of the cold winter and slow spring bidding, there is little expectation of a significant turnaround in 2014 but the pipeline is filling up with projects that bode well for 2015. Jobs like CMU’s Tepper School and the Cohon Center, the next phases of Bakery Square 2.0 or the Three Crossings are some examples of projects that will get underway in the next six months.

The big trigger will be the Shell cracker in Monaca, I believe. There are bigger industrial users looking for space now but the demand for manufacturing and industrial space will explode once plans for the site are announced. Jacobs Engineering took bids on some early packages over a week ago and confidence is still very high that work will go ahead by the end of this year on the preparation for the chemical processing facility, even if only to prepare it for Shell to sell to another producer. That prep work should be in the billion dollar neighborhood.

Amazon Lands

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Online retailer Amazon has apparently selected the former Roomful Express warehouse in Crafton for its fulfillment & distribution center in Pittsburgh. While no one directly involved in the deal can confirm the selection, brokers involved in other space searches say that the Crafton warehouse has gone off the market. The deal is reported to be for 300,000 sq. ft.

Amazon’s decision to move to Pittsburgh doesn’t mean a ton of jobs but it puts the industry leader in online sales in this region. With online shopping expanding into all retail segments, the trend is for more regional fulfillment centers. Amazon’s CEO Mark Bezos plans to sell “everything to everyone” and is aggressively moving to one-day or same-day fulfillment. That he chose Pittsburgh is likely a sign that competitors will view this region as an expansion site.

Building automation and controls giant, Johnson Controls, is close to making a decision about the design/build team for its new $100 million office/research facility in York PA. The University of Pittsburgh is making a final selection for construction manager for the $17 million Murtha Center project at its Johnstown campus after interviewing Massaro Corp. PJ Dick and Volpatt Construction.

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.