Analyzing the Low Oil Price

It’s not clear whether Royal Dutch Shell would have taken this long to make a final decision to proceed on its ethane cracker had the oil price stayed at $100/barrel. Certainly, Shell and its competitors have been forced to downsize and reel in capital spending to remain profitable to the degree that shareholders demand. Lower profits were part of the reason that Chevron put its regional HQ project on hold and the price environment seems likely to have extended the decision-making process for the Monaca project; but has the decline in oil and natural gas hurt the Pittsburgh region in the way that Texas or North Dakota has been hurt?

Real estate service company CBRE Inc. published an energy market report Tuesday morning that covers this issue very well. Its conclusion is that Pittsburgh hasn’t been negatively impacted much at all, except to the degree that the exploration and expansion of the Marcellus and Utica formations has slowed.

You can read the full report here: CBRE Energy Report 2015_Pittsburgh

Of Interest Rates and the Casino Hotel

Thursday’s announcement that the Federal Reserve voted 9-1 to leave interest rates untouched at their September meeting means that a) confidence in the global economy isn’t strong, and b) financing for construction and development will continue to be done in an environment of historically low cost of capital. Whether or not the extended rates have anything to do with the activity, developer-driven construction continues to lead the projects in metro Pittsburgh.

One of those projects is the new 140,000 sq. ft. spec lab/research building being developed by Ferchill Group at the Pittsburgh Technology Center on Second Ave. Turner Construction is on the $70 million project and working through design development with an eye towards Spring 2016 bidding.

Proposals are due next Friday, Sept. 25, for the new 214-room, $30 million hotel at the Rivers Casino. Asked to submit proposals for construction mgt. were: Massaro, Turner, Mascaro, Skanska and Norwood.

Bids are being taken today for the 12,344 sq. ft. buildout of the Jackson Lewis space on the 10th floor of Liberty Center. Facility Support Services, A. Martini & Co. and Rycon Construction are bidding. Faros Properties is taking bids on Tuesday, Sept 22, on the Innovation Works space at its Nova Place buildings. Innovation Works is one of the first of the high tech tenants Faros is hoping to attract to the former Allegheny Center Mall property.

More Action on the Big Industrial Projects

There is contracting action on a number of the major industrial projects that have been in the press over the past month or so.

No decision is expected to be announced on the project that is the 800-pound gorilla of industrial construction – the Shell cracker facility – but proposals are being taken for the parking garage for the site. Those working to get the project started expect a decision to be approved or not at the year-end board meeting.

In Westmoreland County, the Tenaska $500 million, 950-mw power plant is moving ahead after getting DEP approvals. Fluor, Black & Veatch & Kiewitt are putting proposals together for the EPC contract, which should be decided late in the fall.

Bids were taken last week for the MEP portion of the $200 million dewatering building for First Energy at the Bruce Mansfield plant in Shippingport. Mascaro is roughly 75% completed with the erection of the building structure.

Al Neyer Inc. is taking bids on its 252,000 sq. ft. spec distribution facility in the new phase of the Clinton Commerce Park in Findlay Twp. The contractor/developer is planning to start construction on the building after site work has been completed.

More Hotels and Project News

Today’s announcement by Concord Sierra of another hotel in the Strip District points out just how strong the hospitality market is in Pittsburgh. The 131-room hotel will be built at 1100 Smallman, where Schreiber Real Estate had planned apartments. Although no construction team was announced, Concord has worked with Continental Building Systems to build its last few hotels in Pittsburgh. Ridgetop Hospitality also got headlines for moving forward with hotels in Wheeling and Waynesburg. Concord’s project would mark the 90th hotel started in metro Pittsburgh since 2005, with 52 started since the beginning of 2012.

JLL interviewed development teams last week for the CMU Gateway project, a 425,000 sq. ft. office/hotel/convention space to be built in Junction Hollow along Forbes Avenue. Interviewed were teams that included Elmhurst/Alter Group, Longfellow Real Estate Partners, Walnut Capital, Oxford Development, Gateway Development and Wexford/BioMed.

Bids came in Sept. 4 for the new $25.7 million Muse Elementary in Canon McMillan School District. The low bidders for the general construction package were within 2% of each other:

1-Waller Corp.  $18,117,800; 2-Nello Construction  $18,387,000; 3-Vendrick Construction  $18,596,000

Leonard S. Fiore Inc. started work on the new WalMart at 7500 University Blvd in Moon Township. The 153,950 sq. ft. store is the first new WalMart to be built since the store built behind the Northern Lights Shopping Center in 2012. The lack of big box construction is a testament to the new retail landscape. The Rivers Casino awarded the contract for its $1 million connector project to Skanska USA. Rycon Construction was selected to do the buildout of Apple’s 26,000 square foot space at Three Crossings.

Alcoa is taking proposals from PJ Dick, Graycor, Massaro, Turner, Landau and Triple C Construction on Sept. 25 for another early phase of its $60 million Technical Center expansion in Upper Burrell in Westmoreland County.

Transforming Forbes Avenue

Last Friday, Carnegie Mellon selected PJ Dick as construction manager for what is called the Forbes Morewood project. Depending on the final scope and schedule the project will be somewhere between $20 million and $30 million but its impact will be much bigger. A lot of the work will be focused on changing and updating the university’s “headquarters” – Warner Hall – but the latter phases of the project will form the physical linkage between CMU’s iconic “Cut” to the new north campus under development.

The importance of the north campus development is that it is going to be the home of what CMU’s visionaries, especially Pres. Subra Suresh, see as the future home of its corporate partners. Under Jared Cohon’s leadership, CMU upped its game in technology transfer, which is the commercialization of its research in new technologies across many industries. More recently, Google’s explosive growth has shown a spotlight on the talent at CMU and highlighted the value that a company can derive from working closely with the university. Dr. Suresh’s vision for what is being dubbed the “Tepper campus” – because the new home of the Tepper School of Business will anchor the development – involves corporate partners locating on the university grounds. This same concept has become bricks and mortar at MIT, Stanford and other schools, and clearly CMU intends to be among that group.

Imagine turning left onto Forbes from Craig at the end of this decade, driving past a hotel filled with corporate visitors and a new incubator-style office between the Hollow and Scaife Gallery, and on up a Forbes Avenue that has a town center spanning the street and connecting to a new campus that has the Amazon Building or the GE Building or the Uber Building or all three. By that time, the Gates/Hillman and Scott Halls will have filled in the east side of Panther Hollow and connected all of the science buildings together. The flow of research and information from the minds learning chemistry, nanotechnology, information technology, physics, etc. will cross Forbes to reach those entities that can apply that enormous knowledge to the real world.

If the vision is fulfilled, there will be a lot of money made by that flow of information. Southeastern Oakland is not going to become the new Silicon Valley but it doesn’t have to to have a transformative effect on Pittsburgh’s overall economy. So if you have to go from Oakland to Squirrel Hill over the next few years, maybe don’t detour around all the mess on Forbes Avenue. Take the time to witness something that will make your life a bit easier in the long run.

Real Estate Leasing Headlines

Two significant leases were signed within the past 24 hours that turned prospective speculative buildings into build-to-suits projects.

ServiceLink will be taking another building at the Pittsburgh International Business Park in Moon Township. Continental Building Systems will start work on the 68,000 sq. ft. building in October. In the Strip, Oxford Development announced that its second office building at Three Crossings will be a new headquarters for attorneys Burns White. Rycon Construction is the contractor for the 105,000 sq. ft. building.

There was project news from West Virginia and Washington. WVU selected the development team that included Yates Construction for its new $50 million+ hotel/conference center. The university also took qualifications for CM-at risk for the $22 million renovation of the Coliseum.  Monongalia General Hospital released its $11 million radiation therapy project to Gilbane, Landau, March Westin, Mascaro and Whiting Turner, due Sept. 18. Washington & Jefferson College selected Mosites Construction as CM for the remaining phase of its $14 million recreation center.

US Construction Prospects Brighten

Yesterday’s news from the AIA underscores how strong the demand for new construction is throughout the US. AIA’s Architectural Billings Index (ABI) for June rose to 55.7, the highest level since 2007. The survey of firms indicates that 55.7% saw billings rise in June, an unusually high number.

The four-month trend for billings and inquiries is sharply higher.

The four-month trend for billings and inquiries is sharply higher.

A dive into the numbers shows that it’s institutional and government projects that are leading the way, with commercial real estate development also above 50. One noteworthy change was a decline to 47 for firms engaged in multi-family projects, an indication that planning for apartments may finally be cooling. As an indicator, the ABI is a reliable forecasting tool for the 9-12 months forward.

In project news regionally, the design/build team of Mascaro/Tetra Tech was selected by Penn State for its $6.6 million Ag Digester & Dairy Barn. PSU also short-listed Barton Malow, Gilbane, Turner and Whiting-Turner for its $100 million Chemical-Bio Engineering Building. Horizon Properties was selected to redevelop the former Star Theater into a town center in South Fayette Township. The state of WV selected alternates that made Paramount Builders the successful contractor on the $33.2 million State Office Building #3 in Charleston. Oxford is working with Massaro Corp. to build its $20 million, 146-unit Emerald on Centre apartments in East Liberty.