More Commercial Development News

This morning NAIOP Pittsburgh’s meeting featured the Penguins development team for the 28-acre former arena site. Pens COO Travis Williams, JLL’s KC Pelusi and Craig Dunham, owner’s rep for the project, presented the details of the multi-year project, which expects to include 2.5 million sq. ft. of residential, office and retail development. The first infrastructure piece is bidding now. While it’s too early for this project to be signing any deals (at least so far), other commercial developers are reporting increased deal interest since the election.

Travis Williams, JC Pelusi and Craig Dunham.

Travis Williams, JC Pelusi and Craig Dunham.

At WesBanco’s Southpointe branch ribbon-cutting on Tuesday evening, Jim Scalo reported that construction would start on December 1 on the third building at Burns & Scalo’s Zenith Ridge development in Southpointe. Clayco is the construction manager for the 150,000 sq. ft. spec office. Clayco is about to get underway with an operations/distribution center for Walgreen’s in the RIDC Park West.

Interest in RIDC properties is higher. In addition to the deals in the Parkway West, users Paragon Foods and Burns Equipment should be building new facilities in Thorn Hill in spring.

Penn State Makes a Quick Decision

PSU’s Board of Trustees turned around the selection of a design/build team for the East Residence Halls and new North Residence Hall in a couple days, awarding a contract to Clayco Construction on Nov. 14th. The winning team for the multi-year $171.3 million project includes DLA+ Architecture & Interior Design and Mackey Mitchell Architects.

PSU's $171.3 million residence hall program will add 330 beds & renovate more than 1,200 beds by 2019.

PSU’s $171.3 million residence hall program will add 330 beds & renovate more than 1,200 beds by 2019.

The residence hall project is one of the largest construction projects undertaken at Penn State. You can see more details on it at http://tinyurl.com/m67yyj2.

More Manufacturing Coming

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.

Penn State Construction Roars

Construction in Central PA is dominated by two institutions: the Commonwealth of PA and Penn State. While the state government has been hampered by a budget deficit for a half-decade, PSU is roaring back with hundreds of millions in new construction.

On the bid schedule are the $29 million new Data Center that Holder Construction has out for trade package bids. Jendoco Construction has the $8 million Michael Baker Building out to bid at the Beaver Campus, due Dec. 2. The $33 million Whitmore Lab Building renovation is being bid by Barton Malow and Kinsley Construction is taking bids on packages for the $13 million HFS Warehouse & Bakery. Details of the project are available at PSU Physical Plant website at http://tinyurl.com/k3enmog.

PSU is interviewing design/build teams Wednesday for one of the biggest projects ever undertaken on campus, the $173 million East Residence Halls renovations and new North Residence Hall. Teams consisting of Clayco/DLA Architecture/Mackey Mitchell Architects, Gilbane/Newman Architects/Bohlin Cywinski Jackson, and Whiting-Turner/Ewing Cole will propose today. The architectural selection process has begun for the $140 million new Chemical Engineering/Biomedical Engineering Building, a 188,000 sq. ft. new building that will essentially replace the Fenske Building.

Penn State's new $140 million Chemical/Biomedical Engineering Building

Penn State’s new $140 million Chemical/Biomedical Engineering Building

Reflections on a Week Out on the Town

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.

Jobs and Wages

Friday’s jobs report was slightly below the estimates from analysts but still registered more than 200,000 new jobs for the ninth straight month and job growth in private sector for 56 consecutive months. The BLS data showed 214,000 new jobs across all sectors and unemployment declining to 5.8%. This data is on the heels of ADP’s report earlier this week of private payroll employment growth of 230,000 jobs in October.

job creation

Among economists there is a sentiment that the employment picture has hit a tipping point of momentum that will increase in 2015. There is another tipping point that is upon us as well; that is wage growth.

Throughout the job growth cycle of the past few years, wages have remained stuck behind the rate of inflation. This stagnation has a limiting effect on the spending and saving that consumers do. Since consumer spending has picked up to pre-recessionary levels, I’m left to conclude that savings has not followed, which is not a good thing.

As employment growth pushes unemployment towards the 5.5% threshold, a likely prospect in early 2015, demand for new workers will put irresistible pressure upward on wages. We are seeing this in construction already and the market needs to adjust its expectations. By market I mean owners of projects.

Competitive pressures have kept construction prices aggressive since 2009. Owners are beginning to see higher prices now, depending on what contractors they have asked for numbers. This is especially true in the specialty contractor segment. Construction projects are justified by a pro forma projection of return on investment that starts with the cost of the building at occupancy. Land prices have risen. Site costs have gone up more than inflation. Building costs are going to have to follow within the next 6-12 months. That means owners will have to adjust rents, the horizon for return on investment or the rate of return. If your pro forma is built upon 2013 or even 2014 prices, you may want to revisit it, or build sooner.

Rising wages are on balance a good thing. More workers making more money improves the business climate and the rationale behind the construction project in the first place. But there will probably be a balancing period while owners, contractors and occupants adjust their expectations. You can wish the market were not moving higher but markets dictate rather than follow.

Real Estate Remains Bubbly

Last night’s annual meeting of the Allegheny Conference on Community Development was focused on the agenda for the Conference’s three-year strategic plan for 2015-2017. The number one priority is one that is on the minds of a growing number of business owners – attracting enough talent. Growing the region’s population is the general way to describe the Conference’s mission for the coming years.

Assuming there is success in that mission, one of the correlative problems to tackle will be having sufficient housing and amenities. That means increasing opportunities for commercial real estate – offices where people work, stores where people shop and homes where they live. Building permits for October show that the will to develop apartments remains strong. After a slow first nine months, permits for apartments in October reached almost 600 units. A similar number is expected in November/December, bringing the total for the year to roughly 2,500 units. The activity in commercial development that would bring the people here is also building.

Reports of deals in the works for industrial and office users include as many as ten or more projects of at least 100,000 sq. ft., including a few over 250,000 sq. ft. Now, there can be redundancy in these but even with a couple of duplicates in the list, there is clearly an uptick in commercial users. And that activity is, of course, without any direct influence from a green light at the Shell cracker.

The rumors of a pre-election announcement or one coming yesterday from Shell have proven to be simply rumors but the activity below the surface seems too urgent for some imminent word. If I’m still writing this by Thanksgiving, feel free to remind me what urgent actually means.