Another K-12 Moratorium Looms

Within Gov. Wolf’s 2015-2016 fiscal year budget legislation is a provision that places another moratorium on PlanCon beginning July 1. The assumption is that a moratorium would only be for one year but that was the assumption in 2012 too (and it was a wrong assumption). The language of the bill specifies that projects in the process prior to July 1 will continue to progress. Gov. Wolf’s proposed budget does include funding at the same level as the current budget, or just under $300 million.

Rep Seth Grove from York had earlier proposed a reform of PlanCon that would streamline the process and add another $30 million or so to increase deferred capital spending.

Dept. of Education Secretary Rivera did not directly address the question of a moratorium but said that “Governor Wolf is committed to ensuring his education investment reaches the classroom first,” saying that, “once the funding gap has been restored local officials will ultimately be able to make decisions on where they want to invest, including construction projects.”

With a Republican-controlled legislature in opposition to many of Gov. Wolf’s proposals, his 2015-2016 budget is not expected to pass without extensive negotiation. According to PA School Board Association staff, the proposed PlanCon moratorium is opposed on both sides of the aisle. It’s likely that the budget is meant to get both parties to compromise on their sacred cows and a moratorium will be quashed in negotiations. Until that comes to pass, however, the construction industry will be anxiously watching to see if this vital sector is set back again.

According to the Pittsburgh Builders Exchange, Allegheny Construction Group was the low bidder on the $9.7 million CCAC West Hall and the $2.77 million Pittsburgh International Airport South Matrix baggage handling improvements. Podojil Builders was awarded the new $1.5 million Primanti Brothers restaurant to be located off Racetrack Road at the Streets at the Meadows mixed-use development being done by Horizon Properties.

Rycon, Max Construction, Restaurant Specialties and Fred Olivieri are bidding a new Applebee’s on Route 22 in Murrysville on April 6 and for Waynesburg on April 9.

What the Heinz/Kraft Merger Means

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.

The East Liberty Story

This morning I attended the NAIOP Pittsburgh monthly chapter meeting at the William Penn. The meeting feature a panel that included developers Todd Reidbord (Walnut Capital) and Mark Minnerly (The Mosites Co.), along with Kyra Straussman from the URA. Councilman Dan Gilman moderated. It was surprisingly informative.

(From left) Dan Gilman, Kyra Straussman, Mark Minnerly and Todd Reidbord tell the East Liberty turnaround story at NAIOP Pittsburgh.

(From left) Dan Gilman, Kyra Straussman, Mark Minnerly and Todd Reidbord tell the East Liberty turnaround story at NAIOP Pittsburgh.

I say surprisingly because the story of East Liberty’s transformation has been told a lot. I mean, A LOT. But when these active participants retold what it took to redevelop East Liberty, especially when you heard the timeline of all the projects at once, it was impressive. Most observers have accurately characterized the turnaround of East Liberty as a long, painful process. While that’s true, it was also apparent from this morning’s presentation that much of what we consider to be the turnaround story has happened in just the last five years or so.  The thing that struck me was that Whole Foods signed on in 2002 and it was another six or seven years until Target arrived on the scene. After that, Bakery Square wasn’t open for business for another two years or so. That’s a lot of investment since the start of the Great Recession.

The presentation concluded with a brief discussion of the Larimer redevelopment, for which a $30 million Choice Communities Grant was received. I can’t see Larimer turning around like East Liberty, but then I can’t say I shared the vision of what would happen in East Liberty ten years ago. It’s an amazing change.

A bit of construction news: Continental Building Systems has started work on the $2 million, 17,000 sq. ft. Toby Keith’s I Love This Bar at North Shore Place II. JLL is receiving bids on March 24 for USAA on 56,000 sq. ft. of fit-out for Cabot Oil & Gas at 2000 Park Lane. Precision Builders, Rycon and Shannon are the bidders.

The Fed and Interest Rates

Wednesday’s release from the two-day Open Market Committee of the Federal Reserve confirmed what had been expected since the beginning of the tapering of the easing began in winter 2014. Citing strong job gains and continued economic improvement, Fed Chair Janet Yellen reported that the FOMC concluded that the U. S. could tolerate slightly higher borrowing costs. In signaling that it would raise rates – probably in June – the Fed also estimated that its funds rate would only climb to 0.625% by December. That’s roughly half what it estimated the rate would be just three months ago.

So what we got was rates going up sooner but slower. The investment markets seemed to like that kind of certainty, reversing early day losses and finishing up more than 200 points higher.

For a little perspective check out the graph below that shows interest rates for the past couple generations. At four times the current rate level, interest rates would still be lower than 42 of the last 50 years. Still a good time to borrow.

Federal_Funds_Rate_1954_thru_2009_effective.svg

Bidding Warms Up with the Weather

As the weather finally moderates, the bidding activity has picked up significantly. There are the usual university projects out to get ahead of summer construction season. Moon Area School District has two elementary schools – Brooks and Allard – bidding on April 8 that should top $21 million combined. There is an $8.2 million wastewater treatment plant out in New Wilmington. Many municipalities have their annual road and sewer plants out to bid.

Ensinger Plastics has asked Continental, Landau, Martini & Massaro to submit proposals for construction management for their new $22 million plant outside Washington PA. The Pittsburgh Zoo & PPG Aquarium has invited James Construction, Martini, Mascaro and Massaro to bid a new 50,000 sq. ft. +/- elephant barn in Somerset County PA. Google is taking proposals from  architects Desmone, Perkins Eastman, Strada and Stantec on the tenant improvements package for its 66,000 sq. ft. space in the Bakery Square 2.0 office building.

Glade Run Lutheran Services awarded its new $14.5 million Jeremiah Village apartment project in Zelienople to Continental Building Systems. Rycon Construction was the low bidder on WVU’s AERB Building second and third floor buildout earlier this week at $2,354,790. Manheim was next at $2,456,000 with TEDCO third at $2,460,000.

Wrapping Up the Week with RACP

Last week’s announcement of the first round submissions for Redevelopment Assistance Capital Program (RACP) grants included applications for assistance on a number of the region’s high-profile projects, including the ALMONO development, $100 million Union Trust renovation and Oxford’s 350 Fifth Avenue office tower. There were also some surprises.

While the zoo has been quietly doing some smaller expansion projects over the past year, the RACP submission included a grant to help with the Pittsburgh Zoo’s $30 million expansion program. Another project that had been advancing under the radar is Robert Morris’s new convocation center.

There were also several hospital projects on the submission list, which is fairly unusual and an indication of how the healthcare industry hopes to fund some of its capital needs that lead to job creation. Both UPMC and AHN had projects in the RACP pipeline. The former applied for funds for a $5 million OR-14 at Children’s Hospital. AHN applied for $9.1 million for a NICU at West Penn Hospital.

RACP grants will be made later this year. Most of the big project grants will go towards construction that will occur in 2016 or later.

Among the projects getting under construction, Mascaro has started on Chevron’s 120,000 sq. ft. TI at 700 Cherrington, which is space that will house its reduced shale workforce for now. Marco Contractors was awarded the new CVS store in Greensburg. Franjo was selected as the contractor for $6 million Bobby Rahal parking garage in Shadyside. PJ Dick’s small projects group started work on the Whole Foods shell and the 125-car garage at the Siena development in Upper St. Clair. Hillcrest Academy has narrowed the field for its $1.8 million classroom addition to Rycon & Bear Construction. Rycon was the low contractor on the $2 million CMU INI facility.

The bump in new work hasn’t shown up in slack bidding just yet. In northern WV, where work has been brisk, bids came in on top of each other for the new residences at Fairmont State. Massaro was low at $28,803,000 with Nello second at $29,597,000 and Yarborough and Manheim tied at $29,946,000.

General Electric & Char Valley Choose

Suncap Property Group from Charlotte NC has been selected to develop GE’s $30 million, 125,000 sq. ft. advanced plastics plant at the Chapman Westport industrial and office park southwest of the airport. GE had previously purchased the property from Chapman Properties, which has plans for an 85,000 sq. ft. spec industrial building adjacent to the GE site.

Chartiers Valley School District selected PJ Dick Inc. as the construction manager for its $60 million middle school/high school project. In other school district construction news, Canon McMillan has apparently narrowed the selection of a CM for its $26 million Muse Elementary School project to Campayno Consulting and Reynolds Building Solutions.