Category Archives: Construction news

The Beat Goes On in The East End

Walnut Capital brought plans before the city’s Planning Commission today for what it’s calling Bakery Square Refresh. The Refresh project involves the demolition of the small retail building on the outparcel on Penn Avenue and construction of a two-story, 12,400 square foot retail building that will connect to the original Nabisco bakery. The $5 million Refresh is being designed by Strada Architecture and PJ Dick is the contractor. According to Walnut’s CEO, Gregg Perelman, the new construction – which will be home to several restaurants – is to be ready next October when Phillips occupies its new space in Bakery Square Three. That means construction will start around the first of the year.

The 2-story Bakery Refresh will be adjacent to the Nabisco bakery building. A new green space will be created along Penn Avenue. Rendering by Strada Architecture LLC. Use courtesy Walnut Capital.

Around the corner from Bakery Square, Echo Realty is moving forward with its Shady Hill Center. The project involves 220 units of apartments, to be developed by Greystone Real Estate Partners, a 500-car parking garage, and the replacement of the Giant Eagle with a new 37,000 square foot store. Carl Walker Construction has been selected to build the parking garage.

Data on employment and unemployment was released on the national and regional level within the past week. The job creation data for Pittsburgh showed modest improvement, with 5,500 more jobs in August 2019 than one year before. Unemployment fell by 0.3 points to 3.9%. The good news inside the Pittsburgh metro data, which came from PA’s Department of Labor, was the net growth of employment. The workforce grew by 18,400 from August-to-August, while the number of unemployed fell by 1,000. Retiring Baby Boomers are putting great downward pressure on the workforce supply in Pittsburgh. That the number of people working grew by more than 1.5 percent suggests that the gains in employment are offsetting the demographics for now.

US job growth was better in September than in previous months, according to the Census Bureau’s report on October 4. There were 136,000 new jobs in September. Estimates for July and August were also revised upward by nearly 60,000 jobs. The headwinds on the economy are certainly growing, but US employers are still adding to payrolls.

An Interesting Take on Growing the Workforce

The shortage of skilled workers in construction has been a problem for several years and the impact on construction costs has reached the point where commercial real estate development is being slowed, according to NAIOP. There is a CoStar post about the issue that is very interesting in that it puts contractor groups on opposing sides of what you would think would be a unifying issue.20190422_174002

At issue is the Department of Labor rule, which resulted from an executive order in 2017 that expands apprenticeship programs to allow trade groups and employers to establish separate training from industry certifiers. The revised National Apprenticeship Act exempts construction from its rules for now, but developers are pressing for the rules to be expanded to include construction, and the nation’s largest contractors group is supporting them. Associated General Contractors of America (AGC) has been advocating for growing the construction workforce, including pressing for supportive legislation. AGC supports the revised rules, even though the rules allow apprentices to be paid minimum wage.

The last point is what has developers hoping that the rule change is extended to construction. It’s also what has union-affiliated contractor groups in opposition to the expansion of the rules. Union apprentices are typically paid two or three times minimum wage while working their way to journey-level. Opponents of extending the rules to construction also worry that independent apprenticeship programs won’t adhere to industry standards for certifications and will lead to poor work or unsafe conditions. The arguments are summarized in this excerpt:

Proponents of expanding construction apprenticeships argue the initiative will address the dearth of these kinds of workers and help close the job gap, adding to the workforce pool for contractors and reducing their costs as well as those of developers. The lack of construction workers such as pipe layers, sheet metal workers, carpenters, concrete workers and pipe fitters/welders, as well as logistics employees, has hurt the commercial real estate business.

That’s driving up development costs and hampering the expansion and profitability of warehouse and distribution centers, according to NAIOP, the national trade organization for the industry, which issued a report on the issue earlier this year.

But there is a debate on apprenticeship expansion, with opponents charging it would create a separate, and inadequate, certification system from existing programs, with poorly trained workers who could endanger themselves, others and do substandard work.

As the labor department proposal is written now, it excludes construction, an industry that has for decades had apprenticeship programs in place for trades such as plumbers and electricians. Those programs are registered with the labor department and are funded by unions and employers, as part of collective bargaining agreements.

History has shown that government making rules to solve temporary market conditions rarely solves the problem, and usually creates unintended negative consequences. If you are developing a commercial project right now, the costs of construction – and the schedule – are becoming unfavorable. The pro forma rents aren’t going up as fast as construction costs. Investors will have to accept less of a return or the project won’t pencil out. That’s not a great thing but that is an inevitable consequence of economic prosperity that lasts as long as the current expansion. In truth, wage gains have been held off for much longer than in any previous business cycle; and the magnitude of wage growth is much lower than the typical 4-5% that accompanies a recovery. During the recovery stage of this business cycle, wages barely grew and only moved above 2% since early 2018. Business cycles run from imbalance to imbalance, from lean conditions to fat. It’s not fun to be the development that builds during fat times but, then again, it’s also not fun to try to lease up during lean times. It’s the nature of business cycles. At some point, things will slow down and costs will fall back. New development will follow.

Note: In the Sept. 26 BreakingNews email blast, PJ Dick was omitted from the list of contractors proposing on the $15 million Flats on Forward in error. The list of contractors should have read PJ Dick, A. Martini & Co, Mosites and Rycon.

Housing Market Responds to Lower Rates – Pittsburgh Construction Market Awards

Recent reports on sales of existing homes and new construction show that buyers are motivated by the lower long term interest rates that inspired the two Fed Funds cuts this summer. August’s construction numbers were strong for multi-family and single-family construction. The rate environment seems unlikely to have made such a difference. Rates were already historically low. However, one of the major home buying demographic groups – Millennials – has proven to be very skeptical about home ownership; therefore, even small drops in the 30-year mortgage rate seem to be having the emotional impact that pushes shoppers to become buyers.

Wells Fargo Economics has a great short commentary on residential construction. An excerpt is below:

Higher builder confidence and an improving trend in single-family permits
indicate that new home construction is finally beginning to catch up to the higher pace seen in new home sales. Total housing starts jumped 12.3% to a 1.36 million-unit pace, the highest since June 2007. The headline number surpassed all expectations, but was driven to a large extent by a 32.8% surge in multifamily starts. New apartment construction, which is notoriously volatile on a month-to-monthbasis, had briefly dipped below trend the past two months, so a catchup in August is not surprising.
Still, single-family starts were quite solid, rising 4.4% to a 919,000-unit pace,
the highest since January 2019. Only three times in this long and gradual
housing recovery have we seen single-family construction at a higher pace
than in August. Single-family starts rose 3.6% and 5.3%, respectively, in the
South and West, the two largest regions for residential construction. They
were up 8.7% in the Midwest and down 1.7% in the Northeast. Nationwide,
year-to-date single-family starts are down 2.7% over the same period last
year.

In regional nonresidential construction news, decisions were made on several large projects that had been pending. The Gilbane/Massaro joint venture was chosen for the combined $200 million central utility plant/Human Performance Center at the University of Pittsburgh Victory Heights. Rycon Construction was awarded the $40 million UPMC Magee central utility plant/maintenance building. Rycon was also successful on the 200,000 square foot Phillips buildout at Bakery Square. Thomas Construction is starting construction on the $11.3 million Hoyt Science Center expansion at Westminster College.
CM proposals are being taken from Landau, TEDCO, Volpatt and Whiting-Turner on the $3.5 million CMU Mellon Institute Group 1920 lab renovations. Highmark is taking proposals from AECOM/Tishman, Mascaro, Massaro, PJ Dick, Rycon, Turner and Whiting-Turner on its $20 million lobby and exterior upgrade.

Hiring Slows, Pittsburgh Construction Hums Along

This morning’s Employment Situation Summary for August showed that U.S. employers had added 130,000 workers to payrolls during the month, about what was expected. Unemployment remained at 3.7%. Observers are making headlines about the slowdown in hiring but it’s worth pointing out that a) the economists’ estimates of job growth are highly speculative and missing by 13% on a highly speculative estimate is hardly missing; and b) job growth that is still keeping pace with population growth at this stage of the economic cycle is solid growth.

Backing that last point up is the fact that the workforce is continuing to expand, even as unemployment remains unchanged. The number of workers grew by 30,000 in August, a sign that unemployed persons are continuing to come off the sidelines and find work. Also encouraging was the continued growth in wages, which topped $28/hour again for the second straight month.

The August report isn’t all sunshine, of course. The hiring paled in comparison to one year earlier, when 282,000 jobs were added. The lower number was also consistent with the 2019 trend, which is seeing an average of 158,000 jobs added monthly, compared to 170,000 in 2018 (and that after a 500,000 job downward revision to 2018). Moreover, the trend for the past six months is even slower, falling below 135,000 new jobs.

After the last two recessions, which were precipitated by catastrophic events, the U.S. economy seems to be on a course to slow down, rather than hit a wall. The current economic expansion started in March 2009. That’s a long time without a downturn. Trade wars are hurting U.S. corporations and farmers. Most of the rest of the G-20 nations are seeing flat economies, or even recessions, at the moment. It’s more likely than not that some of the jobs reports during the next six months will be even weaker than August’s. But maintaining the highest level of economic output in U.S. history isn’t the worst place to get stuck.

A look at the Builders Exchange his past week or so reveals that the bidding market is slowing but local project news reflects the healthy local economy. Franjo Construction started work on a $3-4 million expansion/renovation project at Innovative Carbide in North Huntingdon Township. Franjo also pulled a permit for a $3 million dispensary buildout for Solevo Wellness at the Streets at the Meadowlands in North Strabane. Massaro Corp. was awarded the $1.2 million WVUM Ruby Hospital radiology reading renovation. Waller Corp. started work on $5 million The Eagle Food & Beer Hall for Thunderdome Restaurant Group. Pitt is conducting final CM interviews with Massaro, Turner and Whiting-Turner for its $200 million central plant/Human Performance Center project. And the $200 million-plus, 600,000 square foot office tower proposed by JMC Holdings has gone back out for CM proposals. Last time, JMC worked with Turner, PJ Dick, Mascaro, and others, hiring Turner for preconstruction services.

Pittsburgh Builds Through the Worries

As the end of summer/back to school season brings a few weeks of slower bidding, construction continues at full pace. Few, if any, skilled workers are available. The Shell cracker is at peak employment of 5,000. There are cranes visible Downtown, Oakland, and most of the suburbs. Some of the recent contract awards/starts include: Mascaro Construction landing the 105,000 sq. ft., $9 million WeWork tenant improvement at 600 Grant Street; Al.  Neyer starting work on Crossgates’ 105,000 sq. ft. distribution center at Westgate Business Park in Big Beaver; and PJ Dick getting the green light for a $35 million project for the University of Pittsburgh, infilling behind Hillman Library off Forbes Avenue. AIMS Construction started construction on the $4 million UPMC CHildren’s Hospital pharmacy. Jendoco Construction started work on the $5.7 million Plaza at Hazelwood Green.

The Plaza at Hazelwood Green

At the Federal Reserve Bank’s Pittsburgh Business Advisory Committee meeting held August 28, the most recent survey of regional business owners found that the Pittsburgh economy was holding steady, despite worries about a recession in the coming year or two. Unlike respondents to business conditions surveys in other Federal Reserve Districts, Pittsburgh business owners reported that they continue to look to add staff over the coming months and see demand for products and services as the same or better than the past quarter.

RACP Grants Help Fill Pittsburgh’s Construction Pipeline

Let’s start with some project news first: There was a groundbreaking held last week for Light of Life’s $5 million new facility on the North Side. Sota Construction is the contractor. Sota is also the CM for the $3 million UPMC Graham Field project in Wilkinsburg. H H & H started construction on the new $3.7 million Sheetz at Bursca Retail in South Fayette. Massaro Corp. is starting construction on $5 million Best of the Batch facility and $7 million bathroom renovation program at Pitt-Johnstown. A. Martini & Co. was awarded the $2.8 million Ernst & Young renovation. Rycon Construction started work on the new 19,000 square foot office TI for Microsoft and a $2.2 million pharmacy renovationat AHN Wexford Wellness Pavilion. Developers EPC Real Estate Group announced the 251-unit, $50 million Waterfront Apartments. EPC has been working with Continental Building Co. on the project. Continental is also building a 23,000 square foot retail center in Uniontown, called Beesontown Shops, which Herky Pollock and partners are developing.

Pennsylvania’s DCED recently announced the projects which received grants under the Redevelopment Assistance Capital Program (RACP). RACP grants are given to help bridge the gap in funding a difficult project or help an owner that will struggle with funding of a major capital need that serves the public good. Often these are commercial real estate deals or even industrial projects where the justification is the job creation that follows. Some are just public benefit projects, like the awarding of $1 million to the URA to do traffic improvements at the Highmark Riverhounds Stadium at Station Square, part of an $8 million expansion the Riverhounds want to undertake. Some of the projects that received awards that might be of interest:

 

 

The awards included millions for projects that are already underway or received other grants in previous years. These include the Terminal Building in the Strip and Hazelwood Green, aomong others.  You can view the lists of submissions and awards.

Amazon At Last

July 30th brought the governor and a cast of dignitaries to Findlay Township to announce what had been whispered about for three years (see our July 2016 post), that Amazon was building a million-square-foot fulfillment center at Chapman Westport. Highwoods Construction will be bidding packages for the massive warehouse ASAP. Amazon’s commitment is just one of a number of large-scale industrial deals being done or pursued in Western PA. Komatsu is in the process of selecting a developer for its 250,000 square foot warehouse and office at Alta Vista Business Park in Washington County. Developers Suncap Properties and Al. Neyer have been competing.

The Federal Reserve Bank cut its Fed Funds rate .25% on July 31 at its Open Markets Committee meeting. The stock market plunged a bit after the announcement, likely in reaction to sentiment that the cut would be larger. Expect a rebound shortly. The Fed’s language suggests that another 25 basis point cut is likely later this year. For the U.S. economy, such stimulus is unnecessary at the moment, but economic data globally shows slowing and the bond markets have been trading at interest rates that are lower than the Fed Funds rate for longer maturity bonds. That’s what an inverted yield curve is and investors don’t like inverted yield curves. (You can read about the yield curve in the July/August BreakingGround.)

July’s building permits show that Hunter Buildings started work on a $6.5 million control room building for Eastman Chemical in Jefferson Hills. Rycon Construction pulled a permit for $2.2 million renovation of the AHN Wexford Medical Mall. Uhl Construction is working on a $1.6 million addition/renovation to Baierl Acura in Pine Township and $2.7 million project at Baierl Toyota in Mars, PA.

FMS Construction was awarded the $1.9 million restoration/conversion of the Lohr Building in Wilkinsburg. FMS is also doing general and mechanical/refrigeration construction on Giant Eagle’s $6 million Hempfield Square store renovation. Penn State selected PJ Dick for its $25 million Erie Hall replacement at the Behrend College. PJ Dick started work on the $17.5 million combined power/heating/cooling plant at the Wexford Medical Mall.