The unusually cold weather made for a slow start to the 2018 construction season. Bidding activity has been slow out of the gate too, but the momentum is building. There is news on a couple of large projects people have been keeping an eye on. Siemens Corp. is taking bids on early packages at the $600 million combined cycle plant at Hatfield Ferry in Green Co. Wesex Corp. has started work on the first building at Castlebrook’s million-square-foot industrial park in Big Beaver/Koppel area in Beaver County. The building is a 400,000 square foot warehouse called the Fairlane Distribution Center. Allegheny Health selected the Gilbane/Massaro team to build its new $200 million new hospital in Wexford. At Slippery Rock University, DGS selected the team of Mike Coates Construction, Renick Bros. and Blackhawk Neff to negotiate a final agreement for the new $22 million performing arts center at Miller Auditorium. In other commercial real estate starts, Jendoco Real Estate started work on Building 200 at Settlers Cabin Business Park.
News on the economy has been very good to start the year. The government reported that 148,000 new jobs had been created in December, marking the 75th straight month of job gains. Pittsburgh’s job market remained in growth mode in November. The Department of Labor reported that 16,500 new jobs were added from November 2016 to 2017, a gain of 1.4%. Unemployment dropped to 4.8%.
Most years, the Labor Day weekend brings the realization that the building year is starting to wind down and there follows a flurry of activity. This year that realization either came early or else just the flurry. From amongst the RFP’s for CM services that have been bouncing around, Pitt selected PJ Dick to build its $26.5 million life sciences building at UP-Greensburg campus. PJ was also successful on the $16 million Vincentian Sisters’ independent living facility in McCandless. In Erie, AHN awarded a contract to Massaro Corp. for a fast-track renovation to its 40,000 square foot birthing suites.
This morning, the Census Bureau released two of its monthly economic indicators, both of which showed the economy to be helathy and steady. Construction spending in July hit $1.2 trillion, an increase of 1.8 percent over July 2016. Government data on employment growth was announced this morning also. Non-farm payrolls grew by 156,000 jobs in August. That was below the expected 170,000 jobs forecasted by economists but still a healthy increase given the tight labor supply. Since January 2017, job creation has averaged 177,000 monthly. That’s a sign of employer health and optimism, especially in light of how late in the business cycle the U.S. economy is.
Friday’s report on first quarter GDP was well below economist’s forecasts but hardly a surprise or disappointment (not sure how those two things can be true but…). When you dig into the details you see that without construction spending, the economy would have actually contracted in the first quarter compared to the fourth quarter of 2016. The overall GDP growth number was 0.7 percent but big gains in residential construction (0.5 points) and non-residential investment (1.1 points) added 1.6 points to the growth. The rest of the economy dragged GDP down 0.9 points. Within the non-residential investment number, which includes all business investment, spending on non-residential construction was up 22.1 percent. That means that without construction, the non-residential investment number would have been flat or worse.
Today’s announcement on March construction showed that the first quarter of 2017 was up 4.9 percent over the first quarter of 2016. The $1.218 trillion in spending is the highest on record. The trends represented in the number were consistent with past months. Commercial construction was up 12.7 percent. Public construction was down 6.5 percent.
St. Clair Hospital’s $75 million expansion and renovation project has gone out for CM proposals to PJ Dick, Mascaro, Massaro/Yates, MBM, Mosites, Rycon, and Volpatt. Pittsburgh Theological Seminary selected Jendoco Construction for precon services on its $10-12 million library project. Volpatt Construction landed the $2.35 million Victoria Hall SIM Lab for the University of Pittsburgh. Rycon Construction is about to start work on the first phase of the $2.8 million Assumption Hall renovation at Duquesne University. Bids are due May 4 for the 21,000-plus sq. ft. buildout for global diagnostics/life science company Perkin Elmer at 250 Industry Drive. Bids are being taken by Neyer, Rycon and Turner.
Pete Dozzi Memorial Service
The family of Peter C. Dozzi invites you to join them on Friday, May 5, 2017 at the Duquesne University Power Center (Charles J. Dougherty Ballroom) 600 Forbes Avenue, Pittsburgh, PA 15282 for a memorial celebration and luncheon beginning at 11:00 a.m. Brief remarks will be presented at 12:30 p.m. Please confirm your attendance by email firstname.lastname@example.org.
One of the concepts that the Federal Reserve’s FOMC dicussed in its March meeting was that of “soft data” compared to “hard data” in assessing the economy. With inflation rising again and the labor markets tight, the Fed will raise rates slightly at least three time this year, but the Committee made interesting observations about the actual state of the economy versus the perception.
Soft data is the more frequently-updated economic information that is the result of surveys, like consumer and business confidence or business hiring plans. The surveys of this kind – like the University of Michigan’s Consumer Confidence Index – have soared since the election on the expectation that a Trump Administration would lower taxes and regulatory burdens. Thus far, the administration has struggled but consumers and business owners have reflected little of this in their responses.
At the same time, hard data – like government employment or GDP estimates – is showing that the economy is performing pretty much like it has since the Obama Administration and Congress figured out how to play nicely after the 2013 government shutdown debacle. A look at the figure below shows how this spread between data and emotion looks.
Bidding/contracting news is limited. One K-12 project of note is out to bid, the $14 million Todd Lane Elementary School addition/renovation in Center Valley School District. Massaro has the $2.6 million Johnstown Flood Museum project out to bid, due April 26. Mistick Construction is taking bids on the $30 million Eighth & Penn apartments and Elford Inc. has started construction on the $40 million, 274-unit Village at Cranberry Woods apartments. In Erie, E. E. Austin has been selected as CM for the $110 million Allegheny Health Network renovation of St. Vincent Hospital.
As chaotic as US politics is right now, the economy continues to hum along. Today’s jobs report outperformed the expectations of analysts, with 227,000 new jobs added to payrolls last month. That continued expansion is in contrast to the story in Pittsburgh, which last year added only 4,400 jobs. At Thursday’s Viewpoint presentation – one of the best forecasting events for commercial real estate – Integra Realty Resources’ President Paul Griffith explained how the healthy job growth early in the business cycle has faded to a flat line since 2013. Pittsburgh’s strong economic sectors have been offset by declining employment in energy and manufacturing.
In project news, Volpatt Construction was awarded the $2.4 million Nursing Unit 5A renovation at St. Clair Hospital. Developer Alphabet City selected Brubach Construction to build its $7 million, 60,000 sq. ft. East Liberty Centre office building. Campus Advantage interviewed Turner, PJ Dick, Continental and Rycon for its $40 million apartment on Forbes Avenue in Oakland. Rycon Construction is underway on the $27 million, 172-unit Emerald on Centre apartments in Shadyside. Sota Construction is taking bids from subcontractors on the renovation of the Allequippa Place apartments and construction of the 49-unit new Wadsworth Street Apartments, roughly $8 million in total construction. And McCaffrey Interests is taking RFP’s next week on the $66 million Terminal Building redevelopment in the Strip District.
The prospect of lower corporate taxes and less regulation has business swooning at the start of 2017. One of the measures of small business confidence – the National Federation of Independent Businesses index – soared more than 7 points in December to 105.8. That’s the highest since the end of 2004, when the economy took off after an uneven recovery from the 2001 recession.
PNC Senior Vice President and Chief Economist Stu Hoffman gave an equally confident forecast for 2017 (and 2018 for that matter) when he addressed a crowd of NAIOP Pittsburgh/BOMA members this morning at the William Penn. Hoffman liked the chances of tax cuts, stimulus spending and less regulation during this year and forecast that GDP would respond by growing closer to three percent. Hoffman saw that happening in late 2017 and into 2018 – maybe even a quarter or so of 4% growth – assuming the stimulating measures are enacted during the first months of the Trump Administration. He also warned that overplaying trade sanctions could blunt the growth from the stimulus.
BOMA President Tony Young from the Carnegie Museums (left) with PNC’s Stu Hoffman and NAIOP President Dave Weisberg from BNY Mellon.
Confidence in the construction industry has been boosted by the strong year-end activity. In addition, there are a half-dozen or so major projects that are in the process of moving forward in 2017, although few will start construction until afterwards.
UPMC announced its big investment in Hamot in Erie but the healthcare system is also on the verge of an announcement about its direction in the South Hills, where a new hospital or multiple mini-hospitals may be built to serve its patients. Another major South Hills hospital project, the St. Clair Hospital expansion, is getting a redesign but should be put before selected CM’s for proposals before spring. Reports are that the Dick’s HQ expansion is back on the front burner. And Pitt is moving forward with early programming for a new building at the Syria Mosque site that is in the 350,000 sq. ft. range.
A couple of $30 million-plus projects that have been kicking around for a while appear to be heading for a competitive hard bid. Oxford Development is rumored to be close to a major tenant announcement for its Riverfront West project at 3 Crossings. In Oakland, Campus Advantage will be bidding its 300,000 sq. ft. apartment project on Forbes Avenue.
Murland Associates selected Mascaro Construction as contractor for its proposed 97,000 sq. ft., $15-18 million office at 3422 Forbes Avenue. Landau Building Co. was selected as contractor for the $4.5 million Mars Library. Pitt awarded the $3.4 million Barco Law Library project to TEDCO Construction. Chapman Corp. is the apparent successful bidder on the mechanical piece of three major compressor stations for Energy Transfer Partners, in Clarington OH, Majorsville PA and Burgettstown PA.
One of the best programs of the year is the Urban Land Institute’s “Emerging Trends in Real Estate.” The 2017 version of this was held this morning at the Rivers Club. There was a great panel, with Maureen McAvey from McAvey consulting in Washington DC as the keynote speaker. Her presentation centered on the theme that commercial real estate was in a good place but probably not getting much better for this cycle. In fact, she predicted that the good run probably had another 12-18 months to go before a cyclical slowdown. She called it the “kinder, gentler real estate cycle,” which is more good news. ULI makes the “Emerging Trends” document available at their site.
Flemming Bjoernslev – former CEO of Lanxess – address the crowd at ULI’s Emerging Trends in Real Estate conference at the Rivers Club.
The rest of the program focused on the Pittsburgh market and the changes occurring. I found the best points were made by Claire Hosteny, one of the partners in East End Development Partners (which brought us the Ace Hotel). Claire spoke about the residential conditions and emphasized that Pittsburgh was beginning to push up against the boundaries of our affordability limits, emphasizing that affordability was one of the region’s biggest selling points. She really hit the mark when pointing out that the biggest threat to continued growth of city living was the inadequate public education system. She urged the crowd to consider investment in the Pittsburgh Public Schools or charter schools as a top priority.
One of the drivers of Pittsburgh’s resurgence has been the 25-35 year-olds returning to the city because of great jobs. Reluctant (or unable) to buy, this group of Pittsburghers have been paying the rents that we middle-agers think are outrageous and driving the apartment market. As this age group does marry and reproduce, the same factor will drive where they live as drives all American home buyers: where are the schools we want? If the city schools don’t pass muster for the Millennials, they will head to the suburbs just like their parents. There is a home buying/building boom in the near future. How good Pittsburgh Public Schools are perceived to be will determine if that boom includes Pittsburgh proper.
A couple of project follow-ups: CCAC put a design RFP out for its 150-bed student housing project at the Boyce campus. The RFP included (sort of) the option to add development and finance to the package. Pitt opened bids last week on its Barco Law Library project. Rycon was low at $3,049,000. TEDCO was second at $3.1 million but could become the low bidder if Pitt were to take 3 or more of the alternates. Massaro CM Services will be releasing the $5 million North Allegheny Intermediate School renovations on Dec. 12 with bids due on Jan. 11.