Category Archives: Real estate news

Amazon Looks Elsewhere

Let’s start with a disclaimer: there has been no official announcement from Amazon about the results of its year-long HQ2 search. Yesterday, the New York Times ran an article that sourced several people “familiar with the search” and reported that the online giant was in final negotiations to locate in both Queens, NY and the Crystal City section of Arlington, VA. The assumption is that Amazon will split its second HQ into two equal parts in those cities. Speculation about Crystal City arose over the weekend, prompting even Mayor Bill Peduto to make a statement that Pittsburgh had not been contacted by Amazon.

Amazon's Seattle Campus 2017

Amazon’s Seattle HQ

I think David Ruppersberger, president of the Pittsburgh Regional Alliance, got it right when he said that Pittsburgh won by making the short list. The effort to respond to the proposal taught Pittsburgh’s civic leaders even more about how to position the region and the public relations that have followed the city since has been valuable. Now we don’t have to deal with the mess that would have followed actually winning the project.

Pittsburgh’s tech sector is blossoming in multiple directions. Healthcare research is entering a potentially rapid expansion period. The energy sector holds great promise. And the petrochemical and plastics industries have yet to reveal what will happen when several ethane crackers open by the middle of the next decade. The regional economy is a good bet to create 50,000 new jobs over the next decade without having all of our eggs in one basket. Anyone remember how that worked out the last time Pittsburgh was reliant on one industry above all others?

Lots of interesting little private projects out to bid as the year winds down. In case you missed the BreakingNews email last week, Volpatt Construction was awarded the $6 million UPMC/IRMC Cancer Center at Indiana Hospital and Pitt chose PJ Dick for its Peterson Sports Complex field house expansion. Mistick Construction is taking bids on the $12 million development in New Kensington that will be the 47-unit Pioneer Apartments and offices for Wesley Family Services. Al. Neyer Inc. has started construction on three new industrial buildings: the third and fourth buildings at Clinton Commerce Park (268,000 square feet total) and a 50,000 square foot build-to-suit for Don’s Appliances at 251 Bilmar Drive.

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Eds and Meds…Again

Putting the November/December edition of BreakingGround into production this week and I was struck by how much of the commercial real estate sector was being driven by the universities and hospitals. I’ve been hearing so much about “eds and meds” that I was sick of hearing the phrase; but…it’s one of those things that you hear too much of because it’s a real thing.

Here are a couple examples of projects that have barely received any coverage but are happening because of the economic engines of CMU and Pitt. The URA recently approved the sals of land in the Pittsburgh Technology Center on Second Avenue to Elmhurst Group, which plans to build 160,000 square feet of “tech flex” space to attract advanced manufacturing, robotics or other technology spin-offs requiring research and maker space. Walnut Capital has received a lot of ink for its Bakery Square, JAA and PAA projects but the intriguing project is the Fifth and Halket property, which is reported to be an office building of several hundred thousand square feet. That property is in the opposite direction that much of the Oakland-driven development is looking but it will plant a flag on the more neglected Downtown side of Oakland, right by the Parkway East interchanges, right on the BRT route. If it becomes a major university or university-related corporate facility, it will be catalytic for the Uptown and South Oakland neighborhoods.

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Desmone Architects’ rendering of Elmhurst’s tech flex development on Second Ave.

The universities are making construction news on their own. Duquesne announced the modernization of the Palumbo Center yesterday. The $45 million renovation will result in the rebranded UPMC/Cooper Field House. DRS Architects is designing the project, which should bid by early 2019 if the work is to start in the spring. CMU is proposing a new residence hall at Fifth and Clyde. LTL Architects was hired to design the $32 million project. CMU took CM proposals from Jendoco, Mosites and Rycon.

Rycon will do the construction of the AHN Brentwood micro hospital that had its groundbreaking recently. Work has not started yet. UPMC selected PJ Dick for its $15 million ED expansion at the UPMC East campus in Monroeville.

In other construction news, Franjo Construction was reported as the awarded general contractor for the $4.7 million Youghiogheny Administration Building for North Huntingdon Municipal Authority. Cast & Baker was the low bidder on the $4.5 million site prep package for the World Trade Center at the airport. That’s a project that could open up hundreds of millions in new commercial construction over the next decade, a project worth following.

Big Projects Driving Demand

When the Halloween decorations start showing up at Giant Eagle, the contracting season is usually wrapping up for the year. This year, however, there are a number of big projects on the street (and in the pipeline) that the market is making up for the lower number of projects with a much bigger dollar volume.

Part of this is the result of the lag from announcement to construction for some of the big projects that have been in the news over the past year or so.  Mascaro took bids recently on the 410,000 square foot, $350 million UPMC Mercy Vision & Rehabilitation Hospital and the 96,000 square foot TCS Building at CMU. PJ Dick has been bidding the 300,000 square foot Bakery Square 3 office building.

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Rendering of the new UPMC Mercy Vision & Rehabilitation Hospital by HOK. Image from UPMC.

There’s also been a flurry of activity on large projects at the early stages of development.  Hanna Langholz Wilson Ellis is marketing the 1,200-acre Zediker Station site, which sits along I-70 just east of I-79. It’s the largest development site in PA and may be the only one served by both CSX and Norfolk Southern. The Hazelwood Green project has been advertised for developer proposals. Over the long haul, that’s a project that could lead to more than $1 billion in construction. The developer currently on site, RIDC, has reportedly locked up autonomous vehicle company Aptiv for 70,000 square feet to occupy most of the 2nd building in its Mill 19 project. That would trigger the start of the third 90,000 +/- square foot final phase. In the Strip District, Facebook confirmed that it was leasing most or all of District 15, a 105,000 square foot building being developed by RDC on Smallman Street. According to a recent story by Tim Schooley in the Business Times Facebook’s lease is the tip of the iceberg. Schooley quotes JLL’s Dan Adamski estimating that there are 900,000 square feet of user requirements being shopped in the Strip now. That would make for another explosion of office projects. One of those may be JMC Holdings’s proposed adaptation of the Wholey cold storage building on 15th Street. The developer has engaged Desmone Architects to work on a 350,000 square foot re-use but is reported to be looking at hiring an architect to design a new 17-story, 500,000 square foot building on the site.

As intriguing as this tech demand is, it’s worth noting that most, if not all, of it is new in 2018. It was only last year that occupants like Apple and Argo AI were snatching up big chunks of 3 Crossings. When someone says that the emerging technology sector is growing faster than you can understand, this is what they mean.

Don’t Count Out Multi-Family Yet

To be clear from the outset, multi-family construction in Pittsburgh pales in comparison to most major cities (or even Columbus). Our boom of 3,227 units started in 2013 would be an average month in Houston or LA. But, compared to an average of 731 units annually for the previous 15 years, 2013 (and the last three years) have seen a surge in apartment construction.

Like in the rest of the country, lending and investing appetite for multi-family has cooled in Pittsburgh. Rents have stopped growing. Vacancies are rising. This is very normal following a time of increased construction and, in fact, the occupancy levels have been ticking up again in recent months. What is interesting is that senior living is picking up where apartment development dropped off. Since the start of 2016, almost $300 million in new senior living projects (representing about 900 units) are under construction.

Graziano has started construction on the 128-unit Residence at Whitehall project (pictured below) and Lecesse Construction is building the $30 million expansion of the Friendship Village campus in Upper St. Clair. Work is well underway on Continental’s project, The Waters in Marshall (plans are moving for one in Peters as well). Approvals have been received to start the $23 million Stonecrest of Pittsburgh in McCandless, which will be built by BRIDGES & Co.

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Rendering by Graziano Development & Construction

In project news, CORE Realty is taking bids from subcontractors on the 174-unit apartment, The Chatham Center, a $20 million-plus conversion of eight floors of One Chatham Center. DGS selected Mascaro Construction, Renick Brothers, Shipley Plumbing and Westmoreland Electric as the best-value team for the $43.8 million Tippin Gym project at Clarion University. A. Martini & Co. landed the $3 million Fogo de Chao restaurant in the Oliver Building. Turner was selected for the $5 million Bio-Tech Vivarium renovation at Pitt’s Second Avenue research facility. UPMC is in talks with CMs for its major projects at South Fayette, Jefferson Hills and UPMC Mercy and Children’s campuses. Construction manager J. E. Dunn is in the process of qualifying contractors for the trade packages on Trinity Hospital’s $60 million new bed tower in Steubenville.

Condos Instead of Offices

Thursday the Parking Authority chose the Davis Companies’ team for the development of the 9th and Penn corner Downtown. The plan is for 185 condos and commercial/retail integrated into a 900-plus-car garage. The Authority chose Davis over competing proposals from Millcraft and Oxford Development. The proposal from the latter apparently involved an mid-rise office tower similar to the one Oxford had proposed for 350 Fifth Avenue and involved a 250,000 square foot tenant that needed construction to start immediately.

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Rendering by AE7 Architects

AHN short-listed the competitors for construction management of the $25 million cancer institute at AGH to Mascaro, Massaro, PJ Dick and Rycon. Mid-Atlantic Capital is taking final bids from P2 Contracting and Franjo Construction for the build-out of Stonehaven Brewing & Restaurant, a $4 million renovation of the former Spaghetti Warehouse. CDC is reporting that Dinsmore & Shohl picked A. Martini & Company for its $2 million tenant improvement at 6 PPG Place.

Off to a Solid Start

The bidding activity to kick off 2017 has not been spectacular but there are more projects going out than at this time last year. More importantly, there are more projects getting underway or being awarded than at the same time in 2016. Without any building permit research for 2017 yet there are already nearly $200 million in starts or contracts awarded, an indication that January’s volume will far exceed that of the past few years. The key to a strong 2017 will be that owners maintain this newfound level of economic confidence and keep the flow of projects coming. The stop-and-start nature of 2016 – particularly the lull in late spring and post-Labor Day – played havoc with contracting businesses last year.

The industrial sector of the market continues to shine. Construction has started on an 80,000 sq. ft. warehouse that Buncher is building in Findlay Industrial Park. Chapman Properties is starting work in its 74,000 sq. ft. flex building at 110 South Campus Drive at Chapman Westport. Al Neyer Inc. is close to a deal for a 200,000 sq. ft. warehouse in Jackson Township, north of Cranberry. Castlebrook Development is edging forward with plans for 900,000 sq. ft. of distribution near the I-376 and PA Turnpike interchange in Beaver County. Much of this spec activity is being driven by the expansion of retail fulfillment services (e.g. Amazon, Zappos, etc.) into the Pittsburgh market.

There is real momentum for healthcare construction also. UPMC has asked for architectural proposals for its proposed 200,000 sq. ft. ophthalmology building at the UPMC Mercy campus. The hospital has not announced its decision about its South Hills expansion but is reported to be looking at two separate developments, one near the site announced earlier in the Pleasant Hills/Route 51 corridor and one near its Children’s Hospital south satellite in South Fayette. Most of the hospital projects being contemplated will have little construction impact in 2017, although contracting in the fourth quarter should be robust.

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Rendering of the $51.5 million, 221-room hotel proposed by the Rivers Casino. Image by Stantec Architecture Inc.

And the news in the Downtown office market continues to be good. Citizens Bank announced that it will be staying put in 525 William Penn Place and sees the location as a growth driver. The company’s 150,000 sq. ft. lease was seen as a source of anxiety by the commercial real estate community as recently as last year. Cleveland-based Stark Enterprises announced that it had agreed to buy the former Frank & Seder store building (AKA 441 Smithfield Street) from Oxford Development, thus ending the plans for a 28-story new office at 350 Fifth Ave. The transaction continues the trend of purchases in the Central Business District by companies from outside Pittsburgh.

Mall Closings Shouldn’t Surprise

Today’s announcements from Sears, K-Mart and Macy’s were headline news around the country but the closings are really “dog bites man” news. The ever-growing share of online shopping is a five-year story that has left retailers struggling to find the right mix of bricks-and-mortar vs. online retailing. Research has shown that retailers that do both well get more money from shoppers than those that just do one or the other well. I don’t envy any company trying to figure that out, especially since the landscape is constantly shifting.

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Macy’s Ross Park Mall store was one that escaped closing.

Pittsburgh was left relatively unscathed by the closings, with only a few malls in outlying areas affected (although you have to wonder about the wisdom of closing Beaver Valley Mall stores at this point). On the upside for the region, it seems that Pittsburgh is on the radar for fulfillment centers, which is the upside of retailing these days. Several of the big warehouse leases signed in the past 6 months have been for online fulfillment and the prospect of Amazon as the user for the million-square-foot warehouse at Chapman Westport remains strong. One of the many companies scrambling to get into this business is Macy’s, which is converting some of its big closed stores into fulfillment centers. Perhaps that fate awaits one of the two stores announced for closure in metro Pittsburgh.

Look for this industrial market niche to be a hot – if not huge – property type over the next few years. FedEx Ground has invested significantly in facilities over the past decade but expect to see it, and its competitors, try out new ways to get products to consumers quicker. Amazon’s arrival will signal to others, like Zappos and Wayfair, that Pittsburgh is a viable next-step market. With the industrial demands that will come from Shell’s cracker and related industries, warehousing will be a steady source of millions of square feet of new construction between now and 2025.