Category Archives: Regional construction

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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Miscellaneous…

Pittsburgh Homebuilding Report issued its research on the housing market in the six-county metro area this week. The report was unsurprising in that year-over-year growth in single-family detached homes was muted by lot inventory to 4.4%. There was a steep decline in multi-family starts but that is more a matter of timing than a change in direction of the market. With what is in the pipeline, it is expected that permits for apartments/condos will reach the 2,000 units mark again in 2018. The surprise was the 36.1% drop in attached single-family permits. This segment of the market has grown steadily over the past decade, as demographics and topography made townhouses and quads more desirable. This category has produced roughly 900-1,000 units during recent years. It’s unlikely that there will be a two-fold jump in townhouse construction during the last six months. Overall, the market was off by almost 800 units, or more than 30%.

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One of the major projects in the apartment pipeline, the second phase of the Riverfront development being built by NRP, is out to bid for subcontractors, due July 27. According to the description at the NRP Construction website this phase will include 442 apartments in two buildings, plus a 544-space garage. In today’s market, that should be in the $55 million range.

Turner Construction was selected as construction manager for the $240 million UPMC Hillman/Shadyside Hospital expansion. That wraps up the CM selections for the major UPMC capitol program. To recap: PJ Dick/Whiting Turner will build the Transplant and Heart Hospital at Presbyterian. Mascaro/Barton Malow is CM for the Vision and Rehabilitation Hospital at Mercy. Rycon/Skanska will build the UPMC South Hills Hospital.

Construction Inflation Becomes a Problem

Prices for construction materials and products have been creeping up steadily for more than a year. Higher demand pushed supply lines to the limit of current capacity, giving manufacturers the opportunity to raise prices and regain some long-lost profits. Wages likewise have been creeping higher, outstripping the wage gains of the overall workforce. Creeping became “leaping” during the past two months. The first signs of sticker shock are beginning to appear.

All of the gradual price increases have been given a boost by the tariffs levied by the Trump Administration. While it’s worth noting that virtually all of the documented increases happened before the tariffs went into effect, the threat of tariffs gave manufacturers the room to push price increases into the market. That has applied to products that won’t be affected by the tariffs too. Surcharges were beginning to hit the market for tariff-affected items in June, and the impact on producer prices was immediate.

Analyzing the Department of Labor Statistics’ data for May, AGC Chief Economist Kenneth Simonson noted that “the producer price index jumped by 20.0 percent for aluminum mill shapes, 17.4 percent for copper and brass mill shapes and 12.3 percent for steel mill products between June 2017 and June 2018. Other construction inputs that rose sharply in price from May 2017 to May 2018 include diesel fuel, 52.8 percent; lumber and plywood, 18.3 percent; asphalt felts and coatings, 7.5 percent; ready-mixed concrete, 5.5 percent; and paving mixtures and blocks, 5.0 percent.”

The producer price index for inputs to construction industries, goods—a measure of all materials used in construction projects including items consumed by contractors, such as diesel fuel—rose 9.6 percent over 12 months. The year-over-year increase was the steepest since October 2008, Simonson noted.

ppi for construction

This kind of hyperinflation couldn’t come at a worse time for construction in Pittsburgh. Most of the anticipated boom in construction lies ahead. With labor nearly tapped out this summer, specialty contractors are beginning to price projects more cautiously and the result is stressing budgets. The upward pressure comes from several factors. Specialty contractors’ costs are roughly 50 percent labor. With the construction workforce at full employment in Pittsburgh, future work will be done with less people than necessary. Premium time and pay will be used to meet schedules. Contractors will be less certain about the productivity of the labor force. Uncertainty adds risk – and cost. Contractors will also begin to be maxed out on backlog (many already are), meaning that the projects they bid will have higher profit margins on their work. This isn’t greed; it’s simply the response to a shift to a seller’s market.

The results of this unexpected and steep jump in prices for owners will be higher costs for less program and the deferral of some projects for a time. That will chill the boom somewhat. The worse impact will be for contractors – and owners – that are locked into agreements before prices spiked and before projects were bought. If costs rise beyond what the contractors bid, disputes will increase and firms will do what is necessary to survive the inflation. None of those kinds of measures will make for better projects.

The many large private projects that will be built in Pittsburgh over the next 12-18 months have already begun to feel the impact on budgets. That hasn’t been the case in the public market, where bidding remains competitive. God bless the school district that signed big contracts based on bids taken in the past 90 days. They may want to wait until the punch list is complete to celebrate the great bids they received.

Combined-Cycle Disruption

Even as construction on Tenaska Westmoreland winds down and work is underway on three other combined-cycle plants in Southwestern PA, market forces are disrupting the power generation industry again. Headlines suggest that coal-fired generation is dead but a number of coal-fired plants that had invested in becoming EPA-compliant still operate. Moreover, the cost basis of most of these plants have been amortized, which means they can be cheap bidders on the energy grid supply auctions. With costs rising for construction of new gas-fired plants, this cheap supply dynamic is beginning to stress the pro forma for future combined-cycle plants. Projects like the $350 million, 550MW Invenergy plant in Elizabeth or Ray Bologna’s $420 million, 651MW project near Burgettstown will be harder to pencil out. The results of the 2021/2022 PJM capacity market auction, which closes May 16, will be an indicator of how tight the market will be, and how feasible the additional plant capacity is.

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Tenaska Westmoreland plant in South Huntingdon Township.

Another of Downtown Pittsburgh’s large adaptive re-use projects is out to bid. Arbor Construction – the construction management arm of Stark Enterprises – is taking bids on renovations to the former 441 Smithfield Street office building, now branded as Icon on Smithfield. The 220,000 square foot building was originally a department store that Stark Enterprises is proposing to adapt to apartments on the upper floors with about 60,000 square feet of retail/dining on the first two floors.

Mascaro Construction was selected as CM for the Health and Fitness Center at Carnegie Mellon, a $45 million renovation of Skibo Hall. RIDC awarded the second phase of Mill 19 to Jendoco Construction. The $12.4 million, 90,000 square foot building should start later this year. Carlow University has its $7 million St. Joseph Hall project out to bid to FSS, Franjo, Massaro, Mosites, Rycon and Volpatt. St. Clair Hospital has short-listed Mascaro, Massaro and Volpatt on its $15 million central plant project.

Slow Start, Big Promise

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.

job creation history

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%.

CMU and Other Updates

CMU and RIDC made an announcement yesterday that the Advanced Robotics for Manufacturing Institute and the Manufacturing Futures Initiative would take about 60,000 square feet of the 94,000 square foot first building at the Mill 19 building at Hazelwood Green. Mill 19 is the creative re-use of the last remaining mill structure at the former J & L Steel works (now also formerly known as Almono). This lease wasn’t exactly a well-kept secret but it is one more piece of economic good news for Pittsburgh, especially given that ARM’s main goal is to spin out technology that will result in other new companies. Construction of the core and shell for the building will be done by Turner Construction, which is also doing preconstruction for the CMU tenant improvements.

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Rendering of Mill 19 by MSR/Ten X Ten/R3A

In Lawrenceville a similarly-named project is getting underway. PJ Dick is starting construction on Mill 41, a 75,000 square foot office building being developed by Fort Willow on the site of a former mill.  At the Shell plant in Monaca, Bechtel awarded Turner Construction the $9-10 million rail buildings package that bid last spring. One week after AHN announced its major capital program, the hospital system is taking proposals from Graziano, Jendoco, Landau, Rycon and Turner for a 60,000 square foot, $20 million cancer center at the Forbes Regional campus in Monroeville.

The Wave is Building

This morning’s announcement from Allegheny Health Network is but the latest in a string of major construction project announcements over the past few months. Unlike some of the other, however, the AHN projects should be moving quickly. For contractors trying to maintain capacity (and build backlog) ahead of the growing wave of construction coming in 2018 and beyond, that’s welcome news.

The details: a new 160-bed hospital will be built in Pine Township next to the Highmark Wellness Pavilion in Wexford. That project, which should run $300 million, is slated to start in mid-2018. AHN expects to put out RFP’s for design and construction management within a few weeks. AHN also announced a partnership with Emerus, a Dallas-based developer/operator of “micro-hospitals” to build community hospitals throughout the AHN footprint. There will be four such micro-hospitals initially, one each in the north, south, east, and west suburbs. In other similar markets, Emerus facilities have been in the 40,000 square foot range.

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Rendering of the new 160-bed hospital in Pine Twp. by Allegheny Health Network.

The AHN program amounts to a $700 million expansion of its facilities. Some of that expansion includes projects already awarded, including the new cancer center in Butler, which was awarded to the design/build team of Mascaro and Stantec.

Another wave that is building is the follow on to Shell’s cracker, under construction in Beaver County. Multiple plastics companies have been in the market looking for sites for new manufacturing plants of between 60,000 sq. ft. and 150,000 sq. ft. At Starpointe, near Burgettstown, Scannell Properties has begun work on a 507,000 sq. ft. distribution center, which is rumored to be for Shell. ARCO/Murray National Construction is building that facility. In other logistics news, Al. Neyer has begun construction of a 220,000 sq. ft. Class A distribution center in Jackson Township near Zelienople and a major retailer is reported to be looking for a site for a million sq. ft. distribution center in Western PA.

In other project news, Carnegie Library of Pittsburgh awarded a contract to Massaro Corporation for its $3 million Carrick Branch. Landau Building Co. was selected by WVUH for the $3 million Ruby Hospital OR. PennDOT awarded Beaver Excavating an $87 million contract for the next phase of the Southern Beltway.