Category Archives: Regional Economy

Big Win for Indiana County

Thursday morning, URBN announced they were building an 863,000 square foot fulfillment center for Urban Outfitters at the Windy Ridge Business & Technology Park in Indiana, PA. The project is one of the few mass fulfillment centers located west of the I-81 corridor and is a tremendous return on the investment made by the Indiana County Center for Economic Operations (CEO).

Indiana County CEO executive director, Byron Stauffer, says that $20 million had been invested in the Windy Ridge project over a period of more than ten years. Stauffer was effusive in his praise for the governor, Senator Don White and Rep. Dave Reed for their support of the project, which attracted a variety of grants and loans. URBN said that the fact that Indiana County had a prepared site, available workforce (the facility will employ more than 200), access to Route 422 and the IUP supply chain management program, tipped the decision in favor of the Windy Ridge site.

“The lesson learned here is if you think small, you get small,” Stauffer concluded.

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Blue Rock Construction from Allentown is the construction manager for the $60 million-plus facility, which will have 45-foot precast concrete panels on the exterior. Construction is scheduled to be completed by late summer 2019.

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Inflation Hits Salk Hall Bids

The bids taken Sept. 11 on Pitt’s $41 million Salk Hall Renovation Phase 2 had the hallmarks of growing inflation and a market that is busy. The $50,862,000 total for base bid #1 was about 25% over budget and the project will likely re-bid after scope changes, since there were few alternates to reduce the cost. Burchick was the low general contractor. The general bids are below:

salk results

I don’t have enough information to deduce how much inflation impacted the project but the U.S. index for inputs to construction rose 9.6%, 8.1% and 8.1% year-over-year in May-July. There are also some indications that the current market conditions played a factor. There were only 3 bids on the general and electrical packages. HVAC received 4 bids and plumbing received 5. That’s a dramatic difference from what a Pitt-delegated project would have received even one year ago. Moreover, the gap between bids was big. Burchick’s low bid was 6.8% below the second low bid, and 10.2% below the third. That was the tightest spread by far. The spread between the low and second bids on the other 3 contracts was at least 9.5% and as much as 12.5%.

One of the strong economic signs has been the upswing in owner-occupied industrial/manufacturing projects. Yesterday, Uwharrie Builders from NC broke ground on an 80,000 sq. ft. expansion for Technimark in Latrobe. On August 20, New-Belle Construction pulled a permit for a 68,000 sq. ft. new facility for Zilka & Company in Mason Park, an industrial park near New Stanton. Westmoreland County IDC has been preparing new pads in several locations in anticipation of opportunities like these.  Zilka is in the bakery products business and Technimark does rigid plastic injection molding for healthcare applications. While emerging technologies and gas-related energy should drive growth in manufacturing, the gains in regional manufacturing seem to have a wider base.

Opportunities

Thursday I attended a seminar on the Opportunity Zones that were created as part of the Tax Cuts and Jobs Act at the end of 2017.  The overlooked provision of the law has the potential to attract a lot of investment in poorer communities. The short explanation is that investing in Opportunity Zone projects or businesses allows you to defer capital gains as much as ten years, and then increase the cost basis of the investments made in the Opportunity Zones by up to 15%. If you hold the investment for ten years, the gains on the investment are tax-free.

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There are 86 such zones in SW PA, some 300 statewide. Some of them are places where there is already redevelopment buzz or projects, like the Hill District, Hazelwood and Homewood. The bad news is there are still no regulations published by the IRS yet, meaning that investors are still waiting out to see what the rules will be. By year’s end (at worst) this should be accomplished. You can read more about the zones at the DCED web site.

Project news is quite lean. The economic news of the week was Friday’s jobs report, which showed the US employers adding 157,000 jobs in July. That’s a decline from June’s total but still brisk enough to keep the average monthly gain for 2018 above 200,000 jobs. Economists believe the hiring pace would have been better but for the lack of applicants in the job market.

Construction Employment Tops 2008

Digging into the weeds of the April employment reports, AGC reported on the metropolitan-level construction employment levels compared to the previous April peak and trough. Pittsburgh had 57,100 workers employed in construction in April 2018, 400 more than the peak in April 2008. Pittsburgh was one of only two PA metros (Altoona was the other) that had exceeded its previous peak employment level.

There was an interesting comparison of data that illustrated just how much better Pittsburgh fared in the last recession than other PA cities. In April, the new Pittsburgh level was 16% above the trough, the low point of 49,700 in April 2011. Compare that to Philadelphia’s suburban metro, which saw construction employment plunge to 38,900 in April 2011. Today, suburban Philadelphia employment still lags its 2008 peak and has but 1,000 more workers employed than Pittsburgh.

In construction news, Burns & Scalo Real Estate is excavating the site for its $35 million, 160,000 square foot Riviera office building (see below). The Riviera is being built 100% spec, although rumors of an anchor tenant swirl. Burns & Scalo is banking on the burgeoning tech industries and the proximity of Pittsburgh Technology Center to attract tenants as construction proceeds.

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The University of Pittsburgh is seeking Predetermination of Responsibility responses on June 20 for its Salk Hall Phase 2 renovation. This is the prequalification for contractors interested in bidding the four prime contracts for the $40 million project. The bidding will go through DGS but will be limited to the contractors Pitt approves through the PDR process. Read more about the PDR here.

Now, To Build It

With Memorial Day passed, the construction industry is moving into its busiest season. Colleges have graduated and schools are about to let out for summer. Construction in Western PA is ramping up and the pool of labor has already “ramped” up. Hiring in the Pittsburgh MSA was reported last week as up 14,000 jobs April-over-April, an indication that the 1.5% employment growth is sustainable; and construction hiring helped lead the way.

Peters Township School District meets tonight to vote on contracts for the $89 million new high school. Low bidders for the electrical and HVAC withdrew their bids, making for more alternate decisions than expected. The Builders Exchange reported that Franjo Construction was awarded the $6 million expansion at Rose Plastics in California. UPMC is taking proposals from PJ Dick/Rycon, Mascaro/Barton Malow, Turner Construction and Massaro/AECOM Tishman on it $280 million expansion of Hillman Cancer/Shadyside Hospital. The Allegheny County Airport Authority has short-listed teams for A/E services and program management on its $1.1 billion Terminal Modernization Program. Finalists for A/E services are AECOM, Corgan/Michael Baker, Gensler/HDR and luis vidal + architects/CannonDesign. The program management finalists are AECOM, Jacobs and Parsons Transportation. Walnut Capital is bringing its final plans to the city for approval this week for Bakery Square 3.0, the rumored future site of Phillips. PJ Dick and Strada Architecture are the team working on the 328,000 square foot office building and 794-car garage.

Commercial Real Estate Enthusiasm

Burns & Scalo Real Estate hosted a brokers luncheon Tuesday and its president, Jim Scalo, was exceptionally upbeat about the next few years. Scalo characterized 2016-2017 as slow years for transactions and decisions because of uncertainty surrounding the election and the ensuing Trump administration. Citing the Tax Cuts and Jobs Act that was passed in late 2017, Scalo explained that he had seen a dramatic upswing in activity since the start of 2018, both in terms of leasing and interest. His forecast was for a strong year for corporate and technology users in 2018, followed by at least two more great years. With the rapid pace of change in Pittsburgh’s economy, Scalo was reluctant to look beyond 2020, but he made it clear that there was no reason to expect a slowdown in 2021 or beyond.

Burns & Scalo is currently working to develop a 150,000 sq. ft. Class A Riviera office building in the Oakland/Pittsburgh Technology Center riverfront. Construction is scheduled for later this year, although the proposed riverfront zoning changes are a potential drag on the project. Burns & Scalo also plans to start a spec office in Robinson at its Boardwalk site, as well as Beacon II at the Abele Business Park in South Fayette.

Brokers at the luncheon echoed the enthusiasm Scalo had. Industrial brokers were beaming about deals pending in the Wheeling-to-Washington corridor and the airport area. One broker talked about the space at Nova Place, which was once thought to be a white elephant on the North Side, becoming scarce. With rents in the high $20s/sq. ft., Nova Place has succeeded in re-branding itself as a tech hub in high demand.

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Nova Place’s main concourse. Photo courtesy Perkins Eastman.

In project news, Mistick Construction was selected for the 183-unit, $30 million Solana at Cranberry project. CMU selected Landau Building Co. for the $3.5 million Warner Hall renovation. PJ Dick has started construction on the $6-7 million renovation of the former Cadillac dealership at Craft Place and the Boulevard in Oakland into offices. The developer, Walnut Capital, is said to have a single user for the project. St. Vincent University finalized its list of contractors for its $14 million library project. Jendoco, Landau, Mascaro, Massaro, PJ Dick, and Poole Anderson will be asked to propose on the project.

2017 Wrap-Up

The Pittsburgh Homebuilding Report released its year-end 2017 results for new construction in the six-county metropolitan Pittsburgh market. While the year unfolded mostly as forecast, there were a few noteworthy deviations.

Single-family housing construction was up compared to 2016 but the gains were in attached products, like townhomes and quads. Permits for attached homes jumped more than 25 percent to 1,035 units. Starts for single-family detached homes actually declined by 6.3 percent, to 1,971 homes under construction. In contrast to the national trend, permits for new apartments also increased last year. New apartment construction activity was expected to slow in 2017 but permits for new units increased by 11 percent, to 2,368 units.

Another trend that continued more strongly in 2017 was the migration to the city. Permits for new construction in Pittsburgh proper reached 1,714, or roughly one-third of the total construction for the entire metropolitan statistical area.

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In another measure of the economy, job growth returned to Pittsburgh during 2017. Hiring grew by an average of 11,625 jobs monthly in 2017; however, that average is well below the current trend. Job creation increased steadily throughout the year, with the monthly average reaching 16,000 jobs in the fourth quarter. In fact, December’s job growth of 19,300 was the highest year-over-year in 2017. Although there have been later revisions that deflated the preliminary jobs numbers in several of the most recent years, the consistent strength of employment gains in 2017 suggests that the trend of flat employment changed significantly last year.

Project news is light at this time of year but the hospital market continues to expand. Rycon Construction was selected as CM for the first of the AHN neighborhood hospitals in Greensburg. Turner Construction is bidding early packages and expects to release the main specialty contractors bids in mid-February for the $90 million UMPC Hamot tower in Erie. UPMC will be interviewing a handful of architects for its $700 million Transplant and Heart Hospital in Oakland (along with the Hillman/Shadyside expansion) next week, with RFP’s for construction management to follow within the month.