2005: The Year in Construction

Past 12 Months Brought More Work but More Problems

By Scott Judy

Construction in the Southeast, one of the nation's fastest-growing regions, has been a mostly positive tale for awhile now.

And while a continuing uptick in construction activity in much of the area covered by Southeast Construction provided sufficient cause for celebration during the past 12 months, some areas were less robust than others.

There also were some new issues and developments that caused some concern.

"I don't think 2005 - pre-Katrina - had any surprises," said Bill Pinto, president and COO for Atlanta-based Hardin Construction Co., which does most of its work in Georgia and Florida. "A significant amount of work was coming online in the latter part of 2004, and 2005 has been a very busy time for us and our industry. Everybody is busy."

Post-Katrina, of course, is another story.

Following is a look back at the good, the bad and the ugly of 2005.

Bad News First

The industry definitely had its share of concerns to deal with in 2005.

Early in the year, for example, the North Carolina Department of Transportation indicated that it had spent down its state road budget much more quickly than it had originally planned and would need to cut as much as $600 million in projects.

Meanwhile, in Tampa, an examination of the 2004 collapse of the reversible-lanes Lee Roy Selmon Crosstown Expressway Bridge project eventually led to the Hillsborough County Expressway Authority filing a $120 million lawsuit in October against engineer URS for its role in the failure.

In Miami and Atlanta, major problems plagued two airport terminal projects. In Miami, the Miami-Dade Aviation Department - after hiring former Florida DOT Secretary Jose Abreu - took over its troubled $1 billion North Terminal project from Turner-Austin Airport Team.

And in Atlanta, the city fired the joint venture design team, led by Leo A. Daly, responsible for the planned international terminal there. Cost escalations were blamed for the firing, and a countersuit was filed, both of which happened just as Atlanta-based Delta, as well as Northwest Airlines, were filing for bankruptcy protection on the same day.

Meanwhile, in Palm Beach County, a continuing battle between environmentalists, the county, developers and the U.S. Army Corps of Engineers kept the much-ballyhooed, Scripps Research Institute campus project going back and forth between on and off.

Though the Weitz/DPR construction team and the state broke ground on the project in September, the project's overall status was still in limbo, with lawsuits pending.

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The costs of materials continued to rise in 2005, with subcontractors, owners and contractors all feeling the pinch - though subs might argue they felt it most - and some projects becoming delayed or abandoned as a result.

"There are concerns that price increases could postpone construction or scale back projects," said Dave Simpson, the North Carolina building director for the Carolinas AGC. "People with contracts without an escalating cost clause are going to take a hit."

Some subs just couldn't overcome the issue. Havens Steel, for example, one of the country's largest steel contractors and a sub on the South Terminal project at Miami International Airport, finally gave up its fight against bankruptcy and was purchased.

Labor shortages became even more troublesome, with the much-documented spectacular rise in the cost of housing in Florida adding to the concern.

John Siegle, executive director for the Construction Association of South Florida, reported that the cost of homes in South Florida was rising so much that even project managers - in heavy demand, especially in South Florida - were thinking twice about working in the area and opting to live in other parts of the country.

The workers that the contractors could attract became an issue in '05. Reports of Immigration and Naturalization Service jobsite raids for undocumented workers continued, with rumors of high percentages of illegal workers being found.

Contractors were often caught in the middle, and when some members of Congress began talking about bold efforts to end such illegal activity and even deport undocumented workers, contractor groups raced to Washington to stop the action in its tracks, arguing that any restrictions would shut down the industry.

The notion of immigration reform gathered momentum as a result, and the U.S. Congress was considering a number of bills addressing the issue.

"It's time for our community and this country to recognize the value most immigrants bring," said Mark Wylie, president and CEO of the Central Florida Chapter of Associated Builders and Contractors in Orlando. "I believe if we deported every undocumented worker here in the state of Florida, our entire economy - not just construction - would grind to an abrupt halt.

"It's time for us to embrace these workers, (and) offer them legal documentation and temporary work permits."

Of course, hurricanes continued to vex contractors in Florida in 2005, as they did in 2004 when four hit the state. This year, the Sunshine State encountered another four - though Ophelia just took a slow jaunt off the east coast for a glancing impact before walloping the Outer Banks of North Carolina with heavy rain.

Included in this year's count was Hurricane Katrina, which developed quickly off the coast of Fort Lauderdale.

As it neared Florida, forecasters predicted a lot of rain and not much wind. It proved more formidable than that, though, and knocked down an overpass being built on Miami-Dade County's State Road 836 that was reportedly insufficiently braced.

By the time Katrina had made its way into the Gulf of Mexico, it quickly became a Category 4 storm - and temporarily a Category 5. It would eventually meet its date with destiny and make landfall east of New Orleans.

Katrina Effect - The Ugly

2005 also saw the ugly - namely Hurricane Katrina, which would become the country's costliest natural disaster, causing the reconstruction of much of New Orleans as well as the Mississippi Gulf Coast region.

An early damage estimate pegged the devastation at about $125 billion - nearly four times the amount caused by 1992's Hurricane Andrew. At one point, the federal government had pledged as much as $62 billion in aid for relief and reconstruction, with speculation that number could go as high as $200 billion.

Impacts on the federal deficit were expected, though some politicians proposed minimizing the effect by cutting spending in other areas.

The more immediate impact to the four-state region covered by Southeast Construction - Florida, Georgia, North Carolina and South Carolina - was widely expected to be further escalations in materials prices, as well as some limited availability.

"As rebuilding efforts get under way, construction should increase in the local Gulf area, with activity well above pre-Katrina forecast scenarios," reported Robert A. Murray, chief economist with McGraw-Hill Construction, the publisher of Southeast Construction.

"The fear, however, is that this very concentration of activity could raise prices and diminish availability of construction materials and skilled labor - and not only in the affected area but across the entire United States." These factors may combine to subdue construction activity, Murray added.

"The heightened demand for materials and skilled labor arising from rebuilding efforts in the Gulf region means reduced availability, which will be a constraint on further growth for construction activity," he said.

Despite this constraint, Murray added: "The U.S. economy appears capable of absorbing the shock from Katrina, without slipping into recession. Continued employment growth will help the market fundamentals for such income property types as offices, hotels and multifamily housing over the long-term."

Overall, the total value of U.S. construction starts in 2005 was still expected to increase by 6 to 7 percent compared to 2004.

The Good

Murray's comments about the overall strength of the U.S. economy could easily be applied to the Southeast region as well. Through the first three quarters of 2005, McGraw-Hill Construction reported double-digit growth figures for three of the four states in Southeast Construction's territory.

The numbers were: Florida - 14 percent ahead; Georgia - 12 percent improvement; North Carolina - up 11 percent; and South Carolina - down 4 percent.

Perhaps the most frenzied pace of construction occurred in Miami. That's where Len Mills, executive vice president of the South Florida chapter of AGC, said, "Our guys are so busy they can't see straight. Office buildings are coming back. New school construction is backlogged. The condo market is just unbelievable."

So unbelievable was Miami's condo market that it grabbed the attention of not only the subs and contractors in the region but also the skeptical attention of national and local media outlets, who addressed the concern over this hot market being overbuilt and fueled largely by speculation.

Real estate agent Mark Zilbert of Zilbert Realty Group in Miami Beach appeared to only fuel the speculation about the market when he created his CondoFlip product, an online system created to enable buyers to buy, "flip" and sell units at preconstruction.

Regardless of the debate, the reality was unreal. Southeast Construction reported in June that, according to real-estate services firm Cushman & Wakefield, more than 9,100 units were under construction in Miami, while nearly 40,000 were waiting to begin construction.

According to McGraw-Hill Construction, the 2005 activity was at least partly the result of a 46 percent increase in the value of new multifamily contracts started within Miami-Dade County during 2004, with roughly $1.1 billion in new condo starts for that county alone in '04.

And while longtime local developers such as The Related Group of Miami were the main drivers of the South Florida condo boom, the trend became a staple of construction throughout the metropolitan areas of the Southeast. Atlanta, West Palm Beach, Fort Lauderdale, Tampa, Orlando and Jacksonville were among the cities experiencing strong surges in this type of activity.

One of the highest-profile projects was unveiled in Tampa in January, when Donald Trump and SimDag-RoBEL announced plans to build a $220 million, 52-story luxury condo in downtown Tampa.

But Southeast construction activity certainly wasn't limited to condos only.

Health-care construction continued to show a strong pulse, a reflection of the Southeast's growing population and the beginnings of the retirement of the baby boomer generation.

Transportation finally got a shot in the arm, too, with the much-anticipated reauthorization of the federal transportation program, known this time around as the Safe, Accountable, Flexible and Efficient Transportation Equity Act-A Legacy for Users.

Funded at $286.5 billion overall, the law provides roughly the following estimated amounts over its six-year life to the four-state region: Florida - $9.2 billion; Georgia - $6.7 billion; North Carolina - $5.4 billion; and South Carolina - $3.1 billion.

Georgia Gov. Sonny Perdue accelerated his DOT's construction spending with the enactment of the state's Fast Forward initiative, a bonding program that will use state and federal dollars to accelerate approximately $15.5 billion in projects over a six-year period.

Meanwhile, the Florida Legislature enacted Gov. Jeb Bush's "Growth Management" program. To be implemented by the Florida Department of Transportation, the program could generate as much as $10 billion in additional funding for infrastructure construction for transportation, water and schools.

Approximately $1.5 billion is provided for 2005-2006, with $750 million recurring annually thereafter. This amount is in addition to FDOT's existing work program.

Meanwhile, in Charleston, S.C., the South Carolina Department of Transportation and its contractor, Palmetto Bridge Constructors - a joint venture of Tidewater Skanska and Flatiron Constructors - finalized and unveiled its largest project ever, the $540 million Cooper River Bridge. The bridge features the longest cable-stayed span in North America.

In the vertical markets, some great buildings wrapped up and got started in 2005. In addition to the projects recognized as part of this issue's "Best of 2005" program, the city of Charlotte added the NBA's latest venue, a $200 million arena built by Hunt Construction Group of Indianapolis and R.J. Leeper of Charlotte.

The Centers for Disease Control and Prevention continued the complete revamping of its Atlanta campus, with a new headquarters building - built by Skanska USA Building - and a $118 million Emerging Infectious Diseases Laboratory - constructed by McCarthy Building Cos.

In Miami, the Dick Corp. of Pittsburgh wrapped construction of the $163 million Wilkie D. Ferguson Jr. U.S. Courthouse, while Hensel Phelps Construction Co. progressed on its $75 million federal courthouse project in downtown Orlando.

What will 2006 bring? Undoubtedly some good and some bad, but, we hope, nothing quite as ugly. Turn back to these pages in one month to get the latest regional forecast data from McGraw-Hill Construction.