South Florida Report

Winds of change reshape region’s construction profile

By Jim Parsons

Less than two years after setting a pace as blistering as a South Florida summer day, condominium construction in Broward, Dade and Palm Beach counties remains largely on ice, with far more project top-outs than groundbreakings.

“Buyers have left the area, and investors are waiting for something to happen,” says Mike Neal, president of Coscan Construction in Fort Lauderdale. “Many new projects can’t be financed because they don’t meet the 50 to 70% presale that banks require for construction loans.”

Still, there are some silver linings in the condo market’s clouds.

“I think most everyone wishes the condo boom had slowed down sooner and spread itself out longer,” says Thomas P. Murphy, Jr., chairman and CEO of Coastal Construction Group of Miami. “It was almost like developers were in a race with each other.”

Kent Long, vice president of business acquisition for Balfour Beatty Construction, formerly Centex Construction, in Plantation, agrees. “The pace we were working at in the condo market was not sustainable,” he says. “The downturn has allowed us to take a breather and reallocate resources to other segments, which are busy. The change is good for all of us.”

Other firms also report that backlogs once dominated by high-rise multifamily projects are now dominated by other market sectors.

“If we were an eight-cylider engine, I’d say six or seven of them are still running strong,” Long says.

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Course Corrections

South Florida’s sector shift comes as no surprise to Dan Shaw, executive vice president of the Associated Builders and Contractors Florida East Coast Chapter.

“The population of the three-county region is now larger than 29 states,” he says. “After all that growth, it makes sense that the focus would turn to commercial and retail projects to support them. The office market was nonexistent during the residential boom, so naturally there’s demand there, too.”

South Florida’s reawakened commercial market also evidences several national building trends, such as green design.

The 40-story first phase of the 1-million-sq-ft mixed-use Brickell Financial Center in Miami was precertified at the LEED silver level when the project broke ground in April. Developer Foram Group of Miami has publicized its intention to make the 650,000-sq-ft office and retail structure Florida’s first gold-level building upon its completion in 2009.

A planned second 68-story tower, also designed by RTKL of Washington, D.C., will include hotel, retail and office space.

Office Depot’s new three-building, 625,000-sq-ft Boca Raton headquarters complex, which began construction last fall with Balfour Beatty as general contractor, may also achieve LEED certification.

Another Balfour Beatty project, the 16-story, 300,000-sq-ft City Place Office Tower in West Palm Beach, is among the first spec buildings in the Palm Beach area designed to address a more area-specific building issue—hurricanes. Long says the structural system caters to tenants whose operations require a weather-hardened facility.

“The first five floors are cast-in-place concrete while the remainder are structural steel,” Long says. “The precast skin includes punch-through windows and curtain wall with projectile-resistant glazing.”

South Florida’s position on the cusp of the Caribbean makes it a prime candidate for an up-tick in construction of hospitality, leisure and related projects. Despite rising fuel costs, “travel is up across the U.S., particularly since we’re a cheap destination for Europeans,” says Murphy, whose firm is set to start two major hospitality projects in Palm Beach and Miami Beach later this year.

South Florida’s public sector is also offering opportunities on multiple levels.

“Government agencies are going strong,” says Ray de la Feuilliez, vice president of business development for James A. Cummings in Fort Lauderdale. “Localities in all three counties are moving forward with school construction programs, while the area’s colleges and universities have funded five-year capital improvement programs.”

De la Feuilliez cautions, however, that while material costs appear to have stabilized for now, they may still influence what actually gets built.

“The agencies may have the money, but they may find themselves unable to build as much as planned,” he says. “That will likely lead to reprioritizing projects.”

Transportation construction in the region seems certain to increase as well. The Miami-Dade Aviation Department is expected to move forward with 310,000-sq-ft of remodeling and renovations to Miami International Airport’s main terminal building between concourses A and D this summer, restarting a project that had to be repackaged when the original bids were more than three times the original estimate.

In June, Broward County approved an estimated $695 million expansion to the south runway at Fort Lauderdale-Hollywood International Airport. The project, which could begin construction as early as late 2008, would lengthen the runway to 8,000 ft.

Public-private partnerships may also grow in importance in meeting transportation needs in South Florida. In May, the Florida Department of Transportation announced that it would negotiate a concessionaire contract with the Miami Tunnel Access consortium for the long-planned Port of Miami Tunnel project, estimated at more than $1 billion.

Institutional projects such as the three-building, 364,000-sq-ft Scripps Research Institute could also be a harbinger for additional growth in the bioscience industry. In May, Town Center Properties of Opa-Locka received approval from the Miami-Dade County zoning board to proceed with the 2.6 million Poinciana Biomedical Park, which will include facilities for several university and biotech research partners.

Still, Balfour Beatty’s Long predicts that the true course of the bioscience market may not be known for some time. “Things will be generally quiet until we see what effect the Scripps Center has,” he says.

Down, but Not Out

Though a shadow of its former self, South Florida’s condominium market is not completely idle. Punctuated by luxury oceanfront projects such as the 200-unit Trump project in Hollywood and the 10-story, 24-unit Luxuria in Boca Raton, quality developments remain viable, says Bob Moss, president of Moss & Associates in Fort Lauderdale.

“It has been and remains all about location,” says Moss, whose firm’s current projects include the 52-story, 615,000-sq-ft Mint on the Miami River and the 420-unit CityPlace South Tower in West Palm Beach. “Good projects move forward because developers plan well and have strong relationships with the banks to solidify their support.”

Neal agrees, citing the inexperience of many developers as a major contributor to the condo market’s rapid decline. Along with having prime locations on the oceanfront and elsewhere, “our clients have the strength and ability to do new work in spite of the current market, as well as locations that appeal to prospective buyers,” he says.

Stylish design also appears to play a role. Coscan projects include the 52-story Jade Ocean tower in Sunny Isles Beach, which features an all-curtain wall exterior, and the nine-story, 802,479-sq-ft elliptical concrete Artech Residences in Fort Lauderdale.

Coscan has several other condo projects slated to get under way in 2008, says Neal, the firm’s president. Still, he admits the need to diversify the company’s portfolio.

“It’s a good reminder that variety is good, and that you shouldn’t have all your eggs in one basket,” he says. “We’d like to have 40% of our volume from outside the multifamily segment.”

The changing profile of South Florida’s construction market has understandably affected the area’s labor pool. But here again, the impacts are mixed, says Len Mills, president of the Associated General Contractors’ South Florida chapter.

“Statewide, we’ve experienced a decrease in construction employment that, while small, is the first in several years,” he adds. “But interest in the building trades is strong, as enrollment in our apprenticeship programs is up.”

ABC’s Shaw says that until last year, the area’s labor capacity fell short of demand by approximately 30%. “Now, it’s closer to being rightsized,” he says. “Nobody’s complaining about workload.”

That may not be the case for higher-level personnel working for the area’s condo-centric contractors, according to Murphy. “There are a lot of resumes flying around,” Murphy says. “This is a good time for a diversified company in search of talent.”

General contractors are also finding a more favorable bidding climate from subcontractors seeking to replenish their backlogs, but it’s “gotten much tougher to lock down a job because prices are being driven down,” says Don Marks, president of Form Works, a Fort Lauderdale concrete forming contractor. “Fortunately, materials costs have stabilized, and while we haven’t cut wages, the upward pressure on labor rates is no longer there.”

And while select condominium projects will continue to move forward, most sources predict no significant rebound for at least two years. “It will be interesting to see if investors close on these projects as they near completion,” says Marks, referring to the recently publicized spate of bailouts by investors in South Florida condo projects. “If they continue to walk away, it could spell bad times for a lot longer.”

The market’s overall assessment, Mills says, is “not the boom we’ve had, but not a precipitous decline either.”

That kind of forecast suits contractors such as Moss, who sees more selectivity in selecting opportunities as his company’s only strategic adjustment.