South Florida Report: Staying Busy Amidst the Bust

By Debra Wood

From the East Coast to the Gulf, South Florida contractors are staying positive despite bad news

Despite a severe downturn in the residential construction market that is steadily moving into other sectors, South Florida contractors are saying they’re still busy. However, forecasts say they could be singing the blues soon.

With the high-rise residential market grounded, South Florida contractors are turning to office, public works, education and other markets to keep active.

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But times aren’t easy for everyone. The latest numbers from McGraw-Hill Construction about South Florida show that the value of project starts through May in Miami-Dade, Broward and Palm Beach counties was approximately 35% behind last year’s pace, with nonresidential down 19% and residential 53% lower.

On the other side of the state, through May, the value of new starts in the Cape Coral-Fort Myers area of Lee County was 63% lower through the first five months of the year, with nonresidential down by 37% and residential off by a staggering 73%. In nearby Collier County, which includes Naples and Marco Island, project starts were 58% behind the ’07 pace through May, with nonresidential down 43% and residential off by 63%.

Even so, contractors are accentuating the positive.

“Things are surprisingly busy, but busy in different sectors than six to 12 months ago,” says Gordon Knapp, vice president with Suffolk Construction Co. in West Palm Beach. “Residential has died, but there is a lot of mixed-use development, with retail, office and hotel.”

Suffolk began building the $325 million, 2.3-million-sq-ft, two-tower Met 2 in Miami in December. The project will feature a 47-story, 700,000-sq-ft office building, with MetLife Insurance Co. of Connecticut the prime tenant, and a 42-story MET Marquis, a JW Collection Hotel, sitting atop an 18-story podium.

“The office building market is in good shape,” says Kent Long, senior vice president of business development for Balfour Beatty Construction in Plantation. “There is still quite a bit of pressure on rental rates, and that is starting to drive the office building market.”

Downtown Miami and Brickell Avenue submarket vacancy rates for the first quarter of 2008 were 11.5% and 11.3%, respectively, with average rental rates for class A space of $44.41 and $46.83, respectively, according to Cushman and Wakefield, a commercial real estate services firm. The national averages were a 10.7% vacancy rate and $40.73 per sq ft for that period.

Balfour Beatty recently was awarded contracts for two spec office buildings in Coral Gables. Both will cost about $50 million and contain more than 300,000 sq ft. The company expects to finish the $101 million, 635,000-sq-ft Office Depot World Headquarters in Boca Raton this summer.

John Moriarty & Associates of Hollywood broke ground in October on the $150 million Brickell Financial Centre in Miami. The company has completed the 12-level podium structure garage and has begun erecting structural steel for the 1.5-million-sq-ft, 40-story office tower, scheduled for completion in January 2010.

Also in Miami’s Brickell district, Coastal Construction Co. of Miami is building 1450 Brickel, a $140 million, 35-story office tower.

On the Gulf Coast, Hoar Construction of Orlando continues construction on the $165 million, 14-building Mercato mixed-use complex in Naples, which includes 92 residential condominiums, offices, restaurants and retail in 12 separate structures, plus two parking decks. Bill Heath, senior project manager for Hoar, says the project works because people in Naples still are buying high-end units. Per-unit prices range from the $500,000s to more than $1 million.

Meanwhile, F. Fred Pezeshkan, CEO and chairman of Kraft Construction Co. of Naples, says that high-rise residential represented about 80% of work seven years ago, but that segment now represents about 25% of its portfolio.

“The market is like most of Florida, slower than it has been in the past,” says Pezeshkan, adding that the company’s high-rise residential work is off by almost 75%. “We’re busy on the commercial and government side.” He cautions, however, that capital funding for government as well as schools and institutional could be impacted by the almost $6 billion state budget shortfall.

Kraft is building a $38 million, 129,543-sq-ft emergency services complex for Collier County in Naples and the $52 million, 180,000-sq-ft Ortiz Jail expansion for Lee County Government in Fort Myers. The four-story emergency center and eight-story correctional institution are scheduled for completion this summer.

“We have people who are nervous, and there’s some reason for anxiety,” says Dan Shaw, president and CEO of the Florida East Coast chapter of Associated Builders and Contractors in Coconut Creek. “We’re still building. There’s a lot of (projects) coming out of the ground and on the boards.”

Bob L. Moss, president of Moss & Associates of Fort Lauderdale, agrees that people still want to build things in South Florida, but “how many of them will get the necessary funding is a big question mark. The bottom line is lenders are more conservative, which will affect some of the private-sector projects. And the budget tightening at the state might affect public-sector projects.”

The Florida Marlins organization is negotiating with Moss & Associates and Hunt Construction Group of Scottsdale, Ariz., to build the baseball team’s new $415 million, 37,551-seat stadium in Miami.

Moss expects to begin work this fall on the four-building, $150 million Ritz-Carlton Club and Residences, South Beach in Miami Beach. The project is planned as a hotel and fractional ownership lodging property with 141 private residences, which Moss says could be converted to fractional ownership units.

Although nearly all of his chapter members remain apprehensive, Shaw says general contractors seem comfortable with the workload they have, but some subcontractors are struggling.

Len Mills, executive vice president of the Associated General Contractors South Florida chapter in Sunrise, says some of his members report having the best year ever, while for others, work has slowed.

Public Projects

Though a slowdown is surely coming as local and regional governments experience budget cuts, there is plenty happening now.

Turner of Miami is building the $370 million, 3.4-million-sq-ft Rental Car Center at the Miami Intermodal Center near Miami International Airport for the Florida Department of Transportation.

Parsons-Odebrecht Joint Venture, a partnership between Parsons Corp. of Pasadena, Calif., and Odebrecht USA of Coral Gables, continues work on the $2.85 billion, 3.5-million-sq-ft North Terminal at MIA. Three new gates opened this spring, joining 11 already operational, and 36 are expected to open in phases until the project is completed in 2011.

A nearly 1-mi-long rooftop automated people mover, being built by POJV and Sumitomo Corp. of New York, will be able to transport 9,000 passengers an hour between the North Terminal’s four passenger stations. The total cost is currently $134.9 million, and the scheduled completion date is November 2010.

Among the largest highway projects in South Florida are two public-private partnership FDOT road projects. In Miami-Dade Co., Community Asphalt of Hialeah has begun a $110.8 million design, reconstruction and finance project on U.S. Route 1.

Meanwhile, on the other side of the state, ACCI/API, a joint venture of Anderson Columbia Co. of Lake City and Ajax Paving Industries of Nokomis, is widening Interstate 75 from four to six lanes in Collier and Lee counties. The $430 million project began in October and is scheduled for a 2010 completion.

Earlier this year, Moss & Associates began construction of the fifth building in West Palm Beach as part of an $80 million U.S. Citizenship and Immigration Services South Florida facility upgrade. The company began the Government Services Administration project a year ago with groundbreakings for USCIS field offices in Hialeah, Kendall and North Miami. A fourth building in Oakland Park started in September.

Moss & Associates is building a $232 million expansion of correctional facilities at multiple sites for Palm Beach County and is pursuing correctional work with the Florida Department of Corrections.

Despite decreases in enrollment, South Florida K-12 school districts are continuing their capital improvement programs. Long says that even if budgets are cut, a significant amount of work will proceed because the need still exists to improve and expand existing classroom space.

Suffolk is working on 11 active school projects in Miami-Dade, Broward, Palm Beach and Martin counties. The two largest are the $88 million North Miami High School and the $67 million Miami Beach Senior High.

For the Sarasota County School Board, Kraft is building a $43 million, 215,000-sq-ft, 10-building middle school in North Port.

Balfour Beatty is modernizing and expanding the Apollo Middle School in Hollywood and updating Boulevard Heights Elementary School for the School Board of Broward County.

Private Work

Suffolk Construction’s Knapp calls the life-science market robust. Suffolk is building the $40 million, 103,000-sq-ft Torrey Pines Institute for Molecular Studies campus in Port St. Lucie. And a joint venture between The Weitz Co. of West Palm Beach and DPR Construction of Atlanta continues working on the $157 million Scripps Research Institute building in Jupiter.

“There is a lot of opportunity in life-science and health care throughout the state,” Knapp says. “It’s a recession-proof business sector, if there is one.”

On the health-care side, Skanska USA Building of Tampa is constructing Gulf Coast Hospital in Fort Myers. The $157 million, 439,000-sq-ft project began in January 2006 and will consolidate two facilities: Southwest Florida Regional Medical Center and the existing Gulf Coast Hospital. Construction is scheduled for completion in February.

Skanska also is building a $160 million central energy plant and patient tower at Sarasota Memorial Hospital.

Catalfumo Construction of Palm Beach Gardens, Fla., began work on the $150 million Hilton Pompano Beach Resort in December. Construction on the 10-story, 506-room hotel should wrap up in September 2010.

Condos Still Under Way

Contractors continue to finish condominium projects started before the housing crisis, and a few have begun new luxury projects.

On the Gulf Coast, BBL Florida of Estero is working on the Oasis in Fort Myers. Construction began on the dual-tower, 440-unit residential condominium complex in 2006 and it is scheduled for completion in 2009.

On the East coast, Coastal Construction began construction late last year on the $480 million, 2-million-sq-ft St. Regis Resort & Residences in Bal Harbour. The 268-unit condominium and 243-room hotel project includes three 26-story buildings atop a three-story podium.

The company also is building the $150 million, 986,000-sq-ft Trump Hollywood condominiums in Hollywood Beach, Fla. The 42-story tower started in summer 2007 and is scheduled for completion by next summer.

Moss & Associates has nearly completed the $105.5 million, 20-story CityPlace South Tower in West Palm Beach. It started work on the 420-unit, 1 million-sq-ft, L-shaped building in May 2006.

“The sky is not falling,” Moss says. “We’re encouraged we will stay busy for the next couple of years. It will just be a different kind of work.”