Tampa Bay Report

Contractors Struggling Through Housing Downturn, Uneven Economy

By Scott Judy

Metropolitan areas across Florida are experiencing declining commercial construction activity as a result of the Sunshine State’s woeful housing slump and a moribund national economy.

Tampa Bay contractors are feeling the pinch, too. However, through the end of May, the region’s nonresidential construction market was still holding up fairly well, according to McGraw-Hill Construction, publisher of Southeast Construction. At that time, the metro region’s nonresidential market was just 5% behind last year’s pace. (Miami-Dade’s nonresidential decline was nearly 20% over the same period.)

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But that sector is beginning to feel the pressure from the many forces pushing down on the local, regional and national economy, says Jennifer Coskren, an analyst with McGraw-Hill Construction.

“Through the first half of 2008, institutional construction is primarily what’s supporting the Tampa nonresidential market,” Coskren says via email. “Commercial construction (i.e., office, stores and warehouses) is down by double-digits, but construction for health care, schools and public buildings is doing well.”

Coskren adds that while Tampa-area health-care construction contracts are up by 23% compared to the same period of a year ago, this sector’s 2008 total is only forecast to be about half of what it was two years ago.

At a Crossroads

Tampa’s construction market appears to be switching gears in a number of respects.

For example, funding of the region’s public and private schools appears to be shifting. Steve Cona, executive director of the Florida Gulf Coast Chapter of Associated Builders and Contractors, sees more school additions and renovation work than the boom of new campuses of a few years ago.

McGraw-Hill’s Coskren agrees that 2008 will be “a good year for schools.” She cites three major projects to get started this year as indicators of a still steady public school sector: a $31 million high school near Plant City; a $30 million Job Corps/Training Center in Pinellas County; and $30 million high school project in Lutz being built by Beck of Tampa.

Tom Fronce, senior vice president-marketing for Creative Contractors in Clearwater, says his firm has been fortunate to win several major school projects in Pinellas, Pasco and Manatee counties. He says Tampa Bay’s overall school market will remain “fairly strong” for now.

Ted Silence, director of business development for construction manager Beck of Tampa, says the school market is steady for now, but also has seen a shift to more addition and renovation work. Still, Beck is currently building three $50 million high schools, Silence says.

Lyle Blanden, vice president with contractor J.O. DeLotto & Sons, sees school construction continuing steady for now, too. The company is currently busy with renovations and a classroom building addition at Pinecrest Elementary School in Lithia, as well as classroom building additions on five Hillsborough County campuses – Wharton High School, Clark Elementary School, Bartels Middle School, Burnett Middle School and Tomlin Middle School.

“Schools have some needs,” Blanden says. “Some have decided not to build new but retrofit. It’s not as active as it was three or four years ago, but it is continuing.”

DeLotto has experience building private schools, and Blanden says there should be a slowdown here because of fundraising issues. Currently, the company is building classroom additions for Shorecrest Preparatory School’s Middle Division in St. Petersburg.

McGraw-Hill’s Coskren doesn’t expect the school market to get any stronger anytime soon, though.

“Given the budgetary problems and declining enrollments, the peak in (school) construction is likely to occur as early as this year, though our estimates push declines out to 2010,” she says.

The opinions are more mixed on the future of another market that’s been strong to date, hospitality. Coskren sees a downturn coming as the declining regional and national economies and surging energy prices conspire to reduce travel and tourism in the area.

“So far in 2008, hospitality construction has held up reasonably well,” Coskren says, citing the increased business this sector experienced in 2006 and 2007.

“But the party’s extension into 2008, despite a major recessionary environment, suggests we could be heading for a swift and severe contraction,” she adds.

Tampa-area hotel contract value is down by about 9% year-to-date but should decline further by year’s end, Coskren says. McGraw-Hill will likely expect another 6-8% decline in this market for 2009, if not worse, she adds.

Local contractors are more upbeat, though.

Page McKee, vice president with Hardin Construction Co. in Tampa, says, “The hospitality market remains fairly strong in Tampa.” Hardin is currently racing to finish its $39 million, 255-room, 16-story Westin Hotel at Rocky Point, near the Tampa International Airport, in time for the 2009 Super Bowl.

The project is scheduled for completion in March, but is currently “several weeks ahead of schedule,” McKee says. “We’re hoping to be substantially complete and ready to host visitors for the Super Bowl.”

Regarding the Super Bowl, ABC’s Cona says he hears that some hotels are preparing for renovations after the influx of Super Bowl-related revenue.

In Clearwater, Bovis Lend Lease of Tampa is moving forward on its $105 million contract to build Aqualea Beach Resort and Residences for NRJ Development. The 906,000-sq-ft hotel and condominium will feature 250 timeshare hotel condominium units and 18 private residence condominiums. The project is scheduled for completion by 2010.

Health Care, Residential

Health-care construction has definitely been a strong market in the recent past. In 2007, Bovis Lend Lease started work on a $142 million St. Joseph’s Hospital-North project in Lutz. The company is heading for an October 2009 completion target on the 382,000-sq-ft project, which will provide 108 patient rooms, emergency room, operating rooms and other departments.

In St. Petersburg, Brasfield & Gorrie of Lake Mary, Fla., is targeting a fall 2009 completion of its $194 million, 11-story replacement hospital for All Children’s Hospital. Brasfield & Gorrie also holds a $39 million contract to build the hospital’s central energy plant.

“Health care is expected to do well (in Tampa) both this year and next, though levels will remain well below the peak of over $400 million (in new contracts) in 2006,” Coskren says. She adds that if a planned $215 million HCA hospital in Riverview doesn’t move forward in 2009, next year’s forecast for this sector would likely be decreased.

In a related niche, Fronce with Creative Contractors sees increasing opportunities in the independent- and assisted-living facilities.

“The condo developers moved towards that market, and rightfully so,” Fronce says. “We have a need for assisted living. We’re seeing a lot of posturing with land purchases by some of the major assisted-living facility developers. We think that market’s going to be strong.”

As is the case throughout the Sunshine State, residential is the market that’s dragging down all the others, including in Tampa.

Whereas the Tampa Bay region didn’t go as deeply into condominium development as South Florida did, plenty were built and a few are still under construction.

Bovis Lend Lease, for example, is building the $113.5 million Signature Place condominium in St. Petersburg, planned for a 2009 completion. The 740,000-sq-ft, 36-story residential tower will be the tallest building in the city.

Tampa’s Channelside district, near the Port of Tampa, saw a spate of residential condo activity that’s now mostly complete. Hardin’s McKee, whose company built the $90 million Grand Central at Kennedy condominium there, says it’ll be awhile before that market comes back.

“It’s going to take time, probably years, for the downtown residential situation to correct itself,” he says, adding that some recently built condominiums are currently being managed as apartments and that some of their featured retail space is largely vacant.

There continues to be demand for student housing and apartments, though, McKee adds.

DeLotto’s Blanden says, “There are going to be some sectors that a year from now are going to be a lot better, and multifamily is going to be one of those. Apartment construction is going to be good.”

Not so fast, says Coskren.

“Any hope for a rebound in apartment construction is a bit premature,” she says. “Currently, our forecast is calling for a 35% decline in apartment construction value, which also includes condominiums.”

Infrastructure

Funding for highways and infrastructure work may be more definite, at least for the near future. Throughout the Tampa Bay metro, numerous major projects are under way or planned.

The biggest and highest-profile highway contract currently under way is the $212 million Tampa Airport Interchanges project, also known as State Road 60 interchange. A joint venture of Flatiron Constructors of Longmont, Colo., and Tidewater Skanska of Virginia Beach, Va., is building the behemoth mixture of numerous overpasses and flyovers that loop in and out of Tampa International Airport.

The Florida Department of Transportation project includes a four-level interchange at Spruce Street that URS of San Francisco designed, along with a three-level interchange at the Courtney Campbell Causeway, engineered by Tampa’s PBS&J.

The joint venture started its work in 2005 and is currently targeting spring 2010 for completion.

PCL Civil Constructors, with offices in Tampa, is also busy on a pair of major projects. The contractor began construction last August on its $103.7 million Interstate 275 Reconstruction project, which includes replacing the existing lanes of approximately 1.64 mi of roadway with three or four new lanes (depending upon the section of highway), plus adding landscaping and other architectural elements.

That project is slated for an August 2009 wrap-up.

The contractor’s also working toward a spring completion of its $42 million contract on Interstate 75 at County Road 581/Bruce B. Downs Boulevard. On this project, PCL will change the entrance from southbound CR 581 from an existing two-lane left turn to a right entrance flyover bridge.

Other major FDOT projects in Hillsborough County include: Pepper Contracting’s $20 million project to convert Gandy Boulevard from a five-lane highway with a center turn lane to a four-lane divided highway by next fall; Lane Construction’s $11 million resurfacing contract on Nebraska Avenue; a $28 million contract belonging to Ajax Paving that resurfaces Thonotasassa Road by fall 2010; John Carlo Inc.’s $35.3 million contract to construct weigh-in-motion weigh stations on Interstate 4 by early 2010; and a $42 million contract of Prince Contracting Co.’s to widen Causeway Boulevard/State Road 676 by summer 2010.

In Pinellas County, the biggest highway project under way is an $89 million contract on U.S. Highway 19 to build two six-lane bridges over both 110th and 118th avenues. Archer Western is targeting completion by next summer.

Flatiron’s $76.9 million Johns Pass Bridge Replacement project, also in Pinellas, replaces existing bascule bridges with low-level, twin-span bascule bridges on the same alignment. Completion is projected for early 2010.

Another major infrastructure project is Covanta Energy’s $115 million Solid Waste-to-Energy Facility, which it is building near Brandon. The project, which represents a 50% capacity expansion of the existing Hillsborough County waste-to-energy facility, is heading for completion next summer.

The Future

Forecasts for the future of Tampa’s construction economy are similar to those of other Florida metros – uncertain. Analysts continue to push out the expected “bottom” of Florida’s housing bust farther into the future, and national economic news continues with a negative beat.

“It will continue to be slow,” says McKee, who cites the Tampa area’s loss of 27,000 jobs from the first quarter of 2007 to the same period of 2008. “Our market will suffer until Tampa starts to grow again.”

Blanden agrees. “It’s going to be steady, but it’s definitely creative times that we have here,” he says. “People are wanting the bottom to come.”

Fronce, whose firm, Creative Contractors, is currently most invested in public-type projects, sees a dramatic change in the forces driving the economy.

“The private market has definitely dropped off,” he says. “It’s tough for the private developer to get financing these days. Unless they’re well capitalized, they’re not going to be developing. Hopefully we’ll be out of it in 12 months or so.”

Silence with Beck thinks demand is being pent-up for a later resurgence when the housing market corrects itself.

“The residential market’s not going to recover until the end of 2009, possibly even 2010,” he says. “When that recovers, we’re going to see everything come back. Beginning in 2010, it’s going to be crazy hectic.”

For now, though, the forecast is cautious.

“Our expectation is that Tampa will endure a tumultuous year in 2008,” she says. “Our outlook is cautiously optimistic for 2009, with steady gains on the institutional construction side and some rebounding for infrastructure spending.

“The commercial market is not expected to recover next year, though. We’re still anticipating a rough year (2009) for office, stores and hotels.”