Blue Moon over Miami

Economic uncertainty shrouds previously booming market’s future

By Jim Parsons

Twelve months ago, healthy backlogs and promising opportunities in many sectors appeared sufficient to sustain the Miami-Dade County construction industry during what some forecast would be a routine and, in some ways, needed slowdown after a multiyear condominium construction spree.

Photo courtesy of Suffolk Construction Co.

What a difference a year makes.

The domino-like spiral of economic calamities that has spread from Wall Street to nearly every corner of the world has chilled most of Miami-Dade’s once-red hot construction sectors, leaving contractors with an evaporating pool of new starts for 2009 and few clues as to when a revival might occur.

“There’s a ton of uncertainty out there,” says Len Mills, president of the South Florida Chapter of Associated General Contractors in Sunrise. “Everybody is hopeful that things will turn around soon, but they’re also scrambling for work as their current projects wind down.”

Most affected are the residential and commercial sectors that rely on private financing, meaning that the slowdown that began in 2008 could grind to a near-crawl over the next 12 months as several major projects are completed.

Among them are 1450 Brickell, a $140 million, 35-story office tower being built by Coastal Construction Group of Miami; the Mint, a 52-story, 1.3-million-sq-ft residential/commercial tower being built by Moss & Associates of Fort Lauderdale; and the $40 million, 1850,000-sq-ft Fifth and Alton retail project being built by Suffolk Construction Co.’s Miami office.

John Moriarty & Associates, Hollywood, is also scheduled to complete the $150 million Brickell Financial Center in early 2010.

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After that, the outlook is anyone’s guess. The $700 billion infusion of federal assistance under the Troubled Assets Relief Program has so far done little to free up frozen credit markets, leaving many contractors in wait-and-see mode.

Coastal President and CEO Thomas P. Murphy says his firm had six projects worth a total of $780 million and spanning four market segments slated to get started in 2009.
“All of them are on hold because they can’t make the loans,” he says. “The owners want them, and I suspect they will go forward at some point. But nobody can say when.”

As for the condo market, Murphy says, “Maybe there’ll be a few select projects, but this market is way overbuilt. It may take five to 10 years to absorb all that’s out there.”
Scott Moss, vice president with Moss & Associates, doesn’t expect to see many new private-sector starts for at least a year.

“Banks say their lending criteria is ‘back to normal,’ but that many borrowers don’t have equity to get loans,” he says.

Commercial developers may harbor the same reservations about the people looking to occupy their projects, adding another obstacle to the start-up process. Bernard Zyscovich, principal of Zyscovich Architects, Miami, says many owners may question whether key tenants will survive long enough to make investments in leasehold improvements worthwhile.

“If they’re not taking a closer look at their prospective tenants, they should,” he says.
With the prospect of a weak dollar luring overseas tourists to South Florida’s numerous attractions, many industry experts had predicted that the hospitality sector would help insulate the Miami-Dade construction market from a recession.

Suffolk Construction has an active roster of Marriott projects under way: the $132 million, 43-story Marquis component of the 833,883-sq-ft downtown Metropolitan 2 (“Met 2”) project; a $41 million hotel adjacent to Miami International Airport; and a $20 million SpringHill Suites property in Miami.

In Miami Beach, Moss & Associates is beginning the four-building, $150 million Ritz-Carlton Club and Residences, which mixes hotels with fractional ownership lodging.

However, the recession’s global reach has cooled that sector as well.

“If we had to go out today and build this kind of backlog, it would be difficult to do,” says Tim Sterling, a Suffolk vice president who heads the firm’s Miami office. “After these projects are done, we’ll have to wait for anything new to come along.

“We are under contract for a couple of boutique hotels on Miami Beach but don’t know when they’ll be financed.”

Partial Refuge in Public Sector

The hub of Miami-Dade’s public-sector activity is Miami International Airport’s $6.2 billion capital improvements program. The joint venture of Odebrecht USA of Coral Gables and Parsons Corp. of Pasadena, Calif., is leading the $2.8 billion, 48-gate North Terminal project and will work with Sumitomo Corp. of New York on a $134.9 million, 1-mi, rooftop people-mover system.

Odebrecht-Parsons has also been tapped for the $259 million automated people mover to the Miami Intermodal Center, the first major component of which is a $370 million, 3.4 million-sq-ft rental car center being built by Turner Construction of Miami.

And the Florida Marlins’ new 37,551-seat stadium appears to have cleared its last legal hurdle. To be constructed by a joint venture of Moss & Associates and Hunt Construction Group of Scottsdale, Ariz., the $515 million facility is part of a $3 billion public works package that includes the 1.5-mi, $1 billion tunnel under the Port of Miami.

The Florida Department of Transportation has yet to finalize a contract with the multinational Miami Access Tunnel consortium, which was selected for the project in February 2008.

Construction firms with infrastructure experience are also hopeful that the new year will bring a federal economic stimulus program that will jumpstart a host of highway and bridge projects. Although specific projects have yet to be determined, Odebrecht CEO Gilberto Neves expects competition to be stiff.

“Because of the depressed real estate market, contractors that typically do little infrastructure work will be trying to get some of these projects,” he says.

However, other public construction sectors that have traditionally offered opportunities during economic downturns are not as strong as they used to be. A decline in state tax revenue may mean less funding for Miami-Dade’s public schools.

Suffolk has two major projects that will be completed this year: the $74 million, 321,000-sq-ft North Miami Senior High School and the 250,000-sq-ft Miami Beach Senior High School. Coastal is working on the $80 million replacement of Miami’s Carol City Senior High School and the $16 million expansion of Southside Elementary School.

Higher education has already been affected by the economic crisis. Neves says a shortage in state funding could delay plans for several new buildings at Florida International University, where Odebrecht recently wrapped up the school’s $54 million, 18,000-seat football stadium. The start of construction on the University of Miami’s new 75,000-sq-ft Student Activities Center, a Moss & Associates project, has been delayed until 2010 due to fundraising shortfalls. The company continues work on the school’s $50 million Biomedical Research Institute.

On the other hand, many municipalities are taking the slowdown in development to revisit their planning and urban design strategies. “It’s difficult for communities to do it in a blur of activity,” says Zyscovich, whose firm is working with parts of Hollywood and West Palm Beach on comprehensive plan revisions “They use the construction hiatus to re-vision areas and look at issues such as compatibility, scale and open space for the next wave of building.”

Although construction may be down across the region, the projects that are going up are much greener than before.

“Where once green design features were added as market differentiators, they’re now reflecting the market’s demand for healthy, environmentally sound places to live, work and shop,” Zyscovich says.  “Everyone wants to embrace it, and the development community is learning how it can be done.”

A Copper Lining?

If there’s any silver lining to these depressed conditions, it’s the fact that skyward spiral of material costs is slowly starting to reverse itself, though Moss predicts, “It will be the second quarter of 2009 or later before we see better pricing.”

There’s also a glut of experienced workers at all levels looking to hook up with any firm that may have work.

“I haven’t seen so many resumes in my 30 years in the business,” Coastal’s Murphy says. “Owners who have money and the ability to start projects will be at an advantage due to the benefit of cheaper materials and their choice of subcontractors, managers and field personnel.”

So what happens next to the Miami-Dade construction market?  And when?

Some of the strongest influences on the market’s future will likely come from several hundred miles up Interstate 95, in the nation’s capital.

“My hope is that with the new administration and changing of guard in Washington, consumer confidence will come back and banks will begin lending money again,” Sterling says.

“If financial market figures out how to get back to normal, a lot of work could get started,” agrees Moss, who adds that the next 12 months will be tough for the area’s construction industry, with some firms faring worse that others.

“More contractors and subs will default due to poor management than we’ve seen in a long time,” he says. “Things that they can get away with in boom times will come back to haunt them.”

On the other hand, Miami-Dade’s inherent attractiveness will spare it some of the pain being experienced in other parts of the country. “Miami, the beach areas and the Keys are in position where there’ll be ongoing work for sometime,” Zyscovich says. “People are already starting to buy properties and not wait for what is likely an unreasonable bottom.”

But, he adds, “It will be year and a half before we see a sustained growth trend. The commercial sectors will likely start small, with real opportunities emerging only when people have money to spend again.”

Until then, Mills says, “We’ll just have to hunker down and see what happens.”