Lowering Expectations for Higher Education

College and university project starts slowing with economy

By Debra Wood

Contractors have been busy at universities and community colleges striving to keep up with students, but lately, state budgets and falling endowment stock portfolios have slowed new starts in this traditionally healthy sector.

“While the higher-education arena could be thought of as one of the more recession-resistant markets, we are seeing a slowdown and state-level college projects postponed,” says Jonathan Collard, a project manager for Batson-Cook Co. of West Point, Ga., which is currently working on the $12 million, three-story Frank and Laura Lewis Library at LaGrange College in LaGrange, Ga. “Although this market continues to provide some opportunities, it’s obvious the current economic status is affecting the entire industry.”

Kevin Kuntz, executive vice president of McCarthy Building Co. in Atlanta, says a couple of factors have put much of the higher-education activity “on pause.”

Kuntz says that on the public side, most states have major budget cuts, including 10% in Georgia. And “the private sector relies heavily on how well endowments do generating revenue to fund capital projects,” he adds. “Their endowments are tied to the financial markets, and they have taken a big hit. They have less capital to spend and are drawing back waiting for the rebound.”

John Reyhan, area general manager for Skanska USA Building in Atlanta, says that parking and recreation facilities funded by student fees are supported by foundations that rely on credit financing, and that work has tapered off. However, he reports that publicly financed projects are moving forward, and Georgia continues to keep a priority list of about 20 projects.

Skanska is working on campuses all over Georgia, including building a $33.5 million, 113,500-sq-ft student union at Valdosta State University in Valdosta for the VSU Auxiliary Services Real Estate Foundation.

“We are concerned that lower tax receipts in the future could impact future projects,” Reyhan says. He says more and more projects are being awarded for design and preconstruction only, “with construction funding coming in a future fiscal year.”

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In the Carolinas, Scott MacLeod, Skanska Carolinas area general manager in Durham, N.C., says he has seen some public projects being reassessed or delayed, but there also are universities moving up construction projects to take advantage of lower commodity and construction costs.

“We do not foresee a major increase in work, nor do we think schools will forego needed projects as they take advantage of lower construction costs associated with the current downturn,” MacLeod says. “It is better to build in a down market than a hot market.”

Bill Byrne, president of Ajax Building in Tampa, says higher-education work is slower than in the past.

“There is still work out there, a little of everything, but less of it,” he adds.

Ajax expects to finish this spring the $27 million College of Education and Human Services Building at the University of North Florida in Jacksonville. The company has broken ground on an $18.9 million, 58,000-sq-ft Graduate Studies Building for the College of Business at the University of Florida. UF raised $9.7 million in donations toward the project.

Kent Long, senior vice president of business acquisition for Balfour Beatty Construction in Plantation, Fla., says higher-education activity hasn’t slowed as much as the K-12 market.

“The universities still have a few projects out there,” Long says. “The projects we have going and the projects we were just awarded were funded out of budgets awarded [by the state of Florida] previously.”

Balfour Beatty continues work on the $53 million, 170,000-sq-ft University of Central Florida College of Medicine Learning Resource Center in Orlando. Also, the company will begin construction this year on two projects at Florida Atlantic University in Boca Raton: a $50 million, 400,000-sq-ft, 20,000-seat stadium, and a $180 million, 900,000-sq-ft, 2,400-bed, multiphase resident hall.

“The overall economy has slowed things down, and state budgets that fund these things are being looked at harder,” adds John Pehling, vice president and regional director of the institutional program for designer Reynolds, Smith and Hills of Jacksonville, Fla. Pehling estimates RS&H’s volume is down 50%, with 30 to 40 firms competing for projects that are moving forward.

RS&H has begun designing the 25,000-sq-ft Fine Arts 2 Building, an art and music center with recital and rehearsal halls and classrooms, for Florida Gulf Coast University in Fort Myers. The company also has several projects at Florida Community College Jacksonville, including a classroom addition to an existing building and a fire training center for emergency responders.

Peter R. Brown Construction of Tallahassee is completing an RS&H -designed $24 million, 110,000-sq-ft academic center for Florida State University in Panama City. It will house science and engineering programs, as well as administrative offices and a conference center.

Ted Brodley, project manager with Culpepper Construction Co. of Tallahassee, says FSU still has several projects in the pipeline, but the work has slowed by about 30%. Culpepper recently started the second phase of an approximately $10 million Student Success Center, a 45,000-sq-ft project that includes interview space, an auditorium and meeting rooms.  

Student Housing

Joe Dusek, vice president of Hardin Construction Co. in Atlanta, says student housing projects remain strong, at least for now. The company is working on a $12.5 million, 62,816-sq-ft, 200-bed dormitory for Young Harris College, in Young Harris, Ga., and Centennial Place at Georgia Southern University, a $40 million, 392-unit, 1,000-bed, wood-frame dormitory with a small retail component, for Ambling University Development Group of Valdosta, Ga.

“But most cutbacks that have been announced have not yet come about,” Dusek says. “That being said, the present condition of the bond markets has made student housing projects difficult to finance. As most of these projects kick off in the spring, it remains to be seen if the markets will improve to allow the housing projects to proceed.”

In Atlanta, Campus Apartments of Philadelphia is financing, building and will operate a $27 million, 201-unit graduate student-housing complex at Emory University on land leased from the university.

Meanwhile, Frank Cardinal, senior vice president of Skanska in Tampa, says he expects student housing starts to dry up.

“Many of these projects do not come from state funding streams, which means there’s less out there in this sector,” Cardinal says. “The source of funding will have to come from the private sector.”

In fact, Cardinal expects more universities will look to public-private partnerships to build general buildings.

Pehling also is seeing more public-private partnerships forming to construct turnkey projects now that will receive funding later, although RS&H doesn’t currently have one. 
“We’ve had some conversations with people, because they are seeing that’s the only way to get things funded,” Pehling says.

Other trends

Skanska’s Reyhan says more owners are preferring construction-manager-at risk contracts.

“As cost of materials fluctuates and as times seem uncertain, construction-manager-at risk provides them with peace of mind on the cost front,” Reyhan says. “It means they can better plan in the long term and have cost certainty early in the project delivery cycle.”

Institutions also are embracing sustainability and energy efficiency.

“We are seeing universities wanting their projects built to higher environmental standard, such as LEED,” Batson-Cook’s Collard says. The Lewis Library team is striving for LEED silver certification, with low-flow plumbing fixtures and daylight harvesting features. 

Skanska also has noticed greater interest in green facilities.

“Nearly every facility we have been involved with in the past two years has incorporated some level of green construction,” Reyhan says. “In the future, we anticipate seeing a continued trend to more environmentally friendly facilities on university campuses.”