Orlando Report: Down Time in Tourist Town

The bloom is off the City Beautiful as Orlando’s construction activity dips

By Debra Wood

The national economic downturn has finally affected Orlando’s construction market, with new private starts slowing in several sectors.

“2009 will be a tough year for the construction industry as a whole,” says Randy Bernard, senior vice president of Skanska USA Building in Orlando. “Unless financial institutions are again able to offer financing to developers that is reasonable and promotes growth, new construction will slow even more. This may result in many smaller construction firms being financially unstable, putting their bonding capacity lines of credit in jeopardy.”

Several health care projects are continuing in the Orlando area. (Photo by Bob Braun / www.bobbraunphoto.com)

Steve Rivers, senior vice president and general manager of Hardin Construction Co. in Orlando, calls it a “scary time” with companies “scraping for work” and watching for changes in the economic trends.

“There’s a big slowdown in Orlando right now,” Rivers says. “Anything that has any kind of bank lending associated with it is pretty much dead in the water for awhile. Even some of the internally financed projects, like Disney and Marriott, are slowing down as well.”

Hardin’s 300-room expansion of the Disney’s Contemporary Resort was placed on hold for a while, Rivers says, but a Disney Web site still indicates a fall 2009 opening. McGraw-Hill Construction Dodge estimates the cost at $110 million.

Hardin has a couple of major projects that will carry it into 2009—the Contemporary expansion and a $100 million, 480,000-sq-ft headquarters for Darden Restaurants. In addition, the company will break ground this year on an 11-story, 300-room Embassy Suites hotel, which is internally financed by owner/developer Sierra Land Group of Glendale, Calif.

Despite the problems, several owners see opportunities popping up.

“The local universities, community colleges and K-12 school systems continue to roll out construction projects to be built in 2009 and 2010, despite cutbacks in state and federal funding allocations,” Bernard says.

“The city of Orlando and the Orlando Magic are moving ahead with the new events center, and that project is well under way. The 7,000-acre medical research center at Lake Nona continues to grow, with the new University of Central Florida College of [Medicine] and the Burnham Institute [for Medical Research] coming online soon.”

Skanska expects to break ground in June on the $400 million, 600,000-sq-ft Nemours Children’s Hospital at Lake Nona, a planned community within the city limits. The hospital seeks LEED gold certification. And the company is building the $89 million Apopka Replacement High School for Orange County Public Schools.

Bill Morthland, vice president and Southeast division manager for Hunt Construction Group in Orlando, says sectors driven by demographics, such as education and health care, seem to be holding up.

“The challenge is how you get them funded,” says Morthland, adding that Hunt has been awarded $320 million in hotel and medical office projects but they’ve been held up due to financing.

Mark Wylie, president and CEO of the Central Florida Chapter of Associated Builders and Contractors in Orlando, says that companies and government agencies prepared to move ahead right now “can buy construction services at a much more affordable rate than two years ago. That’s why you see (some) projects moving ahead.”

Morthland says, “2009 will be a terrific year for our clients to buy their construction, if they have the money. That’s the other thing we are doing, helping pair up private investors and banks to find a method to finance a project.”

Mike Chatham, president of Helman Hurley Charvat Peacock Architects in Orlando, agrees. He says that with prices coming in lower than expected on competitively bid projects, owners with the money to operate are in a good position.

“I don’t think a lot of the stoppage we see is based on a change in the viability of the projects,” he says. “Most of it has to do with financing.”

Owners with the capital to self-finance, including HHCP client Rosen Hotels & Resorts of Orlando, are finding it a good time to move forward.

Attractions

Rosen Hotels announced a $100 million to $200 million, multiphased renovation and expansion program at its Orlando properties. HHCP of Orlando has provided architectural services.

“We think the timing is perfect,” says Harris Rosen, president and COO of Rosen Hotels.

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Rosen initially pegged the renovation at $200 million, but now he anticipates it may cost less than $150 million, all financed out of cash flow. He’s finding prices 25% to 30% lower than expected.

“It’s a nice savings,” Rosen says. “If we do it now, when this economic decline ends, we’ll be in a perfect position.” ”

Rosen Hotels will serve as its own general contractor, completing $40 million to $50 million in renovations and minor additions to the company’s leisure properties: Quality Inn International, Rodeway Inn International, Quality Inn Plaza and Comfort Inn Lake Buena Vista. Rosen anticipates that work will take 12 to 18 months to complete, and at that time, the company will begin upgrading its convention properties and adding 100,000 sq ft of meeting space at the Rosen Plaza and 60,000 sq ft of meeting space and a spa at the Rosen Centre.

WELBRO Building Corp. of Maitland, Fla., will construct the projects at the convention hotels. Adjacent to the center’s North/South Building, WELBRO continues working on the $205 million, 18-story Hilton Orlando Convention Center Hotel. Completion is slated for December.

Balfour Beatty Construction of Plantation broke ground in 2008 on a $450 million, 32-story, 750-room and 2,100-parking garage expansion at The Peabody Orlando, across from the West Building of the Orange County Convention Center.

Scott Skidelsky, vice president and general manager of Turner Construction Co.’s Orlando office, expects to complete the $155 million Hilton Grand Vacations Resort & Spa-Midtown Orlando, near the convention center, in the second quarter of 2009.

Closer to Walt Disney World, Hunt Construction will wrap up construction this summer on the $280 million, 1.4-million-sq-ft Waldorf-Astoria at Bonnet Creek and the Hilton Bonnet Creek Hotel. Developer KUD International of Long Beach, Calif., also is completing a golf course and parking garage.

Downtown

Government projects are keeping some contractors busy. Turner and Hunt are at work building the $380 million Orlando Events Center.

The city also broke ground on a new $17.6 million, 60,000-sq-ft, three-story fire station and department headquarters in the Central Business District. Wharton-Smith of Sanford, Fla., serves as the design-builder and is striving for LEED silver certification.

Ustler Development of Orlando anticipates Brasfield & Gorrie of Lake Mary, Fla., to break ground early this year on the GAI Building, a $32 million, seven-story, 105,000-sq-ft office building and 300-space parking garage for Affiliated GAI Cos. of Orlando. The project is scheduled to wrap up in spring 2010.

Also this spring, Lane Florida, a subsidiary of Lane Co. of Atlanta, expects Winter Park Construction of Maitland, Fla., will begin work on its 19-story, 183-unit rental tower. Completion is scheduled for spring 2010.

Lake Nona

At Lake Nona, work progresses on several health-related projects. BE&K Building Group of Orlando will wrap up construction this spring on the Burnham Institute’s East Coast research facility.

Balfour Beatty is working on the $53 million, 170,000-sq-ft University of Central Florida College of Medicine building, scheduled for completion in 2010. UCF reports Whiting-Turner Contracting of Orlando will finish in March the $68 million, five-story, 198,000-sq-ft Burnett School of Biomedical Sciences building.

Officials from the U.S. Department of Veterans Affairs held an official groundbreaking on a $717 million medical center, scheduled to open in 2012.

Schools

Even with fewer people moving to Central Florida, which is easing the pressure to build new schools, Wylie says renovation work is still needed. Declining sales and property tax revenues, impact fees and state funding have complicated districts’ ability to fund projects.

Orange County Public Schools has about $230 million in renovation projects under way at three elementary and six middle schools and $353 million in new school construction, including two replacement high schools and three new schools. All will wrap up this spring, except the Apopka High replacement, being built by Skanska and JCB Construction of Orlando and scheduled for a spring 2010 completion.

Hunt is renovating the $25 million Robinwood Middle School and plans to start preconstruction in January on a $28 million renovation of University High.

Looking ahead

Chatham says owners are developing different types of projects. For instance, he sees condo developers switching to hotels and senior housing projects.

“Everyone is looking for where the next demand sector will be,” he says.

For some traditionally vertical contractors, that means roads. Osceola County selected six firms experienced in construction manager-at-risk delivery to build at least nine and possibly 11 road-widening projects. Balfour Beatty has begun a project on Narcoosee Road.

Kraft Construction Co. of Naples was poised to start a $30 million Poinciana Boulevard project in February. It’s the company’s first road job, but it has completed utility work for Fort Myers, Fla.

“We don’t care what it is,” says Ray R. Atkinson, business developer for Kraft. “We don’t do the work. We hire subcontractors in every field to do the work. We make sure it’s done right, on time and within budget.”

Osceola selected W.G. Mills of Sarasota, Fla., to work on Old Lake Wilson Road; Clancy & Theys Construction Co. of Orlando for a John Young Parkway project; and Turner a job on Osceola Parkway. Skidelsky expects to begin work in first quarter 2009. Jacobs Field Services North America of Tampa will add capacity to Boggy Creek Road.

No one knows when the economy and construction activity will pick up.

“The downturn in the economy is not going to last forever,” ABC’s Wylie says. “While everybody acknowledges we are in difficult times that we haven’t seen for 60 or 70 years, everyone also agrees we will come out of that cycle. It will be 2010 or after when we start to see growth again.”

Useful Sources:

GAI Building
http://www.gaiconsultants.com/our_locations/orlando_fl/orlando_fl.html

The Peabody
http://www.peabodyorlando.com/new_developments/

Nemours
http://www.orlandokids.org/

Orange County Public Schools
http://www.ocps.net

Waldorf=Astoria
http://waldorfastoria1.hilton.com/en/wa/brand/strategy.do

Hilton Grand Vacations Resort & Spa-Midtown Orlando
http://hgvcdirect.com/rubylake/

Osceola County Transportation Office
http://www.osceola.org/index.cfm?lsFuses=Department/Transportation/30667

Orlando Events Center
http://www.orlandoeventscenter.com/

Orlando Performing Arts Center
http://www.orlandopac.org/