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Local Development Dropped 55% in ’08, Projects on Hold

As developers put big local projects on hold, construction companies are trying to position themselves to pick up new avenues of work.

Some local companies are jockeying for infrastructure projects that are in line to receive federal stimulus money, while others are focusing on the inside of offices with tenant improvement work.

This is a sharp departure from the building boom that had construction companies employed building everything from high-rise offices to single-family homes.

“There’s not a lot of work in the industry” that was readily available a few years ago, said Bruce Nelson, vice president of business development for the Newport Beach office of general contractor McCarthy Building Cos.

Construction spending and related employment in California is projected to be down about 15% this year compared to a year earlier, following a 12% decline in 2008, economic forecasters at University of California, Los Angeles, said last week.

Budget issues facing the state are causing some confusion for big projects planned in OC.

At a state level, funding problems related to construction projects that are needed across California are downright “scary” following last month’s failed ballot measures, said Robert Carley, vice president of Cypress-based Taisei Construction Corp., part of Tokyo’s Taisei Corp.

About $3.6 billion in federal stimulus funds has been earmarked for California’s highway and transit construction, along with billions of dollars in state construction bonds, according to Santa Ana-based Sukut Construction Inc.

But for the most part, federal government stimulus dollars earmarked for “shovel-ready” projects have yet to be doled out, local officials said.


Potential Work

Local construction companies have mixed views on what the government’s stimulus package will mean for OC’s industry.

“There’s a lot of potential in federal work,” said Betty Lynn Senes, vice president for the Irvine office of San Diego-based Roel Construction Co.

But don’t expect to see many offices backed by stimulus dollar to break ground, Senes said. Education and transit-related construction are the most likely recipients of the money.

Most local companies said they’ve yet to see much impact from the government’s stimulus package, but officials at Sukut Construction said that public money has become a great source of new business.

Until recently, Sukut got most of its roughly $150 million in annual revenue from the private sector, including grading work for some of the area’s largest housing projects.

Now, close to 70% of Sukut’s revenue is coming from government-funded projects, triple what they were in 2005 and 2006, the company said last month.

The company said it hopes to get contracts for $50 million to $100 million in public infrastructure projects,which typically run two to three years,for which it will need to hire about 150 to 180 people.

Other builders could see federal money help land tenants.

Earlier this month, Santa Ana Mayor Miguel Pulido said he was working to sign on the County of Orange as a big tenant for developer Mike Harrah’s proposed 37-story One Broadway office tower.

The long-planned skyscraper, which would be OC’s tallest building, needs to be 50% preleased before construction can begin.

Pulido said during his state of the city address that he wanted to use federal stimulus dollars to move county offices to the tower, which could then begin construction.

No deal has been struck with the county, Harrah said last week. The county’s board of supervisors still is putting numbers together to see if a deal is possible, he said.

A telecom company still is the most likely tenant for the tower, Harrah said. If all goes well, he’d like to begin construction by the start of next year. The two-year construction job would bring 2,900 jobs to Santa Ana, he said.

What’s moving forward these days are education- and healthcare-related construction projects, said McCarthy’s Nelson.

Despite issues facing Sacramento, bonds that fund education projects for the most part are still able to be sold, he said.

“We still think education is going to be strong,” Nelson said.


Tenant-Improvement Work

Another area that is expected to hold up is tenant improvement work, but only if the construction bids are low.

Tenant improvement work is “surprisingly strong,” said Kevin Ivey, head of business development for Brea-based KPRS Construc-tion Services Inc.

The company is doing tenant improvement work for projects including medical device maker Beckman Coulter Inc.’s new Brea headquarters, which totals close to 500,000 square feet of space.

Tenant improvement work makes up more than a quarter of KPRS’ business, and it has been picking up as of late, in part because of drops in prices for the services, Ivey said. Costs are down 15% to 20% since last summer.

KPRS is projecting continued downward pressure on costs for the rest of the year.

It’s not just tenant improvement costs that are dropping,subcontractors’ prices are down across the board, Carley said.

Projects originally budgeted for $25 million can be gotten for “unheard of” pricing closer to $16 million or $17 million, Carley said.

All told, “it’s the most competitive pricing since I’ve been here,” Ivey said.

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Mark Mueller
Mark Mueller
Mark is the Editor-in-Chief of the Orange County Business Journal, one of the premier regional business newspapers in the country. He’s the fifth person to hold the editor’s position in the paper’s long history. He oversees a staff of about 15 people. The OCBJ is considered a must-read for area business executives. The print edition of the paper is the primary source of local news for most of the Business Journal’s subscribers, which includes most of OC’s major corporate and community players. Mark’s been with the paper since 2005, and long served as the real estate reporter for the paper, breaking hundreds of commercial and residential real estate stories. He took on the editor’s position in 2018.
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