Orange County’s economy has inched its way out of a recession, but don’t tell that to the area’s still-struggling construction sector.
Other than a few high-profile projects, commercial and housing developments breaking ground in OC have been few and far between, continuing a trend that’s been ongoing since 2007.
“The last couple years have been pretty tough for construction companies,” said Joel Stensby, president of Brea-based KPRS Construction Services Inc., which focuses on industrial and office projects and parking structures, among other building types.
The construction industry—in OC and California as a whole—is set to see its fourth straight year of declining employment in 2010. In OC, losses also are expected in 2011.
The losses are resulting from slowdowns in all types of construction.
On the homebuilding front, the number of permits for home construction projects in OC has dropped by nearly 75% from 2006 and 2007 levels.
There were 2,200 single-family and apartment home permits issued here last year, with an additional 770 permits issued in the first four months of 2010.
Meanwhile, the valuation of commercial construction projects that broke ground last year is off at least 60% from 2006 levels, if not more, according to local economic data.
Healthcare, government, education and theme park projects have helped pick up the slack for some construction companies during the past few years, as office, retail, hotels and industrial work slowed down.
But with the healthcare reform bill’s recent passage providing some near-term uncertainty, and fiscal austerity from local governments on the rise, those recent mainstays also could feel the pinch in the short term.
This year “will be a tough year in California for the construction market,” said Carter Chappell, president of the California region for McCarthy Building Cos., OC’s largest construction company by revenue (see story, page 19).
“California’s typically one of the last states to go (down) in a bad market, and one of the last to come out,” Chappell said. “I don’t see anything different this time.”
Those predictions were echoed by Chapman University economists, who this month predicted “continued weakness in California and OC’s construction spending” this year and next.
On a national and local basis, the construction sector’s slow going will take the “oomph” out of the recovery, Chapman University economists said in their mid-2009 economic forecast.
Large Projects
Larger projects definitely are missing the oomph.
So far this year, there have been only five commercial projects in OC valued at more than $10 million to get building permits, according to the Burbank-based Construction Industry Research Board.
By comparison, there were more than 30 large commercial projects topping the $10 million mark getting permits in 2006, and more than 25 in 2007, according to the research board’s data.
The biggest construction projects in the county now are the $543 million expansion of John Wayne Airport, Oakland-based Kaiser Permanente’s $500 million, 434,000-square-foot hospital and medical office buildings going up in Anaheim and Walt Disney Co.’s $1.1 billion expansion of Disney’s California Adventure theme park in Anaheim.
A lack of projects beyond those has left construction companies and their subcontractors scrambling to find sources of work.
“There are still projects out there. But you have to work twice as hard to find them,” said Frank Martinez, executive vice president at Laguna Beach-based Griffin Structures Inc., a construction management company.
Some of the area’s biggest developers have gone to extreme routes to get projects rolling.
In one of Southern California’s bigger home projects of late, Newport Beach’s developer Irvine Company opted to self-finance construction of homes at its Woodbury and Woodbury East projects near the former El Toro Marine Base.
Irvine Co. traditionally has sold home lots to individual homebuilders, which then built to the master developer’s specifications. Now, Irvine Co.’s been paying builders a fee to put up the houses under its “executive builder” program, since some individual builders have lacked the ability to get financing for land buys.
The project’s worked, with more than 500 home sales so far this year.
It’s provided the first source of business for two newly created homebuilding companies, Newport Beach’s Tri Pointe Homes Inc. and Irvine-based New Home Co., and recently spurred another dormant builder, Irvine-based California Pacific Homes, to start building on the Irvine Ranch again.
Daniel Young, president of Irvine Co.’s community development division, has described the program as “OC’s own economic stimulus package.”
The developer’s figures show that money spent on new housing multiplies through the economy at a rate of about 2-to-1, as materials are purchased and workers spend their pay. That ratio grows another half percent when furniture and other purchases are factored in.
If Irvine Co. hadn’t taken on the role of financier, we would not have seen any home construction in Irvine before 2011, according to Lucy Dunn, chief executive of the Orange County Business Council.
The California Building Industry Associa-tion estimates that the Woodbury homebuilding will bring some 2,000 jobs to the region once all is said and done.
Construction Jobs
OC’s construction industry could use the jobs, as employment in the sector is well below the levels seen a few years ago.
By year’s end, OC will have lost close to 40% of its construction-related jobs, compared to levels seen near the peak of the market about four years ago. Nearly one in four payroll jobs that the county lost in the downturn was construction-related.
By the end of 2010, OC will count some 66,000 construction-related jobs. That’s down another 10% from 2009 levels, according to Chapman University economists.
Modest construction-related losses also are expected in OC through 2011, according to Chapman’s economists.
That’s one reason OC’s economy as a whole isn’t expected to see overall job growth until 2011.
“The major reason for the relatively weak recovery is the lethargic turnaround in the construction sector,” Chapman Univer-sity economists said in their midyear econ-omic forecast.
For all of California, more than 300,000 construction-related jobs have been lost since 2006, according to Chapman’s midyear figures. That’s roughly a 30% decline in three years.
Chapman projects that statewide construction jobs will fall about 11% this year from 2009 levels, with a loss of 63,239 jobs, before adding just 1,300 positions in 2011.
There are a few local housing and commercial projects that promise an influx of jobs.
In Santa Ana, Caribou Industries’ Mike Harrah is trying to get the city to sign off on a modification to the development agreement for his 37-story One Broadway Plaza tower, which could be OC’s tallest building.
If that goes ahead, Harrah said he could start construction on the tower by year’s end. The project would generate some 2,900 jobs for the area, he said.
In Brea, the 1,350-home La Floresta project recently received city approval after years of delays, but a similar-sized project in Fullerton—West Coyote Hills—failed to get city council approval last month. That project promised some 1,800 jobs.
Outside roadwork and some low-income housing projects, market watchers don’t expect too much in the way of local construction jobs resulting from the federal government’s stimulus package.
About $960 million in stimulus money from the American Recovery and Reinvestment Act has been earmarked for Orange County, spread among more than 600 individual projects, according to state records.
