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Wednesday, Jul 24, 2024
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Healthcare Provides Boost for Construction Firms

Orange County’s roster of construction firms have had no shortage of challenges since the onset of the pandemic, battling skyrocketing material costs, extended lead times, labor headwinds and, more recently, rising interest rates and troubled financing markets.

Still, local firms managed to post nearly double-digit gains last year, continuing a growth trend that’s been in place for several years.

The 30 biggest firms with work here posted $10.6 billion in local revenue last year, up 8.8% from a year ago, based on this week’s Business Journal list. Just nine of those firms posted declines from 2021.

OC’s booming healthcare sector has played a notable role in those gains.

Hensel Phelps, the largest construction company operating in Orange County for the second consecutive year, is one such firm benefitting from that demand, with contracts with two of the largest healthcare developers in the county: City of Hope and UCI Health.

“We were selected in 2019 to build the Lennar Foundation Cancer Center [at the Great Park Neighborhoods] which opened for patients in August 2022, and we’re now building the adjacent cancer hospital” that will be the first of its kind for City of Hope in Orange County, said Hensel Phelps’ Travis Gooding.

“The need in Orange County for this kind of cancer center is huge,” Gooding said.
The Colorado-based company, which posted a 19% jump in OC revenue last year to nearly $1.5 billion, was the second-largest contractor in California last year with $2.4 billion in regional revenue, according to construction trade publication ENR California. Its largest project to break ground in 2022 was the UCI Medical Center in Irvine, which will include the Chao Family Comprehensive Cancer Center and Ambulatory Care, a 144-bed acute care facility.

Hensel Phelps’ contract is worth $750 million, according to ENR.

The firm has an $11 billion healthcare portfolio.

Public Boost

The healthcare industry has also helped Swinerton offset economic headwinds, according to Lia Tatevosian, vice president and special projects division manager.

“Healthcare and education in particular have helped us remain busy,” Tatevosian said.

“Those sectors haven’t been as impacted by financing challenges.”

Swinerton came ahead of Hensel Phelps as the state’s top contractor in 2022, with its largest project also a medical facility. It began work on the $150 million John Muir Health Walnut Creek Outpatient Specialty Center in Walnut Creek, according to ENR.

Swinerton is also doing work locally for the Orange County Unified School District.

“Over the past five years we have set ourselves up for the downturn by shifting to education and healthcare, and we will probably do about $700 million in those sectors in Southern California” in the next year, Tatevosian said.

Other booming construction segments include multifamily and affordable housing, Tatevosian notes, while the firm has seen “office virtually go away.”

“A lot of that stock is being decommissioned,” Tatevosian said.

Swinerton, No. 4 on this year’s list, is also keeping an eye out for hospitality renovations as local businesses look to revamp their offerings ahead of the 2028 Summer Olympics in Los Angeles, with some events scheduled to take place in Orange County.

“As travel picks back up and as people await the Olympics, we’re seeing a lot of hotel owners and operators wanting to renovate their existing rooms, add amenities, and so on,” Tatevosian said.

Debt Woes

Projects that are publicly funded, like education or government work, or those headed by clients with access to private capital, have far outperformed projects reliant on construction financing, sources note.

Market headwinds “have made some projects very difficult to pencil,” Tatevosian said.

“In some cases, projects have been completely stalled,” said Joel Stensby, president of KPRS Construction Services.

Local projects for KPRS include tenant improvement work for Alteryx at Spectrum Terrace, amenity work at Solis Park at the Great Park Neighborhoods in Irvine and the Westminster Crossing multifamily complex in North Orange County.

“We’re still seeing the same issues—shortage of materials, price escalation—and now we’re facing the additional challenges of increased interest rates,” Stensby said.

“The clients that have more access to private liquidity funds have been able to move their projects forward.”

KPRS is OC’s third-largest construction company with revenue surging 24% last year to north of $1 billion.

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