Big Projects Net Southwest $3.7 Billion in Work
While the top 25 construction starts of 2012 totaled just $3.7 billion—a drop from the previous year's $10.4 billion, which included Intel's $5 billion Fab 42 project that topped that year's list—industry analysts say the decline isn't an indication of weakness. On the contrary, many are seeing renewed activity in sectors that were hardest hit by the recession.
"We see the hotel and gaming market coming back to life in Las Vegas," says Judy Caruthers, regional manager for the Southwest in the Los Angeles office of Jones Lang LaSalle. Most of the projects are renovations or additions, repositioning existing properties to take advantage of higher room rates or rents, she adds.
The $100-million Hakkasan Restaurant and Nightclub is a five-story addition to the MGM Grand on the Las Vegas Strip, and the $50-million Zappos Headquarters redevelops the former Las Vegas City Hall.
Even The LINQ, a $550-million entertainment complex that tops this year's list, is a partial redevelopment of existing properties along the Las Vegas Strip.
Intel returns with another major project start in Chandler, Ariz., with its $300-million Intel Fab CH8 Research & Development Facility. It was one of four projects on the Top Starts list that Phoenix-based subcontractor Suntec Concrete was involved in. "In 2009, our idea of a great workload was a four-week backlog; now we think four months is great," says Jerry Barnier, president. Barnier sees healthy activity in many sectors, including student housing, higher education and distribution centers.
The warehouse and industrial sector is healthiest in Arizona and Nevada, and includes the $85-million Prologis Park Riverside Building #1, a distribution center for Marshalls. "E-tailers looking for faster ways to deliver products into consumers' hands and to get a larger share of the retail market are looking for more distribution centers," Caruthers says.
In addition to two speculative buildings at Prologis Park Riverside, there are four other large-scale industrial projects—with scopes of up to 1 million sq ft—planned in the coming year, says John S. Krueger, vice president at the Greater Phoenix Economic Council.
Health care is a perennial sector among the top starts, and this year is no different, with three facilities exceeding $100 million on the list. "Everyone is hopeful that the momentum will continue. We all see changes and are still uncertain on how the market is going to respond to the new health care mandates," says Carl Nelson, architect and project director with Phoenix-based Orcutt|Winslow, designer of the $156-million St. Rose Dominican Hospitals - Siena Campus tower and additions in Henderson, Nev. "We are anticipating less hospital construction and much more outpatient and ambulatory care."
Banner Health in Phoenix is also following that trend. While the company is spending $115 million to expand its Banner Estrella Medical Center, it also has 190 other active projects to renovate existing structures or build smaller clinic-style facilities.
Banner Estrella's contractor, McCarthy Building Cos., Phoenix, is also constructing the City of Chandler Airport Water Reclamation Facility Expansion, the only water/civil project to appear on the list of large starts. "We see the market in the Southwest developing smaller-scale capital investments (upgrades to existing facilities and some expansions) over the next few years," says Frank Scopetti, McCarthy's water services business unit leader. "However, as businesses expand and growth returns to the region, this will lead to increased demand on a limited resource." In fact, the Chandler Airport expansion was driven and funded primarily by increased manufacturing activity in Chandler.
Regulatory-driven upgrades to existing facilities and advancements in desalination will boost the sector's long-term outlook, Scopetti says.
Hospitality and multifamily housing are experiencing an upswing, with five projects among the top 25, including the $82-million Vee Quiva Casino & Hotel in Komatke, Ariz. Since starting construction at the end of May 2012, contractor Tutor Perini Building Corp. has already put $63 million of work in place, says Ken Schacherbauer, vice president with the firm's Phoenix office.
The Super Bowl's return to Arizona is partly responsible for the renewed vigor in the sector. "We are currently working on a half-dozen large hospitality projects," Schacherbauer says.