After years of gaining strength, the health-care sector took a dramatic pause this year as credit tightened, the economy softened and national debate over health-care reform created uncertainty on the horizon.
Nationally, McGraw-Hill Construction research shows that health-care project starts dropped 36% from 110 million sq ft of new construction in 2008 to 70 million sq ft in 2009—the lowest level in 14 years.
Although the Mid-Atlantic has fared relatively better than some other parts of the country, it wasn’t immune to the financial ills. Bill Brennan, executive vice president of Turner Construction Co. in Arlington, Va., says some clients with demand for facilities have struggled to find funding solutions.
For example, one of Turner’s clients with a strong balance sheet and credit rating broke a large $800-million project into smaller, easier-to-finance, phased projects of about $250 million to $300 million each.
Brennan says he expects that some of the phased projects will start within the next year. “They are not stopping,” he adds. “They’re just going through a pause, going back and restructuring into things the financial community finds more receptive, more appealing.
“There’s a strong market to replace facilities that are obsolete in terms of program, layout and technologies, but there are fewer people that want to buy the bonds.”
In the meantime, companies like Turner are banking on a backlog of major new hospitals that have been awarded in recent years. Turner is the largest health-care builder nationwide and draws significant revenue from the sector. With revenues of $2.35 billion, health care represents approximately 20% of Turner’s national value of work in place and about 30% of its backlog, Brennan adds.
Turner and joint venture partner Gilbane Building Co. of Laurel, Md., are approximately 40% complete on the $800-million, 1.3 million-sq-ft DeWitt Community replacement hospital complex at Fort Belvoir, Va.—a project awarded under the Base Realignment and Closure Act of 2005.
Clark Construction Group of Bethesda and Balfour Beatty Construction of Fairfax, Va., have joint ventured on the other major BRAC hospital in the area—the $641.4-million Walter Reed National Military Medical Center on the grounds of the National Naval Medical Center in Bethesda, Md.
Brennan says that as BRAC funding starts to wane, he does not expect that the government will let more major health-care projects in the near future, but current projects will stay active for at least two more years.