Keeping up the Pace

Population growth, strong economy fueling a Texas-sized construction boom

By Debra Wood

The El Paso market is busy with projects at Fort Bliss and related infrastructure. Shown, C. F. Jordan is building a five-level concrete structure with 1,666 parking spaces at the University of Texas at El Paso.

Despite national concerns about a downturn in the construction industry and a strained workforce, contractors throughout the Lone Star State remain busy and optimistic about 2008.

“The commercial market is strong,” says Bill Scott, division president for Linbeck Group of Houston. “We are seeing levels we haven’t seen in more than 20 years. The institutional, educational and health-care markets are resoundingly robust. Mixed-use, retail, hotel, office there’s a lot of intensity and large projects in planning. Several have started.”

Linbeck is building the $150 million, 500,000-sq-ft Collaborative Research Center for Rice University in Houston. The project includes three levels of below-grade parking for 1,500 cars and will open in February 2009.

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Linbeck also broke ground in 2007 on the Fort Worth Museum of Science and History. That $65 million, 133,000-sq-ft project is scheduled for completion in 2009.

“It’s the absolute best market I have ever seen in my lifetime,” says Tim Hess, director of preconstruction services with the Southwest District of Hensel Phelps Construction Co. in Austin. The company is working on the 43-story Spring Condominiums in Austin, and Hess sees continued growth in multifamily residential.

Economist M. Ray Perryman, president of the Perryman Group of Waco, says residential is starting to show signs of slowing but not as dramatically in Texas as in the rest of the country.

“Commercial, industrial and infrastructure seem to be holding up well,” Perryman says. “We’re behind in infrastructure and in the process of building utilities and roads. A lot of municipalities are building public works, wastewater-treatment plants. We’re growing and playing catch-up.”

The Central Texas cities of Round Rock, Leander and Cedar Park, through the Brushy Creek Regional Utility Authority, are developing a new $300 million water treatment plant in Cedar Park.

“It’s strong for our markets, which are industrial and infrastructure,” says Keith Manning, senior vice president of corporate business development for Zachry Construction Corp. of San Antonio. “We’re seeing new power-generation opportunities. Facilities are aging and new technologies are coming to market.”

Zachry broke ground in October on a $350 million cement plant expansion for TXI Hunter Cement in New Braunfels, which is about halfway between San Antonio and Austin. That project will take two years. Zachry is working with London-headquartered AMEC on an expansion at the Cemex Balcones Cement Plant, also in New Braunfels.

The multifamily/condo boom in Austin includes the high-rise Spring project, under way by Hensel Phelps Construction Co.

Calaveras Power Partners, a joint venture of Zachry; Black & Veatch of Kansas City, Mo.; and TIC of Steamboat Springs, Colo., is building the J.K. Spruce 2, a coal-fired power plant for CPS Energy of San Antonio. That Calaveras Lake facility is scheduled for completion in 2010. 

Darren Woody, chief executive officer of C.F. Jordan in El Paso, says activity is “steady and consistent across all product types.” The company works in all Texas cities and currently is building the Vistana, a 17-story, 530,000-sq-ft residential building, and Vidorra Condominiums, a 20-story tower, both in San Antonio.

“We have a healthy backlog going into ’08 in all market segments,” Woody adds. “Texas has a healthy economy. Some of it is organic growth in Texas markets and some is in-migration.”

Steady population influxes and economic growth bode well for future starts. Texas is one of the fastest growing states in the nation. It’s population increased by 2.6 million people from 2000 to 2006 to 23.1 million, according to the U.S. Census Bureau. Dallas-Fort Worth and Houston posted the second- and third-largest population gains of the nation’s 361 metro areas, a list Atlanta led. Growth shows no sign of abating. The Census Bureau projects that by 2030 about 33.3 million people will call Texas home.

“Fundamentally, Texas is a demographic-driven market,” Linbeck’s Scott says. “Texas is attracting people and relocations. That drives the need for more health care, schools, retail.”

Aging baby boomers and changing technology have sparked a demand for health-care projects, Hess says. Hensel Phelps is in the midst of constructing the $227 million Methodist Hospital Outpatient Care Center in Houston. Work began on the 24-story, 1.6-million-sq-ft facility in September 2006. It is scheduled for completion in December 2009.

Linbeck was chosen to build the new 1.2-million-sq-ft clinic and hospital for the Baylor College of Medicine in Houston. The company is also adding a $20 million, 350,000-sq-ft patient-care center to St. Luke’s Episcopal Hospital at the Texas Medical Center in Houston.  

McCarthy Building Co. of Addison just began a $150 million, 500,000-sq-ft vertical expansion at the University of Texas M. D. Anderson Cancer Center in Houston.

Military spending is bringing additional dollars into the construction market.

Hensel Phelps continues work at Fort Bliss in El Paso. In September it announced receiving a $112 million design-build contract for five rotary wing aircraft hangers. The U.S. Army Corps of Engineers anticipates letting more than $2 billion in construction contracts for offices, storage facilities, aircraft hangers and barracks at the Army base to accommodate 19,000 additional soldiers.

Doug McMurry, executive vice president of the San Antonio chapter of Associated General Contractors, estimates the military will release $1 billion in construction contracts in 2008 at Fort Sam Houston, which is being transformed into a medical training facility.  

BY THE REGION

Dallas-Fort Worth “Things are continuing to boom,” says Raleigh Roussell, president/CEO of the QUOIN chapter of the AGC, covering Dallas, Fort Worth and East Texas. “We’re positive about an upward trend in 2008.”

Three school districts in the area held bond referendums recently. Voters approved the bonds, which will lead to more work. G Paul Holliman, chairman of the Associated Builders and Contractors North Texas chapter and owner of Holliman Consulting Group in Colleyville, reports a 14% increase in education spending. 

Health care, retail, office and warehouse markets also are robust, Roussell says. The new Children’s Medical Center Legacy will open this year in Plano.

 “There’s so much pent-up demand in hospital markets, and it will continue to grow,” says Chris Peck, vice president of the Texas division of McCarthy. “We’ve seen a spike in health care the last three years.”

McCarthy is building a $37 million expansion at United Regional Health Care in Wichita Falls and a $185 million, 1-million-sq-ft, two-building regional headquarters for Blue Cross and Blue Shield of Texas in Richardson.

Roussell and Holliman credit corporate relocations and population growth with fueling the construction activity.

Entertainment also is a strong market,  with work on the $275 million Dallas Center for Performing Arts and the approximately $1 billion, 2.3-million-sq-ft, 80,000-seat Dallas Cowboys Stadium under way.

In addition, Roussell and Perryman expect more gas and oil drilling in the Barnett Shale near Fort Worth. 

Houston “By and large, things couldn’t be better,” says Russell Hamley, president of the Greater Houston Chapter of Associated Builders and Contractors. “Industrial has never been stronger. There is plenty of work already and megaprojects are coming up in the near future.”

Motiva Enterprises awarded Bechtel/Jacobs, a joint venture of Bechtel National, headquartered in San Francisco, and Jacobs Engineering Group of Pasadena, Calif., a contract to manage a 325,000-barrel-per-day expansion at its Port Arthur refinery.

A consortium of Technip U.S.A Corp. of Houston, Saipem Technigaz SA of Italy and Zachry is providing construction services for a new liquefied natural gas terminal on Quintana Island, south of Houston, for Freeport LNG Development of Houston. Construction began in 2005 and will wrap up by February.

Hamley says that due to a variety of economic reasons, refineries have been operating continuously, delaying scheduled maintenance shutdowns and environmental upgrades. Now, the work must take place along with the new construction. 

San Antonio “It’s booming,” says Gary Joeris, president of Joeris Group Inc. of San Antonio.

Joeris broke ground in 2007 on the $42 million H-E-BPlus! grocery story and McCreless Market, a big-box shopping center at the site of the former McCreless Mall on the southeast side of the city. Completion of the first two phases is expected in the fall.

“The outlook for 2008 is good,” adds the AGC’s McMurry. “Members will be as busy as they ever have been in 2008. Many will be turning down work. Contractors in San Antonio are expected to be selective about which owners they choose to work with next year.”

Public projects will abound. Voters recently approved a $550 million city spending plan to upgrade parks and streets and have given the green light to school districts throughout the San Antonio area to build new schools.

“There’s an excess of $1 billion in school bonds passed this year, and that work is already starting up,” Joeris says.

The Alamo Community College District approved $450 million in capital improvements, and McMurry expects that much of that work will come online in 2008.

San Antonio International Airport plans to start construction on a new terminal in 2008.

On the private side, SpawGlass of San Antonio is working on the San Antonio Intermodal Terminal for Union Pacific Railroad of Omaha. The $90 million facility, expected for completion in late 2008, will receive and ship trailers and containers from Mexico, California and other places. 

FaulknerUSA of Austin expects to complete the $227.5 million San Antonio Grand Hyatt hotel, with upper-floor condominiums, this spring.

Rackspace Managed Hosting of San Antonio will invest $100 million in a new campus at Windsor Park Mall, keeping the company in the San Antonio area. The computer services company received $22 million in state funds for the expansion, which is projected to create 4,000 new jobs during the next five years.

“For the foreseeable future, commercial construction will be doing well in San Antonio, and my members are happy,” says Steven Schultz, president of Associated Builders & Contractors-South Texas Chapter in San Antonio. “We’re a great city, and this happens to be our time in the sun.”

Schultz says that thousands of jobs being created by large corporations relocating or expanding in the city have created a ripple affect, spurring demand for retail, restaurants, schools and other facilities.

Austin “Things in Austin are good; the market remains strong,” says Joel Stone, vice president and regional manager of Austin operations for SpawGlass. “Retail has a lot of development, and the condominium market has been and continues to be strong.”

Perryman says that the Austin residential market is holding up better than other areas.

SpawGlass is wrapping up construction of the 500,000-sq-ft retirement center Querencia at Barton Creek. The company also has six parking garages under way.

This year, SpawGlass plans to break ground on a student activity center at the University of Texas, a two-year project. The company has $40 million in contracts at Texas State University-San Marcos for its North Campus Enhancement project. The company will start work early this year on a the TSU road relocation and parking garage and expects to break ground in early 2009 on the North Housing Complex.

El Paso “There’s a lot more work than we’ve seen, except for last 2006,” says Oscar Venegas, president of VEMAC, Vengas Engineering Management and Construction of El Paso, who attributes much of the activity to work taking place at Fort Bliss. There’s plenty of work for everybody.”

VEMAC is working on three pre-K-through-fifth-grade schools for two local districts and expects more school construction if a bond package passed this fall.

C. F. Jordan is building a five-level, cast-in-place, post-tensioned concrete structure with 1,666 parking spaces at the University of Texas at El Paso.

Elsewhere Perry A. Vaughn, executive director of the Rio Grande Valley Chapter of Associated General Contractors of America, calls the market strong and “blessed with volume,” although housing is starting to plateau.

G.T. Leach Builders of Houston continues work on the Sapphire, a $91 million, 216-unit condominium project on South Padre Island. Coastal Constructors Southwest Ventures, a division of Zachry, is making progress on the $70 million, 31-story, 147-unit Ocean Tower South Padre Island.

School districts continue to build new facilities, trying to catch up with population growth. Vaughn expects districts will let about $750 million in new school construction in the next couple of years.

Tonya Felder, executive director of the Panhandle of Texas Chapter of Associated General Contractors, says that while new starts appeared slow in 2007, as contractors finished projects, she expects work to pick up in 2008. She adds that several ethanol plants are under construction, and the new industrial projects will bring additional people to the area, spurring the need for more housing, retail and health-care projects.

Concerns about Labor Although contractors are upbeat, some concerns persist, chief among them retaining an adequate labor force.

“We don’t have enough people to support the demand that’s out there,” Hess says.

Hamley agrees, saying, “We have nowhere close to enough people to do the work.”

McMurry says his members in San Antonio are concerned about capacity of the local labor market and expect an in-migration of talent will be necessary to complete the upcoming projects. In addition, the community is trying to grow its own construction professionals.

“We’re all starving for good people and good subs,” Joeris says. “It’s ultimately driving prices up. We’re seeing a few less bids from subcontractors on some of the projects.”

Hess, who does not expect a slowdown for several years, says Hensel Phelps is “cautious and careful to make sure we are not overloaded, so we can take care of the clients we have as well as make sure we don’t jeopardize our reputation by taking on too much.”

Hamley says some developers have projects waiting to start but cannot find enough contractors to build.

“Labor is the speed limit,” Woody says. “Particularly among the trades, labor is strained.”

Scott has noted an influx of tower crane operators from California, Florida and the East Coast, as well as subcontractors from other parts of the country because the market is so good.

The big unknown on the labor side is immigration reform. Vaughn says changes in immigration laws could affect the industry, but he adds that the Rio Grande Valley depends less on illegal aliens than larger cities, where higher wages attract immigrant workers.

“Legislation for immigration could have a tremendous affect on what happens to the labor market,” Hess says.

Holliman calls workforce issues a “good challenge.”

“Texas is one of the best markets in the country for construction craft labor,” says Manning. “It’s tight, but good contractors, like ourselves, with the resources and processes and a large base will be fine.” 

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