South Texas Report

Commercial Activity Strong, But Labor Source Thin

From San Antonio to Brownsville and across the Rio Grande Valley, a revived business economy–in an area where unemployment was traditionally high–has commercial contracts rising and the labor pool suffering.

By Jennifer Hiller

A condo project, under construction in downtown San Antonio by C.F. Jordan of Dallas, is the first of two 20-story towers just east of IH-37 near Sunset Station.

Population and job growth continue to create a wealth of commercial construction work across South Texas.

In the Rio Grande Valley, more than $372 million in construction permits had been issued by the end of August 2007, up more than 25% over the same time period in 2006, according to the Rio Grande Valley Partnership. And in August alone, more than $25 million in permits were issued.

Cross-border traffic, which drives so much of the Valley business economy, was at about 1.9 million crossings per month, according to the group. That’s up more than 100,000 visitors during the same month the previous year.

The Valley’s previously high unemployment rate has virtually disappeared. The Dallas branch of the Federal Reserve notes that the Valley’s above-average job creation rate has been happening since 1969, and according to the Texas Workforce Commission, the Valley’s unemployment rate hit an all-time low in November, hovering between 4 and 5%.

While the low unemployment rate has been welcome news, it has put a strain on construction firms looking to hire workers, says Perry Vaughn, executive director of the Rio Grande Valley chapter of the AGC in Harlingen. “The proximity to the border helps, but it’s still a major challenge,” Vaughn adds.

The biggest economic challenge facing the industry near the border is the national debate over building a border fence, which is heading toward construction. A fence would negatively impact Valley construction firms by slowing cross-border traffic and limiting the access of Mexican nationals to Valley retail centers, which have been a prime source of construction contracts, Vaughn says.

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Mexican nationals traveling to the Valley spent an average of $5,300 per household in 2004, according to research from The University of Texas-Pan American, and there's demand for more retail centers to serve the market.

Hardin Construction Co. of Atlanta  recently completed the Rio Grande Valley Premium Outlets in Mercedes.

The annual influx of winter visitors to the Valley continues to fuel the need for new medical facilities that cater to the part-time residents, Vaughn says. The Valley in the winter of 2005 swelled by an estimated 63,500 households due to the residents, who spent more than $6,600 per household during their stays, according to a study by the Valley Markets and Tourism Research Center at The University of Texas-Pan American.

Winter Texans, Mexican nationals and other tourists are increasing the demand for condos on South Padre Island, Vaughn says.

GT Leach of Houston and Coastal Constructors SW Ventures LP South Padre Island both have condo projects under construction on South Padre Island.

Educational work, though, promises to continue to be the bread-and-butter of Valley construction firms. The Valley has seen significant bond issues passed at the K-12 and community college level recently, including a $68 million program at Texas Southmost College in Brownsville and a $135 million program at Brownsville Independent School District.

Rio Grande City ISD is advertising for the construction of its new high school.

Texas Descon of McAllen recently completed a new middle school for La Joya ISD in Hidalgo County and Skanska USA is nearing completion on a new high school for the district. Gignac & Associates of Corpus Christi was hired to design the next needed high school--Juarez-Lincoln High, Vaughn says.

Two other schools -Evangelina Garza Elementary and Juan De Dios Salinas Middle - were scheduled to be bid in late 2007 and the first quarter of 2008.

There is one potential wrinkle for public owners, Vaughn says. Numerous construction defects lawsuits have been filed by Valley school boards against general contractors, architects or engineers who had done work for the districts in the last decade, making  many firms wary of bidding future K-12 work, he adds. The AGC Texas Building Branch in Austin listed the lawsuit problem as one of the group's top concerns for the 2007 Legislative session, noting that some of the lawsuits claim that the district has found only "potential" defects. As a result, fewer contractors want to bid and costs have increased due to higher insurance. “The litigation for construction defects has taken away some incentive,” Vaughn says.

There’s a continued need for more schools, however, Vaughn says. The Texas State Data Center has projected that by 2040, the McAllen-Edinburg-Mission area will grow from a population of 569,000 in 2000 to between 1.4 million and 1.6 million, a 152% increase. Laredo is projected to increase by more than 180%, the state’s highest growth rate, according to the center. And the Lower Rio Grande Valley area will grow to between 1.2 million and 1.3 million by 2040, the center says.

A rendering of Texas A&M University-Corpus Christi Nursing, Health Sciences and Kinesiology Building, designed by F&S Architects. Construction will begin this year, with AG|CM of Corpus Christi as CM-at-risk.

San Antonio is in the middle of a construction boom that industry groups say will likely continue for several years thanks to federal and local government contracts. Leading the way is an anticipated $2 billion in construction projects expected to be released in the next five years as the military changes Fort Sam Houston into a medical training facility and plans extensive work at Lackland and Randolf Air Force bases.

San Antonio voters approved $550 million in spending on parks, streets and drainage in May.

School districts that have passed bond programs include Northside ISD, with $693 million. North East ISD approved $498 million, Medina Valley $48 million, South San Antonio ISD $37 million and Judson ISD $236 million for new facilities.

“Commercial builders will be busier in 2008 than they have in recent years,” says Doug McMurry, executive vice president of the San Antonio chapter of the AGC.

“The industry is facing a huge shortage of skilled labor. The more sophisticated companies are being more selective about which projects they take on. Public owners are going to have to really reach out because the labor market is so tight.”

Everyone from skilled carpenters to project managers is in short supply, says Stephen Schultz, president of the South Texas chapter of ABC in San Antonio. “There’s a lot of work out there, but it’s a matter of finding the people,” he says. “You’ve got to be careful you don’t bite off more than you can chew.”

In response, the AGC has brought together school districts, the U.S. Army Corps of Engineers, the University of Texas system and others to talk about ways that public owners can attract top contractors for their construction programs. The idea is to create a report card with criteria for both public owners and private contractors to evaluate each other.

“The owners know the market is tight and they want to attract the best and brightest,” McMurry says.

Private owners, too, have been keeping San Antonio firms busy. The city is among the nation’s busiest in hotel construction, McMurry says. He adds that officials from the firm Lodging Econometrics, speaking to the AGC in 2007, counted 44 hotel projects in the works.

Among the largest is Austin-based Faulkner USA’s work on the 33-story Grant Hyatt downtown at the newly expanded Henry B. Gonzalez Convention Center. The 1,000-room hotel is expected to open this month, while San Antonio-based Tower Construction LP will finish out luxury condos on the top floors of the facility.

Gaylord Entertainment Co. announced in November its purchase of the Westin La Cantera Resort on San Antonio’s northwest side. The company plans to spend $250 million to buy more land and plans to double the number of hotel rooms to just over 1,000.

Several high-rise condominiums are in the planning or construction phase, although San Antonio has been slower to enter the condo market than other large cities. C.F. Jordan is close to topping out the first tower of the $62 million, 20-story Vidorra off of IH-37 near Sunset Station.

Higher education is another bright spot for San Antonio construction, with the Alamo Community College District in the middle of a $450 million capital improvements program.

The University of Texas system has a construction and renovation program that includes $273 million at the San Antonio campus and $301 million for the UT Health Science Center. And the Texas A&M system is soliciting proposals for the development of a master plan for its planned South Side campus.

The addition of the A&M campus would make San Antonio the only Texas city with both UT and A&M campuses.

Corpus Christi has been the one quiet spot in South Texas construction work, with no major school bonds or public sector work in progress. “We haven’t had anything big come out in some time,” says Gail Hoffman, executive director of the South Texas chapter of the AGC in Corpus Christi.

On the horizon, though, is the $300 million Crosstown Commons, a proposed 1.7 million-sq-ft, open-air retail center by Tennessee-based developer EMJ Corp.

About $40 million in tax incentives for the project are dependent on the developer showing that the project won’t take tenants away from the Padre Staples Mall, which is undergoing a $12 million renovation, Hoffman says.

Padre Staples is being purchased by the Fort Worth-based Trademark Property Co., and that company has said it plans more extensive renovation work and an expansion, and it will also seek tax incentives.

There’s also a proposed $50 million outlet mall in Robstown by developer Dolphin Ventures, although nothing has been finalized, Hoffman adds. The biggest question for area contractors has been: Will they see any of the retail work, or will outside firms be hired? “The problem is, do these people actually use local contractors?” Hoffman asks. "That remains to be seen."

Corpus Christi is seeking public input and putting together a proposed bond package for the November elections that would include mostly street, park and public building maintenance.

“There just isn’t enough money for fun stuff, but our streets are in pretty bad shape and need some work,” Hoffman says.