The economy may be down and the price of construction materials may be up, but Los Angeles builders are about as busy as ever.
For the second straight year, there are 50 projects valued at $100 million or more under way in Los Angeles County, as shown by the Business Journal’s annual survey of construction in the county. Four years ago there were only 11 such projects.
Although private-sector construction is hitting a rough patch, builders can thank voters who years ago approved funding for massive public-sector projects, and hundreds of millions of dollars in government subsidies for infrastructure improvements.
Many of the big public projects are schools that are part of a $19 billion, multiyear effort to refurbish and replace the Los Angeles Unified School District’s aging campuses. Three others are freeway projects funded by the state and federal governments.
It’s a trend that builders say they have seen before: In an economic downturn, government-funded projects come to the fore, as the money is usually set aside years in advance.
“When things get slow in the economy, the public side kicks in,” said Kevin Dow, vice president and manager at the regional office of New York-based Turner Construction Co., which this year broke ground on two LAUSD campuses with a combined value of $218 million.
Among the new public projects is the $391 million Central Los Angeles Learning Center on Wilshire Boulevard, being built by Colorado-based Hensel Phelps Construction Co. The campus will serve more than 4,000 students at the site of the old Ambassador Hotel. The sprawling complex is slated to open in 2010, and will include a public park and three separate school buildings.
Road work
Three new highway projects with a total value of over $470 million also broke ground this year across Los Angeles County. Two of the projects will add carpool lanes to parts of the Golden State (5) Freeway, and the Pomona (60) Freeway. The third is a repaving project along nine miles of the Long Beach (710) Freeway.
“All of these projects are helping to stimulate the economy and provide needed improvement for our infrastructure,” said Jeanne Bonfilio, a spokeswoman for the California Department of Transportation. “We feel it’s a win-win situation, especially as the economy is in a downturn.”
In fact, public transportation projects took three of the top four slots on the list.
The two biggest projects on the list are the Metro Gold Line across East L.A., at $869 million, and the Expo Light Rail Line, from downtown L.A. to West Los Angeles, at $862 million. The fourth project on the list is the $504 million renovation of the Tom Bradley International Terminal at Los Angeles International Airport.
While several big private-sector projects are being built, many of them were started before the credit crisis hit. And the number of private-sector projects in the future may fall. Lenders are extremely cautious in this environment, and that makes it more challenging for developers to get their ventures financed. “Instead of two years ago when we had one lender ready to jump in, we’re now seeing developers having to rally numerous lenders,” said Michael Bernica, the senior vice president of operations at Webcor Builders Inc.
“A lot of our livelihood in this next year, as compared to two years ago, is going to depend on the lenders.”
Bernica said the problems with the economy haven’t significantly impacted Webcor’s largest projects, such as the $478 million LA Live complex downtown and the Century luxury condominium tower in Century City. But it’s different for the company’s smaller projects.
“I almost want to say they’re on life support,” Bernica said.
The rising cost of construction material, which has been an ongoing issue, hasn’t helped. Material prices, already up, are expected to increase 4 percent in 2008 as demand rises in developing countries. Also to blame are the volatility of the commodities market and the weak dollar, according to Reed Construction Data.
Waiting for turnaround
Developers and builders alike are waiting for the situation to turn around so private projects can move forward.
Among them are the first phase of the $1.8 billion Grand Avenue project, the $1 billion Park Fifth condo tower downtown, and a slew of multimillion-dollar groundbreakings for and expansions of hotels and condos across the county.
“They have to be able to get investors,” said Dow of Turner. “I don’t know what will trigger that, but it will take some sort of movement in the economy.”
The construction boom hasn’t translated favorably to the job market. Construction jobs in the county in July totaled 149,700, a decrease of almost 7 percent from the same time last year, according to data from the Los Angeles County Economic Development Corp.
The job losses can be traced to the depressed housing market, which drove down demand among home builders. However, the impact was lessened because public works jobs increased and nonresidential construction jobs didn’t register a steep decline.
“A lot of public-sector projects always take a long time to get going,” said Jack Kyser, LAEDC’s chief economist. “But once they do, that will provide a little bit of a cushion this year and into 2009.”
Kyser predicted that public projects would buoy the construction market even more next year.
“It’s very tough out there, and a lot of people think that private-sector construction is going to continue to struggle to find financing into 2009,” he said. “You’re probably going to see more public-sector projects on the list next year.”
