Construction spending up, but hasn’t fully recovered

Real Estate

Bottom Right: The vial on the left is influent to a municipal wastewater treatment plant, and the vial on the right is the same influent after cold plasma treatment.

U.S. construction spending in July climbed to its highest level in more than seven years. Construction spending rose 0.7 percent to a seasonally adjusted annual rate of $1.08 trillion, the highest level since May 2008, according to a report by the U.S. Commerce Department.

If you work in downtown Milwaukee, all you have to do is gaze out your office window at the numerous cranes in the sky to see this is happening locally, as well.

New buildings at the eastern end of downtown have dominated this year’s construction news and soon, the skyline along Milwaukee’s lakefront will look very different.

The 17-story 833 East office tower is currently under construction; Northwestern Mutual Life Insurance Co. is building a 32-story office building; plans are proceeding for The Couture apartment high rise; and there have been talks of Johnson Controls Inc. building a 50-plus story tower on three acres south of East Clybourn Street.

The suburbs aren’t any quieter.

UNDER CONSTRUCTION Work continues on the third phase of the North End development in downtown Milwaukee, which is one of several large projects currently under construction in southeastern Wisconsin.
UNDER CONSTRUCTION Work continues on the third phase of the North End development in downtown Milwaukee, which is one of several large projects currently under construction in southeastern Wisconsin.

There are major mixed-use developments underway across southeast Wisconsin, including The Corners in Brookfield, The Corridor in Brookfield, The Mayfair Collection in Wauwatosa, White Stone Station in Menomonee Falls and Drexel Town Square in Oak Creek.

Throw in new hotels and numerous big box store projects, including Meijer stores in Wauwatosa, Oak Creek, Grafton and Kenosha and Costco stores in New Berlin, Pleasant Prairie and Menomonee Falls, and it’s no surprise construction spending is soaring.

But the numbers still aren’t back to where they were before the Great Recession, which devastated the construction industry.

“Milwaukee seems to have taken a progressive approach of really growing the city, specifically in the downtown area, but we’re definitely not back to the levels of 2008,” said Dan Bukiewicz, president of Milwaukee Building & Construction Trades Council, AFL-CIO. “Investment and infrastructure is key and should continue. But this is nothing to be shouting from the top of mountains or having parades over.”

Nationally, construction on new homes and apartment complexes has helped to improve overall economic growth. Earlier this year, U.S. homebuilding surged to the highest level since before the recession officially began, with U.S. housing starts rising 20 percent from April to May 2015 – the highest reading since November 2007 and the highest percent increase since February 1991.

John Hunzinger, president of Brookfield-based Hunzinger Construction Co., said when looking at construction spending, it’s important to note that it includes residential building.

On the commercial side, the industry began improving three years ago nationally and started to recover locally about two years ago, Hunzinger said.

“It may not be reflected in national numbers because they were weighed down by the poor housing numbers,” Hunzinger said.

Hunzinger is not enjoying the same boom it had in 2006 and 2007, but still, the market is improving.

Richard Schmidt, Jr., president and CEO of Milwaukee-based CG Schmidt Inc., agreed. His company is on track to see a 64 percent revenue increase in 2015 over last year. Still, he said the Great Recession had a profound impact on the construction industry and CG Schmidt still hasn’t caught up to its pre-recession revenue levels.

CG Schmidt is part of the Northwestern Mutual construction project currently underway downtown. The company is building a $450 million, 1.1 million-square-foot expansion to its corporate headquarters across the street from O’Donnell Park.

After the Milwaukee County Board rejected Northwestern Mutual’s proposal to purchase the O’Donnell Park parking structure, the company said it would build a mixed-used development to the west of its headquarters that would include 1,000 parking spaces, residences and retail space. Plans for that development have not yet been announced.

Schmidt said his company’s involvement in the Northwestern Mutual corporate headquarters project, as well as its involvement with the 833 East office building on Michigan Street, have really been the catalysts to its recent success.

“We think 2016 will be even better for us than 2015 in terms of revenue,” Schmidt said. “And we’re hopeful this is going to continue for several more years.”

Ben Goetter, director of project development for Brookfield-based Mortenson Construction, believes when a company like Northwestern Mutual invests in Milwaukee, it gives people confidence to spend on their own projects.

“People are willing to spend again and they are spending big,” Goetter said. “If construction spending is up, there is no doubt the economy is healthy. It gives the C-suite the confidence they are making the right decisions and then they are willing to spend money.”

Building projects are a tangible sign of economic recovery, and with projects come jobs. In August, the number of unemployed workers with construction experience dropped to the lowest it has been since 2001, according to an analysis by the Associated General Contractors of America.

Over the last year, average hourly earnings for construction have increased 2.8 percent, up from a 2.1 percent increase from 2013 to 2014. Employment at architectural and engineering firms is also increasing, up 3 percent since August 2014, according to the general contractors group.

Ken Kraemer, executive director of Building Advantage, the Construction Labor Management Council of Southeast Wisconsin, started to see a change in the construction industry a few years ago when massive road construction projects began, including the $1.7 billion Zoo Interchange project.

Then the earth started moving and trade iron workers started being called back to work.

“With the 833 East Irgens building and now Northwestern Mutual, we’ve got quite a few people working overtime,” said Kraemer, who represents more than 600 union contractors and about 11,000 people currently working in the skilled trade industry. “You can imagine the trade is busy.”

In 2015, the local union construction industry is on track to work 15 million man hours and spend upward of $10 million on training apprentices, Kraemer said.

“There are a lot of positive conversations taking place right now in the city and suburbs around construction,” Kraemer said. “You’ve got the arena coming up and then The Couture and a lot of projects in between. I think this could last another five to seven years.”

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