Return of the cranes: Large construction projects provide glimmers of hope

When developer Rick Barrett walks around the site of The Moderne, the 30-story residential tower he is building in downtown Milwaukee, he greets almost every construction worker that he encounters.

Most of those anxious workers have a simple reply: “When are you getting us another job?”

The construction industry has been depressed since the Great Recession clobbered the economy. That industry has been especially hard hit in Wisconsin, which lost 10,200 construction jobs from June 2011 to June 2012. Last year, Wisconsin was the second-worst in the country in construction job losses as a percentage of total jobs, with a decrease of 11.1 percent, according to the Associated General Contractors of America.

Second phase of the Mandel Group’s North End

Lyle Balistreri, president of the AFL-CIO Milwaukee Building and Construction Trades Council, said this Milwaukee-area construction industry downturn is more severe than any he has experienced in his 40-year career.

Marriott Hotel downtown Milwaukee

“I’ve never seen anything like it,” he said. “This is the worst construction recession since the Great Depression.”

Area construction firm executives agree.

“As we look at our offices around the country, Milwaukee has been one of the hardest-hit (regions) from a workload standpoint,” said Mark Sherry, vice president and general manager for Mortenson Construction’s Milwaukee area office.

However, after a couple of years during the recession when few if any major construction projects broke ground in the region, several major projects are now under construction and planning is underway for some massive new projects that could transform the region and pump new life into the area’s construction industry.

Nationwide, construction spending in June rose to a two-and-a-half year high, according to an analysis of federal data by the Associated General Contractors of America. The growing list of major construction projects that are either under construction or in the planning phase in the Milwaukee area shows that the region is experiencing some of that trend.

Major projects currently under construction in the region include four hotel projects in the downtown area, numerous apartment buildings, several Walmart stores and The Moderne, which is nearing completion.

The lineup of projects on the drawing board is even more impressive. Barrett has proposed a 44-story hotel and apartment building called The Couture near the lakefront. Northwestern Mutual Life Insurance Co. plans to build a large new office building either at its downtown campus, its Franklin campus, or at both campuses, to replace an existing 452,000-square-foot building downtown. Wauwatosa-based Irgens plans to build an 18-story, 350,000-square-foot office building just southwest of the U.S. Bank Center downtown. Marcus Corp. plans to build The Corners, a new upscale shopping center at I-94, Bluemound and Barker roads in the Town of Brookfield.

Kohl’s Corp. plans to build a 900,000-square-foot new corporate campus in Menomonee Falls. Meijer plans to build big-box discount/grocery stores in Franklin and Grafton.

In addition, the University of Wisconsin-Milwaukee is working on plans for several new facilities.

The number of major projects in the planning stages is giving construction firms and workers hope that the industry is nearing a rebound.

“That’s all encouraging, for sure,” said John Hunzinger, president of Brookfield-based Hunzinger Construction Company. “These are all really very viable projects, and that’s a great thing. But these projects just can’t come soon enough.”

“Contractors are seeing the uptick,” said Tom Schuchardt, president of Madison-based KBS Construction Inc., which has an office in Milwaukee. “Faster would definitely be better.”

“There’s a few hundred million dollars in projects waiting to go downtown, and we need to work desperately,” Balistreri said. “It can’t happen soon enough.”

The process to plan, gain financing and obtain approvals from corporate and municipal boards is normally a lengthy one for major construction projects. But in the post-Great Recession world, that process is taking even longer, much to the dismay of construction firms that are eager for more work. As a result, construction executives are not getting too excited about major proposed projects until they move closer to reality.

“There’s a lot of nervousness in the marketplace,” Sherry said. “Nobody wants to move a project forward and have something happen to make that decision look like a poor one 12 months later.”

However, the construction industry appears to have bottomed out and is already showing some signs of improvement, some industry executives say.

“We absolutely feel we have hit the bottom,” Sherry said.

“Our industry feels like it is moving through the bottom,” Hunzinger said. Things are a lot better than they were a few years ago. We’re doing fine. It always could be better.”

Others say business is still in decline.

“Things are level at best,” said Craig Jorgensen, president and partner of Pewaukee-based VJS Construction Services Inc. “We had two pretty good years the last couple of years. We’re going to have a lesser year this year, and we expect even less next year. There are still a lot of contractors out there that are very hungry.”

“It’s still pretty tough out there for everybody,” Schuchardt said. “Most people will tell you their revenue is down. We definitely need more work. There’s no question about that.”

The severe construction industry downtown has created an extremely competitive pricing environment for contractors. That’s a major benefit for developers but it makes it difficult for contractors to make a profit, even on the projects that they do get to build.

“It’s a tough market to make money,” Jorgensen said. “The hard bid market is as competitive as I’ve seen it in 20 years.”

“It’s still a buyer’s market out there,” Schuchardt said. “The client will get a lot of building for his money right now.”

“Those projects that are out in the marketplace right now are going to benefit,” Sherry said.

However, the growing list of major development projects forming in the region’s construction pipeline is giving workers and construction firms hope that a major recovery for the region’s construction industry is around the corner.

Mortenson’s Milwaukee office hit bottom in 2011, has increased business by 4 percent this year and is hoping for significant improvement in 2013, Sherry said.

“There is more optimism in the marketplace looking forward,” he said.

“The prospect of what might come to pass is encouraging,” Hunzinger said. “We’ve felt like as an industry the last two years each year everyone was pretty optimistic that things would turn around, only to see pullback.”

“I think all signs are looking pretty good,” Schuchardt said. “It’s certainly exciting as these projects are getting announced.”

“We’re still on the fence between being pessimistic and optimistic,” Jorgensen said. “What is the percentage of these jobs that will go? Still, if 20 percent of them go, that would still be a lot of work.”

“I’m optimistic,” Balistreri said. “We have a number of fairly good-sized projects that are going to be approved and come out of the ground and hopefully put people to work. I don’t expect to see any construction work down those lines at least before late fall, and maybe not at all before the spring.”

When the region’s construction industry finally hits full recovery mode, many contractors and subcontractors will have to hire staff to take on the additional workload, Sherry said. Although it is normal for construction firms to hire more workers when they get projects, several firms will also have to rebuild internal project management staff levels that were reduced during the recession, he said.

“So many have reduced their capacity to respond to the market,” he said.

Much of the recent uptick in activity for Mortenson is focused on pre-construction planning work, Sherry said. Compared with a year or two ago, “it’s a huge difference,” he said.

A major increase in planning work could be a good sign for more actual construction work in the future.

“Our overall sense is one of optimism,” Sherry said.

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