In 2008, James Phelps was faced with two choices: either hope to not get laid off from the construction firm he worked for, or start his own business.
In the middle of the Great Recession, he chose the latter.[caption id="attachment_139349" align="alignnone" width="770"] James Phelps, president of JCP Construction, at a renovation project for Pilgrim Rest Missionary Baptist Church in Milwaukee.[/caption]
Phelps, now 40, left his job at KBS Construction Inc., which is now part of C.D. Smith Construction Inc., and started JCP Construction LLC with his brothers, Jalin and Clifton.
The company’s first job was installing solid surface tops at Cambridge Commons residence hall at the University of Wisconsin-Milwaukee, Phelps alma mater. The job paid $80,000.
There were some months of steady work and several months of drought for the new business.
Phelps, who completed the 26-week Associates in Commercial Real Estate program run by Marquette University and the Milwaukee School of Engineering in 2005, kept bidding on projects.
“We were able to get into Century City – Talgo was coming to town and we did a lot of the carpentry work there,” Phelps said. “It was tough. We had to get our name out there and show people we were nimble and capable.”
And then the bottom fell out of the industry.
The Great Recession hit the construction industry especially hard. The Wisconsin construction sector lost nearly 44,000 jobs between 2006 and 2012, according to the most recent report from the Associated General Contractors of America.
The Phelps brothers were among the lucky ones. From 2008 to 2015, JCP has seen annual double-digit revenue growth—with the exception of 2013.
Once a three-man firm, JCP Construction now consists of a steady team of 25 people working in the field and another five working in the office on Dr. Martin Luther King, Jr. Drive in Milwaukee.
JCP has been named the general contractor for the 13,700-square-foot Pete’s Fruit Market grocery store that will be built on the city’s north side.
The company also is a subcontractor on the $450 million Northwestern Mutual Life Insurance Co. office tower project in downtown Milwaukee. Construction of the 1.1 million-square-foot, 32-story building is expected to be complete in 2017.
In addition, JCP will partner with Mortenson Construction as part of the construction team on the $524 million Milwaukee Bucks arena.
“I feel like now the margins are starting to come back,” Phelps said. “You always second-guess yourself; that’s part of being an entrepreneur. But seeing the margins come back made us reassured that this was the right decision.”
Today, with multi-million dollar projects planned or under construction throughout southeastern Wisconsin, there is no question that shovels are back in the ground.[caption id="attachment_139350" align="alignnone" width="770"] Construction of a $450 million, 32-story office tower at Northwestern Mutual’s headquarters campus towers over downtown Milwaukee.[/caption]
“Northwestern Mutual has really triggered something within our city,” said Dan Bukiewicz, president of the Milwaukee Building & Construction Trades Council, AFL-CIO, which represents Milwaukee, Ozaukee, Washington and Waukesha counties. “The Park East is moving and getting that property going after 14 years was an incredible opportunity. I think we’re in for another strong five to seven years.”
During a press conference in March, Milwaukee County Executive Chris Abele announced 98 percent of the Park East corridor’s land is either being developed or under option for sale to a developer.
Milwaukee County owns the last remaining parcel in the Park East, a one-third acre piece known as “Block 12, Lot B,” and has issued a request for proposal for the property. Marcus Corp. and Hammes Co. each submitted proposals to purchase and develop the land in February. County officials will not comment on the process.
Bukiewicz also credits the increase in construction in the area to the leadership at the state, county and city levels.
“Millennials are asking for things and leadership is following through,” he said. “If you want to retain talent in this state, you are going to have to offer exciting, innovative places for people to live, work and play.”
Like manufacturing, a strong construction industry can lead to a more robust state economy. The construction sector directly produced $9 billion of Wisconsin’s gross domestic product in 2013 – 3.4 percent of the state’s total $264.1 billion GDP, according to the Associated General Contractors of America.
The average wage and salary payment per construction employee in 2012 was $52,772, which is 22.4 percent above the state average of $43,105, according to the AGC of America report.
“The excitement right now in Milwaukee is wonderful for us – there is billions of dollars worth of work,” said Ken Kraemer, executive director of Building Advantage, the Construction Labor Management Council of Southeast Wisconsin. “We want to make sure we are not just providing jobs for people, but careers.”
According to an analysis by the AGC of America, 43 states and the District of Columbia added construction jobs between February 2015 and February 2016, with California adding the most jobs (53,800, a 7.6 percent increase).
Wisconsin ranks 20th in the country, with 5,500 new construction jobs added between February 2015 and February 2016, a 5.1 percent increase.[caption id="attachment_139351" align="alignleft" width="560"] Construction continues for the River House Apartments development in Milwaukee.[/caption]
“In most of the country, construction continues to outpace other industries in adding jobs,” said Ken Simonson, chief economist for the Associated General Contractors of America. “Contractors remain upbeat about demand for many types of projects, but they are having difficulty finding enough qualified workers.”
Richard Schmidt, Jr., president and CEO of Milwaukee-based CG Schmidt Inc., who has worked in construction since 1980 and is a fourth generation contractor, said he never considered getting out of the business – even during the Great Recession, which was the worst downturn he has seen in his career.
During the slowdown, his company had to lay off some employees but was able to keep its core base of people by doing some smaller projects and reaching out to geographic areas in which it hadn’t previously been active.
About 18 months ago, Schmidt says he started to notice a turnaround. This year will be the first that CG Schmidt will surpass its pre-recession annual revenue.
“We’ve been blessed with a lot of work,” Schmidt said.
CG Schmidt recently completed the 833 East Michigan office tower in downtown Milwaukee and is currently working on: the Northwestern Mutual tower with Gilbane Building Co.; the expansion of the Uline corporate headquarters complex in Pleasant Prairie; the Medical College of Wisconsin professional office building in Wauwatosa; the Moorland Reserve Health Center in New Berlin; and several other projects.
In the past 12 months, CG Schmidt has added 56 employees—24 office staff and 32 field staff.
Despite the construction boom, Schmidt said his firm has not had any trouble getting enough materials or subcontractors for its projects. The biggest challenge, he said, is finding qualified people both in the trades and for his professional staff.
In Wisconsin, there has been a focus on getting people back to work and enrolled in apprentice programs so there is not a shortage of skilled workers, Kraemer said.
In 2015, the local union construction industry worked 15.5 million man hours and spent upward of $10 million on training apprentices. This year will likely top that, Kraemer said.
In 2010, the unemployment rate in the construction industry was 30 percent and there were zero people in the local electrician apprentice program. Two years ago, 47 people were enrolled; today, there are 60. Six years ago, 10 people were enrolled in the plumbing apprentice program; today, there are 37 people enrolled, Kraemer said.
The average age of an apprentice in a construction-related field is 26 to 28 years old.
“We’re back to 2010 numbers in our apprentice program, and focusing on doing a better job making sure this is not a second career choice for people,” Kraemer said.
The increase in construction crosses all sectors of the building industry.
The $1.7 billion Zoo Interchange Project to rebuild the aging interchange at the intersection of Milwaukee, Wauwatosa and West Allis began in 2013 and will last until 2018. For the past three years, the orange barrels have caused headaches for drivers but created hundreds of construction jobs.
In April, voters in Muskego, Mukwonago and Menomonee Falls approved significant building project referendums, providing even more construction work in those communities. The Muskego school district will build a new middle school and expand two existing elementary schools. In Mukwonago, the high school will be renovated and expanded and in Menomonee Falls, numerous facilities will be upgraded and two buildings will be demolished.
On the residential side, there is an apartment development boom in downtown Milwaukee and the suburbs, with thousands of units planned, under construction or recently completed. For the single-family and duplex home market, southeastern Wisconsin had 299 housing starts in the first quarter of 2016, which is the best performance since 2007. The average value of the homes being built is $328,000 and the average home is 2,890 square feet, according to MTD Marketing Services, which tracks home start information. Although home starts have dramatically improved since the Great Recession, single family home construction is still nowhere near its 2004 peak, when 691 new homes were built in the first quarter of 2004. At that time, the average home value was $256,235.[caption id="attachment_139352" align="alignnone" width="770"] An aerial view of The Corners, a $200 million retail, restaurant and apartment development in Brookfield.[/caption]
For projects getting subsidies from the city of Milwaukee, city officials have tried to ensure local residents and businesses are benefitting through its Residents Preference Program, Small Business Enterprise Program and Local Business Enterprise Program.
For example, at least 25 percent of construction spending and between 17 and 18 percent of professional service spending on the new Bucks arena in downtown Milwaukee must be with a disadvantaged business enterprise, small business enterprise or small disadvantaged business. Forty percent of on-site arena construction hours must meet Milwaukee’s Residents Preference Program requirements.
Like the arena project, Northwestern Mutual has had to meet similar requirements for its headquarters project because both projects are being financed, in part, by tax incremental financing.
The city has committed $47 million in TIF financing for the $524 million arena project and $54 million in TIF financing for the Northwestern Mutual office tower.
As of February, Northwestern Mutual had hired 355 people from Milwaukee’s poorest neighborhoods to help build the office tower, exceeding the city’s expectations.
JCP Construction, a minority-owned firm, has benefited from those programs. JCP is a subcontractor on both the arena and Northwestern Mutual projects. While Phelps is grateful, he said the Residents Preference Program is a double-edged sword. As a Milwaukee homeowner, Phelps appreciates the city getting a return on its investment in wage supporting jobs for people who live in the city. And as a business owner, being awarded contracts through the various preference programs allows JCP to meet contractors and get additional work it might not have otherwise gotten.
But still, the programs sometimes have the bad connotation that they are the only reason minority-owned firms are getting the work, Phelps said.
“(That perception by some) is what it is,” Phelps said. “Historically, different races have used different things to their advantage. At first, it did bother me but I’ve come to embrace it. I see it as a good way to get people through the trades.”
Phelps also believes putting minorities to work on projects, pushing them to do excellent work and then rewarding them for the work is beneficial for everyone involved.
“People are now used to seeing people of color on projects who are not doing mediocre work,” Phelps said. “Everyone wants to be pushed and when they know they will be rewarded for it, there is a loyalty that goes along with it.”
Regardless of the minority hiring requirements, JCP would be getting work, Bukiewicz said.
“I believe James and JCP would be successful with or without those requirements,” Bukiewicz said. “JCP is a very well- run business.”
The Great Recession officially ended in mid-2009, but in southeastern Wisconsin, the construction industry did not start to rebound until Northwestern Mutual announced at the end of 2012 it would expand its corporate headquarters in downtown Milwaukee.
The announcement reaffirmed Northwestern Mutual’s commitment to Milwaukee, which in 2003 had opened a second major campus on 75 acres in Franklin. The new office tower will preserve 1,100 downtown jobs while creating space for the company to add 1,900 new ones at it headquarters campus.
Northwestern Mutual also recently began construction work for a 33-story, mixed-use tower on the block bounded by North Van Buren, North Jackson, East Mason and East Wells streets. The $100 million development will feature 308 high-end residential apartments and 16 penthouse units, as well as 1,100 parking spaces and retail space. Fond du Lac-based C.D. Smith is the general contractor for that project.
“Northwestern Mutual was really the bellwether,” Phelps said. “Once (the headquarters) project came out, it really primed the pump and a lot of other projects started getting talked about. We saw a lot of projects move from tentative to go.”
Northwestern Mutual’ s headquarters expansion may have been the catalyst for the recent downtown Milwaukee development boom, but the decision by the Milwaukee Bucks to build a new arena has definitely stoked the flames.
When the Bucks break ground on the arena on June 18, Minneapolis-based Mortenson, which has an office in Brookfield, will manage the project.
Ben Goetter, director of project development for Mortenson, said being named construction manager of a 714,000-square-foot facility was game-changing for the firm’s Milwaukee-area operations.
“We spent almost three years pursuing and positioning ourselves for this project,” Goetter said. “It was a long road, but it paid off. To be able to be building a catalytic project like this in downtown Milwaukee is great, and we are absolutely ready.”
Mortenson predicted an uptick was coming and began recruiting talent and hiring a year ago. Today, the company has 265 employees living and working in southeastern Wisconsin.
Goetter believes the timing of the major projects in downtown Milwaukee will keep work in the pipeline for years to come.
“There are awesome, high-profile projects planned, beginning with Northwestern Mutual, then the arena, followed by The Couture,” Goetter said. “They are spaced out pretty well to keep people excited, engaged and working.”
During his 19 years at Mortenson, Goetter has witnessed different booms – from the dot-com boom of the mid-1990s to the health care boom of the 2000s, when his firm was building 200,000-square-foot hospitals.
Now, he is seeing the resurgence of downtown Milwaukee, which he said is exciting for the entire state.
“I hope it lasts for a while,” Goetter said. “If our leadership and our prominent Fortune 500 companies are smart with what they do downtown, this wave could be unique because of how well they have spaced out these projects. After the arena comes the future of the Bradley Center site next. If we play our cards right, we can keep this energy high for a long time.” n