Category: Construction news

Start the Week with Some Pittsburgh Construction News

The first packages for the $1.1 billion Terminal Modernization Program are hitting the streets. A $15-16 million package of site work and building work to enable the construction is coming out to bid. The work will allow for roadways, logistics, and mobilization around the existing airport infrastructure so that the multi-year project can proceed without interruption to the normal operations of Pittsburgh International Airport.

 

PJ Dick is taking bids on a couple of its $80-100 million projects, the WVU School of Business and Pitt’s Scaife Hall expansion. Rycon Construction will put CMU’s $36 million Fifth and Clyde Residence Hall out to bid next week.

 

Shannon Construction has been selected to do the $7 million TI for Siemens Mobility at the former Waterfront Macy’s. Sentinel Construction has started construction of the $3 million HDR Engineering TI at One Oxford. Timbers Building Co. has started work on the $15 million renovation of the Lemington Home for affordable housing. Jendoco started construction on the $9.5 million renovation of the Fifth/Neville Apartments. Sano-Rubin Construction is preparing to start construction on a $15 million medical marijuana facility for PharmaCann in Carnegie.

riazzi-substation-rendering
Rendering courtesy Duquesne Light Co.

In Oakland, two projects that might be below radar (although both have had public attention) are the new Duquesne Light Riazzi substation and the $7 million mixed-use development for Mike Wu at Craig and Winthrop. Burns & McDonnell is the turnkey engineer/CM for the Duquesne Light project, which is an 8,000 square foot (by four story) structure located on Boundary Street beneath the Schenley Park Bridge. No costs have been released but the project should be $5-10 million or more.

Medical Office Buildings Remain a Safe Bet

Medical Office Buildings Remain a Safe Bet

Commercial real estate, like many investment-based industries, can experience major flux over time. Yet certain CRE investments are safer than others due to strong demand and profitable business models. Medical office buildings have been a strong choice for CRE owners and investors for many years. We believe that this trend will not only continue, but trend towards greater value for investors. Some investors are hesitant to enter into this space for fear of policy change and bureaucratic red tape making the future murky. While these are certainly relevant considerations, today we will be reviewing why the pros of medical office building investment outweigh the cons.

 

The Value of Medical Office Properties

In order for an investment to be a safe bet, it must first be determined that the asset has value. Medical office property values have skyrocketed in recent years. Here are just a few reasons why.

 

Supply and Demand Favors Property Owners

Supply and Demand Favors Property Owners

There is no question that medical office buildings are in high demand. As the nation ages and healthcare becomes an even larger industry, outpatient procedures continue to climb in both quantity and quality. That handles the demand part of the equation. As for supply, medical office buildings often require specific layouts and capabilities which must either be designed from the ground floor or retrofitted into older properties. Simply put, there aren’t enough office buildings to handle the current demand. This obviously puts a premium on those properties which do exist and even those which are good skeletons to be converted into medical offices down the road. 

 

The Medical Industry is Booming

Say what you will about our nation’s healthcare system, but there is more than enough money to go around. No matter if we continue with Obamacare and other current policies, roll back current policies, or go in the other direction and establish Medicare for All, money will continue to pour into our medical care infrastructure. The reason is simple: the medical industry is extremely strong and will likely remain so for many, many years. When you combine favorable supply and demand with a cash-rich industry, that equates to high value investments.

 

Flexible Medical Office Layouts Add Value

On a more specific note, the future of medical technology is moving to a format which enables physicians to perform a wider range of tests within their offices rather than sending patients to specialists. For this and many other reasons, flexible medical office structures offer a unique value to investors and to lessees by allowing for greater capability and flexibility of care.

 

Why Medical Office Buildings are a Wise Long-Term Investment

Why Medical Office Buildings are a Wise Long-Term Investment

There are many reasons to believe that medical office buildings have strong value in today’s marketplace, but how can we be so sure that they will be a wise long-term investment? Medical office properties offer a unique safety net for investors for the following reasons:

 

 

  • Customer convenience means location is becoming more and more important. Nobody likes going to the hospital. This is particularly true when medical offices are more convenient from a location and practical standpoint. 
  • The aging population will require more regular check-ups and routine health care over time. The U.S. population is aging. This is particularly true in areas like our own Western PA region where one in five residents will be 65 or older by 2025.
  • Outpatient procedures are outpacing hospital stays. Outpatient procedures are viewed as more favorable by patients, healthcare systems, and doctors alike in the majority of cases. Obviously some medical procedures absolutely must be performed in hospitals. For more minor procedures and checkups, the future is trending towards medical offices and away from hospitals. 

 

 

Pittsburgh’s Medical Industry and Aging Population = Strong Medical Office CRE Market

Pittsburgh’s Medical Industry and Aging Population = Strong Medical Office CRE Market

As we mentioned in the previous section, our region’s population is aging rapidly. An aging population leads to greater medical care demands. Pittsburgh is also well known for offering world class healthcare. What this means for investors is that the demand for office buildings in our area is expected to climb for decades to come. As this demand climbs, well-funded organizations such as UPMC will have more than enough desire and capability to either purchase or lease medical office buildings at a premium.

 

Given the Pittsburgh region’s population trends, there is perhaps no safer commercial real estate bet than medical office properties. There is every reason to believe that UPMC and other local medical research facilities will continue to attract the best medical professionals from around the globe to keep our local medical economy strong.

 

Going Forward

It is impossible to speculate on the future of real estate, no matter how many positive indicators exist. As far as safe bets go, medical office buildings are about as close as you can hope to get. Aging populations, a demand that outpaces supply, a medical industry flush with cash and resources, and the national trend of outpatient procedures overtaking hospital procedures all add value to medical office properties. Medical office buildings are a unique beast, and all investors are also encouraged to understand the intricacies of medical office layouts and realistic expectations before taking the plunge.

Will Commercial Real Estate Adopt 5G?

Will Commercial Real Estate Adopt 5G

5G is the future of cellular service. Like 4G before it, 5G will revolutionize how we use our phones and other mobile devices online. The next generation of web-service will not just impact individual users, however. It will also lead to the rise of smart cities, autonomous cars, immersive education solutions, and much more. With these added capabilities also comes a greater demand for infrastructure support and technological planning.

 

The world of commercial real estate will see a massive impact upon the arrival of 5G. Whether or not the industry chooses to wholeheartedly embrace 5G is probably not a reasonable question. 5G is on the way, and CRE investors, builders, and planners must all take it upon themselves to prepare for the future of wireless technology. 

 

What is 5G?

What is 5G

5G is a next generation cellular network that provides extremely fast web service for mobile users. The “G” in 5G stands for “generation”, denoting that 5G is the fifth major leap in cellular service technology. Each new generation marks a technological advancement which is incompatible with previous technology. 5G will be fundamentally different than 4G on a technical level.

 

While 5G is not yet available commercially, major players in the telecom industry including T-Mobile, AT&T and Verizon have rolled out pseudo-beta tests for 5G. The jump to 5G may be a tumultuous one, with new infrastructure and widespread technological upgrades being required before launch. 

 

The practical differences between 5G and 4G capabilities stem from two key improvements: 

 

 

  • Extremely low latency: 5G drops latency (the delay while a network processes information) by 10 times or more compared to 4G wireless service. Latency can be as low as 1 millisecond. 
  • Vastly improved bandwidth: traffic capacity for 5G will improve by ~100 times compared to 4G. Network efficiency will improve by 100 times, and spectrum efficiency will improve by up to 3 times.

 

 

What does all of this mean? Lightning fast speed coupled with the horsepower to download, upload, stream, and everything in between to keep up with modern consumer and business demands. 

 

How CRE is Preparing for 5G

Commercial real estate will have to adopt 5G in one form or another. Whether that means planning construction around 5G hotspots or understanding how smart car technology will impact travel times, this new technology will be a disruptive force in the CRE industry. Here are some of the ways that CRE professionals can prepare for 5G in the coming years.

 

The Importance of Understanding 5G Fundamentals for CRE

The Importance of Understanding 5G Fundamentals for CRE

Before we take a look at any of the details of 5G preparation when it comes to commercial real estate, it is important for all industry professionals to have a baseline understanding of what 5G is and how it differs from your existing 4G tech. For example, many CRE investors, owners, and managers, punt all technology related issues to their IT staff. This makes perfect sense for the vast majority of situations. However, with new and disruptive technology, having an understanding of your current properties 5G preparedness and what improvements can and should be made is a great place to start. This begins with understanding how 5G works and how you can optimize your buildings to accommodate the technology.

 

Data Needs Will Continue to Increase Exponentially

Statistics on data usage on technological devices is staggering. Multiples quintillions of bytes of data are created each day from billions of users around the globe. Each year, the amount of data we collectively produce goes up exponentially as more users create more data with higher detail, density, and regularity. It is estimated that the world produced 18 zettabytes of data as of 2018. That number is expected to grow to 175 zettabytes per year by 2025. The ludicrous amount of data stored within a zettabyte is not the point here — the larger point is that data production and demand is expected to grow by ~1,000 percent in less than a decade. Building owners must take this into account when planning their IT infrastructure, staffing, and so forth.

 

5G Will Continue the Trend of Tenants Wanting an Improved IT Experience

5G Will Continue the Trend of Tenants Wanting an Improved IT Experience

Current renters, office space lessees, and hotel guests all expect a certain standard of connectivity from their spaces. As commercial real estate investors, owners, and managers, it is our responsibility to keep our eyes on the horizon for incoming technology. When 5G hits its stride a few years from now (estimates vary), individuals will expect their 5G compatible devices to work seamlessly at their workspaces, homes, or hotel rooms. By keeping up with 5G news and working with IT professionals, providing 5G connectivity can be seen as an opportunity for CRE investors rather than a potential weakness.

 

Going Forward

5G is not a matter of if, but when. Someday soon your phone will be able to stream high quality video with virtually zero load times, latency, or interruption. Smart cars and smart transportation systems will depend on this next generation technology to keep them connected. Commercial real estate investors will need to adjust to this new reality or be left behind by those who do. The real question will become how best to feasibly adopt 5G technology in a way that is cost efficient and maximally beneficial to tenants. As the technology continues to develop, the answer to this question will reveal itself more and more.

Construction Heating Up on I-70

The January/February BreakingGround will feature a look at how long the construction boom is going to last. (That’s a boom that fizzled a bit due to indecision in 2019.) During the research on the activity in Westmoreland and Washington County, it became clear that the logistics market was driving new development along the I-70 corridor.

In Westmoreland County, Al. Neyer has agreed to two major projects. First is a 150,000 spec warehouse in the Westmoreland Technology Park II, in Hempfield Township outside New Stanton. The larger project is the Commerce Crossings at I-70 in Sewickley Township. There, Al. Neyer intends to build two Class A industrial buildings totaling 480,000 square feet.

Mon Valley Alliance CEO Ben Brown talked about the heightened activity at MVA’s Alta Vista Business Park along I-70 in Fallowfield Township in Washington County. Below is an excerpt from the article:

“We should have five buildings rising in Alta Vista in 2020, which will essentially double the size of the park,” Brown says. “We sold a lot last year to Apex North America. They are working through their financing, which was just approved. That will be about 100,000 square foot facility. Earlier in 2019, in February, we sold lot 10B to Frontier Railroad Services, which is based in New Stanton. They will be a smaller facility for Alta Vista, about 20,000 square feet with a 2 acre yard. That site will be adjacent to the 35,000 square foot spec building that Mon Valley Alliance will put out to bid in February. Recently we sold a lot to Fratelli Partners. They are building a 50,000 square foot spec building.”

TBI Contracting is building the Frontier Railroad Systems building. New-Belle Construction will build the Fratelli Partners project.

Brown could not comment on two other projects on which the authority is reported to be performing due diligence. One is a 100,000 square foot office and light manufacturing building. The other is a 240,000 square foot industrial building that Suncap Property Group is reported to be developing. Suncap was one of the developers pursuing a similar building that was on the streets earlier in 2019 for Komatsu Mining Corp.

In other construction news, FNB made a big announcement that it will anchor the $450 million Civic Arena site in a 24-story office tower. The PJ Dick/Mascaro/Massaro joint venture will build the new development. Highmark selected Turner Construction for its $25 million lobby and exterior renovation at Fifth Avenue Place. The Woodland Hills School District has its $30 million 2nd phase out to bid due Jan. 23. PSU has short-listed Jendoco, PJ Dick, and Rycon on the $6 million Forker Lab Building at its Shenango Campus in Sharon. TEDCO Construction is building a $10 million private residence at Deep Creek Lake. PJ Dick has started construction on the $15 million Western Pennsylvania Surgery Center near the Center Township exit of I-376 in Beaver County.

White House Proposes Changes to the National Environmental Policy Act for Faster Infrastructure Permitting

White House Proposes Changes to the National Environmental Policy Act for Faster Infrastructure Permitting

In the United States, the federal government uses a strict set of guidelines to approve and/or permit infrastructure projects. In August of 2017, President Trump submitted an executive order titled, “Establishing Discipline and Accountability in the Environment Review and Permitting Process for Infrastructure”. The purpose of this document was to allow for greater infrastructure investments, create jobs, increase wages, and ultimately to strengthen the national economy. The order aimed to accomplish these goals by reducing necessary paperwork, eliminate redundancies in the infrastructure construction approval process, and to “focus on issues that truly matter rather than amassing unnecessary detail”. 

 

In October of 2019, the Trump administration has proposed further changes to our nation’s regulation on infrastructure construction projects. In particular, the White House is now focusing on speeding up the process of approvals for environmental permits. These proposed changes may have far reaching impacts on the construction industry in the coming years. Here is what you need to know.

The Changes are Aimed at Alternating NEPA (National Environmental Policy Act)

The Changes are Aimed at Alternating NEPA (National Environmental Policy Act)

The National Environmental Policy Act (NEPA) is one of the earliest pieces of legislation in the US which was intended to protect our natural environment. Passed in 1969, NEPA had a simple goal: ensure that all government projects go through an environmental evaluation before enacting a change. NEPA remains the primary legislation which protects our environment from dangers including improper construction, the dumping of hazardous waste, and everything in between. 

 

NEPA has a strict set of requirements when it comes to construction projects. These requirements have been amended over the years to reflect our increased understanding of how construction (and human activity as a whole) impacts our environment. The bulk of these checks and balances are carried out by the Environmental Protection Agency (EPA).

 

The new changes proposed by the White House aim to roll back and/or lessen some of the regulations within the NEPA. The stated purpose of these changes is to increase productivity, reduce time wasting, and to strengthen our nation’s infrastructure and economy. Critics argue that these changes undo years of environmental work and could be dangerous in the long run.

 

Potential Benefits of NEPA Reform

Potential Benefits of NEPA Reform

As with most political issues, there are champions and critics coming from both sides. Here are some of the reasons why the construction industry might benefit from President Trump’s NEPA reform proposal:

 

The National Environmental Policy Act is out of date. One of the primary arguments for NEPA reform is simply its age. Turning 50 this year, NEPA certainly has some language and terms which could benefit from a facelift. Industry experts believe that it is too easy to either skirt NEPA regulations or, in some cases, that NEPA regulations offer no concrete advantage to infrastructure construction or the environment. 

 

Simplification of NEPA approval would stimulate infrastructure construction. Regardless of whether you believe it is the right decision, it is almost certain that rolling back certain regulations would stimulate infrastructure construction projects. The US infrastructure isn’t just aging, it is quite literally falling apart in some areas. The new proposed reforms would speed up the application and permitting process for new infrastructure projects. 

 

The NEPA process is ineffective. As we mentioned above, a huge amount of projects are able to simply gain a categorical exclusion from NEPA. This means that many, if not most, projects are not forced to submit to environmental assessments, create environmental impact statements, or go through the bulk of the process in the first place.

 

Environmentalists Warn that NEPA Reform is a Dangerous Move

Environmentalists Warn that NEPA Reform is a Dangerous Move

On the other side of the equation, those with concern about the environmental impact of NEPA reform have decried the changes as dangerous. Here are a few reasons why:

 

NEPA is intended to protect our environment from careless government action. The stated purpose of the National Environmental Protection Act is to protect our environment from government projects which may do it harm. By extension, NEPA is in place to protect the people and future generations from harm caused by environmental damage. Rolling back regulations is a potential threat to environmental causes.

 

NEPA reform weakens the Clean Air Act and the Clean Water Act. Two pieces of legislation known as the Clean Air Act of 1963 and the Clean Water Act of 1972 protect American citizens from unhealthy living conditions caused by pollution. White House NEPA reform weakens these regulations by clipping the EPA’s wings when it comes to review other agencies’ environmental impact statements.

 

Environmentalists warn that NEPA reform sets a dangerous precedent. Last but not least, many environmentalists view NEPA reform as less of a reforma and more of a concerted effort to roll back environmental protections. This has been viewed as some as a slippery slope which could lead to lessened regulation on our drinking water, air, and pollution policies.

 

Going Forward

There is no question that political issues like government regulation and environmental protection policies can get messy. When it comes to the commercial real estate industry and infrastructure construction industry, the proposed NEPA reforms would likely reduce the time required to get permits and approvals for infrastructure projects. It remains to be seen whether these changes will be passed into law and in what state they will exist when they do become law. 

 

Another huge factor which has not yet been addressed is the including of the renewable energy sector, which is the fastest growing energy sector in the US. With so many balls in the air, we can only wait and see how the story unfolds.

Office Space Investments in the Sun Belt Performing Better than Coastal Cities

Office Space Investments in the Sun Belt Performing Better than Coastal Cities

The Sun Belt, sometimes condensed into “SunBelt”, is a region in the southern United States which stretches from Virginia to California and all across the border with Mexico. Named for the traditionally sunny weather, the Sun Belt is essentially the name for the bottom third of the US. When it comes to commercial real estate, this area has traditionally been thought of as less desirable with the exception of major metropolitan areas such as Los Angeles, Atlanta, Dallas-Fort Worth, etc. In more recent years, relatively underdeveloped areas in the Sun Belt have attracted massive interest from real estate investors looking to build, purchase, and/or lease office space.

 

There are numerous reasons why Sun Belt commercial real estate has been outperforming traditional powerhouses such as New York City and Boston. We will explore some of these reasons as well as why we expect this trend to continue moving forward.

Sun Belt

Sun Belt Population’s Impact on Commercial Real Estate

To understand why office space in the Sun Belt is such a hot commodity, one must first look at population trends in the US. Here are some statistics on population in and out of the Sun Belt and how this has impacted commercial real estate investments:

 

  • The Sun Belt now accounts for approximately 50 percent of the US population. This number is likely to rise to approximately 55 percent by the year 2030.
  • The Sun Belt has experienced huge population growth, accounting for 75 percent of the total population expansion in the US.
  • When it comes to the 10-year cumulative domestic migration by destination state (a measure of the states which are being moved to in the highest numbers), 8 of the top 9 are Sun Belt States. Texas, Florida, North Carolina, Arizona, South Carolina, Colorado, Georgia, and Tennessee account for these 8 states, with Washington state being the lone non-Sun Belt state.
  • States with traditionally strong commercial real estate markets in the American Northeast such as New York, Massachusetts, Washington, D.C. and Pennsylvania are all experiencing a net loss when it comes to domestic migration.

 

Commercial Real Estate in the Sun Belt is Booming

Commercial Real Estate in the Sun Belt is Booming

Of course, greater populations are not the only reasons why Sun Belt states are experiencing such high demand for office space. Additional reasons for the Sun Belt commercial real estate boom include:

 

Lower costs: real estate investors know all too well that housing prices, real estate prices, labor costs, and other regional cost factors can make or break an investment. Many areas of the Sun Belt offer extremely friendly costs for investors in markets with lower costs of living.

 

Less governmental restrictions: many sun belt states, particularly those in the Southeast, have made it a policy to have more lax policies when it comes to businesses and real estate investments. Lower taxes and less strict regulations allow for cost savings and greater flexibility for office space investors.

 

Friendly climates: as a whole, the Sun Belt enjoys a milder, more building-friendly climate. This leads commercial real estate to come with lower insurance costs, upkeep costs, and general maintenance which comes from dealing with cold weather and dramatic temperature shifts. There are obvious exceptions to this rule such as regions who experience flooding, hurricanes, etc.

 

Local Economy and Office Space in the Sun Belt

Local Economy and Office Space in the Sun Belt

Another key factor in the Sun Belt’s success story within the CRE realm is the recovery from recent economic difficulties. While many regions are still struggling to bounce back from the 2008 financial crisis, a huge chunk of the Sun Belt has found its footing in the energy industry, tech industry, and more. 

 

This is reflected in the fact that over 200,000 new jobs have been created in the state of Texas in the last 10 years alone. Many of these jobs are centralized in cities cush as Houston, Dallas-Fort Worth, and San Antonio. Where these regions were traditionally reliant on industries which paid relatively low wages, those jobs have been replaced in large numbers by energy and tech jobs. The strength of this rising Sun Belt economy comes from skilled jobs which pay between $60-$100k per year.

 

The Sun Belt is also leading the pack in the high tech industry has grown more rapidly than in any other areas in the US. In fact, Sun Belt cities Austin, TX, Raleigh, NC, Houston, TX, and Nashville, TN are numbers 1-4 respectively when it comes to STEM and tech industry growth between 2001-2013. New York clocks in at 36th and Boston ranks 26th. 

 

Going Forward

The Sun Belt looks to be the healthiest market for office space investment in the foreseeable future. Trends of job growth, population migration, and lenient governments appear to be here to stay. Some of the main questions yet to be answered include whether states like Massachusetts, New York, and Pennsylvania will change governmental regulations to stop the bleeding of population and economic losses, or whether the Sun Belt with continue to grow unchallenged. It also remains to be seen whether higher costs of living in newly burgeoning Sun Belt area will bring the pendulum swinging in the opposite direction.

 

For now, the future of commercial real estate in the Sun Belt looks as bright as ever.

Predictive AI Being Used in Construction

Predictive AI Being Used in Construction

Artificial intelligence is well over 60 years old. What started as the brainchild developed by a young Alan Turing has since become a part of our everyday lives. While it remains tempting to think of AI as some potential future technology, the reality is that AI has overtaken many industries from your Facebook Feed to the cars we drive. The construction industry has some obvious applications for artificial intelligence which continue to develop over time. As real estate investors become more and more tech savvy, the need for predictive AI in the construction industry will only grow moving forward. 

 

Today, we will define predictive artificial intelligence and discuss how this technology can be used within the construction industry to increase jobsite productivity, schedule projects efficiently, develop 3D models, control costs, and much more.

 

What is Predictive Artificial Intelligence (AI)?

What is Predictive Artificial Intelligence (AI)

To understand predictive artificial intelligence, we should first learn the definitions of a few key terms.

 

  • Artificial intelligence is any application of computer science which simulates intelligent behavior. Any machine which can imitate, emulate, or simulate an intelligent action based on any set of input may be considered a piece of artificial intelligence.
  • Machine learning is a subset of AI which involves the machine/program learning and adapting based on a series of inputs. In other words, machine learning must involve the artificial intelligence program being able to reprogram itself and/or change its behavior over time.
  • Predictive artificial intelligence is a type of artificial intelligence that uses inputs and algorithms to likelihoods and makes intelligent decisions regarding efficiencies. Predictive AI may or may not include the concepts of machine learning.

 

Most predictive AI does not include machine learning, but advanced systems can certainly use the technology. This is an important distinction, as many of us think of artificial intelligence and machine learning as being synonymous. In reality, any software program which is able to intelligently predict potential outcomes can be considered predictive AI.

 

Predictive AI Uses Algorithms to Help Produce 3D Models

Predictive AI Uses Algorithms to Help Produce 3D Models

While designers, architects, and engineers still hold the reigns, predictive artificial intelligence programs help these professionals to develop 3D models which avoid common design flaws such as plumbing oversights, electrical issues, and mechanical problems. Designers can work within 3D model programs to design construction projects and are notified by the predictive AI when something is off.

 

A unique advantage of this technology is that designers can continue to update the 3D models as the project progresses and is changed in real time. This allows for the predictive AI to remain useful well into construction. As this technology advances, functionalities will likely expand to make functional suggestions even before any design errors are detected.

 

Predictive AI Mitigates Risk on Construction Sites

Predictive AI Mitigates Risk on Construction Sites

Any investor or construction industry veteran knows that there is no such thing as a construction project without risks. Safety concerns, inventory, site conditions, labor shortages, and poor planning can all pose major threats to both the project and the individuals involved. Predictive AI can be used to both monitor and predict ongoing risks ranging from safety concerns to labor shortages. This allows project overseers to focus their time on more important issues as well as keeping them informed on the biggest threats to the current project.

 

The best part of artificial intelligence for risk mitigation comes from the predictive aspect. Where hoping for the best and preparing for the worst used to be a best case scenario, current predictive AI technology for construction has the ability to prevent injuries and costly accidents from happening in the first place. 

 

Predictive AI for Construction Project Management

Not all predictive AI for construction projects are used to reduce risks. Predictive AI can also be used to more efficiently manage ongoing construction efforts to keep costs low and jobsite productivity high. Machines powered by artificial intelligence have even been developed for repetitive tasks including demolition. 

 

The primary benefit of predictive AI from construction project management comes down to increasing efficiency and through scheduling, labor management, inventory management and other more mundane tasks. This is the “workhorse” side of artificial intelligence: taking in massive amounts of raw data and making well-informed recommendations about what to do next. 

 

Going Forward

Predictive artificial intelligence applications for large construction projects are numerous. The real estate industry on a whole is adopting AI wholesale with no signs of slowing down any time soon. The same technology which predicts whether or not you will want to see a post on your social media timeline will be (or already is being) used to predict what properties might interest investors, renters, buyers, etc. Construction applications such as machine programming, jobsite safety, scheduling, and 3D modeling are already in use today. 

 

It is likely that both “smart” and “dumb” AI will continue to expand within the construction industry, trickling down from mega-construction projects with massive budgets to small scale residential construction. This does not mean that all construction workers will need to go back to school for a computer science degree. Instead, predictive AI looks to be folded into traditional construction practices as just another part of the process. 

 

The future of technology like artificial intelligence and machine learning is unknowable. When it comes to construction, it is nearly certain that predictive AI will drive the industry for many years to come.

How Opportunity Zones Impact Property Investments

How Opportunity Zones Impact Property Investments

In today’s political climate, the swinging pendulum of regulation vs. deregulation can be difficult to track. Yet sometimes government programs are put into place which can truly benefit both investors and the community. When Opportunity Zones were implemented as part of the Tax Cuts and Jobs Act of 2017, real estate investors were incentivized to invest and/or reinvest into low income areas through tax breaks including deferred capital gains, eliminated capital gains, and/or cost basis changes.

 

While the full tax benefits of Opportunity Zones will be lost starting in 2020, the program will remain in effect. Here’s how it works. 

 

What are Opportunity Zones and Opportunity Funds?

All investors know the pain of capital gains tax. At its core, cap gains taxes are taxes paid on the net gain of an investment. A common example would be buying and selling stocks. If an individual purchases $1,000,000 in stock and later sells that stock for $1,500,000, he or she would be responsible for paying taxes on a capital gain of $500,000. Traditionally, the best way to avoid paying capital gains tax was to defer payment through reinvestment.

 

The Opportunity Zone program takes this idea and builds upon it. Let’s take the above example. Instead of collecting the full $1.5 million after selling this asset, the investor could instead reinvest the funds into an Opportunity Fund. It is important to note that to be eligible for tax breaks, this individual would only be required to invest the gains, not the full amount. 

 

Opportunity Zones are Defined as an Economically Distressed

Opportunity Zones are Defined as an Economically Distressed CommunityCommunity

In order for a real estate reinvestment to qualify for Opportunity Zones tax breaks, it must be determined that the real estate falls within a designated Opportunity Zone. The IRS defines an Opportunity Zone as “an economically-distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. Localities qualify as Opportunity ZELASTO_Media Report_052518.pdf ones if they have been nominated for that designation by the state and that nomination has been certified by the Secretary of the U.S. Treasury via his delegation of authority to the Internal Revenue Service.”

 

Qualified Opportunity Fund Reinvestment

Qualified Opportunity Fund Reinvestment

The other key component of the Opportunity Zone Program is participation in a qualified Opportunity Fund. It is not enough to simply reinvest capital gains into an Opportunity Zone community. Reinvestments must be made through the program. If these steps are followed, the initial investment gains and any gains made through the subsequent reinvestment within the Opportunity Zones Program may be eligible for significant tax breaks. 

 

One of the first Opportunity Zone projects in the Pittsburgh region, the construction of a 60,000 square foot indoor growing facility in Braddock for Robotany, will soon become one of the first projects to complete the investment cycle. Developer RDC Design + Build is nearing an agreement to sell the project to a permanent investor that will have the opportunity to reap the long-term tax benefits.

Opportunity Zones, Property Investments, and Capital Gains

There are four basic scenarios which can play out when an investor participates in an Opportunity Zone reinvestment:

 

 

  • If the investor sells the reinvested property in less than five (5) years: he or she will be responsible for paying capital gains tax at this time. Even without receiving the full tax benefits, this scenario does allow for tax deferment until the fund is sold or until December 31st, 2026 — whichever comes first.
  • If the Opportunity Fund investment is held between five (5) and seven (7) years: the full capital gain amount is deferred plus a 10 percent bump in cost basis. In our example, that would equal a saving of $100,000.
  • If the Opportunity Fund investment is held between seven (7) and ten (10) years: In addition to capital gains deferment, the cost basis is bumped a total of 15 percent, totalling a savings of $150,000 in our example.
  • If the Opportunity Fund investment is held for ten (10) or more years: the investor is responsible for paying nothing on the appreciation of the reinvested asset. This means that through the Opportunity Funds Program, it is possible to invest in real estate with zero liability for capital gains taxes on net gains.

 

 

2020 Changes to Qualified Opportunity Zone Funds

2020 Changes to Qualified Opportunity Zone Funds

As one last point, time is running out for investors to reap the full benefits of the Qualified Opportunity Zone Program. As of January 1st, 2020, the maximum cost basis deferment will shift from 15 percent to 10 percent. While this does not take away from the other benefits of the program, that 5% cost basis differential can equate to huge dollar volumes for investors. Despite this, real estate investors are always cautioned to never rush into a real estate investment to get under a time limit or deadline. The right investment with a slightly higher cost is likely more profitable that the wrong investment at a slightly lower cost.

Going Forward

With current regulations, Opportunity Zones and Opportunity Funds continue to be a great choice for real estate investors through 2019. However, starting in 2020, that appeal is somewhat diminished by lessened tax incentives. This may cause some real estate investors to panic and make unwise investments. We would caution that a smart investment is a smart investment and a poor investment is a poor investment. When it comes to real estate, a tax incentive should be viewed as the cherry on top, not a reason to invest.

 

Rather than rushing to make an Opportunity Zone investment before year’s end, going through your usual due diligence is almost certainly the right decision. Whether that misses the 2019 end-of-year cutoff or not, your interests will be better secured.

How Energy and Transportation Projects Came to Dominate Construction

How Opportunity Zones Impact Property Investments

Construction is the backbone of industry. Without construction there would be no homes, businesses, schools, or warehouses. In recent years, the construction industry has seen a marked increase in the share of projects that are large scale energy and transportation projects. This is true in the United States and across most advanced nations around the world. The question then becomes: how did this shift take place and why? 

 

The Current State of Infrastructure Construction

The Current State of Infrastructure Construction

The American infrastructure is aging. Most major infrastructure projects are upgrades to existing systems such as Tennessee’s $15.6 billion sewer project or Nebraska’s $12.5 billion highway maintenance effort. Let’s take a deeper dive to understand how modern infrastructure construction budgets are being allocated by examining the Nebraska transportation transportation update:

 

 

  • $7.1 billion is to be spent on highway maintenance, repaving, and other repairs. This asset preservation budget is primarily eaten up by $6.4 billion allocated to pavement repairs, with the remainder going towards the state’s bridge system.
  • $3.6 billion is to be spent on expanding roadways by way of building new roads, widening existing roads, and more.
  • $1.8 billion is slated for modernization of transportation services including rural roadways, bridges, highways, and railway crossing junctions.

 

 

This plan may be specific to Nebraska, but it is indicative of a typical mega-construction project in the US today. As you can see by the numbers, the number one concern for many areas is simply upkeeping the existing infrastructure. Modernization and expansion efforts take up less than half of the budget.

 

Construction Trends in 2019 and Beyond

Construction of rapid mass transit

Here are a few construction trends surrounding energy and transportation which we expect to continue beyond 2019:

 

Transportation construction projects at or near airports: even modern airports are in need of an upgrade in 2019. Most airports have a logistical problem moving people between terminals, parking lots, and other airport facilities. Chicago’s O’hare airport has undergone a massive construction project to replace their usual shuttles with a more sophisticated light rail system. More airports are likely to follow.

 

Construction of rapid mass transit: construction on heavy rail, light rail, and other municipal rapid transit is also on the rise. Even mid-sized cities like Pittsburgh have invested heavily into light rail transit to improve their public transportation offerings in recent years.

 

Massive energy projects including new power plants, refineries, and more: while the exact future of the energy industry is in a state of flux with new technology and legislations coming and going all the time, the demand for new energy solutions and the aging energy infrastructure all but demands massive overhauls. 

 

Why Energy and Transportation?

As mentioned in the previous section, the energy sector has an uncertain future. One reality which is having an immediate impact on US energy construction is global demand for natural gas. The US is uniquely positioned to extract, produce, and provide natural gas to the global market. Additional energy-related products such as plastic refineries and chemical processing plants have all seen a demand increase in recent years. 

 

As for transportation, we can primarily thank a crumbling infrastructure alongside population growth for construction demands. Whether it is maintaining existing roads, constructing light rail systems, or paving new roadways, the demand for transportation remains high in both urban and rural areas. 

 

Mega-Construction Projects are Taking over Mid to Small Sized Contracts

Mega-Construction Projects are Taking over Mid to Small Sized Contract

To understand why mega-construction projects are outpacing small and medium sized projects, we must first understand where the infrastructure spending budgets come from. While the federal spending budget is more easily tracked, the vast majority of infrastructure assets are owned and controlled by state and local governments. So why are these smaller governments suddenly funding more multi-billion dollar construction projects rather than many small ones?

 

There is no singular answer, but a major reason is that approving one project is easier than approving multiple individual construction efforts. These mega-construction projects with budgets in excess of $1 billion are also sold as economy-boosters. Whether they be a new sports stadium, improved transportation at the airport, or improving the current energy solutions, generating buzz around these projects is easier for politicians. 

 

There is every reason to expect this trend to continue and possibly even gain momentum moving forward. Consider California’s high speed rail authority project. The total project was quoted in the $50 billion range, but has since been re-estimated at nearly $100 billion. This publicly funded mega-construction project will someday connect most of the main cities in California including but not limited to San Francisco, San Jose, Los Angeles, and San Diego. California’s project is commensurate with the state’s enormous wealth. Yet it remains a sign of the future of transportation and energy construction in the US.

 

Going Forward

Unfortunately, the reality is that overall infrastructure spending is still down. Federal, state, and local governments had nearly $10 billion less in spending power for infrastructure projects in 2017 when compared to 2007. The good news is that Americans are growing more amenable to both increased spending on what is an increasingly outdated infrastructure including transportation and new energy solutions. 

 

The true trend is shifting from new construction to maintenance efforts. Despite the talk of modernizing transportation and energy infrastructure, most of those projects will be to retrofit current construction with modern solutions.

Hiring Bounces Back in November

Employers were signaling caution as summer wound down. The ADP private payrolls report for November showed a big drop early last week; and then on Friday, the Census Bureau released its Employment Summary for November and reported that 266,000 jobs were created. That’s about 40% more than the consensus forecast of Wall Street economists.

There were some details to unpack that moderated the gains a little. The great manufacturing number was inflated by 60,000 GM workers returning from strike (which dampened the October report). Construction jobs grew by only 1,000 from October, a surprise given the amount of activity; however, not a surprise given the severe shortage of workers. On the other hand, strong performance in the financial and business services sectors, and especially healthcare, showed there is still some life in the expansion. Some of the highlights:

  • Unemployment fell back to 3.5%. That’s the lowest for 50 years.
  • Wage gains were modest at 3.1% year-over-year but were much higher at the lowest end of the wage-earning spectrum.
  • The broadest measure of unemployment fell to 6.9%.

There are two significant positive conclusions that can be drawn from the November report (bearing in mind that it’s one month’s data of course). First is that consumers are in good standing. Virtually anyone who wants to work is working. Wages are growing at twice the rate of inflation. The consumer drives the economy and the consumer should be happy. The second conclusion is that businesses aren’t as negative as was thought. Because business investment has been declining, concerns about the economy were becoming self-fulfilling. So far there is no data showing that other business investment is ticking upward but the jobs report shows that businesses are still investing in their most expensive asset: people. Moreover, a Vestige survey showed that 60% of business owners plan to add staff in 2020, while only 4% say they are cutting.

In regional construction news, Thomas Construction was awarded a $7.5 million contract to repair the Somerset Lake Dam. Turner Construction was awarded $5 million buildout of Pitt’s BST. PJ Dick was selected for the $55 million Pennley Place East office/retail development in East Liberty. Metis Construction started work on the new $2.2 million JP Morgan Chase branch in McCandless Crossing. Continental Building Co. was issued a permit for $3.2 million buildout for ServiceLink at Pittsburgh International Business Park in Moon Township. Walnut Capital was selected to develop the lot adjacent the Children’s Science Center. Walnut was also chosen to develop the graduate student and faculty market rate housing in Pitt’s lower campus.