Gov. Wolf surprised no one on Feb. 11 when he announced plans to create a severance tax of five percent on the natural gas extracted in Pennsylvania. Wolf campaigned on this tax – this exact level of levy — and has wasted no time following through. Unlike his predecessor, who was hamstrung by his ‘no tax’ pledge to Grover Nordquist – Gov. Wolf can make good on his promise without having to put it into effect. The severance tax will have to become legislation, meaning that something specific will have to get through the Republican-controlled legislature. As of the announcement, there were few specifics of the proposed law released.
The lack of specificity tempered the remarks of anyone who responded. The shale gas industry responded negatively. There were implied threats of further slowdown in drilling and development of the resource in Pennsylvania. Comparisons to the extraction taxes of other states brought reminders that places with higher taxes – like Texas – have virtually no corporate taxes. The comparison to West Virginia prompted the reminder that drilling and processing in West Virginia lagged the activity in PA by quite a bit. But again, it was hard to lodge too much of a complaint against the proposal without knowing what was in the proposal.
One tidbit that the governor did mention was that local government would still participate in the impact fees, which will still be charge to some degree. My belief is that the loss of impact fees to local government is the biggest negative in Gov. Wolf’s proposal. The gas industry will figure a way to profitably get at the largest gas deposit in North America. Local municipalities and counties bear the brunt of whatever impact drilling has. The use of those impact fees has brought new roads and infrastructure to places that the state has barely invested in over the years.
Washington County Chamber of Commerce President Jeff Kotula may have spoken for all local government yesterday when he expressed concern about the share of impact fees that would find their way from Southwestern PA to Southeastern PA, where there is no drilling but a lot of votes.
This morning’s Post-Gazette story on CannonDesign’s acquisition of Astorino followed a few days of rumors of the deal and has of course spawned its share of speculation about the deal. Given Cannon’s reach and the fact that the firm has regularly – if not frequently – worked in the Pittsburgh market, it seems like Cannon could gain market share without buying Astorino. If you look at Cannon’s announcement of the deal, however, you get some insight about the motive.
I haven’t spoken to Lou Astorino yet and Cannon’s CEO Gary Miller is out of the office, so what follows is speculation. Cannon positions the acquisition as the merger of two like-minded firms serving similar clients. They point out that the two firms have worked together before and share similar philosophies. Once you get into the meat of the news you see that Cannon makes a point of touting the additional capabilities that Astorino Development’s design/build team brings. This construction management arm, that Lou P. Astorino leads, is the value that the Astorino side brings to the table. Astorino’s resume is impressive (how many companies can boast PNC, the Pirates and the Pope as clients?) but no more so than Cannon’s; and Cannon’s billings are roughly 14 times that of Astorino’s. But Cannon didn’t have that construction resume.
Delivery methods are evolving. It was Lou Astorino’s recognition of this fact that led to the launching of the construction management group. I believe it’s more than a gesture that Lou P. is going to lead the design/build operation from Pittsburgh. Whether it’s design-led design/build or just the opportunity to act as as CM-at-risk, Cannon now has capabilities to serve clients that are looking at streamlining the process with an alternative delivery method. In particular, healthcare clients – one of Cannon’s major client groups – are looking at ways to deliver expensive construction with less cost and more predictable outcomes. Highmark/AHN has used Astorino that way. Other large CM/design firms are pitching a modular approach to hospital construction. This puts Cannon in the mix with competitors that it couldn’t joust with before.
Yesterday’s Allegheny Conference Regional Investors’ Council meeting offered a few things beyond the usual regional cheerleading. More important to the construction industry were two programs that may help with workforce issues.
First there was an interesting video and short speech about the Hola Pittsburgh initiative. This is a effort aimed at attracting the professionals and workers leaving Puerto Rico because of the poor economy. The figures the Conference gave were about 50,000 people emigrating every year. Pittsburgh may not seem the most likely place for Puerto Ricans to land but there is a connection because of career of Roberto Clemente of all things. If successful, Hola Pittsburgh would have the unintended benefit of making the region seem more like home to Hispanic workers in all industries. And construction is an industry that has been attractive to Hispanic workers in other major cities.
The second initiative is the Service to Opportunity effort, which connects returning veterans to jobs. The thrust of the initiative is to match valuable skills learned in combat and service to the civilian opportunities, especially in energy and construction.
Construction is facing a serious workforce shortage as Baby Boomers retire with no backfill of labor ready to move in. Trades have been increasing recruiting but this segment of the population – veterans – comes equipped with transferable skills and excellent attitude. Both these regional initiatives have potential to draw people to our industry.
Not much construction news this week. UPMC selected Alexander Building Construction as CM for its $20 million Altoona Hospital job. Another big piece of the Route 219 extension in Somerset has been put out by PennDOT. The $80 million Garrett Bridges project is due October 23.
Proving Leo Durocher wrong, the MBA announced yesterday that Angelo Martini Sr. had been selected by the AIA/MBA Joint Committee as this year’s recipient of the James Kling Fellowship Award. The Kling Fellowship recognizes professionals from the contracting and design communities who have demonstrated the utmost in cooperation between the two professions. Angelo Martini is one of those people who you meet in this industry that everyone likes. That’s a group to which there are few members. Congratulations to Angelo.
Construction remains pregnant instead of prolific at this point. Turner has started work on Cenveo’s 300,000 sq. ft. tenant work at the RIDC Westmoreland, which is the former Sony plant. The few jobs that are out to bid are attracting fierce competition and owners seem to be interested in taking the fullest advantage. The Ligonier Valley YMCA took proposals on an $7-8 million addition that came in over $8 million. While getting VE suggestions from Jendoco, Volpatt & A. Martini & Co., the YMCA put the job out to bid to General Industries & DiMarco Construction. As you can imagine, the subs working on the value engineering were less than thrilled to get invitations to bid from other contractors. Earlier this week, WVU took bids on a small renovation to its Clinical Trials Unit at the BRNI. The project attracted 14 bids from all shapes & sizes of contractors from Pittsburgh and Morgantown. The results are below:
Manheim Corp. – $1,324,000; Mascaro Construction – $1,429,000; TEDCO Construction – $1,430,000.
This morning there is a celebration being held to mark the life of Gary Carlough, who passed away on Sunday. Gary was one of the good guys of our industry and his death diminishes Pittsburgh a bit.
Gary’s architectural pedigree is pretty impressive. He cited Dahl Ritchey as a mentor, working for Deeter Ritchey Sippel (now DRS Architects) towards the end of their run designing some of Pittsburgh’s iconic modern structures. Gary also was part of the first team at The Design Alliance when that firm was breaking ground in architecture.
I met Gary in 1994 as we were starting the Pittsburgh Construction News. He had recently left TDA with the intention of going to London to study but one of his former clients had asked him to help out with a project so he delayed that trip to take on the job. Before he could go he got another call, then another and you get the picture. His office was in the carriage house behind Dutch MacDonald’s and Becky Mingo’s home in Friendship. When I stopped in to introduce myself, Gary jumped at the chance to stop working and chat. Barefoot and smoking a cigarette in the un-air-conditioned garage, he talked about going to London and what he believed about architecture; and he asked a lot of questions about what we were doing. He seemed to be having fun. As I learned later, it was a fairly typical Gary Carlough experience.
Aside from his personal nature, what I liked about Gary was his passion for what he did. He had different ideas about design and was willing to try them. His firm, EDGE Studio, did some of the more interesting projects of the last decade or so. I admired that EDGE tried to create all the time. Chances are good that EDGE designed one of your favorite projects from the last 15 years.
I wish Gary’s sons and his wife, Anne Chen, peace and healing from this loss. Perhaps they will take solace in the number of people who were shocked by Gary’s death and touched by his life. I will miss him.
The demolition of the remaining former Children’s Hospital (mentioned in a post earlier this week) is a bit more complicated than it might seem. The work involves separating the building from where it meets Presbyterian University Hospital, which means essentially building a new exterior wall inside Presby before pulling down Children’s. I haven’t heard any budgets yet but this would seem to be in the tens of millions to pull off.
UPMC has requested CM proposals from dck, PJ Dick, Gilbane, Mascaro, Massaro and Rycon by March 16. Architectural selection is going on concurrently with IKM and GBBN the finalists.
Two more public school projects have come out to get ahead of the spring construction season. The Hayes Design Group is the architect for both projects: $15.3 million addition to the Carmichaels Jr./Sr. High due on March 20; and the $13.4 million expansion/renovation of Wilson Elementary School in West Allegheny School District due on March 12.
In the stock markets, when buyers push prices higher faster, there is often a correction that brings prices back down to levels that are attractive to new buyers so the market can go back up that much more. There are more than a few observers who see this as blatant manipulation of the markets but the reality nonetheless is that bull markets have a number of these 5% corrections in them. They aren’t bad things, until they turn into selloffs anyway.
Wednesday’s announcement by VerizonWireless that they were closing 2 Pittsburgh operations that would mean the loss of 1,000 jobs may have been a similar correction. Perhaps because we Pittsburghers haven’t been trained to think good things will happen here, the litany of good news about the region seemed like it was a bit much. We were long overdue for some good news but no region of the country is immune to ebbs and flows of growth. And when a city experiences a steady stream of successes, the leadership can sometimes get complacent or too aggressive. A dose of reality – not every business in any region is going to be on the way up – can be a very healthy thing. It’s not healthy for the people who have to find new jobs but when a business contracts it reminds us all that good times aren’t a certainty.
Regional confidence aside, the weather is making a quick start to 2014 almost impossible. Cranberry Twp. approved Sippel Development’s major mixed-use development at I-79 & Route 228 this week. The first of the projects to go forward will be the $45 million Pens practice facility/UPMC sports medicine complex, which PJ Dick should get rolling on in March. PJ Dick is also close to starting the $20 million Homewood Suites in the Strip District.
Hotel D2 has selected Franjo Construction to build its $5 million Cobblestone Hotel in Connellsville. The developer is still negotiating the contract for the Cobblestone in Millvale. Waukesha Pearce Industries selected the design and construction team for its new 38,000 q. ft. facility in Alta Vista Business Park on I-70. Desmone & Associates is the architect and General Industries will build it.
One of the details in the recently passed Federal budget was an increase in the National Institute of Health grants of $1 billion. NIH grants have been critical to the growth of UPMC/Pitt and to a degree, Carnegie Mellon. It’s estimated that the increase will result in an extra 385 grants in FY 2014 and given PA’s share that means an extra $340 million for the Commonwealth. The decline in NIH grants is one of the big reasons that UPMC shelved its $394 million Center for Innovative Science.
Carnegie Mellon issued a request for proposals to five contractors to compete for the construction management of its new $75 million Tepper School of Business. The project involves an extensive site package, as Tepper involves new utilities and preparation for the first part of its North Campus expansion. The contractors responding are dck Worldwide, PJ Dick, Gilbane, Mascaro and Turner.
CMU is still interviewing architects. The finalists are Boora Architects, BNIM, Moore Ruble Yudell, William Rawn Associates and Skidmore Owings & Merrill. Selection of both professionals will take place by spring, giving the design/construct team the ensuing year to work through design and budgets.
Budget was apparently exceeded on the parking garage and retail space being developed on the former Saks Fifth Avenue site by Millcraft and McKnight Development. Proposals were taken from PJ Dick, Mascaro, Massaro, Mosites and Turner. No word has come from the owners but a re-bid seems likely.
Rycon Construction has started construction on the $20 million, 207,000 sq. ft. office at Southpointe Town Center. The building has been marketed as the Town Square Office but will be the new home of Noble Energy, which was looking for 150,000 sq. ft. or so.
Today’s Pittsburgh Business Times had the front page dedicated to a story suggesting that the pipeline infrastructure investment underway was making the cracker plant in western PA unnecessary. Last weekend the Wall Street Journal published a small story suggesting the same thing (coincidence PBT?). Expect a bunch of piling on from other local and business media.
The essence of both stories is that so much pipeline capacity is being built that it makes more sense to just pipe the ethane to the Gulf to the existing cracker infrastructure. It’s important to remember that no sources with direct knowledge are quoted or anonymously cited and the use of the word “may” (as in may happen) is rampant in the writing.
I can’t argue the logic of the articles nor do I possess the experience in the petrochemical industry to comment on the feasibility. I do, however, talk to people involved with the project behind the scenes and a few things are worth noting:
1) The infrastructure being referenced was needed for the output that is coming, regardless of where the ethane goes. Moreover, the infrastructure isn’t going to the Gulf; it’s connecting to the existing infrastructure outside the region that goes to the Gulf, meaning it can easily serve the petrochemical industry in PA.
2) Engineering for the project is going on as we speak. While no contracts for EPC for the plant or the decommissioning of the Horseheads plant have been announced, preliminary pricing and sourcing is going on. Those involved say that the activity has accelerated in recent months rather than slowed.
3) The secondary pipeline infrastructure that is being built at the same time seems to be telling a different story. It’s pointing to Monaca. Tony Rosenberger from Chapman Properties was flying over a Washington Co. site recently and was stunned to see the amount of green pipe being laid out (a similar story is taking place in Beaver Co.), all going to the same spot on the Ohio River.
Shell may indeed be delaying the decision because they see less justification for the $2 billion investment. Remember that the reason that the cracker was proposed here in the first place was not just because the gas was here but more importantly because the consumers of the products made downstream were within 500 miles of here. There’s a cost associated with sending ethane 1,500 miles southwest and then shipping 60% of what is made with the ethylene that is cracked back to this region.
My bet is still for a thumbs up from Shell and sooner rather than later.
Public higher ed construction isn’t exactly booming but Penn State has a handful of interesting opportunities out now. PSU is looking for qualifications from CM’s for a $67 million data center project (2 buildings actually) in State College & Hershey; and for design/build proposals for a $7 million mushroom research center and $11 million bakery/warehouse expansion in State College. The university is also hiring architects for a $10 million student center in York and a $25 million student enrichment center in Harrisburg.
Down at WVU, the $80 million Ag Sciences Building has gone out to bid to Mascaro, PJ, Turner, Walsh & Whiting-Turner. Iron Mountain is rumored to have selected Turner for the $25 million vault expansion in Boyers, PA. Another round of budgets from 80% documents is expected from Mascaro, PJ Dick & Rycon for Noble Energy’s new 150,000 sq. ft. HQ tenant space in Southpointe.
Highmark selected Landau Building Co. as CM-at Risk for the $15 million imaging project at Jefferson Hospital. Central Catholic has narrowed down the field of architects for its new $15 million STEM building to Astorino, Desmone & Stantec.