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Construction update 2008: Building jitters: Developers say business uncertainty appears to have depressed large projects
(Wisconsin State Journal, The (KRT) Via Acquire Media NewsEdge) Aug. 16--Except for projects related to the health-care industry and UW-Madison, local commercial construction starts over the past 12 months have lagged behind the past few years, according to figures from local municipalities and perceptions of several developers and contractors.
Three UW-Madison buildings alone -- the Interdisciplinary Research Complex, the Microbial Sciences Building and the Biochemistry II building -- account for a total construction cost of nearly $400 million.
Also in the campus area, the $190 million University Square development in the 700 block of University Avenue, with student apartments, UW-Madison offices and retail space, is one of Dane County's biggest projects this year.
Other major projects in progress are at St. Mary's and Meriter hospitals and Epic Systems, an electronic medical records company in Verona.
"It's really weird right now. It's not good," said developer John K. Livesey.
No one is calling it a slump in nonresidential building, but "it's certainly much, much slower than it's been over the last five years," Livesey said.
Even though the nation's economy continued to grow during the last quarter, Livesey pointed to high fuel prices and lost jobs at longtime employers such as General Motors in Janesville, Stoughton Trailers, and Famous Footwear, which is being consolidated with its parent company in the St. Louis area.
"The psychology of the marketplace is worse than the actual marketplace. People think it's worse than it even is," Livesey said.
Companies hoping to expand into larger quarters are holding off on the move, said Bret Newcomb, president of Newcomb Construction.
"I get the sense a lot of businesses are doing fine. I think they're just waiting to see what's going to happen before they expand or make that next key hire," Newcomb said.
After the brutal winter with more than 100 inches of snow, he thought more projects would materialize in the spring, but that didn't happen.
Even so, there is a significant amount of commercial construction going on, city figures show.
Building permits issued by the city of Madison between July 1, 2007, and June 30, 2008, for nonresidential projects valued at $500,000 or more totaled $245.8 million, not including state or UW-Madison construction.
But it is the lowest in at least the past four years, including the $262 million worth of projects initiated for the July 2006 through June 2007 period.
Hilldale
One of the big projects that has yet to begin is at the Hilldale Shopping Center on the West Side.
Owners Joseph Freed & Associates had originally planned to start construction this past spring on a plan that included two condominium towers, one with three stories of office and retail space; a 55,000-square-foot Whole Foods store, a 675-stall parking garage and a 125-room Hotel Indigo.
Those plans have been scaled back, eliminating the two condominium towers but retaining 60,000 square feet of office and retail space. The Whole Foods store, parking garage and hotel also are being retained. Construction is scheduled to start in the next few weeks.
"They're waiting for anchor tenants," said Chris Richards, research analyst for the Grubb & Ellis/Oakbrook real estate firm. "Things are slowing down to the point where I don't think (developers) can put up new buildings without an anchor tenant."
Arbor Gate
The Wipfli accounting firm and Wisconsin Heart and Vascular Institute will be the major tenants of Arbor Gate, 2501 and 2601 W. Beltline. Perched along the Beltline near Todd Drive, Arbor Gate consists of two six-story buildings connected by skywalks with 215,000 square feet of space, including room for shops on the ground floor.
Fifty percent of the buildings is leased so far, said developer Bradley Hutter, president of MIG (Mortenson Investment Group), who pegs the project at $45 million, including eventual finishing of the space to suit tenants' needs.
Tenants will start moving in late this year and most of the project will be open by spring 2009, Hutter said.
Sequoya Commons
Another major development, Sequoya Commons, at Midvale and Tokay boulevards, is wrapping up its $15 million first phase. The Sequoya library branch will move into its new, 20,000-square-foot space in October and five retail spaces are available. The Chocolate Shoppe ice cream store will occupy one. But La Brioche bakery, part of the existing strip mall, will move to University Avenue, instead, into the former Magic Mill building, project developer Joe Krupp said. Eight of the 45 condominiums have been sold.
The $20 million second phase of Sequoya Commons is planned to include another 100 residential units and 10,500 square feet of commercial space. Demolition of the existing strip mall was set to start Oct. 1, but Krupp said the project now is on hold.
UW Medical Foundation
In the suburbs, one of the largest office buildings, issued a permit in late June 2007, is the $18 million structure at 7964 Discovery Court, Middleton. The UW Medical Foundation will occupy the entire building and will move in later this year.
Epic Systems
But that is dwarfed by the second phase of office construction and a 2,000-space underground parking ramp at Epic Systems, 1979 Milky Way, Verona. The developer of electronic health record systems received permits estimating construction costs at $95 million.
Other highlights
Some of the other major nonresidential projects that began over the past 12 months include:
About $17 million in additions and remodeling at Covance. Most work involves the drug testing company's operations at 3301 Kinsman Blvd. Covance also bought the former UW-Madison Swap Shop building, 2102 Wright St., and is remodeling that structure. Since 2002, Covance has invested $125 million in its Madison facilities and added 900 employees, for a total of 1,980 employees and nearly 1 million square feet of offices and labs.
St. Mary's Hospital is on track to wrap up the $6.6 million expansion of its emergency department in December, virtually doubling the number of beds, adding equipment and an expanded waiting area. It's part of a $182 million, 10-year hospital expansion and renovation.
The Dean Health System and St. Mary's outpatient center, next to the hospital at 703 Brooks St., opened its second-floor surgery center in December and its cardiology and imaging departments July 1. The $55 million project began in 2005 and is expected to be completed by the end of January.
Meriter Hospital's ongoing updates included about $10 million in alterations during the past 12 months.
The Dane County Regional Airport is adding a 1,240-space, $30 million parking ramp and exit plaza. A couple of private aircraft hangars also were built, including one for CUNA Mutual's corporate jet.
Several big-box stores popped up in the suburbs. Costco club store is opening in Middleton. Blain's Farm & Fleet built a store in Verona, and Sun Prairie is getting a Target store.
New schools include the $22 million Glacial Drummond Middle School in Cottage Grove, expected to open this fall.
At least one Madison builder says interest in commercial construction has picked up, just in the last month. From July 15 through Aug. 10, four projects to be built by Vogel Bros. Building Co. were given a "go" by the companies' boards of directors. That compares to only one or two projects from October 2007 until July, said Pete Szotkowski, Vogel Bros. director of business development.
He said Kenneth Simonson, chief economist for Associated General Contractors of America, is projecting a 6 percent increase in commercial construction for Wisconsin in 2008, over 2007.
A key reason that Vogel Bros. is seeing new interest is the rising cost of construction materials, from copper and steel to drywall.
"Although owners are cautious, they realize now is a good time to go forward with projects. The cost of materials is going up quite significantly," Szotkowski said.
To see more of The Wisconsin State Journal, or to subscribe to the newspaper, go to http://www.wisconsinstatejournal.com.
Copyright (c) 2008, The Wisconsin State Journal
Distributed by McClatchy-Tribune Information Services.
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