Construction industry looks for solid ground

The pandemic is plaguing projects, and many contractors are wobbling

TRD CHICAGO TRD ISSUE /
May.May 20, 2020 03:00 PM

In the best of times, construction is a complicated business. Labor problems, demanding developers, financing issues, bad weather — any number of things can disrupt a project. Now add a global pandemic, government-ordered shutdowns and a collapsing economy.

In New York, the epicenter of the coronavirus pandemic in the U.S., changes to construction rules whipsawed developers and contractors. Confusion about government orders and fear of Covid-19 also plagued projects in South Florida, Los Angeles and Chicago, but mostly they forged ahead.

Still, an Associated General Contractors of America survey found more than half of contractors have furloughed or terminated employees since March, largely because 63 percent saw projects halted. Here’s a look at what’s gone down and what’s ahead in four major construction markets.

New York: City’s last in line

Since New York Gov. Andrew Cuomo ordered nonessential workers to stay home in March, his stance on construction has evolved.

Initially, all construction was considered essential. But on March 27, after critics charged that workers were at risk, Cuomo scaled back what was considered “essential construction,” defining it as infrastructure, affordable housing, health care facilities and emergency work needed to stabilize a building site. The state defined “affordable housing” fairly liberally: projects where at least 20 percent of the units will be income-restricted.

The state later opened the door for even more projects to continue by allowing work that was in service to another essential business, such as a grocery store, medical facility or a financial institution. Developers and general contractors have also been able to apply to the city’s Department of Buildings to continue work on their sites if the project does not explicitly fall within the state’s guidelines.

As of May 14, more than 7,800 construction sites throughout New York City qualified as essential under the state’s rules. More than 4,000 of those were approved separately by the buildings agency, but inspectors have cracked down on sites where unauthorized work was taking place. Related Companies’ 50 Hudson Yards was among those shut down.

Cuomo in late April said construction and manufacturing would be the first industries to reopen, though not everywhere at once. Sparsely populated areas where the virus was under control would be first, meaning New York City could be last. Reopening was allowed to begin May 15 in the Southern Tier, Mohawk Valley, North Country and Finger Lakes regions.

The industry is eager to make up for lost time and argues that New York needs it. Industry leaders in New York City are pushing for 24-hour scheduling — rarely allowed because of noise concerns — to catch up and facilitate social distancing on job sites.

“Construction always leads the economy out of the recession,” said Barry LePatner, founder of construction law firm LePatner & Associates. “If you want to jump-start the economy, you want to put lots of workers back to work at high-paying jobs.”

Regions must meet seven different requirements before reopening, including a 14-day decline in hospitalizations, or fewer than 15 hospitalizations per day, and a 14-day drop in coronavirus-related hospital deaths, or fewer than five per day. New York City isn’t expected to meet those requirements until June. — Kathryn Brenzel

South Florida

Florida Gov. Ron DeSantis deemed construction an essential business and allowed it to continue throughout the pandemic, though some smaller cities decided to shut it down over concerns that workers could spread the virus.

But different rules on how the sites are supposed to be run, who should be wearing what personal protective equipment and what sites could stay open led to confusion that kept contractors and subcontractors on edge for a period of time. Contractors feared what a statewide shutdown could do to the labor force, which has been recovering from the effects of the 2008 downturn when many workers left the industry for good.

Generally, however, the industry was unscathed. Most companies did not lay off or furlough employees, said Peter Dyga, executive director and CEO of Associated Builders and Contractors’ Florida East Coast Chapter.

Few developers chose to close their sites. After workers tested positive for the coronavirus at Sergio Pino’s construction jobs in Miami-Dade, he shut down all of his projects, had them professionally cleaned and disinfected, and provided testing for Covid-19 to his workers upon their return.

In early April, Miami Beach shut down construction sites for failing to follow social distancing guidelines, issuing stop-work orders for two commercial projects. Municipalities such as the city of Miami and Miami-Dade County issued emergency orders requiring that all construction workers wear masks.

Projects had trouble complying with guidelines as some tasks require workers to be closer than six feet apart. Contractors struggled to get materials. And most cities stopped processing new permit applications for one to two months, which could have an impact on contractors and developers by late August or early September.

“There’s a gap that’s coming,” Dyga said. “At some point that’s going to hit the industry.” — Katherine Kallergis

Los Angeles

On the last weekend in March, a construction worker at the forthcoming Inglewood stadium for the NFL’s Rams and Chargers tested positive for the coronavirus. Los Angeles Mayor Eric Garcetti and county officials promptly sent public inspectors to construction sites throughout L.A. and hatched various rules, such as crew members not being able to share equipment.

But work at the $5 billion stadium went on, as has construction throughout L.A. County.

“I wouldn’t say it’s business as usual,” said Peter Tateishi, CEO of the California Association of General Contractors. “But most projects are going forward.”

“We have had to evolve,” Tateishi added, particularly on vertical projects on which crew members’ standing six feet apart from each other “disrupts the normal flow and cadence. It’s a different way of working.”

California Gov. Gavin Newsom issued an executive order in March deeming construction an essential activity. The San Francisco area imposed restrictions on commercial and market-rate housing projects that were not lifted until May, but L.A. County erected no such roadblocks.

The result is that projects such as the football stadium and renovations to the Los Angeles County Museum of Art and Westwood’s Hammer Museum have moved ahead. So have various residential projects, from spec mansions in Bel Air and Holmby Hills to affordable housing complexes in El Serreno and Skid Row.

AECOM CEO Michael Burke boasted during a May earnings call that the mammoth engineering and construction firm’s local projects were advancing and that only 18 of its 50,000 worldwide projects were canceled because of coronavirus.

Still, the toll that the economic downtown will have on construction in L.A. County is unclear. Tateishi said financing is not being pulled from ongoing projects, “but we are seeing financial challenges from a future standpoint.” — Matthew Blake

Chicago

Chicago could be among the last American cities that fully reopens to business following the coronavirus shutdown, but construction work has not stopped.

Developers working on some of the dozens of residential and office projects throughout the city — including such megadevelopments as Related Midwest’s The 78 — have been pushing ahead during the crisis. And even new projects, such as the 813-foot-tall Salesforce Tower in Wolf Point, have received building permits and quickly begun construction.

Gov. J.B. Pritzker’s statewide stay-at-home order in effect since March 21 — which he modified and extended through May — allows only essential business activity to operate in Chicago. On that list is construction, building management and maintenance, and airport operations.

“Over 90 percent of job sites are still open,” said Tom Cuculich, the executive director of Chicagoland Associated General Contractors, a trade group that represents 10,000 members and worked on $12 billion in projects last year. “The ones that aren’t are the ones that just couldn’t operate safely mainly due to social distancing issues.”

Construction crews are following federal health and safety guidelines and observing social distancing, Cuculich said. Contractors are deploying hand-sanitizer and hand-washing stations, staggering shifts, adding temperature checks and even thermal imaging technology at some sites, he noted. Overall productivity remains high, according to Cuculich, but there are new logistical challenges: Hoists at high-rise developments can only carry so many people while observing social-distancing guidelines, for example.

One of the projects that has continued without a hitch is a massive residential development planned by McCaffery Interests and Community Builders at the site of the demolished Harold I. Ickes Homes. The 11-acre mixed-income “Southbridge” campus on the Near South Side would eventually see 877 rental and for-sale homes and 60,000 square feet of retail space.

While construction can proceed statewide, developers have run into other problems, notably lenders who have tightened their belts. That was the case with a major residential project in Skokie, about 15 miles north of downtown Chicago. Murphy Development Group last month acquired the 153-unit project from Greenspire Capital and investor Norm Hassinger after a $45 million construction loan for the $73 million luxury rental and retail complex never materialized. Murphy Development, one of Chicago’s most active developers, is now pitching the project — on which work began in May 2018 — to other lenders.

Although he’s confident in the strength of the Chicago market, Cuculich said there is some anxiety about the future. Population declines, high property taxes and building restrictions have spurred some developers to build elsewhere in recent years.

“Many of my members have projects on the books this year and are looking at projects upcoming in the pipeline,” Cuculich said. “There were already concerns about jobs going elsewhere. People are optimistic that financing will be loosened up but right now it’s a concern.” — James Kleimann


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