Focus on Philly: Contractors Caught in a Waiting Game

Philadelphia’s once hot construction market has quickly cooled as a frozen credit market and a chilly economy have swept across the region. As private developer work remains uncertain, many companies are looking to lean on the city’s traditionally stable institutional sectors for work.

By Jen A. Miller

Like many metro markets these days, Philadelphia’s design and construction community is caught in a waiting game. Construction projects all over the city have either been scaled back—especially in once hot hotel and residential sectors—or iced by the frozen credit markets.

Contractors are leaning on institutional clients for work in the unstable economy. P. Agnes of Philadelphia is building the $100-million Allegheny Hall and Brandywine Hall dormatories at West Chester University in West Chester, Pa.

“The whole financing world has changed,” says Ian Cope, a partner at Cope Linder of Philadelphia’s Cope Linder Architects. “While projects used to be able to borrow five to six times revenue, they’re only able to borrow two to three times. They have to come up with the equity or the project has to be smaller or phased.”

The net result is a noticeable cutback in the area’s design professionals and tight competition among contractors looking to survive, says Paul McDonald, senior vice president of J.J. DeLuca of Springfield, Pa.

Although current activity is down, Steve Mullen, senior vice president of Econsult, a Philadelphia development consulting firm, says that “some of the projects put on the back burner because of the downturn haven’t been trashed. Developers are doing a lot of the groundwork to continue when things get better.”

The long-delayed Free Library of Philadelphia expansion, an L.F. Driscoll project, has been delayed again. The 160,000-sq-ft project, valued at $175 million, was put on hold in December.

Michael Prifti, managing principal of BLT Architects of Philadelphia, says that while contractors are now feeling the pain, some design work is starting to bounce back—a bellwether for future opportunities.

“We’re beginning to see an uptick in inquiries for our own work,” mostly in higher education, he says. “Depending on the project, the bulk of design work is being done six months to a year in advance to real construction dollars being spent.”

Convention and Hotel Although the $700-million expansion of the Pennsylvania Convention Center in Philadelphia was slow to start, crews are now moving at the 935,000-sq-ft project. Tishman Construction of Philadelphia with Joseph Jingoli and Sons of Lawrenceville, N.J., are managing the project.

Memphis-based Development Services Group served as developer and construction manager for the $57-million 140,000-sq-ft Le Meridien project, which is scheduled to open in September.

The Convention Center expansion, scheduled to open in 2011, was meant to prompt hotel growth and put major projects on the map, including a W hotel, but the expansion alone hasn’t been enough to green light every project in the current economic climate.

“You’re probably looking at a delay rather than project cancellations,” says Peter Tyson, vice president of PKF Consulting, which tracks hotel projects in the region. Tyson estimates that many of the on-hold projects will start back up again in mid-2010.

advertisement

Only two major hotel projects are scheduled for completion this year, and their 433 combined rooms are a far cry from the 2,500 rooms the city had hoped to add by 2009.

Le Meridien, scheduled to open in September, is a 140,000-sq-ft, $57-million project that adds 202 hotel rooms. Memphis-based Development Services Group served as developer and construction manager for the project.

Hotel Palomar, also a conversion project in Philadelphia, is a $92.5-million, 231-room building developed by San Francisco-based Kimpton Hotels & Resorts. It will open late this year.

Residential The condo boom that swooped over Philadelphia has been the city’s biggest bust.

“We’ve already seen a decline in building permits issued, and renovations are down,” says Josepha Pasquarella, managing director of Integra Realty Resources-Philadelphia, a commercial real estate valuation and consulting firm.

Pasquarella says that the market could bottom out by the summer and improve slightly in the third or fourth quarter, unless the economy deteriorates.

Mullen adds that Mayor Michael Nutter’s commitment to keeping a 10-year tax abatement for new residential construction and renovations is also good news in a bad situation.

Despite the bleak outlook, many high-end residential developments are moving ahead. Three major condo projects in the Rittenhouse area are under way. The $250-million, 475,000-sq-ft 10 Rittenhouse Square Condominiums project is scheduled for spring 2010 occupancy.

Despite the bleak outlook, many high-end residential developments are moving ahead. Pictured above, 1706 Rittenhouse Street is being built by Bala Cynwyd, Pa.-based L.F. Driscoll Co. The $145-million, 130,000 sq-ft 31-story glass tower, pictured in the rendering at right, is scheduled for occupancy in 2010.

1706 Rittenhouse Street—a $145-million, 130,000 sq-ft 31-story glass tower—is being built Bala Cynwyd, Pa.-based L.F. Driscoll Co. Driscoll is also working on the Waldorf-Astoria Hotel and Residences, a 860,000-sq-ft, $420-million tower. When completed, it will be the city’s sixth tallest building. Occupancy is scheduled for 2012.

INTECH Construction of Philadelphia is building 777 Broad, a $70-million 220,000-sq-ft, mixed-use project of lofts and retail. The LEED-registered building is on pace for February occupancy.

Entertainment and Gaming Several casinos projects are now stalled. In early April, SugarHouse Casino announced it would open a scaled-down casino in April 2010 with eventual plans to complete its original 220,000-sq-ft, $550-million gambling complex on a delayed schedule. Philadelphia-based Keating Building Group is the construction manager.

One casino project moving is Philadelphia Casino Park, a 250,000-sq-ft, $350-million casino being built in Bensalem, Pa., by TN Ward of Ardmore, Pa. It is scheduled to open in December.

TN Ward is also continuing work on the $115-million Major League Soccer Stadium in Chester, Pa. The building, which is part of a $500-million Chester waterfront development plan, is slated for completion in 2010.

Intuitional Several contractors have continued to find opportunities in the city’s broad institutional sectors. Work continues on two big projects in West Philadelphia, where both The Children’s Hospital of Philadelphia and the Hospital of the University of Pennsylvania took over space that had been home to the Philadelphia Civic Center.

The Colket Translational Research Building at CHOP, a Turner Construction project, is a 425,000-sq-ft, $400-million tower that is slated for a 2010 completion. Next door is the Anne and Jerome Fisher Translational Research Center, a 400,000 sq-ft, $400-million tower, also slated to open in 2010.

The Curtis Institute, a music conservatory, recently announced that it had secured funding for a new, $65-million, 106,000-sq-ft building that will add onto the music school’s historic campus in on Rittenhouse Square. The project, being built by INTECH, will renovate parts of the school’s existing façade.

Originally a YMCA, the 202-room Le Meridien is housed in a 10-story Georgian revival-style structure, one block from the Pennsylvania Convention Center.

INTECH also continues work on the National Museum of American and Jewish History. The 100,000-sq-ft, $65-million project is planned for an October 2010 opening.

P. Agnes broke ground last year on two dormitories for West Chester University. The first phase, which is valued at $82 million, is scheduled for a fall completion, but the second and third phases, which would have brought total construction value to $325 million, are in jeopardy due to declining revenue from the state.

TN Ward is working on two projects for the Salvation Army. The company began sitework on the $67-million 128,000-sq-ft Salvation Army Ray & Joan Kroc Center early this year and is scheduled to complete the project in 2010. The firm is also working on a 41,200-sq-ft addition to the Salvation Army Ivy House, which is a four-story residential building.

Keating Building Corp. broke ground in late 2008 on the new IRS campus being built at the former U.S. Post Office site. The $100-million, 863,000-sq-ft renovation is scheduled to wrap up in 2010.

The long-delayed Free Library of Philadelphia expansion, an L.F. Driscoll project, has been delayed again. The 160,000-sq-ft project, valued at $175 million, was put on hold in December.

At the former site of the Philadelphia Civic Center in West Philadelphia, the Anne and Jerome Fisher Translational Research Center, a 400,000 sq-ft, $400-million tower, is slated to open in 2010.

Despite experiencing budget cuts of its own, the Philadelphia Museum of Art plans to move ahead with its 10-year, $500-million master plan. A contractor has not been named.

Stimulus Money Philadelphia contractors will also get a piece of the American Recovery and Reinvestment Act funding. PennDOT funneled $66 million in stimulus funds to restore the Girard Point Bridge – the largest bridge project under the state’s stimulus plan. PennDOT also received an additional $18 million for new curb ramps and road resurfacing throughout the city.

In early April, Sen. Robert Bob Casey, D-Pa., announced that he was in discussion with Mayor Nutter about $475,000 in federal funding going toward improvements along North Broad Avenue that could include new lighting, street trees and sidewalk improvements.