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Construction bids farewell to recession

By Sarah Berkshire

It was 2011 and early 2012 when the Great Recession tightened its grip on Bowling Green construction company Scott, Murphy and Daniel, and the list of active projects shriveled during a nine-month period. Leadership focused on cost control and squeezing enough work from a wounded economy to keep its longtime crews busy.AprilCraneGraphJM

“We created work. We bought projects, meaning we did them for cost or below to keep our employees employed,” said G. Michael Murphy, president of the company. “It’s important for us to make sure they have a job every day and that we hang on to people who have that much experience.”

Those jobs are easier to provide now, said Murphy, who oversees 200 employees.

Construction professionals across the state report their sector is picking up, and the industry’s economic recovery at long last has begun. They credit continuing growth in healthcare and education as well as increased activity in manufacturing, distribution, office, municipal and road construction.

“It’s an exciting time because things seem to be going in the right direction,” said Erik Dunnigan, vice president of business development for Bristol Group of Lexington. “North America is still a big market,” he noted, and domestic and overseas companies alike want to locate and grow in Kentucky, where they can provide one-day service to most large U.S. metro areas.

Still, the industry overall is cautious.

“There’s still a lot of concern. We’re still seeing businesses close their doors, but there’s a light at the end of the tunnel,” said Richard Vincent, executive vice president of Associated General Contractors of Kentucky.

Nationally, construction activity dropped 2.6 percent from January to February 2014, according to the most recent Dodge Momentum Index findings available. Yet, for the 12 months from February 2013, activity was up almost 20 percent.

One reflection of activity in the state is the size of the commonwealth’s construction workforce, Vincent said. Construction employment in Kentucky hit 67,800 in January. That was a 4 percent one-month gain and 0.7 percent over the same month a year earlier, according to the most recent figures compiled by Associated General Contractors of America.

For example, construction is active in many parts Lexington, he said, citing multiple University of Kentucky projects, including $400 million in campus housing dorms, a number previously unheard of. Off campus, multiple other investments such as the Baptist Health Lexington bed tower, which is part of a $200 million expansion, and The Summit retail development are under construction.

“I can’t recall the last time that that amount of volume was going on in a concentrated area of Lexington,” Vincent said.

Manufacturing is in growth mode

For several years, manufacturers have leaned toward consolidation and shoring up rainy-day funds. Now, more of those funds are being leveraged for expansions.

A precast production bay at Bristol Group, a Lexington-based construction, design and fabrication company that works in Kentucky and surrounding states. The manufacturing sector, especially automotive related companies, are creating increasing demand, Bristol officials say.
A precast production bay at Bristol Group, a Lexington-based construction, design and fabrication company that works in Kentucky and surrounding states. The manufacturing sector, especially automotive related companies, are creating increasing demand, Bristol officials say.

“Manufacturing is coming back the fastest,” Dunnigan said. “They’re actually pulling the trigger and starting some projects that they might have been holding off on during the recession.”

And within the manufacturing sector, automotive is the pacesetter.

“I see a definite uptick on the automotive side of things,” said Denis Steiner, CEO of Lexington design-build firm Denham-Blythe, referring to the large number of Toyota suppliers with which his company works. Predominantly, those suppliers are expanding their space to add new lines to meet growing demand.

The automotive industry includes so many jobs, said Steiner, that such expansions are a key impetus to an overall economic recovery.

Murphy said players in the automotive industry have started asking for pricing for expansions and new facilities, especially in the past 18 months. Some of the larger projects his company has earned in the past couple years include the Kobe Aluminum Automotive Products expansion in Bowling Green, KIRIU USA expansion in Bowling Green, Metalsa expansions in Elizabethtown and Hopkinsville, Riken Elastomers in Hopkinsville, NHK NASCO in Bowling Green and NHK of America Suspension Components in Louisville. Each of those customers is tied to the automotive industry.

Scott, Murphy and Daniel Construction also is in charge of repairs at the National Corvette Museum’s Skydome in Bowling Green, where a sinkhole opened in February, pulling eight Corvettes into the earth.

As for business driven by demand and not disaster, in Northern Kentucky machine tool manufacturer Mazak has partnered with construction and real estate development company Paul Hemmer Co. to expand by up to 100,000 s.f., said President and CEO Paul Hemmer Jr.

Manufacturers rebounding from a financial downturn typically look to equipment needs first, and as demand grows, they start looking at capital investments in facilities, Hemmer noted.

“We’ve seen a good rebound in the past 18 months in that area,” he said.

Manufacturers need distribution centers

The need for distribution and warehouse space is also growing. Dunnigan pointed to developers anticipating that need and building in Bullitt County, where Amazon occupies distribution space in multiple facilities and Irish safety gear company Portwest LLC announced in March plans to build a distribution center.

Scott, Murphy and Daniel Construction of Bowling Green builds a hydrofoam plant expansion for Metalsa Structural Products in Elizabethtown.
Scott, Murphy and Daniel Construction of Bowling Green builds a hydrofoam plant expansion for Metalsa Structural Products in Elizabethtown.

John Hollenbach, of construction and property management company Hollenbach-Oakley in Louisville, said retail and office space needs are increasing, too. His company is developing Blankenbaker Station Business Park in Louisville, where seven projects are underway.

“The more traditional commercial development has seen an incredible improvement in the last 12 months,” Hollenbach said.

His company has added multifamily construction, a market that started taking off about two years ago, to its portfolio as well. A combination of financing restrictions and other lifestyle factors have driven demand in that market. Hollenbach-Oakley is working on two multi-family projects in Louisville, he said, and the city has not seen such multi-family activity in about eight years.

Many Kentucky construction companies are busy with building and renovating medical facilities. Paul Hemmer Co. recently completed St. Elizabeth Physicians Express Care and Primary Care medical offices in Independence, and Denham-Blythe is completing a large hospital wing for Hazard Appalachian Regional Healthcare Medical Center. Once the wing is complete, staff will move in and the existing space will undergo renovation. In Glasgow, Alliance Corp. is managing a $30 million project that will convert a Walmart store, vacant since 2005, into an outpatient center, said marketing director Chris Houchens.

Speculation investment returning also

Alliance Corp. also broke ground in March on the Franklin-Simpson Industrial Authority Speculative Building in Franklin. They’re using building information modeling (BIM) technology to design, build and eventually market the building. The bulk of the building is a 60,000 s.f. shell that can be used for warehouse or production space.

Paul Hemmer Construction builds one of several recent expansions by Mazak Corp., a Florence, Ky.-based machine tool maker.
Paul Hemmer Construction builds one of several recent expansions by Mazak Corp., a Florence, Ky.-based machine tool maker.

“That building doesn’t exist today. It will be finished this fall. But it does exist virtually online,” Houchens said. “This way, we can build a lean building … and then customize it for that client.”

No matter the economic outlook, Houchens said, the company is always looking for new technologies that improve efficiency and BIM is one example. Other examples include green technologies, in which schools, a key market for Alliance, are especially interested.

Advances in technology certainly apply to the construction industry as it picks up momentum. At Bristol Group, in addition to providing construction services, the company manufacturers precast concrete for its own projects and for other firms. Generally, it’s not new technology, but it’s new in the Kentucky region. Bristol used it in a Hitachi facility in Harrodsburg, for example. The process allows an entire building to be staged in a manufacturing facility, even before a site is prepped, streamlining construction schedules, among other benefits.

As construction business picks up, some builders noted they could face challenges finding workers. Outlooks vary by region as some professionals see any new work being spread among fewer companies, triggering a hiring spree. Others say it will take a longer period to replenish the workload of companies still in the marketplace.

While construction and real estate developers approach the recovery of their industry with prudence, some pointed out initiatives that could foster much more development and expressed hopeful outlooks.

One of those is public-private partnerships, commonly called P3s, Vincent said in mid-March. The state’s P3 bill, House Bill 407, had passed the House and was awaiting Senate approval at that time.

“We all recognize that the state government and the federal government coffers are tighter. We have to come up with new solutions. We have to have infrastructure to remain economically competitive, economically viable,” said Vincent, whose organization includes about 700 members.

Design-build firm Denham-Blythe of Lexington built an expansion for Hazard ARH Regional Medical Center.
Design-build firm Denham-Blythe of Lexington built an expansion for Hazard ARH Regional Medical Center.

Encouragement also comes from the $2.36 billion Louisville-Southern Indiana Ohio River Bridges Project, set to open to traffic in 2016.

With more than two-thirds of U.S. buying power within a day’s drive of the Kentucky/Indiana/Tennessee region, Dunnigan said, the Bluegrass State offers businesses a good location. The safer and easier travel the bridges project will provide will only make the area more strategic to growing companies.

“First, it’s going to put a lot of people to work,” Dunnigan said of the project. “Once it’s completed, the dynamics of the economy for Kentucky and Louisville are going to change and some of those changes could be drastic. You’re opening up an artery for commerce to flow.”

Sarah Berkshire is a correspondent for The Lane Report. She can be reached at [email protected]