Construction spike creating a backlog for designers and builders

By Robin Roenker

A three-year $50 million renovation and 62,500-s.f. expansion of the Speed Art Museum is one of hundreds of projects making 2015 the biggest year ever for Kentucky builders, engineers and designers. Builders Exchange of Kentucky, a 1,000-member trade organization, now expects more than 3,100 active projects for the year.
A three-year $50 million renovation and 62,500-s.f. expansion of the Speed Art Museum is one of hundreds of projects making 2015 the biggest year ever for Kentucky builders, engineers and designers. Builders Exchange of Kentucky, a 1,000-member trade organization, now expects more than 3,100 active projects for the year.

Ron Gilkerson, president of GRW, a 52-year-old Lexington-based engineering, architectural and geospatial consulting firm, says his company’s project loads are at an all-time high.

“Right now, we have our largest backload of signed projects in our history. We’re probably currently up about 20 percent from our previous historical high, which was in 2009-2010,” Gilkerson said, noting that the company’s work on two large-scale out-of-state correctional facilities helped create its contract spike in those years.

“We’ve seen an uptick in construction demands across the board, from municipal buildings to water and wastewater infrastructure projects to healthcare and long-term care facilities,” Gilkerson says. “All of our offices have significant backlogs of projects – up to a year and a half of backlogs – on their books.”

GRW is not alone in feeling the construction boom.

Demand for new construction is at or near historic highs across the state, and across many sectors, from residential and commercial to industrial and manufacturing.

Louisville-based Builders Exchange of Kentucky, a 1,000-member construction trade association that tracks commercial construction project trends across the state, has reported on a total of 2,255 construction projects listed for bid through the end of August 2015, an increase of 9 percent from the same point in 2014.

“We are on pace to report on 3,110 projects by the end of this year, which would be the most in our 88-year history,” says Lynn Stetson, Builders Exchange of Kentucky’s executive vice president. Builders Exchange totals include commercial construction projects across the entire state of Kentucky, as well as Southern Indiana and small regions of West Virginia and northern Tennessee, Stetson said.

loubridge
Work progresses on the Downtown Connection bridge, view looks north, in Louisville, part of a $2.3 billion Ohio River Bridges Project that is keeping thousands of workers with dozens of regional contractors busy.

Further announcements include Norton Healthcare’s $107 million expansion/renovation of Audubon Hospital in Louisville, which it unveiled Sept. 28. And FedEx Group Package System is considering a $199 million expansion of its Boone County distribution hub (built a decade ago for $50 million) for which state officials on Sept. 24 approved $1.75 million in potential tax incentives. Those could be bid later this year.

Counties with the most construction projects under bid in August 2015 included Jefferson County (33 projects), Fayette County (22 projects), Franklin County, Ind. (9 projects), and Daviess County (8 projects), according to BEK.

Builders Exchange does not track residential construction, but numbers from that sector are encouraging as well.

Total new housing starts in Kentucky in June 2015 numbered 4,923, a 2 percent increase from June 2014. Kentucky saw 7,895 total new home starts in 2014 – a seven-year high – and is on track this year to better 2014’s numbers by 6 or 7 percent, says Bob Weiss, executive vice president of the Home Builders Association of Kentucky. The economist for the National Homebuilder’s Association projects that Kentucky will reach 9,700 new housing starts in 2016, a better than 20 percent increase over 2014’s totals, Weiss said.

Industrial facility growth continues 

UKStadium050515_677
Construction in the Central Kentucky region has been so robust that Congleton-Hacker Co. of Lexington reported it had to call in electricians from Knoxville and Memphis, Tenn., to help complete at $120 million renovation and expansion of Commonwealth Stadium at the University of Kentucky.

Industry sectors are booming as well. Last year was a banner year for new capital investment in Kentucky, with $3.7 billion announced – a new state record.

In fact, the commonwealth’s success in attracting new and expansion industry projects last year earned it the coveted 2014 Governor’s Cup from Site Selection magazine – signifying its role as the state with the highest number of economic development projects per capita that year, notes Gary Feck, commissioner of Kentucky’s Department of Housing, Buildings and Construction.

“From the standpoint of commercial or industrial growth over the last year or two, Kentucky has had a lot of momentum,” Feck says. “Nothing says that better than the fact that Kentucky won its first-ever Governor’s Cup from Site Selection last year.”

In its March 2015 cover story about the Governor’s Cup awards, Site Selection reported that Kentucky won the per capita rankings with a total of 258 “qualifying” projects in 2014. Kentucky ranked sixth nationally in total projects. (The magazine counts projects that: involve at least a $1 million capital investment, create 20 or more jobs, or include new construction of 20,000 s.f. or more.)

Kentucky’s Cabinet for Economic Development reported 357 announcements of new commercial/industrial facilities construction or expansion projects in 2014, representing a total investment of $3.7 billion. Between January and August 2015, the Cabinet reported 110 announcements for new or expanded facilities in the state, representing a combined, projected investment of $1.689 billion.

Additionally, the commonwealth’s success at attracting foreign direct investment has been evident in the size and types of many industry construction projects announced. The Cabinet for Economic Development reports FDI in 2014 accounted for almost 20 percent of Kentucky’s announced construction projects.

From one end of the state to another, examples of project growth are evident.

In August, Graham Packaging Co. – which designs and manufactures custom blow-molded plastic containers for the food, beverage and household care industries – announced its groundbreaking for a $35 million, 245,000-s.f. facility in Bowling Green.

Four Roses Distillery has announced plans for more than $63.5 million in upgrades or expansions across multiple projects including barrel warehousing, manufacturing and bottling facilities in Lawrenceburg and in Bullet County.

Campbellsville’s INFAC North America announced plans in July to expand its automotive cable manufacturing facility there. And in Hopkinsville, plans have been reported for two new automotive supplier assembly plants: a $22.4 million facility for Riken Elastomers Corp., which manufactures thermoplastics used in the automobile industry, and a $14.1 million plant for Douglas Autotech Corp., which manufactures automotive steering columns and shifters.

$5 billion in auto projects in 5 years

Kentucky’s thriving automotive industry has been a major driver of the construction boom, Feck said.

“Kentucky ranks third in the nation for light vehicle production, and the three major OEMs (original equipment manufacturer) in the state – Ford, Toyota and GM – have all had major facility construction projects completed or still ongoing in the last few years,” he said. “To add to the OEMs, there are all the projects from the many automotive parts suppliers across the state who are expanding and growing their facilities to keep up with demand.”

In June, a University of Louisville study commissioned by the Kentucky Automotive Industry Association reported that the state’s auto industry has announced $5 billion in facilities investments over the past five years – through both existing and new employers – creating roughly 20,000 new jobs. KAIA’s most recent measures find more than 470 auto- and light-truck-related operations in the state directly employing 82,552.

With interest in and thirst for premium Kentucky bourbon continuing to boom, that industry is another key factor behind many big-ticket construction projects across the state, Feck said.

Yet another significant contributor to Kentucky’s construction surge, Feck believes, is its logistical location and the presence of global air freight hubs for UPS in Louisville and DHL in Northern Kentucky.

Earlier this year, DHL Express announced plans to invest $109 million to expand its hub in Erlanger adjoining the Cincinnati/Northern Kentucky International Airport in Hebron, including the creation of new aircraft gates and storage warehouse space. Since 2009, DHL has invested $281 in installations and expansion of its air hub at CVG, the Kentucky Cabinet for Economic Development reports.

“The logistical presence of UPS and DHL in Louisville and Northern Kentucky have resulted in the construction and establishment of huge amounts of warehousing and distribution buildings,” Feck said. “The areas that have seen the highest amount of construction and growth related to the logistics industry are Bullitt County and Jefferson County (near UPS’ Worldport at Louisville International Airport), as well as the tri-county region in Northern Kentucky.”

Skilled tradesmen in high demand

In Lexington, signs of the broad-based construction boom are clearly visible also on the University of Kentucky campus, where multiple facilities construction and improvement projects are underway simultaneously. The hundreds of millions of dollars of construction includes new residence halls along South Limestone, a new academic science building on Rose Street, renovation and expansion of the Gatton College of Business and Economics, renovation and expansion of the UK College of Law, construction of a new student center on Euclid Avenue and – perhaps most anticipated of all – the recent completion of Commonwealth Stadium’s redesign just in time for this fall’s football season.

“I attended a meeting about five months ago, where a speaker noted that currently there is under construction or in design, a projected total of $1.8 billion in construction projects on the University of Kentucky campus. That is a huge number for Fayette County,” says Larry Cowgill, president and CEO of Lexington-based construction firm Congleton-Hacker Co., which completed the $125 million Commonwealth Stadium renovation project in cooperation with venture partner Skanska. Congleton-Hacker also has the contract to build UK’s new football training center near the Nutter Field House, which is expected to be completed by next August.

Construction is currently so robust in Fayette County, in fact, that Congleton-Hacker faced a shortage of local skilled tradesmen available to work.

“We had to call in electricians from Knoxville and Memphis to help complete the (Commonwealth) stadium job,” Cowgill said.

But Fayette County is not alone. Across the state, higher education has been a key player in construction growth, experts say.

For example, there was a topping out ceremony Aug. 31 in Richmond for the $64 million Phase 2 of the New Science Building at Eastern Kentucky University, while Northern Kentucky University in Highland Heights will break ground before year’s end on a 124,000-s.f., $97 million Health Innovations Center. EKU also has $75 million in housing replacement and expansion planned in three stages.

“We’re seeing some nice pockets of growth in higher education, especially in terms of bumps in projects dealing with student housing,” says Ed Jerdonek, CEO of Louisville-based Luckett & Farley, an architecture, engineering and construction management firm.

Portia Shields, an architect with the firm and a board member for AIA Kentucky – the Kentucky chapter of the Society of The American Institute of Architects – agrees:  “My observation here at Luckett & Farley has been that there definitely has been a boost in student housing projects not only in Lexington, but also in Louisville and Berea, as well as several other places across the state. ”

First commercial and residential, 

then infrastructure

Lee Czor, president of the Kentucky Society of Professional Engineers, also has seen an increased demand for his firm’s services.

“Just speaking anecdotally from our company’s standpoint, our revenues have increased for the past two years straight,” says Czor, a civil engineer with Thelen Associates in Lexington, which specializes in geotechnical engineering.

“We’ve definitely seen an uptick in the last year to two years in commercial office and residential sectors. Those seem to be picking up a little faster (than other sectors). Our infrastructure projects, like wastewater and water quality projects, have been holding steady. But typically, you see a lag between residential growth and then infrastructure growth to accommodate that, so I think it’s likely that we will see a cycle soon, within the next several years, of a mini-expansion of infrastructure projects,” says Czor.

Jerdonek agrees that residential growth in Kentucky seems to be particularly robust right now, so much so that out-of-state developers have begun several multifamily residential projects in Louisville and Southern Indiana.

“The fact that it is attracting out-of-town investors is noteworthy,” he said, “because it means that these (local) areas are significantly hot enough that other people are taking note.”

Still, rebounding from the Great Recession of 2008-09 has been slow-going for some sectors, Jerdonek said, and some clients who wish to expand have found it difficult to find the capital to do so.

“What we’re finding is that many of our clients have a strategic need and a strong desire to expand their businesses through capital growth – meaning physical building – but they do not have the capital on hand or are not experiencing the level of growth that they need in order to deploy debt capital into their buildings.”

Luckett & Farley, which is 162 years old, responded to this market condition by getting creative financial and partnering with an East Coast equity firm to launch Luckett & Farley Development LLC in June. It offers build-and-lease options to prospective clients who want new construction projects but lack the capital necessary today for more traditional financing.

“The launch of Luckett & Farley Development allows us to address the fact that the slow-growth economy has been stagnating project development for many of our clients, and this is a way to jumpstart those projects.”

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