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Sunday, 18 January 2015 22:00

Multifamily projects give added boost to construction activity

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Like many contractors, Wolverine Building Group has kept busy working on a host of new multifamily projects, including 240 Ionia (pictured) in Grand Rapids. Like many contractors, Wolverine Building Group has kept busy working on a host of new multifamily projects, including 240 Ionia (pictured) in Grand Rapids. COURTESY PHOTO: DAN JOHNSON PHOTOGRAPHY

Contractors in the greater Grand Rapids area maintain a positive outlook at the start of the new year.

The reason behind their optimism: The West Michigan market continues to support strong activity in the multifamily housing segment, and a diminished inventory of quality office and industrial space will push developers to build new projects or renovate existing facilities where possible.

For Grand Rapids-based Wolverine Building Group, activity in the multifamily housing sector — for market-rate and subsidized units as well as student housing — has resulted in a considerable amount of work, said Vice President Curt Mulder.

“The interesting thing is that the fundamentals of multifamily — specifically rent prices, cost of construction and interest rates — have not jived to the point that it justifies new construction until just recently in market-rate,” Mulder said.

The switch appears to be flipped on new construction for market-rate apartments, Mulder said. The company is contracted to work on approximately 1,000 units of multifamily housing via a combination of new construction and renovation projects, he said.

In the next 60 days, Wolverine will start renovation work on Breton Village Green, a senior living facility in Grand Rapids. The company is also contracted to work on three low-income projects in Traverse City and in the southeast part of the state, Mulder said.

Affordable housing and student housing are other areas where Wolverine has found a base of activity, Mulder said, attributing that growth to the often-subsidized funding of the projects.

“You’ve got some kind of funding that helps to close the gap when rents aren’t there,” he said.

Multifamily residential construction continues to be the largest driver of growth for general contractors in West Michigan and nationally, according to a recent report.

While construction industry spending actually dipped in November nationally, that decline was offset by growth in the private residential building sector, namely apartments, according to the most recent monthly report from the Associated General Contractors of America (AGC).

“Today’s figures continue the seesaw pattern that has characterized residential, private nonresidential and public construction throughout 2014,” ACG Chief Economist Ken Simonson said in a statement. “Overall construction spending dipped in November from an upwardly revised October total as residential building advanced but private and public nonresidential spending both retreated.”

With $975 billion in total spending, November’s activity was 0.3 percent lower than October, but still up 2.4 percent over the same month in 2013, according to the report. Private residential spending was up 0.9 percent from the previous month. Private nonresidential construction spending was down 0.3 percent and public construction fell 1.7 percent in November, but all remained higher than they were a year ago.

DEVELOPMENT DRIVERS

Grand Rapids-based general contractor Pioneer Construction Co. said it closed out 2014 on a positive note and sees little evidence of a slowdown in 2015.

Chris Beckering, vice president of strategic business operations at Pioneer, said the company is experiencing “robust activity” in manufacturing, hospitality and multifamily housing projects, as well as an increase in retail projects.

The company is currently working on the CWD Real Estate Investment redevelopment of the property that formerly housed the Michigan Athletic Club (MAC) near the corner of Breton Road and Burton Street in Grand Rapids. The development will include a Fresh Thyme Farmers Market, a premium grocery chain funded in part by Meijer Inc., as MiBiz previously reported. The company is also building a Hampton Inn & Suites hotel on the Michigan Street corridor in Grand Rapids.

Perhaps one of the most-discussed challenges in the West Michigan construction sector is the current lack of inventory for both Class A office space and modern manufacturing facilities, Beckering said. In the coming year, he expects an increase in speculative building, particularly in the industrial and manufacturing sectors.

“There is certainly a lack of inventory in greater Grand Rapids,” Beckering said. “I do expect to see some development in the coming year. There is certainly a need for it.”

LOW INVENTORY

According to the most recent market report from brokerage firm Colliers International West Michigan, there was significant interest in manufacturing and industrial space in the region as of the third quarter of 2014. Much of the activity is situated along the Broadmoor Avenue corridor located in close proximity to Gerald R. Ford International Airport.

The Colliers report noted that the area near the airport posted 69,312 square feet of net absorption “despite the lack of turn-key options available for users.”

While construction industry executives such as Mulder and Beckering remain bullish on the West Michigan market, there are a handful of unknowns they say could stall growth.

Mulder pointed to the historically low interest rates as one of the main drivers of growth in the construction industry currently. He speculated that there could be a dampening should the Federal Reserve decide to raise those rates.

The other potential headwind is the tightening labor pool for skilled trades, Mulder said.

“If the labor market can continue to improve, in that there are the numbers necessary to build the units, then construction costs will stay competitive and we will continue to make pro-formas work for the developers,” Mulder said.

A FOCUS ON SUBS

One crucial area where Wolverine says it has tried to maintain a competitive advantage is the tightening subcontractor market. The company aims to be the contractor of choice for the subcontractor pool in the region, Mulder said. It focuses on paying the subcontractors quickly and on maintaining close relationships.

That’s been key in the current construction cycle where subcontractors can quite easily pick and choose the projects they want to work on, Mulder said.

“We have found that timing for pricing projects is very important right now,” Mulder said. “You could have a time where there’s four large projects being built. Well, the subcontractor pool is not inclined to produce a very tight bid. But then when those three or four projects are wrapping up, if there’s not something in the pipeline, they are quite aggressive.”

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