First a pandemic, now rising prices complicate local construction projects
Rising construction costs represent the latest challenge facing local developers and contractors as they seek to navigate the COVID-19 pandemic.
During a panel discussion Thursday, representatives from the University of Pittsburgh, UPMC, the Elmhurst Group and Rycon Construction said increases in the price of structural steel, copper, wood and other materials have had an impact on projects.
“It has been a challenge. I don’t see it going away any time soon,” said Brian Miller, director of development for the Elmhurst Group.
Owen Cooks, Pitt’s assistant vice chancellor for planning, design and real estate, said the university “knocked off a gym of two” in a recreation center project and tweaked the architecture a bit in order to bring it more in line with budget.
“That’s pretty consistent with what our experiences are,” he said during the panel discussion, sponsored by the NAIOP Pittsburgh chapter.
Elmhurst has been hit with cost spikes on two recent projects, particularly relating to structural steel.
To counter the trend, it has been “very aggressive” with contractors in trying to keep costs in line and has expanded its pool of bidders for the same reason, Mr. Miller said.
“What we have found is there always seems to be someone in the market that needs the work and can find a way to make it work,” he said.
In addition to structural steel, Elmhurst has seen increases in metal panels and glazing.
According to Cumming, a project and cost-management company and consultant, lumber and steel costs jumped anywhere from 20% to 25% earlier this year.
There also have been big spikes in the costs of softwood lumber and iron and steel scrap.
The increases, which Mr. Miller said hit very quickly, have forced Elmhurst to delay the start of a couple of projects.
“We’ve really had to dig deep and work with our contractors to find alternate bidders,” he noted.
In other cases, Elmhurst has had to eat cost increases to keep projects moving, Mr. Miller said.
Complicating matters is vendors now want immediate deposits on materials “just to lock in.”
Roger Altmeyer, UPMC vice president of project development and construction, said construction on many of the health care giant’s projects had begun before prices started to soar.
Nonetheless, it is accounting for price increases in the projects it is budgeting for right now.
“In some cases, these projects have to go back through the review and approval process because the ROIs simply don’t work anymore relative to costs,” he said.
Despite the fluctuations, a number of projects are under construction or should be getting started soon, the panelists noted.
Mr. Altmeyer said work is in full swing on the $500 million, 410,000- square- foot UPMC Mercy Vision and Rehabilitation Tower at UPMC Mercy in Uptown, with construction set to conclude at the end of 2022.
UPMC also is re-engaging design and project teams regarding the 900,000-squarefoot UPMC Heart and Transplant Hospital to be built at UPMC Presbyterian.
A priority for Pitt, meanwhile, is increasing student housing. It is now short 1,500 to 2,000 beds, Mr. Cooks said.
“We have allowed the commercial market, which can move a lot quicker than we can, to take up some of that demand. In our opinion, that directly impinges on the affordability of a Pitt education because we think we can house them more cost-effectively and provide a better program and experience overall for our students,” he said.
Pitt also is hoping to break ground on several projects by fall, including the new rec center. In some cases, it is looking to scale back options included as alternates or to extend schedules in order to make them work financially.
That’s in part because the university took a $100-plus million hit “directly related to COVID,” Mr. Cooks noted.
Elmhurst has “four or five irons in the fire” in terms of larger projects.
“There are quite a few things. But unfortunately, I can’t go into anything too specific,” Mr. Miller said.
Joe Tavella, regional director of business development for Rycon, said there has been increased activity in terms of health care and higher education projects. Large residential projects and public projects also have helped to fill the void.
Right now, there are a dozen or so office, 10 to 12 health care and a few higher ed and nonprofit developments in the works, he said.