Tag Archives: Op-ed

PHOTO CAP: Lake Pleasant Water Treatment Plant, the city’s first design-build project.

Op-Ed: Alternative project delivery methods gain popularity

Justin Kelton is Vice President of McCarthy Building Companies leading the firm’s education, health care, hospitality, parking, and renewable energy teams. Reach him at jkelton@mccarthy.com.

Justin Kelton is Vice President of McCarthy Building Companies leading the firm’s education, health care, hospitality, parking, and renewable energy teams. Reach him at jkelton@mccarthy.com.

As a general contractor, one of the most critical roles we play is that of educator. Construction delivery methods are constantly evolving and expanding, and it’s our responsibility to stay abreast of the latest evolutions to inform our project owners so they understand all options available when planning for the design and construction of new projects.
This is especially true when it comes to public projects like schools, water and waste water treatment plants, aviation projects, roads and highways and prisons. These owners haven’t had as much experience with alternative delivery as private owners because legislation enabling this in the public sector is relatively new.
While owners’ needs haven’t changed during the downturn – they are still serving an ever-growing population but doing so on at-times drastically reduced budgets – what has changed is their ability to finance construction projects. Today, we have two construction delivery methods available to public owners that are well suited to help: design-build-finance and public-private partnerships (P3).
Design-Build-Finance: This is the most preferred mode of project delivery for an owner who acts as a third party responsible for providing the service, which is a common case with municipal institutions that operate water and wastewater treatment plants as an example, because it gives them a viable financing alternative without the huge capital investment typically associated with plant construction. Variations of this delivery method also include design-build-operate and design-build. The latter is the basis of these integrated models, which overlaps design and construction by hiring one design-build team to deliver the project requirements versus hiring an architect/engineer and contractor separately. This contracting approach solicits creativity from industry by providing integrated design and construction solutions and provides price certainty early in the life cycle of the project.
Public-Private Partnership: A public-private partnership involves a contract between a public-sector authority and a private party, in which the private party provides a public project and assumes substantial financial, technical and operational risk in the project. In some types of P3, the cost of using the facility is borne exclusively by the users and not by the taxpayers. Of all the delivery methods available today, P3 has the most potential to solve more problems and deal with the challenges associated with complex projects. As states continue to develop legislation to enable and support these types of partnerships, it will become a more viable and attractive option for owners. P3 enables the public sector to harness the expertise and efficiencies that the private sector can bring to the delivery of certain facilities that have been traditionally procured and delivered by the public sector. P3 is structured so that the public-sector owner seeking to make a capital investment does not incur any borrowing. Rather, the P3 borrowing is incurred by the private-sector vehicle implementing the project and therefore, from the public sector’s perspective, a P3 is an “off-balance sheet” method of financing the delivery of new or refurbished public-sector assets.
Today, the construction industry is doing a much better job allowing owners the flexibility of delivery methods. Of course, design-build-finance and P3 are just two of several alternative delivery methods available today.
Unfortunately, there is no “one size fits all” prescription when it comes to construction delivery. Each project is unique and often has a complex set of circumstances to consider before selecting a delivery method. It takes a lot of training, insight and experience to get it right. Owners should not be averse to opening up a dialogue with contractors and learning from their varied experiences – good and bad – with an array of owners.
For additional resources on construction delivery methods, visit the Alliance for Construction Excellence housed within the Ira A. Fulton Schools of Engineering at Arizona State University or the Construction Industry Institute.

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Op-Ed: Slow and Steady Wins the Race for Phoenix Retail

Author: Dave Cheatham, President, Velocity Retail Group, LLC

 

Dave Cheatham

Dave Cheatham is an accomplished authority on retail real estate in the disciplines of brokerage, project leasing, development, consulting and advisory services. He is a senior advisor to merchants, entrepreneurs, investors and senior retail executives throughout the industry.

As we are nearing the end of 2013 there have been several positive trends and factors that have influenced the Phoenix retail real estate market. These factors are being recorded in economic improvement such as job growth, housing prices, and personal income increases as well as the retail real estate market’s increased leasing activity.

Velocity Retail Group has recorded a strong increase in big box leasing, with an increase of over 20% above last year. Our research department is predicting this trend to continue into 2014 and 2015. This increase will be evident by increased activity from many retailers who have been on the side lines for the past 4 or 5 years and are now gearing up to expand their store count. Value retailers, who have been very active during this past recessionary cycle, are still expected to show strong activity in the next twelve to twenty-four months. In addition, the Phoenix market should experience new retail concepts announcing expansion plans both regionally and nationally. These concepts have been unable to expand the last five years due to the economy, but they are now gearing up for growth. Velocity Retail Group is projecting strong leasing activity for year-end 2013 with nearly 2 million square feet absorbed. This amount of absorption will drive the vacancy down close to single digits by year-end.

This is supported by the 3rd quarter retail numbers from Velocity Retail Group’s research department when analyzing the big boxes in our market (those that are over 10,000 square feet). In fact, a greater number of big box deals have been completed during 2013 than we have had in four years. For 2013 there have been 39 big box deals completed. If this pace continues through the rest of the year we will be 20% above the leasing of last year, and nearly 75% above 2011. We are now at 297 vacant big boxes throughout metropolitan Phoenix.

We are forecasting a continued slow and steady improvement in our vacancy with the vacancy rate in 2014 breaking into the single digits. Leasing activity for the year is over 1.5 million square feet and on track to reach over 2 million square feet by year end.

Each of the regional areas in metropolitan Phoenix has shown significant improvement in vacancy since the beginning of 2013. In fact, at the start of the year all of the six regional trade areas had double-digit vacancy. Now, as of the 3rd quarter, four of the six regional areas have single-digit vacancy.

With three quarters of the year behind us we continue to see increased improvement in several key benchmarks for the Phoenix area:

 

  • Job Growth – Arizona heads the list of best states for expected job growth according to an article published by Forbes
  • Housing Prices – continued increase in the median home price, now at $192,000, which is a 30% year-over-year improvement
  • Personal Income – up over 5% since 2012
  • Retail Sales – up over 5.5% from 2012

These indicators solidify our projections of continued improvement in the retail real estate market in Phoenix. A rebound is under way and 2014 will be a pivotal year in laying the foundation for improved future growth, expansion and economic prosperity for Arizona.