St. Louis Market

Gateway City Cruises
At Steady Pace

by Craig Barner

Mirroring river pilots on the Mississippi, the St. Louis construction market is on a steady roll.

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“Is it booming? No,” says Jeff Cook, chief executive officer of St. Louis-based Arco Construction Co. Inc. “But it’s steady.”

Starts in the Gateway City during the first-quarter 2007, the latest data available, were down 23%, to $1.2 billion, compared with the same period in 2006, according to McGraw-Hill Construction, publisher of Midwest Construction.

But work-hours were up for the five basic trades (carpenters, iron workers, laborers, masons and operating engineers).

Through May, the latest data available, work-hours had increased 4%, to 6,690,407, says Leonard Toenjes, president of the Associated General Contractors of St. Louis.

As a result, starts might be negative in the first quarter because they had been inflated in earlier quarters when major contracts were activated. Projects included the $900 million Holcim (US) Inc. cement plant in south suburban St. Genevieve County, two casino projects valued at $800 million—including the Lumière project downtown profiled in this issue—and the $200 million Pfizer Inc. laboratory project in west suburban Chesterfield.

“The starts number kind of surprises me,” Toenjes says. “We might have just passed through a starts bubble, so we’re now experiencing the growth in work-hours.”

Backlogs are up, contractors say. Some are reporting increases of 10% to 15%.

Some uncertainty about the overall economy might be shadowing the market, says Brian Arnold, executive vice president of sales and marketing for O’Fallon, Mo.-based Paric Corp., a general contractor.

“It’s not that the projects weren’t there,” he adds. “They were just slow out of the gate.”

Factors that include consumer indebtedness and uncertainty as reflected in the slowing housing market, the federal deficit and geopolitical worries—especially the ongoing war in Iraq—might have affected the market.

“I think a lot of that [slowing market] has settled off now, and we’ve seen the work kick back up,” Arnold says.

Show-Me Highways

The biggest opportunities are in infrastructure construction, especially highways and bridges.

For instance, voters approved in 2004 an amendment that allows the Missouri Department of Transportation to sell $2 billion in bonds for road improvements, with repayment beginning in 2009. Work is in the early stages of the $535 million rebuild of Interstate 64 through downtown St. Louis, a project expected to last through 2010.

Another major initiative of MoDot includes the rehabilitation of 800 bridges throughout the state for about $500 million. And about 3,400 mi of major highways, also statewide, will be upgraded with paved shoulders, smoother pavement and new and brighter signs and stripes for about $1.1 billion.

“There is a lot of highway construction going on, and there is significant investment in utility and water projects,” Arnold says.

Not surprisingly, infrastructure starts were up 29% in 2006, to $855 million, over 2005, the data show.

Other strong markets in the first quarter include medical, up 631%, to $140 million; warehouses, up 457%, to $40 million; and schools and colleges, up 200%, to $87 million.

“There is a bit more industrial work going on, including cold storage and warehouse renovations,” says Arco’s Cook.

A significant trend starting to emerge is the revival of downtown St. Louis via new construction, says Paric’s Arnold.

“That started out as primarily a rehab market,” he says. “But we’re starting to see new construction activities. That’s encouraging—downtown is strong, and part of it is due to broadening beyond rehab.”

Almost finished is the 26-story, $50 million Park East Tower—reportedly the first high-rise residential project in the city in 35 years. Observers are also interested in the Ballpark Village project behind new Busch Stadium, a project aimed at increasing, entertainment and night-life in the city.

“All eyes are on that development now because the clock is ticking for the All-Star Game [at Busch in 2008],” Arnold says.

Some Concerns

Given the large number of projects, some contractors are concerned about staffing projects.

When asked if Paric is hiring, Arnold says, “Are you available? The answer to that is a resounding yes. We’re hiring for both the office and field.”

Mirroring the rest of the country, the costs for construction materials in St. Louis are up. In April, the Bureau of Labor Statistics found 13 of 19 materials up vs. a year ago. The biggest increases were in copper, pipe and tube, 73.2%; asphalt paving mixture, 30.4%; and read-mix concrete, 9.8%.

Despite the large amount of work, fees are flat in St. Louis, says the AGC’s Toenjes. St. Louis contractors used to compete against other St. Louis contractors only but now must compete against contractors from other parts of the country.

“That has sort of changed the dynamic on fees,” he says. “You’re not just competing against local contractors anymore. You’re competing against national and regional contractors.”

SIDEBAR 1

St. Louis Starts
(first quarter each year; in millions)

St. Louis saw a decline in starts in first-quarter 2007, but contractors are now concerned due to increases in previous quarters.

SIDEBAR 2

St. Louis Work Hours
(first five months each year; five basic trades*)

Trades workers saw a steady increase in work-hours in the first five months of 2007

*carpenters, iron workers, laborers, masons and operating engineers; source: Associated General Contractors of St. Louis