Construction Starts in June Increased to $565.1 Billion

NEW YORK--New construction starts increased 1% in June to a seasonally adjusted annual rate of $565.1 billion, according to McGraw-Hill Construction, a division of The McGraw-Hill Cos. Non-building construction (public works and electric utilities) rebounded after a weak May, and offset the mild slippage registered in June by nonresidential building and housing. During the first six months of 2004, total construction on an unadjusted basis was reported at $286.2 billion, a 10% gain compared to the same period a year ago.

The Dodge Index

The June statistics raised the Dodge Index to 170 (1996=100), up from a revised 168 for May. The current year began on a sluggish note, as the Dodge Index slipped back to 160 following its average of 169 during the final three months of 2003. Since January, new construction starts have seen gradual improvement, regaining the elevated level that was achieved at the end of last year.

"June was helped by a stronger volume of public works construction, which so far in 2004 has been one of the weaker construction sectors," said Robert A. Murray, vice president of economic affairs for McGraw-Hill Construction. "While June's upturn for public works was a welcome development, this sector going forward will still be limited by tight fiscal conditions for the federal and state governments. During the first half of 2004, the construction industry continued to be supported by the robust performance of single family housing, in combination with stability for commercial building. It's expected that the second half of 2004 will see single family housing ease back a bit, and commercial building remains the sector most likely to pick up the slack."

Most public works categories increased in June

Non-building construction in June jumped 22% to $96.1 billion. Gains were reported for most of the public works categories, including: highways, up 9%; bridges, up 13%; river/harbor development, up 18%; and sewers, up 47%. The sewer total was boosted by the start of three large projects, located in Georgia ($190 million), Virginia ($87 million), and Pennsylvania ($65 million). Water supply systems in June retreated 10%, settling back from the enhanced contracting that was reported in April and May. The June non-building total was also boosted by electric utilities, which increased 209% from an extremely weak May. Despite the large percentage gain, June's level for electric utility construction was still about one-half the average monthly pace during 2003.

Highways and bridge construction drops in first half of '04

During the first six months of 2004, non-building construction was 4% below the corresponding 2003 period. The most pronounced weakness was registered by highways, down 11%; and bridges, down 29% from a first half of 2003 that included a number of large bridge projects. This year's volume of highway and bridge construction has faced several constraints, including tight fiscal conditions for the states and the dislocations caused by this year's steep rise in steel prices.

In addition, the last multiyear federal transportation bill expired on September 30, 2003, and Murray noted, "The lack of a replacement bill this year has produced an uncertain funding horizon for state departments of transportation, hampering their ability to approve major new projects."

For the environmental categories, river/harbor development work was down 10% in the first half of 2004, while sewers and water supply systems bounced back from a weak 2003 with respective gains of 5% and 17%. Electric utility construction dropped 8% in the first half of 2004, continuing the downward trend in progress for the past two years.

Nonresidential building retreated 2%

The institutional sector was generally weaker in June, including declines for transportation terminals, down 5%; healthcare facilities and churches, each down 9%; and amusement-related projects, down 52% from a very strong May. The institutional slide was cushioned by June gains for schools, up 7%; and public buildings (courthouses and detention facilities), up 22%. The commercial/industrial categories showed a mixed performance in June, with weaker contracting for stores, down 7%; manufacturing buildings, down 12%; and warehouses, down 13%. On the plus side, June included an 18% increase for offices, boosted by the start of a $120 million expansion to an office complex in Seattle and an $80 million government office building in suburban Maryland. Hotel construction in June soared 144%, aided by the start of a $90 million convention-center related hotel in Boston and a $90 million hotel in Niagara Falls, N.Y.

Nonresidential building down in first half of '04

For the first half of 2004, nonresidential building was 1% lower than its year ago amount. School construction, the largest nonresidential category by dollar volume, was down 4% as it continues to settle back from its peak in 2001. The other institutional categories were able to post first half 2004 gains, including churches, up 1%; transportation terminals, up 6%; public buildings, up 7%; healthcare facilities, up 8%; and amusement-related projects, up 16% (reflecting a pickup in convention center starts). Manufacturing buildings were down 24% from the first half of 2003. The commercial categories included a 5% reduction for offices, less severe that the full year declines of 8% in 2003 and 24% in 2002. Murray stated, "Office construction appears to be stabilizing in 2004, following its retrenchment over the 2001-2003 period. Office projects expected to reach groundbreaking in the coming months should help the full year 2004 total for new office starts to be at least even with 2003, with some possibility for a modest gain." Stores and warehouses in the first half of 2004 were essentially steady with 2003, registering slight declines of 1% and 2%, respectively. Hotel construction in the first half of 2004 was up 8%, continuing the expansion for this structure type that took hold during 2003.

Residential building in June slipped 2%

Single family housing held steady, while multifamily housing retreated 12% from a very strong May. The 30-year fixed mortgage rate averaged 6.3% in May and June, up from 5.8% in April, but single family housing has yet to show much negative impact. The 30-year fixed mortgage rate has since settled back to 6.0% during July.

For this year's January-June period, residential building was up 20% compared to its lackluster performance during the first half of 2003. Since the housing market strengthened considerably during the final months of 2003, it's expected that the year-to-date percentage growth will diminish as 2004 proceeds. By structure type, single family housing in 2004's first half was up 21%, while multifamily housing grew 14%. Murray stated, "The volume of single family housing has been exceptional, but maybe even more surprising has been the resilient performance by multifamily housing, despite rising vacancy rates in some markets. Multifamily housing has been helped by its growing share of condominium projects, the continued push for downtown redevelopment, and the fact that multifamily housing is still viewed as a relatively safe investment target."

By region, residential building showed these first half gains compared to last year - the South Atlantic, up 24%; the South Central, up 22%; the Northeast, up 21%; the West, up 20%; and the Midwest, up 13%.

For total construction, the 10% increase reported for the U.S. in the first half of 2004 compared to last year was due to this breakdown by geography - the South Atlantic, up 18%; the West, up 10%; the South Central, up 7%; and the Midwest and Northeast, each up 5%.

Related Cos. Selected for Grand Avenue Development

LOS ANGELES---The Los Angeles Grand Avenue Authority today voted unanimously to award an "exclusive right to negotiate" agreement for the Grand Avenue development to the New York-based Related Cos.

The Grand Avenue Committee will now begin to work with Related and the public on design concepts and project components. The development may include up to 3.2 million sq. ft. on key properties owned by the County of Los Angeles and the Community Redevelopment Agency of the City of Los Angeles. The parcels are located on and around Grand Avenue, including property adjacent to the Walt Disney Concert Hall.

"Because both developers and their teams are world-class and eminently well-qualified for the task, this was a difficult choice," said Los Angeles County Supervisor Gloria Molina, chair of the Grand Avenue Authority.

The vote by the Grand Avenue Authority follows months of review and discussion with the Related Cos. and Forest City Development, the two teams which were short-listed in May as part of the ongoing selection process which began last October.

"Downtown deserves a world-class development unique to Los Angeles that will attract residents from throughout the region and visitors from around the world," said Los Angeles Mayor James K. Hahn.

The Related Cos. has been developing projects in California since 1989 and maintains its California headquarters in Irvine. The Grand Avenue team includes John C. Cushman III; MacFarlane Partners; Skidmore, Owings & Merrill; Morphosis; Elkus/Manfredi Architects Ltd.; Gustafson Guthrie Nichol Ltd.; Levin & Associates Architects; Suisman Urban Design; Biederman Redevelopment Ventures Corp.; Richard Koshalek; Lee Andrews Group Inc.; Merry Norris Contemporary Art; Polis Builders.; Saybrook Capital; and Manatt, Phelps & Phillips.

The Grand Avenue Authority is charged with overseeing the development of Grand Avenue and the creation of a 16-acre civic park connecting two Los Angeles landmarks, City Hall and the Department of Water and Power Building. A park is considered a key component of the overall project and is expected to provide a central location for civic events, cultural gatherings and outdoor performances.

"A comprehensive community outreach program will be implemented to solicit input as we begin to knit together various uses that will appeal to a cross-section of people," said City Councilwoman Jan Perry, vice chair of the authority.

"Only after we have heard from the community will any planning or design begin," she added.

The Grand Avenue project encompasses four parcels totaling approximately 8 acres and entitled for up to 3.2 million sq. ft of mixed residential and commercial uses with a potential development value of $1.2 billion. The vision is for Grand Avenue to be transformed into a vibrant regional center with new buildings and uses that complement existing downtown landmarks.

"We will demand a project of architectural significance as is warranted by this unparalleled location," said Eli Broad, co-chair of the Grand Avenue Committee. The bar is set very high by the incredible landmarks that already identify Grand Avenue such as the Walt Disney Concert Hall, Cathedral of Our Lady of the Angels, Museum of Contemporary Art, the Colburn School and Central Library."

The Related Cos. was chosen based on its view of the key project elements, which is clearly aligned with the vision of the authority, its creative approach to incorporating retail and entertainment into the project and its financial package," said James A. Thomas, chair of the Grand Avenue Committee. "While we expect to reach a development agreement with the company we have another equally qualified developer in Forest City to whom we can return if needed."

An economic analysis of the potential development showed that when the projects along Grand Avenue are completed and fully-operational they should generate approximately $85 million annually in local, county and state taxes and create more than 16,000 new jobs.

The Grand Avenue Committee leading the review process is comprised of James A. Thomas, chairman; Eli Broad, co-chairman; Antonia Hernandez; Alma Martinez; Ayahlushim Hammond; Martha Welborne, managing director of the Grand Avenue Committee; and David Malmuth, development consultant.

The Los Angeles Grand Avenue Authority, which is a Joint Powers Authority formed by the County and the Community Redevelopment Agency, has the final decision on the selection of the developer. Board members are Los Angeles County Supervisor Gloria Molina, chair; Los Angeles City Councilperson Jan Perry, vice chair; David Janssen, Los Angeles County chief administrative officer; and Bud Ovrom, Community Redevelopment Agency of the City of Los Angeles.

Big Housing Bond on November Ballot

SAN FRANCISCO--Mayor Gavin Newsom has signed an ordinance putting a $200 million comprehensive housing bond on the fall ballot.

The signing ceremony took place at the Canon Barcus Community House, a one- to four-bedroom supportive housing development for 47 homeless families, an example of the type of housing the bond would support if approved by the voters. If passed, the bond will represent the largest investment in affordable housing San Francisco has ever made.

San Francisco continues to face one of the worst affordable housing crisis in the country, Newsom said. "That's why we drafted a comprehensive bond that addresses the full spectrum of housing needs this city faces -- supportive housing for the homeless, affordable rental housing for low-income families and new homeownership opportunities for low- and moderate-income families," he added.

The comprehensive Housing Bond will generate $200 million in general obligation bonds for supportive, affordable rental housing and homeownership opportunities, which include purchase assistance and development of new homes.

The bond will invest $90 million in developing supportive housing, a model that has been proven by other cities, to successfully transition the homeless from the streets into permanent housing. The level of investment in supportive housing gives San Francisco the opportunity to be a model for the nation in housing the homeless.

The bond also would invest $60 million in developing affordable rental housing and $50 million in creating new homeownership opportunities for low and moderate-income families.

Bond funds for housing development will be committed to qualified developers over a 5-year period. Home purchase assistance funds will be available on a first-come, first served basis to qualifying households, and will be disbursed in less than five years. The Mayor's Office of Housing expects that about 3,350 affordable housing units will result from the program.

The Housing Bond Working Group, a diverse group of housing leaders who represent the complete spectrum of housing interests in San Francisco, include representatives from: Coalition for Better Housing, San Francisco Organizing Project, Housing Action Coalition, Non-Profit Housing Association, Laborers Local 261, Planning Association of the Richmond, the San Francisco Chamber of Commerce, San Francisco Housing Development Corp., Emerald Fund, Coalition on Homelessness, Council of Community Housing Organizations, Haas Jr. Fund and The Corporation for Supportive Housing.

Real Estate Partners Names Thomas E. Thompson as President

IRVINE--Real Estate Partners Inc., a real estate investment and management services company, has appointed Thomas E. Thompson as president.

Thompson previously served as executive vice president and broker of record for the firm. The decision to promote Thompson follows an exceptional year for the real estate veteran, with over $200 million closed in 2003, primarily in the multifamily market.

Thompson replaces Dawson Davenport, who will remain with the company as CEO and chairman of the board of directors.

"Tom is the perfect candidate to drive our continued growth in the multifamily market," Davenport said. "He is a seasoned real estate professional with a 30-year track record for completing very large and often complex transactions. As executive vice president, he excelled in refining and optimizing our brokerage operations. He is an excellent manager, and our investors, partners and team of brokers are extremely pleased with Tom's appointment."

Real Estate Partners is in negotiations to add over $200 million in property, primarily multifamily, to its holdings. The company's real property is expected to top the $500 million mark within the next 18 months. Additionally, the company is launching strategic initiatives that include 1031 Exchange services through its dedicated 1031REP division and several Web-based initiatives.

"Real Estate Partners is positioned to become a major force in the multifamily marketplace," Thompson said. "Our team is specifically tailored to acquire, renovate and reposition under-performing multifamily assets to deliver significant value to our shareholders and partners."

Real Estate Partners Inc. is a privately held, real estate investment services firm specializing in the acquisition, repositioning and management of under-performing properties.