Housing starts are still low, but jump in permits suggest builders are planning

Housing construction hasn’t recovered to pre-pandemic levels yet, but more permits were issued last month than expected. (Credit: iStock)

Housing construction hasn’t recovered to pre-pandemic levels yet, but more permits were issued last month than expected. (Credit: iStock)

The latest federal numbers show that homebuilders are planning more construction than expected, but actual construction is lagging.

The Commerce Department reported this week that construction permits rose 14.4 percent month-over-month in May, above economists’ 10.8 percent projection, according to the Wall Street Journal.

Housing starts however were up just 4.3 percent, well below the 22.3 percent projected and nowhere near enough to make up for April 26.4 percent decline in starts brought on by the coronavirus pandemic.

Work started on around 974,000 projects nationwide last month, compared to 1.27 million in May 2019. January 2020 saw the most starts of any month since the beginning of last year, with 1.62 million starts.

The modest improvement in starts could be attributed to hesitation among contractors to start jobs because of confusion over new rules meant to mitigate the spread of coronavirus, which vary between jurisdictions. The higher costs associated with adopting those measures could also be slowing starts.

May’s lackluster starts could reflect short-term delays. Other data suggests the mid-term and long-term prospects for the housing market are better than what May’s number reflect.

The National Association of Builders’ poll saw builder sentiment record its highest jump ever, according to the Journal.

Mortgage applications hit an 11-year monthly high last week, while refinancing surged 10 percent month-over-month thanks to low interest rates. [WSJ]Dennis Lynch

Real estate stocks rally on strong May jobs report



Stock markets rallied on Friday following much stronger job gains in May than were expected, with many real estate companies beating the day’s market gains.

Economists surveyed by the Wall Street Journal had predicted a loss of 8.3 million jobs last month. Instead, the economy added 2.5 million, helping push the Nasdaq to a near-record high, up 2 percent on the day, almost overcoming its coronavirus losses. The S&P 500 closed 2.6 percent higher, and Dow Jones closed 3.15 percent up on the day. That’s the highest those indices have reached since late February, when uncertainty over the pandemic caused them to nosedive.

Investors appear to be predicting a V-shaped recovery in which pent-up demand coupled with businesses reopening can help return the economy to a time — just three months ago — before 22.1 million jobs were lost and unemployment reached its highest level since the Great Depression.

Real estate’s gains reflect the optimism investors feel over a return to business as usual, especially in the hard-hit industries of leisure and hospitality, retail and construction.

Simon Property Group’s share price was up 15 percent Friday alone, notching an incredible gain of 53 percent this week. Brookfield Property, the nation’s largest operator of shopping malls, saw the price of its stock rise 7 percent Friday and 23 percent on the week. Cushman & Wakefield beat the Nasdaq today by 3 percentage points, and 21 percentage points over the week.

Sharp climbs this week, however, underscore the depth of losses suffered since the coronavirus hit the U.S. economy. The price per share for Simon, Brookfield and Cushman all remain nearly 30 percent below where they were in early March.

Still, gains in real estate stocks followed an increase of 1.2 million jobs in the leisure and hospitality industry in May, and gains in the construction industry beat back almost half its decline in April.

Even hotels, which according to the Department of Labor have collectively let go 1.1 million people since February, and continued losing jobs in May, saw a rise in the price of company stock. Marriott was up 3 percent at the end of the day, and 22 percent over the week. Meanwhile, Hilton Worldwide gained 1 percent on the day, and 7 percent on the week. Overall, hotel fundamentals in the U.S. have improved since March, with occupancy seeing seven weeks of consecutive growth.

Economists cited by the Journal say the market gains come with a caveat. The trillions of dollars in federal spending buoying the economy will run out in the middle of the summer. Then, the success of America’s economic reopening — pending a second wave of coronavirus infections that may force another shutdown — will come more clearly into view.

Sergio Pino re-opens construction site after workers test positive for Covid-19

Rendering of 850 Le Jeune and Century Homebuilders’ Sergio Pino

Rendering of 850 Le Jeune and Century Homebuilders’ Sergio Pino

Days after shutting down his construction site after workers tested positive for Covid-19, developer Sergio Pino said the project is open again.

Pino, who has been pushing for a shutdown of construction in South Florida, said there is a limited crew on the site at 850 LeJeune Road, near Miami International Airport. About 40 workers are on site out of about 220, he said.

“We are definitely not going as fast,” Pino said. “We cannot be the only ones to shut down, because if we do that the workers will go to other locations and that defeats the purpose.”

The Miami developer said he respects the decisions of other developers to continue working, acknowledging that he has not received any support from his peers at this time.

Two workers at his 850 LeJeune project tested positive for Covid-19 last week, and Pino informed his general contractors, Wechsler Construction and Conconcreto, to stop working.

The project site underwent a deep cleaning and disinfecting.

Pino stressed that fewer workers are on the site today, and the project superintendent is ensuring that workers are not congregating in groups larger than six to eight people. The developer said the site is following guidelines from the Florida Department of Health, the Centers for Disease Control and Prevention, and other government entities to keep workers safe.

Construction has been allowed to continue in Miami-Dade County, despite the pandemic. It is included in the county’s definition of essential businesses that are not required to shut down. On Wednesday, Florida Gov. Ron DeSantis announced he will be issuing a statewide stay-at-home order.

Nearly 7,000 people in Florida have tested positive for Covid-19, as of Wednesday, according to data from the state’s health department. At least 87 people have died. In Miami-Dade County, 2,202 people have tested positive, and seven have died.

Pino’s Century Homebuilders Group and its partner, Pactia USA, are building 230 multifamily units and about 200,000 square feet of office space at 850 LeJeune. The project will consist of two, five-story office buildings; a six-story apartment building and a parking garage on a 4-acre site.

Pino still believes a shutdown of construction is needed to limit the spread of coronavirus, and is pushing for it to be shut down for 10 business days. He would like to be given enough time to secure his tools and materials, and close sites to “try to avoid a bigger problem.”

“We’re concerned.” he said. “There are thousands of people that work in our industry.”

US is short nearly 4M new homes: report

The U.S. is short 3.8 million new homes

The U.S. is short 3.8 million new homes

The housing shortage in the U.S. is deepening despite strong demand, and a new report found that builders must construct nearly four million new homes to catch up.

Almost 9.8 million households were formed between 2012 and 2019, but just 5.9 million new single-family homes were constructed during that period, according to listings website Realtor.com.

The report found it could take four to five years to fill the void of 3.8 million homes. That estimate comes even as single-family home construction starts per 1,000 households rose to 7.3 last year from 4.6 in 2012, according to Realtor.com. The eight-year average is 6.2 starts per 1,000 households, which is under the two-decade average.

“We still have a relative lack of supply,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association. “Building has just not kept up with demand for the past several years.”

Because of this deficit, the listings platform predicts existing home sales will drop 1.8 percent this year. And the group expects the median price growth of those existing homes to rise a tepid 0.8 percent.

The demand is there to build more houses. Baby boomers are not leaving their homes and millennials are increasingly starting families, said Morris Davis, real estate professor and academic director of the Rutgers Center for Real Estate in Newark.

But demand for new housing is most pronounced in and around the gateway cities, where there is ample employment, Davis said.

“I do believe places like California and, to a lesser degree New York need an injection of housing to keep up with the demand of people” moving to those areas, he said.

While the country may need to add almost 4 million homes to its inventory, other estimates have found that the need for new homes in California alone could be nearly just as much: The state needs to build between 1.8 million and 3.5 million new homes by 2025 to help tackle homelessness and soaring housing prices.

The nationwide housing shortage is nothing new.

Since 2001 the U.S. has constructed 17.6 million new single-family homes, a figure that has fallen short of the 20.2 million households that have since been created. That translates to a gulf of 2.6 million homes, according to Realtor.com.

At one point in the early 2000s, new home construction outpaced new household growth. But the financial crisis changed that, and builders pulled back. While housing starts picked up again during the economic recovery, growth has been anemic, according to Realtor.com’s report.

Zoning constraints and ballooning construction costs have hampered the construction of both single-family homes and multifamily buildings, said Richard Koss, an adjunct professor at Columbia University who also is chief research officer of mortgage fintech firm Recursion Co.

Still, there are signs that housing production could improve in 2020. Housing starts in December jumped to 1.6 million, marking a 13-year high, according to the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. Just over 1 million of those starts were single-family homes.

But Koss cautioned against looking at one month’s worth of data for substantive change.

“We’ll see in the next couple of months,” he said. “We can always be surprised.”

Write to Mary Diduch at [email protected]

Airbnb hammers out partnership with carpenters’ union

The agreement was signed today at UBC’s New York Council offices in Manhattan by Nathan Blecharczyk, Airbnb co-founder, Chief Strategy Officer, and Frank Spencer, General Vice President of UBC.

The agreement was signed today in Manhattan by Nathan Blecharczyk, Airbnb co-founder and chief strategy officer (right), and Frank Spencer, general vice president of the United Brotherhood of Carpenters.

Airbnb has partnered up with one of North America’s biggest trade unions as it deepens its foothold in real estate development.

Under the agreement, signed Friday in Manhattan, the startup agreed to use labor from the United Brotherhood of Carpenters and Joiners of America on real estate projects in which it invests.

Strategically, the alliance is a win for Airbnb as it looks for political allies following a major loss in Jersey City last November and statehouse and City Hall struggles in New York ahead of the company’s anticipated IPO this year.

Airbnb’s lobbying in New York often runs into opposition from the Hotel Trades Council, which unlike the startup has deep roots in city and state politics. But building trades unions also have political strength here, and its deal with the carpenters could give it some bona fides with organized labor. However, the carpenters’ New York affiliate broke ranks with other construction unions in 2018 by making a deal with the Related Companies for work at Hudson Yards while the unions’ umbrella was trying to reach an agreement with Related for all of the locals. A compromise was eventually reached after much strife.

Airbnb has been working with developers, including RXR Realty, and companies such as Lyric and Zeus for some time. It is now looking to increase its involvement by investing in developments to boost the number of short- and long-term rental units nationwide.

A representative said in a statement Friday that under the partnerships, “Airbnb does not own, lease, or operate any real estate projects, but instead works with partners to ensure new developments are optimized for home sharing.”

As part of the new agreement with the carpenters, when Airbnb invests in developments, it will partner with developers committed to using contractors employing the union’s workers. The agreement guarantees a minimum of 10 projects over the next three years.

Louis Coletti, president and CEO of the Building Trades Employers’ Association, whose contractor members are heavy users of union labor, called the deal a vote of confidence. “It sends a signal that owners are looking at who can best complete the job in a timely fashion, on schedule, on budget, at a quality I expect,” he said.

It is not the first time Airbnb has hooked up with unions. In 2018 it partnered with the Australian Transport Workers’ Union to promote fair pay and better labor standards. It announced a separate pilot in Australia with cleaners’ union United Voice the following year.

Airbnb co-founder and chief strategy officer Nathan Blecharczyk said in a statement Friday that the latest agreement would create valuable work for union members. The company declined to address the political significance of the alliance.

Write to Sylvia Varnham O’Regan at [email protected]

SoftBank-funded construction startup Katerra promised a tech revolution. It’s struggling to deliver.

(Illustration by Tim Peacock)

(Illustration by Tim Peacock)

In an email to employees last week, Katerra CEO Michael Marks had a few uplifting thoughts on the year gone by.

His startup, which seeks to transform the $12 trillion global construction industry through technology and automation, has grown to more than 8,000 employees, is nearing profitability and will soon open a new state-of-the-art factory in California. Clients are returning, he wrote, and the company has more than $15 billion worth of building projects in a pipeline spanning the United States to Saudi Arabia.

“We can say with pride,” Marks wrote of the company’s feats, “that once we begin a project, we never walk away from that job.”

But his message glossed over a few key facts. In the last month, Katerra’s co-founder quietly left the firm’s board, the company closed its first factory and hundreds of employees have been laid off.

And the firm’s patchy track record of delivering projects stands in stark contrast to Marks’ assertion. In fact, The Real Deal found, Katerra has failed to complete roughly a dozen projects and could only name one that was delivered on time (the company says 26 prefab projects will be delivered by the close of 2019). All the while, logistical and technology-based issues have chipped away at the company’s image as a revolutionary tech startup.

Michael Marks, CEO of Katerra

Michael Marks, CEO of Katerra

Some clients have ended their relationship with the firm. Other clients, however, are tied to Katerra’s executives, and have drummed up business for the company — a similar arrangement used by WeWork executives, which became a concern for some investors when the co-working firm planned to go public.

Despite the turbulence, Katerra continues to grow rapidly in the U.S., having acquired at least eight general contractors and architecture firms in the past two years and more than 20 companies total since its founding.

“Katerra is nothing but a developer on steroids,” said one former employee, who was among more than a dozen people interviewed for this article that worked with, or for, Katerra. Many signed non-disclosure agreements and did not want to be identified.

“Think of any startup in the last 20 years. Katerra has grown faster than most and got to unicorn status, so I think there’s a cleanup happening.” — Mark Randall, Katerra’s first CEO

Katerra’s largest investor, SoftBank, has played a major role in driving its valuation north of $4 billion, and has poured more than $1 billion into the company. Other major investors such as Foxconn and DFJ have signed on, while executives from Google, Amazon and Electronic Arts have joined the company’s leadership.

According to Katerra, the company has raised more than $2 billion from investors, including a recent $700 million funding round led by SoftBank. Though multiple news organizations reported that the funding was pending, Katerra never publicly announced its completion, an unusual move for a company that is able to command capital of that size. (That infusion did not appear in public filings, a company spokesperson said, because it was part of a private placement. Filings with the Securities and Exchange Commission show that Katerra raised a little more than $2 billion by the end of 2018.)

With this kind of hype, the Silicon Valley company’s rise follows a similar narrative to that of other SoftBank-backed startups, including WeWork, Compass and Uber: Break down the walls of an industry, grow at all costs and figure out the metrics later.

“Think of any startup in the last 20 years. Katerra has grown faster than most and got to unicorn status,” said Mark Randall, Katerra’s first CEO. “So I think there’s a cleanup happening.”

As the company has sought to bolster its reputation in the U.S., Katerra has inked massive deals overseas, in Saudi Arabia and India, where it has committed to building hundreds of thousands of homes. In an email to employees, Marks said the Saudi Arabia deal is valued at $40 billion.

“While we have realigned resources in our company this year, overall Katerra has grown,” Katerra spokesperson JZ Rigney said in a statement.

Rigney also clarified Marks’ email to employees sent last week to say that the company takes pride in completing its jobs “once construction begins.”

Executive fractures

Over three decades, Marks has worked his way to the top ranks of Silicon Valley’s elite. In the 1990s, he steered electronic components manufacturer Flextronics from the brink of bankruptcy, went on to briefly lead Tesla as CEO and served on GoPro’s board of directors.

Fritz Wolff

Fritz Wolff

“He’s a pretty amazing deals guy, and the respect for Michael in Silicon Valley is off the charts,” said Randall, who said he left Katerra on good terms to return to consumer electronics.

In forming Katerra in 2015, Marks’ friend and longtime business partner, Fritz Wolff, suggested they create a Flextronics for construction — effectively a vertically integrated company that controlled the entire building process; instead of hiring an architect, an engineering firm, a general contractor and subcontractors, Katerra could do it all.

To do this, Marks’ tapped his relationships in Silicon Valley to launch a web of companies that propped up Katerra, some serving as its investors, others as customers, or sometimes both, TRD has learned. The arrangement is reminiscent of ownership structures at WeWork, where its former CEO Adam Neumann personally owned buildings that he leased back to his company — a friction point for investors ahead of its failed public offering.

For example, Wolff, who joined Katerra as co-founder, owns a private equity firm with a massive construction arm that was Katerra’s sole customer in its initial years, providing it with more than a dozen projects.

In addition to Marks and Wolff, renowned tech investor James Davidson also joined Katerra as a co-founder. Together, the three launched a separate firm known as Paxion Capital, which they used to invest in other Katerra customers.

James Davidson of Silver Lake

James Davidson of Silver Lake

Through Paxion, the trio invested in candy store retailer, Lolli & Pops. The retailer, which filed for bankruptcy in August, lists Katerra as one of its creditors, with $2.9 million owed for renovation work. (Paxion’s CFO Duncan Roberts, who at one time served as Katerra’s CFO, is listed as a member of Lolli & Pops’ board of directors.)

“With a group of people, who are also the customers, that’s where a potential conflict of interest emerges,” said Richard Morris, a partner at Allegaert Berger & Vogel, who specializes in securities law. “That’s a question of how it’s disclosed and dealt with.”

A Katerra representative said in a statement that it “values good corporate governance and has policies and procedures that align with public company reporting standards.”

“No one understood from the beginning why we had the Phoenix factory.” — former Katerra employee

The co-founders also launched an investment fund called Kandle, which in part allowed them to take an equity position in some of Katerra’s projects. While it’s not clear exactly how much Kandle has raised, internal documents seen by TRD show that Katerra has forecasted that the fund’s capital could nearly double Katerra’s development starts to $2.1 billion by 2022.

Last month, however, fractures began to appear in Katerra’s leadership after Wolff quietly left the company’s board. People who have spoken with Wolff since his departure described the split as acrimonious, and it has raised questions about the potential impact on Katerra’s portfolio.

According to Katerra, Wolff left to “concentrate on other professional pursuits,” but remains a shareholder and supporter of the company. Both Wolff and Katerra maintain that they will continue working together. In an email to employees last week, Marks said that Wolff represents only 15 percent of Katerra’s customer base.

“Katerra has continued to improve its processes since launching, and we continue to support their vision,” a spokesperson for the Wolff Company said in an email. “We currently have 17 projects under construction with Katerra and continue to assess new opportunities to work together.”

Tech trials

Katerra has said its mission is to deliver construction projects that are “better, faster and cheaper.” Through tech, the company says, it can streamline the antiquated processes that plague the construction industry.

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Such claims are a hallmark of a generation of startups that aim to disrupt their respective industries by replacing byzantine systems with tech. Katerra says it has applied for almost 60 patents, the bulk of which have been filed in the past 18 months. A handful of those have been approved, though they relate to electrical systems and mass timber production.

But like other firms in the SoftBank portfolio, Katerra has faced questions about whether its tech-enabled business model is deserving of the firm’s massive valuation.

Its decision to close the Phoenix factory suggests a failed attempt to achieve this goal. When it opened in 2017 as the company’s first facility, its primary purpose was to manufacture prefabricated components — including wall and floor panels — that could be shipped to construction projects. A series of high-tech machines would assemble the components, which were tracked with an RFID chip system.

But soon enough, problems surfaced with some materials made in Phoenix. At its first project in Spokane, Washington, known as Riverhouse, wall panels made of timber arrived at the job site warped and unusable, according to two people familiar with the matter. One person involved in the project said this was because the timber, sourced from the wet climate of Washington, was trucked to Phoenix, where it sat in searing heat, and became warped.

“No one understood from the beginning why we had the Phoenix factory,” said one former employee.

Steve Weilbach, Katerra’s head of sales, said the Phoenix factory’s closure was merely a result of the company opening a “newer more advanced” facility in California.

Following the announcement that more than 200 employees would be laid off as a result of the closure, Marks vaguely acknowledged the shortcomings of the Phoenix factory in an email to employees: “We learned what we were doing right, and we also learned about lots of improvements that could be made.”

“Key customers”

Katerra’s roster of Silicon Valley stars and its pairing with the Wolff company has been an effective way to attract business. In a 2018 presentation, investor Navitas Capital noted that Katerra was bolstered by a multifamily pipeline handed over from Wolff, which enabled the company to “act on the initial inertia to attract key customers.”

But some of these “key customers” have since ended their relationship with Katerra. The Sobrato Organization, which was working with Katerra on a project in Sunnyvale, California, consisting of 135 townhouse units, confirmed to TRD that they are no longer working with the company. The project, at 1139 Karlstad Drive, had been dogged by disagreements over costs, The Information previously reported.

Another issue that has caused friction among clients are cost overruns. One problem, former employees say, was a flawed process the company used to price jobs. In addition to estimating the price of a job, Katerra would apply a discount to prove that it could deliver its projects cheaper than conventional construction companies.

At one project it developed with Wolff’s firm, a 554-unit residential site in Kirkland, Washington, known as Lifebridge, Katerra’s estimators priced the job at close to $90 million in 2017. According to a former employee who raised concerns with Katerra executives about the pricing, the warning fell on deaf ears. Instead, Katerra executives later expressed shock after learning that the job would actually cost closer to $140 million — almost $50 million more than it had agreed to.

Weilbach, Katerra’s head of sales, said that in the case of Katerra’s earliest customers, including Wolff, the company often took over projects after much of the design work was already completed. Since Katerra wasn’t controlling all aspects of such projects, the company’s touted cost and time efficiencies weren’t always realized.

“It’s much harder for us to apply that value when we take over someone else’s work versus starting from inception,” Weilbach said.

Some projects have been abandoned altogether. Internal documents obtained by TRD show that of 57 projects Katerra was overseeing in the U.S. at the end of January 2019, nearly a dozen appear to be dead or have halted. (The company said its pipeline, currently at 300-plus projects, includes those overseen by firms it has acquired. That figure also includes jobs in which it worked in various capacities – performed engineering work or provided other services, for example – but was not the general contractor.)

One of those projects was a 92-room hotel in San Diego known as Monsarez Inn. In 2018, Katerra was hired by California-based RAR Hospitality to handle construction management and design of the hotel. The hotel would be Katerra’s first, and its executives expressed enthusiasm to RAR leaders that the project would help launch the company into the hospitality space.

A rendering of Monsaraz Inn in San Diego

A rendering of Monsaraz Inn in San Diego

But a month before construction was slated to begin, Katerra backed out.

“They touted us as one of the most important projects in the company,” said Cameron Lamming, an executive at RAR. “And then dumped us.”

A $40 billion question

While some of the company’s U.S. projects have run into issues, Katerra has turned its attention to even more ambitious projects in Saudi Arabia and India. The company’s operations there, in some ways, mirror its strategy in the U.S: Grow quickly through acquisitions and build factories to accommodate an influx of work.

“They got a bucket full of money. The question is whether the market is ready for them.” — Rich Wood, chairman and CEO of Plaza Construction

In Saudi Arabia, Katerra won a competition last year after building a 1,334-square-foot home in 48 hours. As a reward, the firm inked a non-binding agreement to build hundreds of thousands of housing units in Saudi Arabia, with the first phase being 4,101 homes.

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The connection is unsurprising: Saudi Arabia is the largest backer of SoftBank’s Vision Fund — the vehicle backing Katerra.

“We help our portfolio companies navigate entrance to new and promising markets, such as Katerra’s work for Saudi Arabia,” a SoftBank spokesperson said in a statement.

If executed, Katerra’s plans would reshape the country. In his email to staff last week, Marks said that the agreement with Saudi Arabia is valued at $40 billion — almost twice the cost of Hudson Yards in New York.

To start, Katerra says it will be building 10 to 15 homes a day by the second quarter of 2020. A representative said the company has broken ground on one factory in Saudi Arabia and has plans for another.

Further east, the company has also unveiled plans for a massive operation in India. In June 2018, it announced its acquisition of India-based KEF Infra., a four-year-old infrastructure manufacturer. According to news reports at the time, the venture had $3.7 billion worth of work booked across India and North America.

Katerra's Michael Marks and KEF Infra's Faizal Kottikollon (Image via India CSR Network)

KEF Infra’s Faizal Kottikollon and Katerra’s Michael Marks (Image via India CSR Network)

“They got a bucket full of money,” said Rich Wood, chairman and CEO of Plaza Construction. “The question is whether the market is ready for them.”

A second-generation factory

Back in the U.S., Katerra hailed the closure of its Phoenix factory as part of the company’s next phase. In a blog post, Katerra described the factory as its “first-generation approach to building component manufacturing,” which it has advanced significantly in a new factory it’s building in Tracy, California.

According to Katerra, construction on the Tracy facility is nearly complete, and is expected to produce some 12,500 multifamily units on an annual basis — or three times as much as the Phoenix factory.

A year ago, the company told California officials that its business model relied on construction sites being within 500 miles of the new factory. At the time, Katerra said it had 17 projects underway in the area, though the status of these projects is unclear. A spokesperson for the company noted that the factory is near rail, shipping ports and freeways, which will enable transport in the region.

However, at least three major multifamily projects in that radius have since stalled or been abandoned, including the Sobrato development in Sunnyvale. Tracy’s City Council approved a 264-unit project on Valpico Road, but construction hasn’t started. Katerra says construction is slated to begin in the spring.

“They were supposed to start construction in November,” said Tracy Planning Commissioner Joe Orcutt, who voted against the project. “We’ve all been kind of waiting.”

Contact Kathryn Brenzel at [email protected] and David Jeans at [email protected]

Hurricane Dorian spared South Florida but will still cost developers and contractors

Miami beach (Credit: iStock)

Miami Beach (Credit: iStock)

Most general contractors are back to work in South Florida, after securing and shutting down their job sites last week in anticipation of Hurricane Dorian’s arrival. While South Florida escaped the storm’s wrath, developers and contractors saw their costs rise as the days ticked by.

The once-Category 5 storm, now a Category 2, devastated the northern Bahamas in recent days, but its core stayed offshore of the United States, bypassing much of the tri-county area. At least five people died in the Bahamas, although that number is expected to rise.

In South Florida, after developers and builders worked to lock down their construction sites, in some cases bringing down cranes late last week, they began returning to normal on Tuesday. The slow-moving storm paralyzed cities and towns in its path.

Henry Torres, the president and CEO of Astor Companies who recently completed the condo project Merrick Manor in Coral Gables, said preparing and securing a large construction site such as The Plaza, a mixed-use project in Coral Gables, could be very expensive.

“To prep and prepare a project like the Plaza, it could spend a million dollars preparing (for a hurricane),” said Torres.

Sean Murphy, co-president of Coastal Construction, said his construction sites in Miami-Dade County, with the exception of Sunny Isles Beach, re-opened on Tuesday. The company’s Palm Beach office remained closed. The city of Sunny Isles kept construction sites shut down on Tuesday, Murphy said.

The Coastal projects that reopened include Aston Martin Residences in downtown Miami, the Plaza in Coral Gables and the University Bridge Residences project near Florida International University. The Aston Martin Residences construction site had been shut down for three days, according to a spokesperson.

Some sites began preparing for the hurricane on Tuesday of last week, which means that work was halted for nearly a week in some cases. After Thursday, Coastal’s workforce became depleted, Murphy said. And on Tuesday, construction workers were slow to return to their jobs. Murphy expects 75 percent of his workforce will be back by Wednesday.

Shahab Karmely of KAR Properties, who is developing 2000 Ocean, a luxury condo building in Hallandale Beach, said delays from hurricane preparation set the company back about five days in its construction timeline. Karmely also said the company is planning to resume construction within the next two days.

Before a project site can reopen, a project superintendent will assess the site and report any damage. Projects will be re-secured for construction, which means that fences and wind screens will go back up, dumpsters will be moved back onto the sites and more.

In some cases, builders had to lower tower cranes before the storm, which adds to the delays. Whether the general contractor or developer takes on the cost depends on how the contract is structured.

Peggy Marker, president of Marker Construction, said the delays for Hurricane Dorian, which created little to no damage, pushed projects back three to five days. In the tri-county area, Marker Construction has up to 20 projects under construction, including hotels, car dealerships, multifamily, marina and restaurant developments.

For contracts with liquidated damages, Marker Construction will apply for an extension, which means that the company will not get charged for additional days of work but it will have to eat additional costs.

Josh Atlas, an attorney at Saul Ewing Arnstein & Lehr, who is part of the firm’s construction and commercial litigation practices, said the main costs from the missed hurricane are the time and energy spent preparing for a direct hit.

He added, however, there can be indirect costs if the storm makes landfall somewhere else, increasing labor prices and material prices “as resources get spread thin.”

Marcelo Kingston, managing partner of Multiplan Real Estate Asset Management, said the 57 Ocean construction site in Miami Beach will go back to operating normally on Wednesday. Because Moss Construction and its workers are still in the foundation stage of construction, Kingston doesn’t expect the hurricane will have created any delay in completing the luxury condo building at 5775 Collins Avenue.

“Everyone in this town at that level has gone through so many hurricanes. That‘s what makes Florida different,” Kingston said.

If anything, the hurricane impacted sales during the holiday weekend. Multiplan shut the sales gallery down on Friday and expects to reopen it on Thursday.

Edgardo Defortuna of Fortune International Group, a co-developer of the Ritz-Carlton Residences, Sunny Isles Beach, said shutting down that construction site was “a lot less painful” because the Ritz-Carlton is about four to five months from being completed.

“The potential for damage is a lot less when you’re at the stage of construction that we’re at,” he said.

Defortuna said it’s difficult to estimate the cost that the delays will bring because construction workers could make up the lost time before the planned delivery date. Suffolk Construction is the general contractor for the 52-story luxury condo tower at 15701 Collins Avenue. Fortune is co-developing the project with the Château Group.

“If indeed it turns out we’re delayed one week in delivering units, we have a $150 million loan outstanding, so it could be hundreds of thousands of dollars in interest,” he said. “Everything, as little as it seems, does create delays.”

Prefab home builder Connect Homes closes $11M funding round

LA-based Connect Homes said its Series A funding will help expand its patented technology

Jared Levy (L) and Gordon Stott (R) and a prefab home in Culver City

Jared Levy (L) and Gordon Stott (R) and a prefab home in Culver City (Credit: Connect Homes)

UPDATED, May 14, 11:32 a.m.: A startup that aims to streamline the process of developing modern, eco-friendly prefabricated homes closed its first round of financing.

Connect Homes secured $10.8 million in a Series A funding round, the company said. The money will be used to build and expand on what it calls its patented modular technology.

Brick & Mortar Ventures and Virgo Investments led the round. MetaProp — the New York-based venture capital fund and startup accelerator — Almubader Growth Fund and Wells Fargo Strategic Capital also invested.

In September, Amazon’s Alexa Fund was one of the investors in a Series A funding round for another startup, Plant Prefab. That company, which manufactures custom single- and multifamily homes, raised $6.7 million in that round.

Downtown Los Angeles-based Connect Homes was founded in 2013 by architects Jared Levy and Gordon Stott, who previously worked at Marmol Radziner Prefab.

Connect Homes has 10 models of prefab homes that start at around $182,000 for a 460-square-foot home. They can range up to $900,000 for a 3,200-square-foot home. The estimated project budget includes design, production, installation, sales tax and on-site work.

The company completes about 90 percent of the home modules in its San Bernardino factory. It also manufactures accessory dwelling units — so-called granny flats — which have gained popularity as a stop-gap solution to the region’s housing crisis.

Los Angeles officials have also encouraged modular housing as a way to build more affordable housing. In New York, the city Department of Housing Preservation and Development issued a request for proposals for modular construction last year, asking for projects that are “100 percent affordable.”

Construction starts in South Florida drop in October

Construction cranes
Construction starts in South Florida fell 23 percent in October to $1.37 billion, according to a new Dodge Data & Analytics report.
Commercial building continues to outpace residential, due in large part to South Florida’s condo market slowdown. Last month, new commercial starts increased 36 percent to about $720 million, while residential starts declined 47 percent to $653 million, compared to October 2016.
Year-to-date, construction spending fell 9 percent in October to $9.47 billion from $10.4 billion the previous year, according to the report. Commercial starts increased 30 percent to $5 billion, while residential starts fell 32 percent to $4.4 billion.
Despite the consecutive decline in residential building nationwide, home sales in the U.S. rose 6.2 percent month-to-month in October, marking the biggest uptick seen in a decade.
While the condo market may be hurting, commercial sectors, including multifamily and industrial, are thriving as some of the region’s biggest general contractors shift their focus to building properties like warehouses, seaport and airport facilities, and apartment buildings. – Amanda Rabines

Source: The Real Deal Miami