Major areas of opportunity for construction in the North Bay are commercial tenant improvements, multifamily housing, health care facilities and energy-efficiency retrofits, according to a panel of experts set to speak at the Business Journal‘s Construction Conference 2011 on Tuesday.
Panelists include Paul Elmore, president of RNM Properties; Bob Mitsch, vice president of facility planning and development for Sutter Health; and Keith Rogal, partner of Rogal + Walsh + Mol.
Mr. Elmore joined RNM in 2000 as director and became president in 2001. RNM was started in 1993 and has built more than 3 million square feet in the western U.S., including several hundred thousand square feet of existing office and industrial space in south Petaluma. The company also has a few hundred thousand square feet of such space approved for construction in the city.
Mr. Mitsch oversees Sutter Health’s plan to upgrade its facilities to withstand earthquakes as well as incorporate the “five big ideas” of the organization’s “lean project delivery.” He’s been in the vice president role since 2000 and was real estate director for the company for six year before that. Those ideas are to optimize the project more than just the elements, collaborate during design and construction, create a network of commitments, increase relatedness and couple learning with action. One of Sutter’s current projects is a replacement hospital under construction north of Santa Rosa.
Mr. Rogal has been involved with redevelopment of challenging North Bay properties for a number of years, first with the transformation of a mobile-home park between Napa and Sonoma counties into the exclusive resort Carneros Inn. Now, his firm has its sights of converting former Napa Pipe plant south of Napa into a 2,580-home mixed-use development.
What are the most prevalent types of opportunities for the North Bay construction industry for the foreseeable future?
Paul Elmore: There’s no shell-and-core projects to speak of, unless it’s in medical like the Sutter Health hospital. Tenant improvements will be prominent.
Keith Rogal: My sense of the market and demographics — more on a global scale — is work will be in multifamily rentals and higher-density for-sale projects ultimately. Nearer term, on the rental side there is significant capital being deployed and ready to be deployed by REITs and pooled capital needing to put it to work and on really favorable terms. It’s really happening more on a national level, but there’s no reason the North Bay should be any different.
It’s a combination of a really significant, dramatic cutback in home mortgage lending with a change in lending standards and a cutback in construction lending leading to a big secular shift from home ownership to rentals. We’re seeing that across the country with the rental housing market tightening. I read in “Fortune” that a significant amount of housing is going to rental market because people need live somewhere, can’t afford to buy a home and want something newer than older homes on the market.
The excess inventory tends to be in areas where buyers are not looking to buy, purchased because housing was always expected to appreciate — expensive and isolated. Residents are realizing that it’s better to live closer to work and take less risk. We believe in the more compact closer in neighborhoods like Petaluma or Santa Rosa or our Napa Pipe project
More urban markets like Santa Rosa, I speculate, will be moving rentals. The inventory will be worked through sooner than many people think, because so much will be taken up by investors who with turn them into rentals.
What are the dominant types of commercial space demands of tenants in the North Bay now?
Mr. Elmore: There is some migration into Petaluma and the North Bay from Marin. A little bit. At least, there are tenants looking. The industrial market has tightened up significantly. Not so much the office market, but it could happen.
There are some 50,000- to 100,000-square-foot users in the industrial or warehouse segment and somewhat in R&D. Also, there are some tech companies that are growing, and that’s nice to see. Yet Alcatel at one time occupied a whole lot of space [in Petaluma] and now RNM signed a deal to move them into 13,000 square feet on Corporate Circle.
How is RNM Properties reworking its North Bay portfolio physically to meet current and future market demand?
Mr. Elmore: We have range of office, warehouse and R&D space for users and think we can accommodate a good portion of the demand that’s out there.
How long before Petaluma needs to have new commercial construction?
Mr. Elmore: I don’t know. I’d like to think sooner rather than later. It’s kind of a thin market. Things will need to tighten up to the south — Marin and San Francisco, which has tightened up especially in tech — before more will happen.
How is the Sutter Medical Center project in north Santa Rosa affecting the local construction industry?
Bob Mitsch: Sutter’s construction of a new state-of-the-art $284 million-plus medical campus will create jobs and infuse millions of dollars into our local community. More than 50 qualified contracting firms and local businesses are already working on the project. Some of these include Ghilotti Construction, Blakeslee Electric, Peterson Mechanical, Brelje & Race Engineers and Quadriga Landscape.
As the most significant construction project in Sonoma County for the next many years, this project is critical for the future of health care and equally important as a catalyst to jump-start the local economic recovery. Sutter is committed to investing in the local community whenever possible.
How significant is the Santa Rosa project to Sutter Health’s overall capital projects plan?
Mr. Mitsch: Sutter Health takes its community obligations very seriously. Systemwide, Sutter Health had a number of rebuilding projects required at the time of the financial downturn in 2009. Sutter Health set a priority to meet all of its obligations.
The new Sutter Medical Center will fulfill obligations to the county of Sonoma under the Health Care Access Agreement and meet seismic standards required by the State of California at opening, in October 2014.
New construction will replace Sutter’s current noncompliant hospital. Seismic milestones have been met required by the Office of Statewide Hospital Planning and Development (OSHPD) for Sutter to comply by the end of 2014.
How are changes in competition among contractors, materials prices and government requirements affecting the project?
Mr. Mitsch: Sutter Health utilizes integrated project delivery and lean construction techniques (IPD/Lean). Under this model, the general contractor, designers and major trade partners (subcontractors) are selected based on qualifications and their ability to work within the IPD/Lean structure. The entire team is incentivized to lower the cost of the project while maintaining value for the owner.
Building materials such as concrete, steel and copper will be used extensively with material pricing based on market demand. The financial requirements for these supplies have not decreased during the construction downturn and require constant cost evaluation.
All the new governmental regulations affect the project. The State Water Quality Control Board will mandate more stringent storm water control measures during and post construction. This requires use of bioswales in parking lots for maximum retention of stormwater on site in order to allow rainwater to be held and permeate into the site soil.
In addition, all rainwater falling on all campus building roofs must be collected into the biobasins for the same purpose. The new regulations for stormwater control during construction have increased and are costing significant dollars and additional staff training to manage and document the requirements.
The landscape design and irrigation plans are dramatically affected by water conservation rules and stormwater requirements. Drought-tolerant species and low-water-use plants will be use to meet the county’s landscape requirements for the entire campus.
Over 1,500 jobs will be created and maintained during the planning, design and construction of the new Sutter medical campus. These categories include engineers of numerous trades, planning consultants, information technology consultants, building inspectors, all general and subcontractors, legal consultants, environmental consultants, signage consultants, building plan reproduction and all support staff in these businesses.
Example of local businesses working in support of the project:
- Action Rentals
- Associated Services
- Brelje & Race Engineers
- Blakeslee Electric
- Burgess Lumber Co.
- Bruce Aspinall & Associates (land use planning)
- Cameron & Cameron
- Culligan of Sonoma County
- drafTech Blueprinting Inc.
- Extended Stay/Homestead
- Econoline Signs Inc.
- Environmental Noise Control
- Extended Stay/Homestead
- Friedman Home Improvement
- Ghilotti Construction
- Horticultural Associates (trees and biology)
- Hansel Ford
- Hampton Inn & Suites
- Illingworth & Rodkin (noise and air-quality consultant)
- Image Tree Service
- Industrial Carting
- JNC Metals
- Kenwood Fence Co. Inc
- Mead & Hunt (helipad design)
- Med Clark Lumber Company Inc.
- Monk and Associates (biology consultants for endangered flora and fauna)
- O’Rourke Electric Inc.
- Party, Tents, & Events
- Peterson Mechanical
- Quadriga Landscape Architecture & Planning
- Rental Solutions
- Select Maintenance
- Sponamore & Associates (environmental planning)
- Stevenson Supply Co.
- True Value Hardware of Larkfield
- United Rentals
- Vintners Inn
- Vineyard & Ranch Supplies Inc.
In addition, county review of plans, permitting process and inspection have supported and increase the department volume of business paid for by Sutter. This project will maintain existing jobs or in some cases increase staffing at these agencies. There are over $3 million allocated just for testing and inspection services at the new hospital to insure the facility meets all building codes.
The project will also spend over $30 million in medical and other building equipment and furniture and will create jobs for the companies that manufacture and install this equipment and furniture.
How is the Napa Pipe project affecting the local construction industry? What would be the impact during buildout?
Mr. Rogal: I have a bit of frustration that at this stage there’s little impact we can have. Through the county analysis process of the EIR there are North Bay traffic engineers and civil engineers. Ultimately, there will be $1 billion in construction and thousands jobs for the project.
It’s our intention to not have all the project designed by one architect. We plan to have a lot of texture and variety with a number of architecture and engineering firms. Sometime in this calendar year, I believe it will be determined whether the property is redeveloped in a more intense way or redeveloped in a conventional industrial way.
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