What's in the mix for 2006

Daily Reporter (Milwaukee), Jan 16, 2006 by Sean Ryan

People peering into the crystal ball to see 2006 may find themselves staring into a mirror.

Local contractors, developers, accountants, union organizers and economists are all predicting that 2006's construction market will reflect 2005's. And that's good for Wisconsin's builders, considering 2005 marked a pickup after the turn-of-the-century slump.

We actually see more activity in 2006, said Mark Sherry, vice president and general manager in the Brookfield office of M.A. Mortenson Co. We really saw 2005 as re-emerging from the downturn in the market. There are a lot of projects in the planning stages right now.

The one-size-fits-all prediction for almost every industry sector is that they will either continue to grow at the same pace or grow at a slightly lower rate; they will not decline.

We're not going to see big epic changes, predicted Terry Ludeman, chief of the Wisconsin Office of Economic Advisors.

In keeping with the theme, Ludeman and Sherry said the reliable health care sector will remain strong but may decline a little. It accounts for about a quarter of Wisconsin's construction work, Ludeman said.

State and local governments are expected to bid out more projects in 2006, said Ludeman and John Hunzinger, president of Brookfield- based Hunzinger Construction Co. Hunzinger pointed to numbers showing that more state governments are eliminating budget deficits, leaving more funding available for construction work. Ludeman said long-term public projects, such as the Marquette Interchange reconstruction, would buoy the sector next year in Wisconsin.

That will continue because most of those are multicontract things, he said.

Tourist traps

Sherry said Mortenson is expecting Wisconsin's hotel and hospitality industry to emerge in 2006. Beyond work in the Wisconsin Dells, which Sherry called its own market in itself, he said new hotel projects around State Fair Park, the Milwaukee County Zoo and the Milwaukee County Research Park would lead to renovation of older hotels.

What typically happens is they put up a new facility at the County Zoo, and Marriot comes out and puts a flag on that, and there's another Marriott nearby, Sherry said, laying out a hypothetical example.

Marriott would then close its old location, and a different chain would come in and renovate it for a new franchise flag.

There's going to be a certain amount of new flags in the market or facilities being reflagged, he said.

The stability predicted for 2006 is good news to local unions, which may have to start recruiting to meet the demand for workers, Ludeman said.

Mark Scott, Chicago Regional Council of Carpenters northern region director, said a handful of gigantic southeastern Wisconsin projects would keep his crews off the benches. The biggest is We Energies' $2.15 billion Oak Creek power plant project, which will steadily employ about 120 carpenters starting in February. There's also a handful of eight-figure condo buildings going up in Milwaukee that the unions will build, not to mention the more than $500 million in construction work Columbia St. Mary's is pursuing on its Milwaukee and Mequon campuses.

Steady on the job

Scott said almost all of the council's 3,300 members were currently employed.

I think it's going to be a great year for construction, he said This is actually the lowest I've seen in a couple of years on our out- of-work list.

On an industrywide scale, the large projects guarantee a good chunk of the state's construction finances and workers will be occupied, said Larry Michael, surety producer for The Brehmer Agency in Butler. With the larger players occupied with power plants and condos, smaller builders will have a better shot at smaller projects, he said.

They absorb a tremendous amount of capacity, leaving the other work to fill the capacity of our construction industry, Michael said. We will tap out some of the local trade unions, and people will come in from out of the area and out of the state for these world-class projects. I'm thinking particularly of Oak Creek.

The only potential party-pooper people are predicting in 2006 is inflation and interest rate increases. The concern is that rising oil and commodity prices will lead to interest rate hikes to counter inflation. The rising interest rates would then dampen the housing market.

We'll be pretty fortunate to catch this year's figures next year, Ludeman said. Interest rates are going to continue to go up, which will cut into a little bit, especially on the specialty trades and the house building industry.

Strength in numbers

Scott said that interest rates are still very low, but that small changes would ripple into wider repercussions in the sensitive single- family housing market.

Warren Barr, president and CEO of Renaissant Development Group LLC, said interest rate hikes won't phase the higher-end urban housing market. Barr, who will begin the $105 million Park Lafayette condo development in Milwaukee next year, said empty-nesters driving condo demand have cash stockpiles and won't be phased by interest rate increases.