Thursday, March 12, 2009

Build, Pay, Borrow, Repeat

News yesterday that the construction costs for the new arena have gone up significantly. First thought was no big surprise. But wait, recession and all the news is nationally is that construction costs are declining most everywhere driven by lower fuel costs, relief from wage pressures as unemployment jumps and other competitive forces normal for a recession. I would have presumed those forces would impact local construction costs as well by this point in the recession.

But that would have been wrong it turns out. A quick look at the latest data I can find shows that Pittsburgh is one of the very few regions of the nation where construction costs are going up (actually that's the same link, but read past the headline where it points out Pittsburgh costs are +3.4% in the last year). Bad for those who have to pay the bills of course, but for the region as a whole that has to be a sign of continued building doesn't it? Good news for those who are working in the industry a bit, as well as for various contractors getting the business. Stimulus right?

Not quite sure why weakness in construction elsewhere has not had more impact here. One way or another thay may be coming to an end pretty soon with all this stimulus money. In another time it would be bigger news that the city housing authority alone is getting 27 million it will need to spend quickly on. Yet, that is just a drop in the bucket of what ought to be coming. Given that Pittsburgh is already one of the very very few regions where construction employment has not declined at all compared to the same time a year ago, you have to wonder whether there will be enough construction resources to implement all the stimulus-paid construction projects that are slated to come. But we will see.

But speaking of financing for the arena. I am a bit surprised nobody is at least mentioning the bonds the SEA floated to pay for the arena. While I do not know of any problem exactly similar to the issues in the news at over recent PWSA bonds... i.e. I do not hear any word of that the banks are backing out of their standby bond purchase agreement for the SEA bonds. Don't hear any word to say there isn't a problem either for the record. Nonetheless a lot of the fundamental issues being talked about apply because both the PWSA bonds in question and the SEA bonds for the arena are variable rate bonds. One difference worth noting is that the standby purchaser for the PWSA bonds are JP Morgan and Dexia while the institution filling the same role for the SEA bonds is PNC. If that is gibberish, try going through the slides Bram posted (the last link above) from the Dowd press conference. Interesting question though why some institutions can back out of these agreements and others can't or choose not to. That is the heart of the problem with the PWSA bonds. To my media friends, someone needs to have an objective bond lawyer look at the two bonds (the PWSA bond and the SEA bond) to see why one is in trouble and the other seems not to be at this point.


Anonymous Anonymous said...

"you have to wonder whether there will be enough construction resources to implement all the stimulus-paid construction projects that are slated to come."

Could that be just what we need to stimulate some in-migration and diversify our demographics, at last?

Thursday, March 12, 2009 1:46:00 PM  
Blogger C. Briem said...

there is only one problem, if construction starts to pick up everywhere then that demand for workers will be everywhere and not just here.

There was a time a decade or so ago when the stadia were being built along with other projects that there clearly was a big demand pull of construction workers into the region. Another problem is that some parts of the construction workforce are always migratory. So they would move here if the work was here, but would probably move on if there was greater demand in the future elsewhere. But overall I do think this is part of what is happening in the workforce now, maybe not just in construction.

Thursday, March 12, 2009 10:21:00 PM  

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