The cost to build and renovate arenas and stadiums in 2006 could jump as much as 12 percent above budgeted figures because of increased demand for construction materials and labor after Hurricane Katrina, some construction officials tracking the trends predict.
Those involved in projects under construction or in the planning stages say they haven’t seen any direct effects yet, but they are carefully watching prices and, in some cases, acting to try to avoid the expected price increases.
“It’s tough to quantify what the impact will be, but every team owner has asked us about it,” said Ken Johnson, vice president of Hunt Construction Group and the company’s point man for MLB projects.
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| Buying steel ahead of time saved more than $1 million on the Arizona Cardinals’ stadium project, Hunt Construction says. |
The massive rebuilding effort that lies ahead in the hurricane-ravaged South will affect sports construction in a variety of ways, some construction officials speculate.
“The high demand in the Gulf Coast for building infrastructure materials such as steel, concrete, asphalt, roofing, pipe and wire is going to result in higher prices,” said Tom Paci, Turner Construction Co.’s vice president of pre-construction services.
Petroleum shortages from refineries that shut down after Katrina and Hurricane Rita also could increase the cost of building sports venues, construction executives said. Roofing materials and asphalt are oil-based products.
Gas prices are still well above $3 a gallon in some markets, and transporting construction materials will cost more, said Todd Ketola, Barton Malow Co.’s vice president of higher education, overseeing the $166 million renovation of Michigan Stadium in Ann Arbor.
The price of glass could also escalate, because “that’s [the most of] what got broken down there” and only a select few companies manufacture glass, said John McCutchen, Hunt Construction’s director of business development.
Paying wages that will keep workers on the job is another concern. Competition for workers is increasing because construction positions are plentiful in the rebuilding states of Louisiana, Mississippi and Alabama, said Dale Koger, Turner Sports Group’s vice president and general manager.
“I’ve already heard of workers moving from larger cities to the Gulf Coast and one guy hitching a ride from Denver,” Koger said.
Not everyone is predicting dramatic spikes in the cost of building materials. The American Institute of Architects, in tandem with consultant Economy.com, issued a report that said the industry can expect short-term price increases of no more than 4 percent in 2006.
Over the longer term, Katrina’s effect on building material costs “should be fairly well contained,” and increases should go no higher than 2 percent to 3 percent in the next three years, the report said.
“You have to remember, sports facilities are 3-year-long pricing exercises,” said Kevin Greene, vice president of International Facilities Group and a consultant on the Oakland A’s new ballpark project. “There might be a momentary spike, but you’ve got the next 18 to 24 months for things to settle down.”
Cement is the exception and could increase in price by 7 percent by the end of next year, according to the ADA document. It’s in short supply because of the residential housing boom spurred in large part by lower interest rates, Paci said.
Concrete and steel costs have already increased 3 percent to 5 percent for two consecutive years, but appear to be leveling off, construction officials said. They blame China’s need to meet the tremendous demand for development in the Far East for higher steel costs.
“China scarfed up every bit of scrap metal worldwide, and that changed the landscape in availability and price,” said Bob Aylesworth, Hunt’s executive vice president in charge of building the Arizona Cardinals’ $370 million stadium in Glendale.
To answer questions from concerned clients, contractors are researching past hurricanes. Hurricane Andrew in 1992 and Hurricane Hugo in 1989, two of the most damaging storms before Katrina, didn’t produce a long-lasting effect on the cost of building sports venues, said Hunt Construction’s Johnson.
Hunt will start buying materials in the next three to six months for new ballparks planned for the Washington Nationals and New York Mets, both of which plan to break ground next spring, Johnson said.
The Nationals’ budget is $540 million, including infrastructure costs, and the Mets said earlier this year they’ll build a $600 million ballpark in the parking lot next to their current home, Shea Stadium.
“We’ll try to buy steel and concrete as early as possible with different procurement methods … through our partnerships with subcontractors,” Johnson said.
That’s what Hunt did before it began work on the Cardinals’ stadium in Glendale, and thinking ahead saved the project more than $1 million, Aylesworth said. “It was a combination of good planning and good luck,” he said.
Johnson said that Hunt officials have yet to see Katrina’s fallout leading to higher prices. “Usually, there’s a six-month lag,” he said, referring specifically to the Gulf Coast situation. “Right now, there’s a lot of design work to do.”
Guaranteed maximum price agreements, called GMPs in the industry, alleviate budget concerns by locking in the cost of materials. Confirming those terms can be difficult, however, when there’s a threat of substantial increases in the cost of building materials, Koger said.
“Subcontractors and vendors are not going to hold price quotes as long in a volatile market,” he said.
“In the past, you could get a quote that would be good for 60 to 90 days,” Koger said. “Now, that could be reduced to three to four weeks at the maximum, and that makes it tougher to predict what the real costs will be. Further down, you start getting into smaller businesses that can’t afford to hold prices as long.”
Frank Russo, senior vice president of facility manager Global Spectrum, said there’s still a brief window of opportunity for teams and municipalities to complete GMPs while hurricane victims and insurance companies continue the long process of settling their claims.
“Once those issues are resolved, there’s going to be an explosion of reconstruction,” Russo said. “We’re coming to a day of reckoning.”
Hunt’s McCutchen doesn’t buy the speculation on double-digit price increases. Residential areas were hardest hit by Katrina and “what goes into building a house doesn’t have much to do with building stadiums,” he said.
“If I were trying to convince an owner that the cost would go up from Katrina, I’d have a hard time doing it. I think it’s a self-fulfilling prophecy. The more stories you publish on it, the more I’m going to jack the prices to the suppliers. The same thing happened with gas.”
