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Building Confidence

Puerto Rico’s construction industry expects 2002 to be a good year. Low interest rates, high demand for housing, stable energy prices, and billions in government projects moving ahead will spur both private and public construction investment.


January 17, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

On solid ground: Construction projects underway or in the pipeline will create new jobs, contribute billions to the island’s gross national product for fiscal year 2002.

Although the first three quarters of 2001 were slow for the construction sector–projects were postponed or bids were not being put out–things are definitely starting to look a lot better for the industry.

All signs indicate that 2002 will be a good year for local developers, contractors, and construction companies.

Billions in public and private sector construction investment will go out in the next few months, helping the local construction industry maintain its role as an important economic backbone and one of the island’s most dynamic sectors. Low interest rates, high demand for housing, stable energy prices, and a speed-up in the handling of permits will spur renewed growth.

According to a study by research firm Estudios Tecnicos, the construction industry’s direct contribution to the island’s gross national product for fiscal year 2002 is estimated at $1.08 billion.

In the study, Estudios Tecnicos estimates a 1.5% growth for the construction industry during fiscal year 2002, and 8% growth for fiscal year 2003.

Public sector investment

The construction boom that started during the 1990’s featuring large public infrastructure projects such as the first phase of the Urban Train, the North Coast Superaqueduct, the Puerto Rico Coliseum, and Route 66–among many other projects–has started to lose steam as many of the projects were put on hold in 2001 and others are nearing completion.

The arrival of Gov. Sila Calderon’s administration early last year nearly brought public sector investment in the construction industry to a halt during the first nine months of the year–with the exception of municipal projects. Investments in large infrastructure projects were being evaluated by the new central government as the island faced a lingering economic slowdown and a budget shortfall.

The tragic events of Sept. 11 worsened consumer and investor confidence–creating uncertainty and pessimism in all sectors, including construction.

In early October, the governor announced some 217 projects worth $1.172 billion that would go out for bids before the end of the year as part of the administration’s economic stimulus package involving government-sponsored projects, as well as granting tax incentives to the private sector.

In November, Gov. Calderon announced more than $500 million in additional government projects would be moved forward, bringing total central government—sponsored construction projects to $1.7 billion.

As of Dec. 31, $1.09 billion or 177 projects had already been granted, benefiting 46 municipalities.

The majority of these infrastructure projects will start construction in early 2002, although a handful began construction in November and December.

These projects involve eight government agencies: The Highway & Transportation Authority, Infrastructure Finance Authority, Puerto Rico Electric Power Authority, Ports Authority, Public Buildings Authority, Housing Authority, Puerto Rico Tourism Co., and the Natural Resources and Environmental Department.

Significant projects include construction of phase I of the Convention Center, phase I of the Mayaguez vocational high school, a regional water treatment plant for Fajardo, repairs to piers E & F in San Juan, completion of the East Corridor (formerly Route 66), intersection of PR-181 with PR-3 & PR-47, replacement of De Diego Ave. bridge over Las Americas Expressway, improvements to De Diego expressway from Buchanan to Kennedy expressway intersection, construction of 41 social interest housing projects, modernization of public housing projects Santiago Iglesias & Lirios del Sur in Ponce, as well as San Juan’s Ext. Jardines Selles II and Jardines del Paraiso, and Carolina’s Felipe Sanches Osorio, for a total of $771.6 million (See chart).

In addition, municipalities began the development of 151 projects worth more than $1 billion in 2001, of which 77 are underway or in the planning stages of construction.

According to developer Joel Katz, the governor’s Construction Advisory Council president and past president of the Puerto Rico Homebuilders Association (PRHA), the $1.7 billion investment by the government sector in the construction industry sends a strong message to the private sector, one that instills confidence.

"The government has raised the capital for these projects. Developers, contractors, and construction companies have a commitment to follow through as well as to continue with private investment," said Katz. "Without investment, there’s no economic activity."

According to Katz, this is the best time for a construction project, because interest rates are low, energy prices are stable, and with the anticipated economic recovery slated for the first half of 2002, there will be projects under construction to supply current demand.

"Government projects went out to bids and many have already been awarded, with the exception of those from the Public Buildings Authority," said Jose Vizcarrondo, local chapter president of the Associated General Contractors (AGC) of America. "The feeling now among the construction industry is a much more positive one. Thanks to these bids, interest in construction projects has been awakened."

AGC’s 376 local members are responsible for approximately 80% of all construction projects on the island and for providing some 78,000 direct jobs.

An industry source told CARIBBEAN BUSINESS that due to the lack of government bids during the earlier part of last year, several construction companies that depended mostly on these were forced to sell equipment or accept smaller, private industry projects in order to retain their workers and stay afloat.

According to a study made by economist Carlos Lastra, between June 30, 2000 and June 30, 2001, the local construction industry lost $712 million and 36,456 direct and indirect jobs. The study claimed that the losses resulted from of a lack of government bids, unavailability of federal and state funds, and uncertainty over permits issued by regulatory agencies.

Housing sector remains strong

"Of the $1.7 billion to be invested by the public sector in infrastructure, nearly $500 million are destined for 10,000 social interest (low income) homes, the first batch of 50,000 social interest homes to be built during the next four years," said PRHA President Federico Stubbe. "Demand for housing in Puerto Rico remains strong despite the current economic slowdown."

A recent study by research firm Estudios Tecnicos for the Puerto Rico Bankers Association corroborates Stubbe’s statement. The report indicated that the island’s housing demand is 20,640 units a year, of which 10,000 (46.6%) correspond to social interest housing, and 11,000 (53.4%) to medium- and high-income housing, commonly referred to as "market" housing.

According to the study, there is islandwide demand for social interest housing, but it is more prevalent in the south and in the west/northwest regions. Although Bayamon and San Juan have the highest overall demand for housing, proportionately they have a lower demand for social interest housing than other regions.

Private construction projects in the pipeline

The biggest challenge of the private sector, according to Stubbe, will be to supply the island’s housing demand. To that end, some of Puerto Rico’s top developers have millions in construction projects in the pipeline for 2002.

Developer Agustin Crespo has three projects, of which one is for social interest housing (homes in the $60,000 to $70,000 range). Estancias de la Ceiba is a 276-unit, $16 million low-income housing project in Hatillo, slated to begin construction in early 2002. The first two of the eight phases of Los Paisajes, a $300 million master-planned community and its 30-acre, $600,000 Equestrian Center in Luquillo are underway. Paisaje del Lago, a 166-unit, $33 million housing project already began construction, while $32 million, 215-unit Paisaje del Mar will start construction in early 2002.

Crespo said that the construction of the East Corridor (Route 66) would benefit the northeast region, which has experienced significant growth in the past couple of years.

Pulte International Caribbean Corp. acquired land in the San Juan area to develop 1,100 housing units with a total price tag of $200 million. The firm is also currently developing another five projects totaling 1,481 units worth $299 million. The company’s flagship project is Paraiso de Coamo, a $62.7 million, 229 single-family project being developed on 72 acres bordering the Coamo River, directly across from the Coamo Springs Golf Course.

Developer and Carolina Shopping Court owner Jose Bacardi has three walk-up type, multi-family housing projects (to sell in the $130,000 to $140,000 range) slated for Caguas, Vega Baja, and Canovanas for a combined total of 310 units worth some $27 million. Construction on these projects is slated to begin in early 2002.

Developer Ramon Fuentes is moving ahead with Los Prados, a 1,648 unit, $300 million master-planned community in Caguas. Construction of the project’s first phase of 284 single-family homes worth a total of $50 million began in April 2001. Construction of a 150-unit, $17 million walk-up complex at the community is slated to begin in April 2002.

Developer William Ramirez has three projects for 2002. The first batch of homes at Monte Verde Real in Caimito will be delivered this month. Total construction investment of the upscale project–consisting of 93 single family homes in the $545,000 range–amount to $27 million. In Ceiba, Ramirez is developing The Village at the Hill, a 229-unit, $30 million single-family home project priced in the $200,000 range. With a $92,000 starting price, Ramirez’ Villas de Rio Blanco in Naguabo is a 100-unit, single-family housing project with a total construction investment of $5.5 million that will begin construction in early 2002.

At a $40 million investment, Marina de Ponce Inc. began construction of the first two phases of Marina de Ponce, a $120 million marina resort project on Ponce’s West side.

Scheduled for construction in early 2002, Inmobiliaria NV Inc. will develop Brisas de Parque Escorial, a 220-unit walk up complex at the 450-acre master-planned community of Parque Escorial in San Juan, which is approved for 2,700 housing units and approximately 104 acres of commercial and business park use.

Levitt Homes Corp. began the third phase of the $360 million, 1,300-unit Hacienda San Jose in Caguas, consisting of 124 two-story homes priced in the $315,000 range. In Guaynabo, the firm will soon begin developing Hacienda Santa Elena, a 1,300-unit, $507 million master planned community. Additionally, Levitt began construction of the 160-villa, $62.5 million Ocean Villas resort on the grounds of the Westin Rio Mar in Rio Grande.

In an effort to supply the island’s growing need for low-income housing, Salinas Developers Group–a consortium formed by local developers Victor Acevedo, Jose Camacho, and Julio Castro with U.S. firm Eagle Building Technologies Ltd.–recently began the first phase of a $340 million, 5,000-unit large-scale affordable housing project on the island’s southern region. The group has been asked to submit a direct proposal to the Puerto Rico Housing Administration for the construction of up to 55,000 additional homes islandwide over the next four years, worth $4.4 billion.

Low interest rates a key factor

"Although consumer confidence is low because of the economy, low mortgage rates have definitely helped the construction industry, especially the housing sector," said Interlink Group Inc. Vice President Federico Sanchez.

Another factor that has benefited the construction industry is people’s investment in real estate as a result of the uncertainties in the stock market.

"In years past, people had money to invest in both the stock market and in real estate," said Sanchez. "But now they have to make a choice. Real estate investment is more secure than the stock market right now."

Specialized in residential, resort communities and mixed-use projects, Interlink had a pretty good year in 2001, selling several medium to medium-high income residential projects such as the first phase of Palmas del Mar’s $30 million Palmas Plantation and the $12 million project Fairlakes II also at Palmas del Mar, plus the $18 million Carrion Court Playa condominium in El Condado, and a $145 million, 230-unit Farmers Home Administration housing project in Las Piedras.

Other past projects by Interlink include Centro Europa in Santurce and Los Paseos master-planned community in Cupey.

Sanchez expects 2002 to be as good as or better than 2001. This month, Interlink, in partnership with Wyndham Resorts, began construction of Las Casitas II, a $37 million, 67-unit resort type complex in Fajardo, next to El Conquistador’s Las Casitas I, a successful $30 million, 90-unit condo-hotel the company developed between 1993 and 1995. Construction of Las Casitas II should take 22 months.

The company has several projects in the planning and design stages in Coamo, Rio Grande, and Aguadilla, which should begin construction by mid 2002, Sanchez said, adding that the company is hoping to develop other niche markets in the middle- to high-income range.

Sanchez believes the economic slowdown has helped to stabilize the island’s construction activity, which experienced above normal growth during the past few years.

"Established developers, those with experience and a solid reputation, are the ones that are going to move forward with their investment plans during the economic downturn and succeed," said Sanchez. "A lot of would-be developers jumped on the bandwagon and did well, but they don’t have the experience and reputation to stay in the market."

This has other positive effects, such as increased availability of skilled labor, which will raise the quality of projects, and at the same time, lower construction costs, said Sanchez.

According to Bird Construction Co. President & CEO Miguel Sabater, the high number of projects coming out in the past few years has, in some way, absorbed the negative impact that the economic slowdown and the events of Sept. 11 might have had on the local construction industry.

"The economic slowdown and the events of Sept. 11 have not affected the industry very much, thanks to the high number of projects out, low interest rates, and strong housing demand," said Sabater. "More than anything, they had an emotional effect."

"The immediate result…is a slight decline in demand and slower sales of medium- to high-income housing, while social interest projects will move forward," said Sabater.

But the real down side to Sept. 11 is the rising costs of insurance.

"Insurance costs have increased dramatically, and the construction industry is already feeling the effects," said Sabater. "That translates into higher constructions costs."

Some of Bird’s projects scheduled for completion in 2002 include the Bayamon jail ($39 million), central offices of the State Insurance Fund in Rio Piedras ($50 million), Humacao Judicial Center ($23 million), Plaza Estella in Condado ($20 million), and phase II of the International Marketing Center in Cataño ($35 million).

The company has three projects slated to begin in early 2002, including a condominium in Condado for $24 million, another condominium at Palmas del Mar in Humacao for $18 million, and an office/commercial building in San Patricio for $38 million.

"We have several hotel projects in the pipeline, such as the Cayo Largo Hotel in Fajardo, and others planned for the Fajardo, Rio Grande, and Ponce areas as well," said Sabater. "We have yet to see if the planning of these hotels will go forward after the Sept. 11 events."

Sabater hopes that uncertainty regarding airline safety and the tourism industry’s future will be dissipated by the time these hotel projects are completed.

For construction firm American Builders Corp. (ABC), 2001 was a positive year for the company, experiencing a 5% increase in sales over 2000.

According to ABC CEO Jose Basora, the company reported $19 million in sales in 2000 and expected to surpass the $20 million sales mark for 2001.

Some of the firm’s projects under construction include Harbor Point at Palmas del Mar in Humacao ($10 million), office building at Metro Office Park in Guaynabo ($6 million), Plaza Las Vegas Shopping Center in Vega Baja ($6 million), Plaza Luchetti in Condado ($4 million), Beltz Factory Outlet in Canovanas ($13.5 million), and Paseo Caribe in Puerta de Tierra ($22 million).

Other projects by ABC include the Luis A. Ferre parking building for the State Capitol ($11.3 million) and a police station on Eleanor Roosevelt Ave. in Hato Rey ($2 million).

The company has some $50 million in projects in the pipeline for 2002, including two office buildings in the metro area.

Although the company prefers private sector projects, Basora does not discard the possibility of ABC bidding on certain government-sponsored projects involving roads, schools, and public buildings.

ABC Chairman Segundo Garcia is very optimistic about 2002, as he expects the company’s revenue to grow an average 20% to 25%.

"Interest rates are low, energy prices are stable, and the stock market is stabilizing as well," said Garcia. "These factors point to a healthy 2002."

Significant Government Infrastructure Projects For Fiscal Year 2002
(In millions)
Project Description Amount
Convention Center, Phase I $79.0
Mayaguez Vocational School, Phase I $36.0
Water treatment plant for Fajardo $88.9
Repairs to piers E & F in San Juan $12.0
Completion of East Corridor $88.0
Intersection of PR-181 with PR-3 & PR-47 $24.0
Replacement of De Diego bridge $8.2
Improvement to De Diego expressway $7.9
Construction of 41 social interest projects $361
Modernization of public housing projects:  
-Santiago Iglesias, Lirios del Sur in Ponce $12.0
-Ext. Jardines Selles II & Jardines del Paraiso in San Juan $41.2
-Felipe Sanchez Osorio in Carolina $13.4
TOTAL $771.6 million

 Source: Governor’s Construction Advisory Council

Top 11 Housing Demand Regions
By Total Demand   By out of market demand
Region Total   Region % Share
Bayamon 3,546   Ponce 60.4
San Juan 3,281   Guayama 60.0
Caguas 2,562   Arecibo 56.3
Ponce 2,219   Aguadilla 55.8
Arecibo 1,851   Mayaguez 53.5
Carolina 1,763   Humacao 50.4
Mayaguez 1,642   Fajardo 47.1
Aguadilla 1,322   Bayamon 44.8
Humacao 1,031   Carolina 37.0
Fajardo 762   San Juan 36.7
Guayama 663   Caguas 34.7

Source: Estudios Tecnicos

This Caribbean Business article appears courtesy of Casiano Communications.
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