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Battle for Construction Labor: MGM Casino vs the Other Guys

Washington DC Office

So huge is the $1B MGM National Harbor that the two-year project that broke ground this summer will sop up 2,000 construction workers. That's labor that won't be available for the region's other big construction driver: office redevelopments. How the two will compete is among the hot topics on tap for Bisnow’s DC Construction Summit in just one week, on Thursday, Nov. 6, at The Willard.

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Among our speakers will be First Potomac's John Sadlik, who tells us office building repositionings (spurred by tenants’ ongoing flight to quality) will face a tough fight for a limited pool of construction labor next year. First Potomac plans a renovation of 1401 K St and may renovate its 11 Dupont Circle.

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New buildings, of course, will have to compete, too. First Potomac is looking to put the 700k SF mixed-use Storey Park (above) in NoMa out to bid in 2015. Materials costs have been creeping up for years, John says, but low labor costs have kept total construction costs in check. As competition for labor heats up, he anticipates a bigger increase in construction costs in the next few years rather than the innocuous 1% to 2% bumps the industry has grown used to.

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The MGM will rise on an accelerated timeline, says DAVIS Construction’s Matt Weirich, another of our panelists and an avid golfer (note the follow-through above and the framed pictures of both Pebble Beach and Harbour Town). He recommends that developers get ahead of MGM's schedule (say, pouring your concrete structure before it does) or look into alternate materials—maybe steel instead of concrete. (If your company name has an "M," consider changing it, considering MGM will need two for every sign it makes.)

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Matt heads DAVIS’ education construction division, which is doing $14M of renovations on the dorm and main hall at McLean’s Madeira School, a facelift and systems upgrade at Georgetown U’s Car Barn office building (its original purpose was the turnaround spot for trolleys), and pre-construction on a $25M dorm for Gallaudet U’s Model Secondary School for the Deaf (above). The concept of Jacuzzi U, the amenitization of student housing, has been building for more than 15 years, he says, as higher-ed institutions compete for students just as corporations contend for talent.

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Another top speaker, Brookfield’s John Landry, says repositioning older office buildings can provide higher returns than buying stabilized assets. His company is busying itself with repositionings like the former GSA-occupied 799 9th St (where he's snapped this morning on the terrace), which is getting trophy rents and is 80% leased with a new lobby, roof deck, fitness center, and other now standard amenities.

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And Brookfield just began redevelopment of 2001 M St (removal of the top floor and mechanical penthouse and demolition of the southern third of the building, followed by expansions in both directions and recladding) with DAVIS Construction. John already can see subcontractors’ margins improving. They rightsized during the downturn, he says, and now they can be choosy about with whom they work. Because repositionings are riskier than ground-up construction for subcontractors, John stays in the good graces of construction companies by paying invoices within three to seven days (a typical contract allows 30 to 45) and requiring general contractors to pay subcontractors within 10 says. Prompt payout loses him $50k/year in carried interest, but the goodwill and manpower outweigh that figure, he says.

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If construction prices are going to rise, says panelist Brian Pilot of Studios Architecture, his job is to make the biggest design impact possible with the bucket of money left. That means branding the building, doing something different that tenants are proud of. Behind Brian (snapped this morning in the Studios office) on the left is the reinvented lower, first, and second floor of Brookfield's 650 Mass Studios (which DAVIS on), now occupied by Georgetown U.

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Brookfield had written off the lower floors of the '80s-vintage 650 Mass Ave during its acquisition, Brian says, as the former Atlantic Video studio space was windowless and thus hard to lease. Above is the property pre-renovation (and shown in black-and-white for dramatic TV-crime-show comparison to the after shot below).

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Studios came up with the idea for a vertical campus setting for the Georgetown School of Continuing Studies, and the 100k SF lease enabled Brookfield to spend more than it originally planned on the building's renovation, which delivered a year ago.

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Everyone wants to have nice space, says Bognet Construction’s Jenn Bognet (who’s also speaking at next week’s event and is seated center with colleagues Mark Gentili, Alyscenne Vallelonga, and Tracey Gardiner with the Georgetown waterfront out the window). For office landlords trying to attract and retain tenants, her firm is redoing building entries, lobbies, and bathrooms and adding fitness centers.

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For tenants trying to attract and retain employees, Bognet's clients are adding wellness features like relaxation and mother’s rooms, open-desk settings rather than cubicles, and quiet rooms (for moments when the open-office environment isn’t conducive to work). She’s also seeing more demountable partitions for sleek, glass office fronts. And IT and AV consultants are joining subcontracting teams as tenants' tech cravings increase. Bognet built out Transwestern’s Bethesda office in TIAA-CREF’s Capital Gateway (which Transwestern manages). It features a traditional reception desk, Jenn says, but also a Starbucks-esque collaborative work area (above), which can double as an entertaining spot and makes the office more welcoming.

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Developers are still requesting the 3,500 SF, multi-story lobbies that offer that initial wow moment, but Brian believes the social interactive feel of multifamily lobbies will make its way to office buildings. That means visible and easy-to-access retail and comfortable and relaxing places to sit and work or take a phone call. It’s already happening on the West Coast and in a lot of build-to-suits like the HQs for Barry Diller's IAC (above) in New York City near the High Line.

Grab your ticket for Bisnow’s Nov. 6 DC Construction Summit at The Willard! It starts at 7:30am with networking; 90 minutes of panels featuring the folks above, as well as EagleBank’s Tony Marquez, Gensler’s Jeff Barber, Donohoe Construction’s Neil Stablow, GHT’s Craig Eichenlaub, CohnReznick’s Jim Martinko and Shapiro Lifschitz & Schram’s Judah Lifschitz; and even more networking after.