Construction remains at lowest point in 10 years

Written by  //  November 30, 2015  //  General Biz News  //  No comments

The island's construction industry has been suffering as a result of the island's economic slowdown. (Credit: © Mauricio Pascual)

The island’s construction industry has been suffering as a result of the island’s economic slowdown. (Credit: © Mauricio Pascual)

Once a vigorous part of the economy, Puerto Rico’s construction sector remains mired at its lowest point in more than a decade with little hope of improvement in the next year, when activity is expected to stay at its present level of under $2 billion, said a spokesman for the industry.

“Stagnant,” is how Humberto Reynolds, president of the Puerto Rico Chapter of the General Contractors Association, characterized the industry when asked to come up with a single word to describe its current status.

Meanwhile, one of the bigger contracts coming down the pike is a construction project at the Veterans Hospital in Río Piedras that is worth millions and will be sure to bring in bids by construction firms grasping for work to keep afloat.

The project in question is a renovation and expansion of the hospital’s Emergency Room and reportedly has an estimated price tag of around $9 million. It is one among the limited number of big-ticket construction projects expected to come up in the coming year, according to information from the industry.

“Puerto Rico is in a very difficult economic situation,” said Reynolds, pointing to the government’s inability to carry out needed infrastructure investment due to its current financial crisis.

Two of the public entities that could generate substantial construction work, namely the Puerto Rico Aqueduct and Sewer Authority and the Puerto Rico Electric Power Authority, won’t be able to forge ahead with needed public works until their fiscal situation is resolved, said Reynolds, who is also the president of Del Valle Group, among the island’s larger construction firms. The company is getting by with road construction work.

Puerto Rico Highways Authority Executive Director Carmen Villar.

Puerto Rico Highways Authority Executive Director Carmen Villar.

Project pipeline
Among the opportunities he sees for next year are construction and renovation of low-cost public housing and some new private housing construction. In the Dorado area, for example, there is demand for high-end homes with price tags of between $3 million and $4 million. At least one is currently under construction, he said.

There will also be some work in road construction. Carmen Villar, executive director of the Highways Authority, recently announced an investment of $254.6 million in federal funds to finance 53 highway projects that will be awarded by next June, as this media outlet reported.

The projects, to be carried out island wide, include the construction of a dynamic toll stretching from Highway 30 in Caguas to PR 52, near the Río Piedras Medical Center. This particular project is worth $137 million and will be divided into five contracts.

In the early years of the past decade, Puerto Rico’s construction sector represented 10 percent of the island’s Gross National Product, generating more than $6 billion in annual investment. As many as 90,000 jobs were tied to the industry.

Today it is a shadow of its former self. Employment has plummeted to 20,000 and yearly investment is under $2 billion for a 3 percent share of GNP.

“There is little construction going on,” said Pilarín Ferrer, president of the Architects and Landscape Architects Association of Puerto Rico.

Architects are generally considered a bellwether for the construction sector. Ferrer said that one indicator of the sector’s malaise is the fact that the association, whose budget is partially financed by revenue from stamp taxes on construction permits, is receiving less money than in the past.

“There is a consistent decline in stamp duty revenue,” said Ferrer, adding that this points to either fewer projects or no projects getting built, or construction being carried out without a permit. The cost of the stamp is $6 per thousand dollars.

Membership in the association is required by law for architects to work in Puerto Rico. Currently, the group has 1,200 members compared with 1,700 four years ago. Ferrer could not say if the architects lost in this period have migrated to the states or other parts of the world as part of the exodus of more than 218,000 Puerto Ricans that have left the island since 2010.

Interestingly, 50 of the association’s newest members are off-island architects who applied for and were granted reciprocity by the local State Department. Ferrer could not say where these architects come from or where they are working in Puerto Rico but acknowledged that it’s “an interesting trend.” She suggested that it may have something to do with new investors coming into the island and real estate projects in the works.

“You work with someone you know,” she said.

Misrepresentations on the rise
Another trend noted by Ferrer is an increase in cases of misrepresentation by people who claim to be architects but aren’t. She said the unmasking usually occurs when the construction permit is about to be filed and the client finds out the so called architect has no license and therefore cannot sign off the construction plans. Some of these cases could end up in court.

Partly because of the popularity of home renovations and misinformation about the work that architects do, the association recently began a series of monthly workshops designed to inform the public about how to carry out different home projects and when to hire an architect to avoid problems down the line.

Initially the talks only attracted a handful of people but now more people are coming, said Ferrer.

The next talk, to be held on Dec. 10, will focus on beauty strategies for the home. The association charges a nominal fee of $10 per person.

Ferrer works with Mendez Brummer Badillo & Asso., which this year is celebrating its 70th anniversary. Among the engineering firm’s best-known projects are the Plaza Las Americas’ office tower and the visitors’ center at the Arecibo observatory. The company is keeping busy these days with public housing demolition work, among other things.

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