Jon Peterson/FLINTCO The market for entertainment and sports arenas, like this $178 million multi-purpose arena in Tulsa, Okla., is still going strong.

While construction throughout the general building market continues unabated due to strong demand in hospitality, higher education and medical sectors for more capacity and greener technology, contractors are dropping hints that the boom times may be ending.

Contractors say a slowdown is on the horizon, ushered in by careening energy and materials costs, an ongoing shortage of labor, tightened financing by lenders and the dynamics of the global economy. “The economy is in some kind of transition,” says Mike Bolen, chairman and CEO at St. Louis-based McCarthy Building Cos. “This is the tail end of the biggest building boom ever.” Judging by many contractors’ future projects, the boom’s momentum could wane in the next year or two, Bolen says. “We are now figuring out what this downturn will look like.”

In the wake of the subprime lending fiasco, financing has become an important hurdle for projects, causing construction delays and forcing developers to scrap and scale down new starts. The financial situation “is the thing that keeps me awake at night,” says Steve Roznowski, CEO at Lansing, Mich.-based Christman Construction Co. With most of the firm’s work centered in the Detroit area, the firm has been fortunate to find a way to thrive amid the city’s economic decline, but now “there are jobs being canceled and we have had to delay projects for months, because of lack of financing.” Roznowski says. “The availability of financing has tightened noticeably, and the cost of financing is going up. There are developers who are flat-out exiting the real estate market.”

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The financing clampdown has resulted in “not as many of the large jobs,” says Tom Maxwell, CEO at Tulsa-based Flintco Cos. “The future is iffy.” But the slowdown is also freeing up labor. “We are seeing some market slowdown, but it is not all bad because the workforce in the central part of the country has been overworked. It has been a real strain on the industry to get jobs done without enough labor.”

The high cost of materials is another challenge for projects. “We used to be able to estimate a year ahead, but we can’t do that today,” says Bolen. “What was bidding at $400 per sq ft last year, is bidding at $700 per sq ft now.”

Still, if a downturn is approaching, it is not evident in the exploding volume of construction proliferating across the markets this summer. Building contractors specializing in greenfield and upgrade projects are pushing to keep pace with demand. Despite talk of recession, 2008 “was the biggest year ever for us,” says Bolen. “And that sets up 2009 to be good too.”

Bolen points to “huge demand” for larger, modern hospitals as the impetus for a flurry of medical facilities jobs currently under way across the country. The firm is in a joint venture with Bethesda, Md.-based Clark Construction Co. and Scottsdale, Ariz.-based Hunt Construction Group to construct the $600-million, 1.5-million-sq-ft Los Angeles County-University of Southern California Medical Center. The project, to be finished this year, “is indicative of a ton of big health-care projects happening now,” Bolen says.

Christman’s medical projects include a $150-million patient tower at St. Joseph’s Hospital in Ann Arbor, Mich. The medical market is expanding as hospitals strive to build new facilities or upgrade existing facilities to keep pace with new technology and the changing nature of patient care, Roznowksi says. “Hospitals are getting away from multi-bed rooms and putting a lot more emphasis on patient privacy,” he says. “The whole look and feel and the interior finishes have changed so the hospital has more of a healing environment. It is a trend driving many hospital projects.”

Back to School

The volume of new construction at universities and colleges around the country “is pretty amazing,” says Bill Hughes, president of Boston-based Shawmut Design and Construction Co. “Nearly every college is investing in some type of project. It’s a market segment that continues to grow.” Shawmut’s education projects include a $66-million, 95,000-sq-ft expansion at Tufts University Dental School, Boston.

The strong education market has offset waning demand for commercial-building projects, which “are slowing down, and we are taking a wait on that market now,” Hughes says. A glut of office space in many cities, as well as stingy lenders and volatile materials prices, has developers “not all gleeful about grabbing another 100,00-sq-ft space.” Hughes notes.

While economists warn of economic recession, money-spending tourists lured by the cheap U.S. dollar are driving up demand for new hotel rooms in some cities around the country. The largest project under way in the U.S. this year is the $9.7-billion, 17-million-sq-ft CityCenter complex being developed on 76 acres on the Las Vegas Strip by MGM Mirage. The project, led by Perini Corp., will include 4,800 hotel rooms.

But the luster is gone from the once-booming Sin City. Financing issues and the slowdown of the city’s convention and gaming businesses is causing slowdowns, cancelations and foreclosure on some huge projects. Chicago-based General Growth Properties is delaying by a year the opening of its 107-acre 1.6-million-sq-ft Sumerlin Centre mixed-use development in southwest Las Vegas. It is deferring about $500 million of expenditures during the next 18 months due to slow pre-leasing activity. And Echelon, a $4.8-billion, 12-million-sq-ft complex, is being delayed by at least three quarters due to “weak economic conditions.” Meanwhile, the $3.9-billion 3,000-room Cosmopolitan Resort & Casino now under construction by Perini is going into foreclosure due to a default on a $760-million construction loan by the developer, Ian Bruce Eichner. Even MGM Mirage is having difficulty in raising full financing for CityCenter, and on Aug. 4 it pulled the plug on a planned 166-acre mixed-use project in Jean, Nev.

The situation is better in New York City, which is awash in foreign tourists. Developers there report an unprecedented number of hotel projects under way—more than two dozen.

In tandem with hotel projects are a spate of sports and entertainment projects. Flintco has eight casino projects under construction on American Indian reservations from Alabama to California, says Maxwell. “There are probably about 50 casino projects happening in the country now,” say Maxwell, whose firm specializes in such work. “Reservations are expanding from just being casinos into being tourism resorts; that’s driving a lot of work.”

New stadiums for professional and college sports teams are a strong market for many contractors. There are stadium projects for NFL and MLB teams under construction in several cities, and a slew of smaller stadiums at schools coast to coast. Flintco last year completed a new stadium for the University of Texas, Austin, and is constructing the $183-million, 18,041-seat Bank of Oklahoma Center stadium in Tulsa.

Contractors agree that the most broad-based market driver is the green-building movement, which is spurring countless upgrades. “Every owner talks about Leadership in Energy and Environmental Design [certification] now,” says Hughes. “LEED is showing up even on smaller projects.” In the Boston area where Shawmut performs most of its work, the city requires owners to demonstrate due diligence in pursuing sustainability on their projects, Hughes explains. “We have really invested in this and we now have about 50 LEED-certified professionals on staff. Our goal is to have hundreds.”