The future looks bright for development
and construction, especially in the infrastructure, health care and education
sectors, says Skanska USA’s new president and CEO, Rich Cavallaro.
A New York City native, Cavallaro took over as CEO on
Jan. 1, replacing Mike McNally, who retired after 16 years with Skanska. A New
York City native, Cavallaro joined Skanska in 1996 as an estimator after
graduating from the City College of New York. His first major field assignment
was on the $1.2 billion AirTrain to John F. Kennedy International Airport. From
there, he worked his way up to become the CEO of Skanska USA's civil, power and
industrial construction division.
NREI spoke with Cavallaro about what he sees in
Skanska USA’s future as a $7 billion development and construction company. An
edited transcript of that interview follows.
NREI: Which commercial sectors
are seeing the most projects right now, and in which markets?
Rich Cavallaro: Health care, in
particular, is growing rapidly with trends like net-zero hospitals and
incorporating the “patient experience” into the design of new hospital
facilities. We see growth in education facilities (K-12) because municipalities
that are growing and have found ways locally to fund the construction.
Lastly, the demand for public-private partnerships for
infrastructure is fueling construction growth in the U.S. As the U.S. is being
re-industrialized, we see this trend continuing for many years. Public-private
partnerships—P3s—are driving projects in the infrastructure sectors. We also
see an opportunity for P3s to drive social infrastructure projects, such as
schools and hospitals, which are both in high demand.
NREI: How is the rising cost of construction
materials impacting development and construction?
Rich Cavallaro: The truth is that it
never gets less expensive to build. While large-scale projects often have large
price tags, we work with customers and design firms to determine the most
cost-effective design solutions and construction means and methods to meet the
customer’s needs and give them the best value for their funds.
But even as materials costs are going up, construction
and development planning hasn’t tapered off yet, thanks to a good economy. In
the infrastructure market, the biggest concern is there is not replacement for
the Infrastructure Bill and plans to fully fund or renew the Highway Trust
Fund. Without those in place, states simply cannot build the infrastructure
they so desperately need.
NREI: Generally speaking , are construction and
development companies in expansion mode again? They had cut back significantly
during the recession.
Rich Cavallaro: As an institutional
builder, we weren’t hit as hard as some other construction and development
companies during the recession. In fact, our company was able to sustain steady
growth during that time. Construction work and lending for commercial and residential
development is increasing, and that uptick means increasing competition for
us—for both new construction and development projects, and people.
For some of our projects, we have been recruiting well in
advance of construction to ensure that we have a strong, reliable team, since
demand is high. For example, at Florida’s I-4 Ultimate, we are widening and
reconstructing 21 miles of interstate highway, which is a huge
undertaking. We wanted to make sure we have skilled workers that will
successfully complete the project, so we started the recruitment process as far
back as last fall for work that started in the first quarter of this year.
Construction and development is definitely on the rise again. We were recently
named one of Forbes’ 500 best employers, coming in as the top
construction and development company, which we anticipate will assist in
recruitment efforts.
NREI: How are public-private partnerships
impacting development and construction?
Rich Cavallaro: Right now, U.S.
infrastructure, from our roads and bridges to our water systems, is in great
need of investment. P3s will be essential for fixing this infrastructure. There
is such a tremendous need for repair and little public money to pay for it, and
meanwhile there’s plenty of private money on the sidelines waiting to be
invested. P3s make these projects happen. They leverage available public funds
with private sector investment to generate critical infrastructure projects
more quickly, efficiently, and with a focus on the asset’s entire life cycle.
I’m proud that Skanska is a global leader in P3s, having delivered 31 such
projects in eight countries using more than $500 million of our own equity
investments. Right now, P3s are helping fill the gap created by a lack of an
infrastructure funding bill, but P3s by itself is not enough. We need a
reliable funding source because the needs far outweigh the available capital.
NREI: Could you comment on the dispute and
settlement between Skanska and Forest City Ratner regarding the misalignment of
modular units at Pacific Park Tower? As I understand it,
Skanska considered the plans flawed, and Forest City blamed Skanska for the
problem, but agreed late last year to buy Skanska out of its stake in the
modular company that was producing the units. Will Skanska avoid modular
construction in future?
Rich Cavallaro: Our company’s commitment
to innovation is unwavering, and that means continuing to pursue and invest in
prefab, modular, integrated project delivery and whatever other innovations and
technological advancements will improve the way we have been building for the
past hundreds of years. The commercial and design issues we faced in our joint
venture with Forest City Ratner were specific to that project and partner. We
will continue to look for the right opportunities for modular in the
future.
NREI: With increased domestic energy production
changing the power and industrial industries, is this having any direct impact
on the construction industry, say, with materials being manufactured?
Rich Cavallaro: Increased domestic
energy production is definitely impacting construction. Not only has there been
a jump in the demand for new energy plants—which calls for construction
projects and ultimately brings job growth—but sustainable energy is on the
rise, affecting the types of projects we work on. Additionally, the low cost of
energy, combined with tightening federal emissions regulations, is prompting
many utilities to upgrade or replace older power-generating stations, so we are
seeing more work in that sector, too. Lastly, the U.S. has become an attractive
location for industrial plants that use large amounts of energy in their
process, so we see opportunities in the industrial downstream space, although
this is somewhat tempered by low oil prices.
NREI: Any other key trends for development and
construction?
Rich Cavallaro: More people are moving
to cities, and that trend continues. This urbanization trend creates a strong
demand for construction and development services. We have been seeing growth in
many transportation-oriented projects, especially surrounding bridges, tunnels
and rail transit. Bridges, tunnels and toll roads, in particular, are often
supported by P3s, which is helping fuel the number of projects. Right now, our
bridge projects range from restoring the 106-year-old Longfellow Bridge in
Boston to replacing more than 75 bridges for Florida’s I-4 Ultimate, and we
anticipate more to come. For one of our numerous rail transit projects, we are
constructing a 6.7-mile light-rail train through downtown Los Angeles, which is
expected to have a daily ridership of 64,000 by 2030. Additionally, power
projects are on the rise, especially as renewable energy is increasingly
prioritized.
Source: National
Real Estate Investor
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