Jul 30, 2013
By Lee Schaller, Building Industry Magazine
Last year at this time, we encountered an atmosphere of anticipation and hope on the Big Island. Although a dominant theme was, "We're not out of the woods yet," there also were expressions of cautious optimism.
It's a different point in time and there have been significant changes in several areas. Local economists are speaking about an improved economy — and not just on Oahu. How is Hawaii Island faring so far in 2013? And what lies ahead?
Prognosis from the Pros
After a long period with Hawaii economists repeatedly saying that Oahu's economy was seeing significant improvement while the Neighbor Islands still were "lagging behind," it looks as though the tide finally has turned.
"Growth Accelerates Statewide," proclaimed UHERO (Economic Research Organization at the University of Hawaii) in its most recent forecast. More specifically, in its forecast for Hawaii's counties, the report says, "Oahu continues to be further along in recovery, but the Neighbor Islands are catching up fast." It also predicts that economic growth "will quicken" this year, "with an impetus from construction, which had turned the corner and is poised for a strong pickup in activity." Statewide, the report points out, "Private permitting grew by 35-50 percent across the counties, albeit from very low levels. This year, job growth will firm to more than 3 percent on each of the Neighbor Islands," says UHERO, whose researchers express optimism about "where the Hawaii Island economy is headed," reporting that "meaningful job creation now is occurring."
In First Hawaiian Bank's 2013 Hawaii Island County Economic Outlook, Leroy Laney, First Hawaiian Bank's economic advisor also said the Hawaii Island economy "is making progress."
And in its second quarter 2013 County Economic Conditions report, the State of Hawaii's Department of Business, Economic Development and Tourism (DBEDT) announced, "Overall economic conditions were all positive across counties in the first quarter of 2013. The unemployment rate decreased in all counties. DBEDT reports that in the first quarter of 2013, private building permits in Hawaii County increased $16.9 million or 24.7 percent, compared to an increase of just $700,000 or 4.9 percent on Kauai and a decrease of $104.5 million or 67.1 percent on Maui. In the construction-specific area of its report, DBEDT points out that across the state, "Indicators of Hawaii's construction industry were all positive."
In his Governor's Message of June 2013, Hawaii Gov. Neil Abercrombie spoke of expectations for "continued improvement in the construction industry" and commented in great detail about the upcoming construction of the Hawaii Community College at Palamanui Campus in Kona, thanking Hawaii Island's senators and legislators "for identifying this and other worthy CIPs and their commitment to the people of the Big Island and our entire state."
Testimony from the Trenches
Leslie Isemoto, president of Isemoto Contracting Company, Ltd., last year at this time thought there should be increased construction work in the fourth quarter of 2012, with signs that 2013 might be even better. He was not far off the mark. "The fourth quarter of 2012 did increase slightly," he tells us. "2013 started off slowly," he says, "and has picked up some momentum, especially in the new single-family residential market. I believe the Big Island construction economy will show significant signs of improvement during the fourth quarter of 2013 and will continue into 2014. The U.S. economy is on a positive upswing, which should help Hawaii's construction sector in 2014."
Currently, the Big Island-based company's projects include renovations at the West Hawaii Explorations Academy Public Charter School at the NELHA (Natural Energy Laboratory of Hawaii). Tsunami repairs at Kona Village and Pier 2 terminal improvements at Kawaihae Harbor also are current projects on the west side of the island. Isemoto's work at HELCO's (Hawaii Electric Light Company) new Kona baseyard warehouse recently was completed and the HELCO Kona customer service renovations project is virtually finished. Just beginning is a roadwork project, phase 1 of the Laaloa Avenue extension project.
On the Hilo side, Isemoto is working on Kamehameha Schools' new maintenance facility as well as several projects at Hawaii Community College and the University of Hawaii at Hilo. Sitework is ongoing at the Hilo Hold Cargo building project at Hilo International Airport. Cafe Il Mondo, a new restaurant in Honakaa also is a current job. Wrapping up is the Kulaimano production well and the Kalanianaole interceptor sewer rehabilitation, phase 2. And Isemoto received a big mahalo from county administrators for completing the Edith Kanakaole Stadium upgrades in time for this year's Merrie Monarch Festival.
"The Big Island, particularly West Hawaii, continues to be a strong market for Maryl Group Construction, Inc.," says Mark Kong, president. "During the past several years, the Big Island has seen a tremendous growth in infrastructure, commercial/retail and residential—in both the private and public sectors. Maryl has been a part of the Big Island's construction and development growth since 1985 and we have been fortunate to have participated in many of its construction projects. Our forecast for the Big Island looks strong for the rest of this year and 2014. We currently are in construction of the new Kaiser Medical Office Building in Kona. We also are constructing a monk seal facility at NELHA and we just completed a new branch office for American Savings Bank in Kailua-Kona. The luxury residential market also is on the rise. We have several luxury custom residences in various stages of construction along the Kohala Coast. Overall, our Big Island operations are by far our most active. We are very fortunate to be working with great clients and a talented group of subcontractors."
Big Steps Forward
"Nan, Inc. has been fortunate where we have acquired work to sustain our team on the Big Island and where we have been progressively expanding our workforce there with local personnel," says Ryan Nakaima, Nan, Inc. senior vice president. "The outlook continues to be optimistic as the market also has allowed us to steadily bid on projects and opportunities."
Last year at this time, Nan, Inc. had just acquired Keauhou Kona Construction Company (KKCC), an acquisition viewed as a significant step in further developing Nan, Inc.'s Big Island operations. In answer to our question as to how this has worked out during the past year, Frank Okimoto, Nan, Inc.'s vice president of the civil division and Big Island operations, says, "The equipment we purchased from KKCC gave us the ability to do large earthwork projects on the Big Island virtually overnight. We have hired some key personnel with heavy civil experience as well, and we are fully prepared to do our own sitework on the Big Island, using a workforce comprised of all Big Island residents."
In an overview, Nan's senior project manager, Alex Leonard, says, "The Big Island is seeing more work across the board. There are commitments from developers as well as legislators for significant projects into next year."
Nan, Inc.'s current activity includes a $16.8 million ARFF (Aircraft Rescue Fire Fighting) building, a 24,000-square-foot facility at the Kona International Airport.
In other ongoing projects, the Bay Clinic at Kau is estimated for completion in September 2013. Nan, Inc. also is performing "change order work" to install a traffic signal at the Ane Keohokalole Highway and Kealakehe Road intersection and is waiting for plan revisions to a boardwalk that will be installed as part of the Interpretive Center. Also progressing is work on a water main transmission line at Palamanui (the Palamanui interim water system), which will feed the culinary building at the planned new West Hawaii Community College campus in Kona. Currently, Nan, Inc. is awaiting the NTP (notice to proceed) on the Onizuka Space Center relocation project and will be starting a road-widening job for the DOT (Department of Transportation) highways in Keeau-Pahoa. In addition, says Okimoto, "We are waiting for the NTP on some Army DPW (Department of Public Works) projects to repair Alpha and Bravo helicopter pads at Pohakuloa Training Area (PTA)."
Eric Tessem, senior vice president and general manager of dck pacific Construction, LLC also is upbeat about the Big Island, reporting, "dck pacific will be starting construction of the Kings' Land Building 6 conversion in August, which will add 18 more timeshare units to the Hilton property in Waikoloa. Currently, the majority of our work is on Oahu, but we are optimistic that construction statewide will begin to flourish. As we approach our 75th year of doing business in Hawaii, our pursuit of opportunities on the Big Island as well as on all major Hawaiian Islands, will always be essential to our organization, in order to maintain local relationships and be strong community partners."
Residential Makes a Rebound
Residential construction on the Big Island, which last year elicited lingering worries about the "lagging sector," this time around sounds much more upbeat.
"It looks like the market is rebounding," says Chris Clever of Clever Construction. "We have more lots in escrow in our Hualalai Vistas subdivisions than we have had before. New homes are in demand and prices are rising. We are starting to build specs again, anticipating the increased market demand will continue. We're seeing a pretty normal landscape in the high-end residential market. Subdivisions are getting built out, which is limiting the amount of available lots for new construction. We also are seeing an increase in commercial work on the Big Island."
Mark Richards, president of Maryl Group, Inc., says, "Our backlog of very high-end residential is exploding. We are inking $12 million in new construction as we speak, with $18 million in process. And we've just completed and delivered $19 million. In addition, $10 million to $12 million is in our pipeline for a start in 2014. With this strong backlog of current and future work (almost all being in Kukio and Hualalai), we will begin to see price creep on our cost side, as the trades become busier. This, of course, translates into higher costs for our customers."
"Currently at Lualai at Parker Ranch in Waimea," reports Mary Flood, vice president of sales and marketing for D.R. Horton Hawaii, "there are 22 remaining homes to sell out of the 82 in phase 3. With two to three sales a month, we anticipate phase 3 will sell out by the end of the year and now are preparing to sell phase 4. The majority of buyers continue to be Big Island families, although there have been a few buyers from Oahu transferring to Waimea or retiring there. Prices range from the mid-$300,000s to the mid-$400,000s. Small single-level homes and larger two-story, four-bedroom homes are both popular. The appeal of Waimea includes its small town charm and views of Mauna Lea." Flood also reports, "Pualani Estates (in Kona) after nearly 10 years, is in its final phase with just 17 left to sell out of its total 362 three-, four- and five-bedroom homes in this hillside community known for its ocean views and popular neighborhood park. Prices start in the low $400,000s. Many buyers are retirees, so the single-level models are the most sought after by them. Local families, comprising about 50 percent of the buyers, find the larger two-story homes more suitable for their lifestyle. Because of the overwhelming success of Pualani Estates, D.R. Horton-Schuler Homes is looking for additional home sites in the Kailua-Kona area. The demand for single-family homes on the Big Island seems to be strong."
Phil Tinguely, president of Tinguely Development, Inc., also emphasizes a growing demand in the residential marketplace. "Businesswise, there has been a measurable uptick," he says. "Deals are happening quicker and more frequently. There is a sense of urgency among buyers. Things are getting busier, interest rates will be going up and that will impact costs. Potential buyers feel they want to do something now so they don't get left out." Tinguely's latest custom home project, Waimea Parkside, a development of Waimea Parkside, LLC, is located in the heart of Waimea Town. Tinguely Development, Inc. is general contractor for the 40-home residential community whose primary market right now is "local professionals."
"The real estate market has turned around in California," says Terry Metcalf of Kona-based Metcalf West, "and we usually follow California." Metcalf says there is "some high-end housing going on here and there," but mainly, "it's still the county and state work that's keeping industry people busy." Metcalf West recently completed 36 units in phase two of the Kaloko workforce housing project in West Hawaii.
Mike Fujimoto, CEO and president of HPM Building Supply, who works closely with homebuilders, says the residential situation is improving. "The average monthly value of building permits for new single-family homes on the Big Island in 2013 is up 7 percent compared with 2012. And the average monthly number of permits for new single-family homes this year is up 13 percent over 2012." Fujimoto explains that these numbers encompass "a broad array of product, not just high-end homes but everything from affordable on up." He expects the improved residential picture to continue the rest of this year and into 2014.
And the Beat Goes On
There is more work on the Big Island than we have room to accommodate in this report, but here are a few more projects and comments:
Honolulu Builders, LLC "Our Big island work has remained steady," says Dan Jordan, company principal, "but we are in need of replenishing our backlog there. Many of our projects will complete in the next two quarters, so we are actively bidding and negotiating a few possible projects. We have teams on both sides of the island and hope to pick up more work in each geographic area for 2014. The UH, DAGS (Department of Accounting and General Services) and DHHL (Department of Hawaiian Home Lands) continue to provide bid opportunities and the hospitality sector also is creating some projects for us." Currently, Honolulu Builders' projects include the aforementioned Hale Aloha building renovations at Hawaii Community College and the new Kona baseyard for DAGS as well as continued work at Keeau Middle School.
Goodfellow Bros., Inc."Work has picked up a little more than last year," says Edward Brown, director of Operations for Hawaii/Oahu regions, "but we don't see much for 2014."
Goodfellow Bros. is busy with a number of current projects, including Saddle Road, phase 7B. Also ongoing is work at several residential developments such as Forest City's planned Kamakana Villages, an affordable homes community in North Kona at the intersection of Henry Street, Palani Road and the new Ane Keohokalole Highway. Phase 2A of DHHL's Lalamilo homestead development just a short distance from Waimea Town Center is another of Goodfellow's current projects, along with Kohanaiki, a master-planned upscale residential development on the Kona Coast.
Hawaiian Dredging Construction Co., Inc. (HDCC) "Hawaiian Dredging has been building consistently on the Big Island for many decades," says Bill Wilson, president of the 111-year-old company, "and we remain committed to being a contributing member of the local building community. In upcoming months and into 2014, we will be working with local agencies and private owners on various projects on the Big Island."
HDCC's projects include the power and industrial division's work at Hu Hunoa, a biomass facility in Pepeekeo on the East Coast of the Big Island.
In addition, the rehabilitation of Umauma Stream Bridge has been awarded to HDCC's heavy division and the substructure and sewer line repairs at Piers 1 and 2, Hilo Harbor, to the waterfront division. Improvements to the Kawaihae Small Boat Harbor, a project awarded to HDCC in 2008 and delayed for several years, is moving forward. Work encompasses landside grading for easier site access, improvements to existing rock revetment along the shoreline, landside utility improvements, a new comfort station, parking improvements, a new concrete wash-down pad, a gravel access road and a new floating dock with ADA (Americans with Disabilities Act) compliant gangway, vessel mooring blocks and buoys.
Slowly but Surely
"The Big Island economy is ticking up," says Warren Lee, director of the Hawaii County Department of Public Works. "We're still not over it (the depressed economic period) but things are going up slowly," which for the building chief, is saying quite a lot. And things are looking up. For example, a total of 4,658 building permits were issued in 2012 compared with 2,823 in 2011. The total value of building permits in 2012 was $441 million, compared with $341 million in 2011. And as of May 31, 2013, 4,200 building permits had been issued, with a value of $264 million.
A major topic of discussion with the building chief was the continuing improvements being made to the permitting process. The system, called "papa aukahi" (which translates to bringing it all together) still is progressing, says Lee. "Online improvements continue to be made, including the ability to pay by credit card. The next phase we want to implement would set up contractor accounts that they could draw upon." In other steps forward, Lee say more charging stations are coming for the electric vehicle fleet by the end of the year. He also speaks of the ongoing conversion to LED streetlights. "They use less electricity," he says, "and they reduce light pollution, which can affect astronomy instruments. We've already done about 1,000 conversions, with ARRA (American Recovery and Reinvestment Act) funding."
Lee also speaks about the many completed, ongoing and planned road improvements, including the Laaloa Extension in North Kona, the Kapiolani Extension in South Hilo, reconstructing Kamehameha Highway in South Hilo, improvements to Kaiminani Drive in North Kona, another mauka-makai connector in Kona, and much, much more. In addition to roadwork and bridge rehabilitation, Lee mentions the start of the Kau district gymnasium. He also reports that the crosswalk flag project (wherein pedestrians carry bright orange flag as they cross streets) is expanding, especially around schools.
As to challenges, the building chief says, "Making sure we process permits in a timely manner. We also need to place more attention on county roads and mountain roads." He would like to see more frequent road resurfacing and more work on roads in limbo. And he asks, "How do we maintain our roads and flood systems? How do we partner with developers in infrastructure, roads, parks? How can we better handle our work with individual homebuilders?"
A lot to think about. But as he says regarding the permitting process, it's progressing.
Increased Confidence, Continued Commitment
"Clearly, there is a very positive sense about the economy," Hawaii Island Mayor Billy Kenoi tells us. "We're not yet back where we were in 2006, but there is plenty of healthy optimism. We continue to see very favorable signs—and are starting to see an increase in private projects." The mayor speaks about what he considers important steps forward for the Big Island, such as the afore-mentioned Hawaii Community College Palamanui Campus in North Kona. "This is a critical investment in our Hawaii Island community," he says. "Higher education is a great equalizer. This new college in Kona ensures that higher education is accessible to all areas of the Big Island— giving students on the west side equal opportunities to attend college without having to travel great distances. It opens new doors for them." Another project the mayor would like to see become a reality is the proposed Kona Judiciary Complex, which reportedly is still on track. "There is good support for the project from both the legislature and the governor," he says. "Right now, the services (Kona court houses) are all split up. This is a big ticket item, a top priority for the judiciary."
In answer to our question as to what the mayor feels are his administration's major accomplishments so far in 2013, he says, "Finishing up the Edith Kanakaole Stadium renovations in time for the Merrie Monarch Festival, for one thing." He points out that the upgrades and expansion to the complex, which is used year-round for craft fairs, graduations and other community events, benefit everyone. He also mentions the Reed's Bay upgrades, highway improvements, and the Ulu Wini low income rental and transitional housing complex and 15,200-square-foot educational training facility in North Kona.
What projects would the mayor most like to see accomplished? "More affordable housing for our working families." Also on his "dream projects" list is, "Getting infrastructure done ahead of time." And Kenoi, who prioritizes youth and family-oriented projects such as recreational outlets, parks, gathering places, would like to see "a full-blown recreational facility—soccer, baseball" in Pahoa.
What about UH-Hilo's long-overdue School of Pharmacy? Will it ever happen or is it a lost cause at this point? (Editor's note: We heard from some Big Island sources that it may lose accreditation due to the long delays. "Maybe that will be a wake-up call," was one observation.) "There is a lot of support for it across the state," the mayor answers. "We have to save it, we're too close to the finish line, we can't lose it now. We will give it all the support we can from the county level."
Heading the mayor's list of challenges is, "A long-term solution to solid waste—solid waste management, environmental management, waste reduction technology. It's a win-win goal—resolve what to do with solid waste, reduce our dependence on fossil fuels, lower energy costs." All of which brings us to the geothermal issue. "We need to reduce our dependence on fossil fuels," the mayor again stresses, "we have the highest energy costs in the country." In addition to impacting everyone on the Big Island, he points out it also is a negative factor in attracting business.
A commitment made early on by Kenoi to the people of the Big Island was to increase communication with them. One of the ways this has been implemented is through a series of community cabinet meetings, which continue to take place. "The feedback we get is very important, he says. "We take all of the department heads into the community, directly to the people. It's a responsibility of government to go to them instead of them having to come to us. The community response has been very positive. They expect this from us now."
Looking back at what has been accomplished and what still lies ahead in his second term as mayor, Kenoi says, "We want never to become complacent. We don't want to say, 'we should have.' We want to do everything we can, no excuses. Just tell me how things can get done—not why they won't get done."
And that's a fitting close to this report on the Big Island—today and into the foreseeable future.