Bay Area Construction Challenge Punch List is Lengthy

SAN JOSE—In the flurry of development activity swirling around the Bay Area, construction work varies from multifamily/retail mixed use and transit-oriented projects to tenant improvements, and everything in between. In this exclusive, Dan Rogers, president of San Jose-based Blach Construction, shares insights about the current challenges and opportunities that builders/developers are finding, including the huge push for mixed use and transit-oriented development.

GlobeSt.com: Construction is booming throughout the Bay Area. Are you seeing a lot of tenant improvement projects?

Rogers: Yes, we are doing quite a bit of tenant improvement work, mainly for corporate, technology and venture capital clients, but what we’re really seeing and working on is a huge push for mixed-use developments. Of course, interiors/TI work is still a part of this, but that is further downstream.

GlobeSt.com: Why is this and what are the biggest trends currently affecting South Bay commercial construction?

Rogers: There are several factors that have led to an increased need and preference for not only mixed-use but transit-oriented development in the South Bay, and really, most of the Bay Area. First, we are experiencing a pretty serious housing crisis. Increased industry, namely high tech coupled with homelessness issues, have led to a lack of affordable housing in this area. Traffic and the environmental concerns that come with it is another major obstacle influencing the way development is taking shape.

There is a big political push to get large numbers of new housing units built, many below-market rate.

Auxiliary dwelling units, defined as under 750 square feet, are also having a big moment as a solution to some of these issues. As builders adapt to this landscape, we have increased our portfolio to include housing on certain projects for clients, like the College Terrace Centre in Palo Alto and Casa del Pueblo, which includes senior housing in downtown San Jose.

In terms of practical trends and solutions, prefabrication and self-perform work are on the rise, and for good reason. There are incredible cost and schedule efficiencies as well as safety benefits to assembling elements of buildings off-site and leveraging in-house skill sets. Take our Folia solution, for example. Initially designed as a pre-engineered classroom building, it can be easily adapted and offers so many advantages as a prefabrication solution for other markets as well.

GlobeSt.com: What challenges are you and your clients facing most regarding these mixed-use developments?

Rogers: From the construction side, cost escalation is probably the biggest barrier in bringing these projects to fruition. This includes the rising cost of materials–steel, glass, etc.–labor and land, among others. Labor is a whole other issue in and of itself, and many are feeling the effects of a lack of skilled labor in the area, which brings us back to the lack of affordable housing. One way that we personally combat this is by placing a huge emphasis on maintaining great relationships with our subcontractors and partners, and on our prompt pay policy.

From the development side, city constraints and the permitting process are incredibly arduous and fees can become exponential. Part of this is the California Environmental Quality Act/CEQA review process, designed to ensure the environmental quality of any given project. While a good thing, this can be a lengthy and expensive process. Thankfully, solutions have been developed in recent years, which in place of the full review process, allow specific areas where deficiencies can be identified and addressed. Zoning can also be a challenge for mixed-use projects in terms of how they will fit within a particular city and the economic benefits they will yield. Finally, while we’re starting to see a stabilization in rents, they are still currently high.

GlobeSt.com: What do your clients desire most from these types of construction projects?

Rogers: Our clients are looking to us to provide innovative construction solutions (i.e. prefabrication, self-perform) that will ultimately not only allow for approval of their projects, but make them appealing to potential tenants and the community. For example, in a mixed-use project, we want to include amenities that make the project a desirable place to live, work and visit such as parking, retail, restaurants, recreation, etc., but that also offer an additional revenue stream. If the project is transit-oriented, even better.

Ultimately, there is funding available for these types of projects in the South Bay right now and as long-time construction professionals, we are committed to finding ways to combat some of the challenges and barriers I mentioned. Our overall goal and feeling is to ensure our communities greatly benefit from all of this modernization and improvement work.

Blach Construction’s 50-year experience in the Bay Area and Central Coast building industries encompasses a cross section of corporate, mixed-use, institutional and educational building types, including technology, wellness and healthcare, professional services, schools and civic/community facilities.