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Commercial remodeling/renovation expected to remain strong this year

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As the cost of new construction increases along with the time it takes to process building permits, a number of San Diego County commercial, office and retail building owners are opting to renovate their existing properties rather than construct new ones.

This bodes well for local contractors specializing in tenant improvements (TIs), as the value of all permits pulled for nonresidential TIs in the county thus far in 2007 suggest another strong year.

According to the most recent figures provided by the Construction Industry Research Board, permits in January and February were drawn for more than $105 million in nonresidential additions/alterations. This compares with more than $59 million and nearly $89 million during the same two-month periods in 2005 and 2006, respectively.

"The (company's) backlog for 2007 tenant improvements is as strong as it has been in the past two years," said Scott Strom, chief estimator of the San Diego division of DPR Construction, who added 40 percent of the division's business involves TIs.

Rather than doing retail TIs, DPR focuses on renovations for advanced technology and biopharmaceutical facilities in the Torrey Pines/UTC area. Strom said these types of facilities, which contain laboratories, typically need yearly modifications.

During the past several years, he said the company has taken on TI projects ranging in contract value from $300,000 to $40 million.

Similarly, Good & Roberts also focuses on bioresearch facilities, as 90 percent of the company's workload consists of commercial TIs.

According to Tim Umbarger, president of Good & Roberts, the majority of the companies work takes place in Carlsbad, Vista and Sorrento Valley for clients such as Arena Pharmaceuticals.

"We're finding a lot of stuff we built years ago we're being asked to rebuild," Umbarger said, adding that building owners recently have been requesting more "green construction."

Royster Group Construction President and CEO Alan Royster said clients are demanding contractors use different materials during the TI process that will limit the amount of future maintenance needed to upkeep the facility. Royster gave the example of using PVC or another material in place of steel for exterior railings.

The company focuses on TIs for older retail centers and hotels, as well as offices. Recent projects for the company, whose business consists of 80 to 85 percent TI work, include the expansion and renovation of the Jerome's Furniture facility in El Cajon.

With all of the company's profits stemming from TI projects, Dowling Construction, which focuses on office TIs, is witnessing increased competition in the industry.

"Owners are looking to maximize their dollars," President Jim Dowling said, adding that he's noticed more owners putting their funds into TIs and requiring multiple bids of contractors.

While the value of permits pulled for nonresidential alterations has increased so far this year, contractors contacted attributed this not only to increased TI activity, but also in large part to increases in construction materials.

Umbarger noted increases in steel and drywall, while Dowling pointed to the rising costs of fuel.

Regardless of these steady increases, TI contractors expect a strong year in terms of the total value of all contracts signed. Royster Group estimates completing near the high seven-figure range.

Dowling expects to do $8 million to $9 million worth of work, which is slightly below the company's high of $10 million reached last year.

Umbarger said Good & Roberts is trying to stay steady at $35 million worth of TI work, while Strom anticipates DPR will complete $250 million this year, up from $200 million during the past few years. He cites escalation for the increase.

Projections this year are high for local TI contractors; Strom, however, has noticed a recent dropoff in the number of proposals requests from owners, which could indicate the amount of TI work will return to volume levels experienced several years ago.

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