Construction Review and Outlook

Davis Langdon, An AECOM Company

Paul Mitchell

2016 Olympic Park, Rio de Janeiro, BrazilAECOM Masterplanners

AGENDA• Review

• Construction Output

• Stimuli

• Public Capital Programme

• European Investment Bank

• REIT’s

• Industry Issues

NUIG Enginerering BuildingCost and Project Management

2012 Review

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• Industry still falling but at much slower rate – down 9% to 7.75bn (-27% in ‘11)

• Still well short of €15bn target

• Tender prices erratic; slightly increasing +3% on avg;

• Prices now at early 2000 prices

• Materials; oil & gas products more expensive + 2%

• Public spending -18% (reduced from €4.7bn to forecast €3.4bn)

• Housing Output down to c.6/7,000 units

• NAMA announces €2bn construction budget over 4 years (May ‘12)

• Government announces €2.25bn stimulus package (July ‘12)

Construction Output

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Construction Output

CONSTRUCTION OUTPUT

OPTIMUM 12% OF GNP

15% PER ANNUM GROWTH

10% PER ANNUM GROWTH

‐

5,000 

10,000 

15,000 

20,000 

25,000 

30,000 

35,000 

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45,000 

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

What does 10% p.a. growth look like?

X 30 extra Primary Schools

X 30 extra Primary Schools

‐

5,000 

10,000 

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

What does 10% p.a. growth look like?

X 30 extra Primary Schools

X 15 extra Secondary Schools

X 15 extra Secondary Schools

‐

5,000 

10,000 

15,000 

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25,000 

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

What does 10% p.a. growth look like?

X 30 extra Primary Schools

X 15 extra Secondary Schools

X 10 extra 3rd level Buildings

X 10 extra 3rd level Buildings

‐

5,000 

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25,000 

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

What does 10% p.a. growth look like?

X 30 extra Primary Schools

X 15 extra Secondary Schools

X 10 extra 3rd level Buildings

X 2 new mental health facilities

X 4 Hospital Ward Blocks

X 30 housing estate workouts

X 30 housing estate workouts

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

What does 10% p.a. growth look like?

X 30 extra Primary Schools

X 15 extra Secondary Schools

X 10 extra 3rd level Buildings

X 2 new mental health facilities

X 1 new Children’s Hospital

X 4 Hospital Ward Blocks

X 1 large FDI New Office Block

X 30 housing estate workouts

X 1 No. Central Bank move

X 1 No. Intel major investment

X 20 FDI Fit Outs

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

CONSTRUCTION OUTPUT

OPTIMUM 12% OF GNP

15% PER ANNUM GROWTH

10% PER ANNUM GROWTH

• Probable?

• Year on year?

• Against a falling PCP?

• Nama - €500m p.a. X 4 yrs.

• Stimulus – €2.24bn

• Can we respond?

Is it achievable? What about 15%...?

Employment

Titanic QuarterAECOM Engineering Services

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

CONSTRUCTION OUTPUT

OPTIMUM 12% OF GNP

What does this do for employment?

10k15-20k

25-30k40k

55k70k

85k100k

125k

145k170k

• 20,000 new employees by 2015?

• Project type – labour intensive v. non

10% PER ANNUM GROWTH

Stimulus?

Telecity Data CentreCost Management Services

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

CONSTRUCTION OUTPUT

OPTIMUM 12% OF GNP

NAMA €2bn investment

€2bn over 4 years from 2013

• €2bn targeted at major centres to address supply shortages

Dublin, Cork, Limerick, Galway & Dublin Commuter counties

• Commercial & Residential sectors

• It can be recycled (fund to develop – sell – use proceeds to fund again)

• 100% of the finance will go to construction

• Only invest if there is a return better than selling / waiting

• €587m already funded

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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

CONSTRUCTION OUTPUT

OPTIMUM 12% OF GNP

NAMA €2bn investment

€2bn over 4 years from 2013

• €587m funded before announcement:• €50m for Dun Laoghaire housing scheme

• €25m for South Dublin housing schemes

• €30m to housing schemes throughout Ireland

• €13m for Charlestown SC

• €47m on shopping centres in Laois, North Dublin and Waterford

• €7m on Dublin Cinema

• €3m hotel refurb in Cork

• €3m hospital in Dublin

• €2 ¼ bn stimulus package announced in July 12 €1.4bn non-Exchequer funding for PPP projects

€0.35bn in State funding of PPP’s

€0.50bn for Public Infrastructure

• 13,000 jobs

Government Stimulus

49 The Leadenhall Building, LondonCost Management Services

non‐Exchequer funding for PPP projects, €1.40bn, 

62%

State funding of PPP’s, €0.35bn, 

16%

Public Infrastructure , €0.50bn, 22%

Health1. 2 Nr. new Primary Care Bundles (~ 10 Nr. centres)

Transport

1. N17/N18 Gort to Tuam

2. M11 Gorey to Enniscorthy

3. N25 New Ross Bypass

4. Galway City Bypass (target)

• Proposed projects

Education1. 2 Nr. new PPP schools bundles

(~ 12 Nr. post-primary schools)

2. Stage One of Grangegorman

Justice

1. Courthouses (extent TBA)

2. Garda Divisional Headquarters

3. State pathology Laboratory

Government Stimulus

Grangegorman Campus

Cost and Project Management Services

Public Capital Programme (PCP)

UCD Student Learning Leisure and Sports FacilityProject and Cost Management Services

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€2,000m

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€3,000m

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€4,000m

€4,500m

2012 2013 2014 2051 2016

Other

Health

Education & Skills

Jobs, Enterprise & Innovation

Environment, Community & Local GovtTransport, Tourism & Sport

Transport, Tourism & Sport31%

Environment, 

Community & Local Govt

22%

Jobs, Enterprise & Innovation

13%

Education & Skills11%

Health10%

Other13%

2012

• 5 year €17bn PCP announced in Nov ‘11

• €3.9bn in 2012

• 14% reduction for 2013

• ‘Forecast’ at consistent output from 2013-2016

Public Capital Programme (PCP)

UCD Student Learning Leisure and Sports FacilityProject and Cost Management Services

UCD Student Learning Leisure and Sports FacilityProject and Cost Management Services

€109m

€23m

€45m €2

80m

€265m

€232m

€205m

€35m

€59m

€438m€59m

€21m€59m

€150m

€596m

€158m

€309m

€21m€42m

€793m

€0m

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€1,200m

€1,400m

Spent To Spend

Public Capital Programme (PCP)• So how is the Plan going....3 months left?

43%

57%

Spent To Spend • €1.7bn spent in 9 months

• €2.2bn to spend in 3 months..

European Investment Bank (EIB)

Rion-Antirion Bridge, Greece

AECOM Engineering Services

• EIB was set up in 1958 by the Treaty of Rome

• Shareholders: 27 EU Member States (Ireland owns 0.567%)

• Non-profit-maximising

• EIB’s Lending in Ireland: €12bn in nearly 300 projects

The Shard, LondonCost Management Services

European Investment Bank (EIB)

European Investment Bank (EIB)

Pre-accession Countries include:Candidate Countries: Croatia, Iceland, the Former Yugoslav Republic of Macedonia, Montenegro and Turkey.

Potential Candidate Countries: Albania, Bosnia and Herzegovina, Kosovo, Serbia.

European Investment Bank (EIB)

European Investment Bank (EIB)

• EIB funding in Ireland

€2.7bn in the last 5 years

€1.1bn in Energy

€765m in Transport

€435m to SME through Banks

€309m to Health & Education

€15m to Industry

€15m to Urban Infrastructure

SME Credit Lines, €435m

Energy, €1,107m

Health, Education, €309m

Industry, €15m

Transport, €765m

Urban Infrastructure, 

€15m

European Investment Bank (EIB)

€2.7bn in the last 5 years

€1.1bn in Energy

ESB Network And E-Cars Infrastructure

Bord Gais Whitegate CCGT

Eirgrid East-West Interconnector Ten-E

ESB Renewable Programme

ESB Aghada Gas Fired Power Station

€765m in Transport

Dublin Airport Terminal 2 (Ten)

Dublin Airport Development - Ten

M50 Motorway

M7 - M8 Portlaoise

N6 Galway To East Ballinasloe PPP

European Investment Bank (EIB)

€2.7bn in the last 5 years

€435m to SME through Banks

Allied Irish Banks Loan for SME II

Allied Irish Bank Loan for SME I

Bank Of Ireland Loan for SME I

Ulster Bank Loan for SME I

(120,000 SME’s reached in 2011 Source: EIB)

€309m to Health & Education

Irish School Programme (550 classrooms)

University College Dublin (Science and Law Buildings)

Irish Schools Investment Programme (27 schools PPP)

Trinity College Dublin (Biomedical Research Building)

European Investment Bank (EIB)

2012 and beyond EIB committed to enhanced support for Ireland

Key areas: Strategic infrastructure through PPP Financing

Access to Finance for SMEs and mid-caps

…and in the longer-term

Exchequer-funded investments

support to the Corporate sector

Further ways for financing the SMEs and Mid-Caps

€0m

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2007 2008 2009 2010 2011 2012

€345m€450m

€1,020m

€256m

€475m

€100m

€500m

€400mUnder Appraisal

Signed / Approved

Financed

European Investment Bank (EIB)

2012 and beyond €100m financed

Irish Schools programme

€500m approved €155m for Bord Gais Onshore Wind

€75m for N11-N7 Motorway PPP

N17-N18 Gort to Tuam PPP

€400m under appraisal €200m for AIB Loan for SME’s & Mid Caps

€200m for Irish Water programme

European Investment Bank (EIB)

EIB’s project due diligence and credit process

European Investment Bank (EIB)

What can be financed by the EIB?

Projects in line with EIB priorities (broadly Transport, Energy and Knowledge Economy)

Eligible costs

Counterparts with an acceptable credit profile

EIB can finance up to 50% of the total project cost

University College Dublin: Campus development incl. Science Centre, School of Law and student accommodation

Real Estate Investment Trusts (REIT’s)

The Shard, LondonCost Management Services

• What is a REIT?

• A real estate investment trust, or REIT, is a company that owns, and in most cases, operates income-producing real estate.

• Most of its assets and income tied to real estate (investment rather than development).

• It must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

• Owing to 90% annual dividend it avoids corporation tax which is one of it’s benefits.

Real Estate Investment Trusts (REIT’s)

The Tate Modern extensionCost Management Services

• What is a REIT?

• There are 25 REIT’s operating in the UK with a total market cap in excess of £26bn.

• UK REIT scheme was launched in January 2007

• There are 166 REIT’s operating in the US on the stock exchange with a total market cap in excess of $579bn. There are 1100 in the overall US market.

• Transparent operating structure

• Investments are under constant scrutiny in market and tend to be very liquid; traded much like equities.

Real Estate Investment Trusts (REIT’s)

One World Trade Center, New YorkAECOM Construction Management

What is the benefit of REIT’s to the construction industry?

• Attract funds to Ireland’s property market

• Introduce liquidity to investment market

• It offers a chance for the smaller investor to invest in diversified large scale commercial property.

• Release Nama / Developer funds from illiquid assets which in turn would create funding for development needs

Real Estate Investment Trusts (REIT’s)

REIT

NAMA

€€€€€€

How probable is a REIT in Ireland?

• Fine Gael Manifesto 2011

• Legislation is currently passing through government

• Nama would welcome the introduction – big benefits in unwinding assets

• Domestic investors might be very eager to get in on liquid commercial investment

• International Investors would be very interested (e.g. €1bn chasing recent Office Building sale)

• Hopefully Budget 2013 will lead the way...

Real Estate Investment Trusts (REIT’s)

One Warrington PlacePre-acquisition Due Diligence

Cleveland Clinic, Abu Dhabi, U.A.ECost Management Services

Industry Issues

National Children’s Hospital (Mater site)Cost Management Services

• Abnormally Low Tenders

• Public Sector capacity to deliver PCP

• Graduate & Apprentice pipeline

• PPP model & cancellations

• Circular 10/10

• Public Procurement Procedures

• Performance and Infrastructure Bonds

• Disputes

• Building Regulations & Compliance

Industry Issues

New Engineering Building NUIGCost and Project Management

Thank You

Paul Mitchell, Director  Head of Office ‐ Ireland 

Davis Langdon, An AECOM Companypaul.mitchell@davislangdon.com

Olympic Stadium, LondonCost & Project Management Services