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photo by Mark Rhodes It will take 2.6 million man-hours to build Chaparral Steel's $400 million recycling plant in Dinwiddie County.

Today, the site is one of the biggest private-sector industrial construction projects ever in Virginia -- a $400 million steel mill expected to employ 400 workers and produce 1.2 million tons of structural steel a year. The builders estimate that it will take 2.6 million man-hours from up to 1,500 construction workers to complete the project.

"This expansion will make us one of the largest structural steel producers in the country," says Lou Colatriano, vice president of Chaparral Steel Virginia. The mill is larger than most market mills, which produce about 600,000 to 900,000 tons a year. It will also be one of the most efficient, Colatriano says. The company hopes to use its nearly doubled steel-making capacity to ward off competition from producers in Asia, Russia and Brazil.

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The Chaparral Steel mill is just one of several big commercial projects that helped fuel the construction industry's strong year in 1998. Together with some large infrastructure projects and a healthy residential market, the commercial and industrial jobs produced employment levels rivaling those during the boom of the 1980s.

According to the Massachusetts-based F.W. Dodge Market Analysis Group, a principal source of industry statistics, there were increases in all types of construction contracts throughout Virginia in both 1997 and 1998. Contracts for commercial and industrial projects rose 6 percent last year, as did contracts for highways and other infrastructure improvements. Residential contracts were up more than 11 percent.

The number of people working in all types of construction in the state exceeded 200,000 in every month last year from March through November -- the first time that has happened since 1989, when the all-time high of 204,000 was recorded in August, according to the Virginia Employment Commission. VEC chief economist Bill Mezger says overall employment in the state has grown every year since the recession of the early 1990s, but construction didn't begin contributing to those increases until last year. "Normally, we have a seasonal decrease in construction employment in September, but that didn't happen last year," he says. "The numbers for October and November were the highest in our history."

Although the state's biggest increase was in residential construction, industry observers say increases in highway funding and economic development were the biggest reasons for the boom. The growth in residential construction was a response to the commercial and industrial growth, they say. The top 10 development deals announced in the state last year included over $400 million in capital investments, according the Virginia Economic Development Partnership. Nine of the top 10 -- which doesn't include the Chaparral Steel project, which was announced in 1997 -- involved new construction.

"This is different from the 1980s," says Steven Vermillion, executive director of the Associated General Contractors of Virginia. "We're looking at good, solid growth, and it is spread out across all sectors, creating a diversity that is more sustaining."

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Like many who track construction and real estate development, Vermillion believes the 1980s boom was fueled too much by speculative commercial construction. Funding for that type of development dried up when demand fell, and some Virginia banks that had invested in those projects suffered crippling losses.

Today speculative building has returned to Virginia, but investors in these projects are more cautious. Vermillion says other types of construction -- like schools, highways and facilities designed and built for specific tenants -- account for a larger share of the growth this time around.

The push by state officials for economic development in recent years also has had an impact, Vermillion says. "The fact that Motorola is not moving ahead on its West Creek project near Richmond could have hurt us, but it hasn't, because there is so much else going on. Northern Virginia is unbelievable."

Construction activity in Northern Virginia's office market is the best it's been since the mid-1980s, according to Commercial Property News assistant editor Eric Waters in his June 1998 Virginia Market Profile. "But this time around, private companies in the technology and communications fields make up the compelling force pushing developers to move on speculative projects," he writes. And construction workers in Northern Virginia, who suffered the most during the recession of the early 1990s, have also gained the most in the current comeback, says the VEC's Mezger.

If Northern Virginia is shaking the earth with its construction work, then Loudoun County may be at the epicenter of the quake. Last year, 76 businesses staked a claim there, according to the county's economic development department. More than half were new businesses that decided to locate there, the rest were expansions. That commercial growth helped feed the construction boom -- 26 of the companies announced plans to move into recently constructed spec space, and 15 said they would build their own facilities.

Among those are projects by America Online, Orbital Sciences Corp. and MCI WorldCom. AOL and Orbital will be headquartered in Loudoun once their construction work is completed. MCI WorldCom is still headquartered in Mississippi, but its Loudoun County complex will house its information-technology operations in a 1.3 million-square-foot, $200 million campus. MCI also has begun building a $10.5 million multipurpose call center in Chesapeake. '

Construction in Hampton Roads, Richmond and other regions throughout the state was also strong in 1998, and experts predict projects begun last year will sustain the boom at least through mid-1999. The Virginia Economic Development Partnership noted three projects in Hampton Roads and two in Henrico County among its top 10. The agency also notes two major projects in Bristol.

Last year also saw a record level of state and federal money pouring into transportation projects. According to the Virginia Department of Transportation, the contract value of highway projects underway in the state last year was more than $1.75 billion, topping the previous high of $1.37 billion in 1989.

The biggest boosts to highway funding have come from the 1998 federal Transportation Efficiency Act for the 21st Century, known as T-21, and the state Public-Private Partnership Act of 1995. Starting last July, T-21 has increased Virginia's federal highway outlay from $250 million a year to $665 million a year through 2003.

Meanwhile, the Virginia Public-Private Partnership Act has enabled state road builders to obtain private financing for highway projects, most notably the nine-mile Interstate 895 connector between Interstate 95 and Interstate 295 southeast of Richmond. That project combines $27 million in state and federal funds with $323 million in private funds raised through bond sales by the Pocahontas Parkway Association, a not-for-profit group.

Virginia also is joining forces with Maryland, Washington, D.C., and the federal government on the Woodrow Wilson Bridge replacement project, which is designed to free up traffic at the I-95 crossing of the Potomac River. Construction of the $1.6 billion project is scheduled to begin in 2000. The list of major transportation jobs also includes adding lanes to Interstate 81 near Bristol and to Interstate 264 in Norfolk.

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How long the boom will last depends on who you ask and how it's defined. Chris Sanders, president of Armada Hoffler Construction Co. in Norfolk, says, "The construction industry as a whole will probably need to buckle down," in the second half of this year.

Sanders believes he's already seen a slowdown in the retail and office construction sectors in his region. A large share of the construction in his market in 1998 was funded by real estate investment trusts (REITs), says Sanders, and now he detects a change in their development philosophies. "They're more cautious about what they will finance because Wall Street is paying close attention to them." Only infrastructure construction seems likely to continue as strong as last year, he says.

Robert Norfleet, a Davenport & Co. equity analyst who follows REITs that do business in Virginia, says they took a hit during the decline in stock markets last August and September. About that time, Federal Reserve Bank Chairman Alan Greenspan announced that commercial banks should be cautious about lending to REITs. And soon after that, interest dwindled in "collateralized mortgage-backed securities," which provide developers with easy access to money for their projects. "The spigot was shut off," Norfleet says. "As a result of the decline in REIT share prices, the REITs were not in a position to leverage their equity to buy property, and they still aren't. A lot of projects have been scrapped, and some REITs are disposing of properties in locations they don't consider to be core markets."

Paul F. Silver, president and CEO of Richmond-based Morton G. Thalhimer Inc./Oncor, says his company's research indicates a bit of a slowdown in the construction cycle since mid-1998 in the central Virginia and Hampton Roads markets. "During the past 12 months, growth has not been as fast as it was in the previous 24 months," Silver said in January, "but construction is still strong in almost all product types. The vast majority of speculative building has been in the office markets, not industrial." Silver says the balance between supply and demand in commercial real estate is as close to equilibrium as he has ever seen it, which helps keep rents and construction costs more realistic. Such an environment seems to indicate that current growth in construction activity is healthier and more sustainable than during the boom of the 1980s, when developers overbuilt and found themselves begging for tenants.

"I believe we're a lot smarter than we were in the 1980s," says Lee Lowder, director of operations for the construction wing of Goodman Segar Hogan Hoffler, a Norfolk-based real estate company with offices in Richmond and Northern Virginia. "In [Hampton Roads], construction is in the best shape I've ever seen in my 20 years in the business. The REITs are looking a bit harder at what they choose, but even if that activity has slowed down, it's still great down here."

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Although he warns competitors of a possible slowdown later this year, Armada Hoffler's Sanders still has plenty to do. His firm plans to employ up to 250 construction workers, either directly or through subcontractors, to complete the first phase of an office project for Towers Perrin Inc. in Chesapeake.

Towers Perrin, a New Jersey-based management consulting firm, plans to employ about 1,000 people by mid-July in its $20 million, 100,000-square-foot building in Crossways Commerce Business Park. If the company thrives, then Armada Hoffler is in a good position to stay busy with construction of phase two of the Towers Perrin project, which is expected to include another 100,000 square feet of space.

Towers Perrin spokesman Stanley Davis says the main reason the company chose the Chesapeake site was because it offered room to expand. "We expect to grow," he says.

That's what Vermillion likes to hear. Vermillion, head of the Associated General Contractors of Virginia, says the current construction boom is fueled by general economic prosperity. The sun is shining on the construction industry right now, and contractors are working overtime making hay.