Paul Bubny is editor of Real Estate New York.
NEW YORK CITY-Equipment shortages, accelerated schedules and a citywide building boom all help ensure that construction costs in the city remain high, said a panel of experts convened Wednesday by the Urban Land Institute's New York chapter. However, the panelists agreed that these costs could be managed through proactive planning by clients as well as their construction and design teams.
"Nothing beats good planning," said panelist Charles Murphy, SVP and general manager at Turner Construction Co., during ULI New York's "Controlling Construction Costs" event held at Club 101. In common with other panelists, Murphy also cited more specific strategies to control costs, which ranged from using design-assist partners to paying contractors in timely fashion so they don't have to go to lenders to keep projects going.
Dominic Dunn, senior associate principal at architectural firm Kohn Pederson Fox Associates, advocated putting together a construction and design team that's experienced in confronting "marketplace volatility."
In kicking off the panel discussion, moderator Michael Stoler noted that per-sf construction costs may be $200 higher in Manhattan than in Jersey City across the Hudson River. Murphy said that in New York City, $385 to $425 per sf on the core and shell is a typical starting point, while Eli Zamek, SVP at Vornado Realty Trust, added that tenant build-out costs could reach $300 per sf on office space and double that amount for specialized areas such as trading floors.
"It comes down to New York economics," said Zamek, whose company is slated to develop a 40-story office tower over the Port Authority Bus Terminal. The constraints of building within a relatively small area such as the space above the terminal also boosts costs, panelists said.
Alastair Lamb, a senior manager in Ernst & Young's program advisory services group, called New York a "unique market" with relatively little competition for its leading contractors. Zamek said that in each construction trade, there are no more than three or four leading contractors to choose from, meaning that the contractors do not need to compete on cost.
Murphy cited the "unprecedented" construction boom--unprecedented in that during the last such boom half a century ago, New York City firms were not competing with projects in China and India for building materials. He said that Turner Construction, which has built in the city since 1902, has "a pretty good database" of what materials should cost, but added that in the past few years, that database might as well have been thrown away.
Stoler, senior principal with Apollo Real Estate Advisors, pointed out that developers' rush to start residential projects ahead of the sunset on the current 421a tax provision is putting a strain on the supply of construction cranes and other equipment.
On the other hand, Zamek pointed out, if land costs and other expenses are higher east of the Hudson River, so is the potential ROI. "It's the center of the financial universe," he said.
It's also one of the centers of the green building revolution, especially as the cost premium for achieving LEED certification is diminishing. Dunn, who said the premium for building to LEED Silver standards is "negligible" these days, while the premium on LEED Gold is down to 5%, observed that green is taking over the construction and design industry while developers capitalize on its marketability to tenants.
Lamb added that there's "a huge upside" in long-term savings as the building's life cycle is extended through sustainable construction techniques.
"Green is not a fad," Murphy said. "It's a way of life now."
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
