May 27th 2010
The Wall Street Journal
Workers excavate a site on East 57th Street where construction had been delayed by the financial crisis.
When New York Schools Chancellor Joel Klein broke ground last week at a development site for two schools and a Whole Foods store, it marked the resumption of work that had screeched to a halt during the peak of the financial crisis.
The 1 ½ acre site, located at Manhattan’s East 57th street, is an example of how some developers, architects and retailers were willing to make compromises and wait for the debt markets to normalize to get construction moving again.
“We could have walked away,” says the developer David Lowenfeld, a partner at the World-Wide Group. Instead, he says, “we looked to reduce costs.”
The Midtown site is one of hundreds of once-stalled construction projects that have restarted in recent months, offering some recovery hopes for the bombed-out building industry. Brian Harkin for The Wall Street Journal
Construction has resumed on a condo building in Park Slope, Brooklyn.
Since February 2009, 364 building sites have restarted work, and of those projects, 94 have been completed, the Department of Buildings said.
The majority of those restarted projects are residential and most have been in Brooklyn and Queens.
“The sites that have recommenced work tell you that there is greater depth to the market than just looking at stalled numbers would suggest,” says Kevin Price, a senior vice president of the Radco Cos., a real-estate development firm. “It shows cases where lenders and sponsors are coming to terms.”
Buildings Commissioner Robert LiMandri said a new program aimed at enabling developers to restart quickly has helped projects get going again. The department last year said property owners could extend their permits for as long as four years, provided that safety requirements are met.
The previous limit was one year, and many developers had to start the application process anew, delaying working from starting up again.
The restart figures are consistent with other indications that New York’s residential market is on the mend—from a pickup in sales that began late last year to fresh signs of life in the rental market. But not all the construction news has been positive.
Stalled construction sites totaled 576 as of April 25, a rise of 12% from the 515 stalled sites recorded at the end of November, according to the Department of Buildings. In Manhattan, the rise was much greater, up 40% since the end of November to 111 stalled sites.
“It’s still a problem,” says Frank J. Sciame, chairman and chief executive office of F.J. Sciame Construction Co. “Banks continue to hold back on construction loans.”
Unemployment levels for the construction industry remain around 30%, says Louis Colletti, president and CEO of the Construction Industry Partnership. “But those restarted sites are good news,” he says. “It’s preventing the unemployment rate from being even higher.”
Mr. Lowenfeld said his project will create 1,100 construction jobs. It involves temporarily relocating one school to 63rd Street to construct new schools at the site, along with retail space and 350 residential units.
Early demolition had just begun when work stopped in the fall of 2008, after debt markets seized up and the city couldn’t float bonds to finance the work.
During the work stoppage, the developer, the architect and Whole Foods Market Inc. scaled down their ambitions in an effort to ensure the project could get done. Whole Foods agreed to give up 9,000 square feet of space, settling for 38,000, and some architectural flourishes were simplified.
In April, the city borrowed money in the bond market to resume work. The schools and the Whole Foods store are due for completion in 2012. The housing and other retail space will follow in 2015.
The biggest number of restarted construction sites were in Brooklyn, where 108 projects have resumed and 31 have been completed. In Queens, 101 resumed and 55 have been completed. Most of these sites are smaller residential projects, the buildings department said. In Manhattan, where most of the city’s large-scale and commercial projects are to be found, only 36 sites resumed work and two have been completed.
In Park Slope, an independent developer recently restarted work on a four-story condo building that will offer retail on the street level. Anthony Sabatino, who said he is self-financing the project with cash from other family businesses, says he halted work 18 months ago when money became tight.
Since resuming construction last month after his other businesses picked up, he said, “several people have asked me about an opportunity to buy a condo.”
Still, some in the industry say the rise in stalled sites reflects a shakeout of the financially weaker and less experienced property developers that tried to ride the boom.
“You’re going to see a bifurcated market,” says Frederick Peters, president of Warburg Realty Partnership. “Guys with deep pockets have been able to finish their buildings, while a lot of first-time developers walked away.”