Ryan Deffenbaugh, Crain’s New York Business, 5.26.20
While many New York City industries have shuttered completely from the pandemic, the construction industry has held on.
Although construction may not meet its pre-pandemic projections for this year of $65 billion in projects, there are more than 8,000 active construction sites in the city, despite an order stopping most work. Essential sites—those with a component involving affordable housing, transportation, health care or homeless services—have continued to build.
"The good news is we still have projects that are moving," said Carlo Scissura, president and chief executive officer of the New York Building Congress. "In September and October we will know if we are stable."
That's partly helped by the fact that New York City is coming off of one of the most productive eras of building in history. Jobs in the construction industry grew 30% from 2010 to 2018, reaching a peak nearing 400,000 workers. Those workers reshaped the city, building arenas, bridges, parks and even part of the long-awaited Second Avenue subway. Construction spending grew from $30 billion annually in 2010 to $60 billion last year, according to Building Congress estimates. It was so productive that it has disrupted the entire order of the city's tallest buildings and nearly knocked the Chrysler Building off the list of the city's top 10 tallest structures.
But moves in the next several months by the city's construction industry—to keep worksites safe and answer concerns about demand—will determine whether a historic decade-long building boom can avoid a collapse from the pandemic. Already there are signs of a free fall. New York state construction and utility workers have filed more than 167,000 unemployment claims statewide since the start of the pandemic. As the industry reopens, there is significant risk that a combination of higher costs and weakened demand could significantly shrink the industry,
"This is going to put tens of thousands of small contractors, suppliers, vendors and manufacturers out of business," said Barry LePatner, founder of construction law firm LePatner and Associates "There are many businesses without the extensive capital resources required to come back."
Back to work
The new normal for construction sites—those active during the pandemic and projects that will restart sometime in the summer—already involve mandatory masks, daily health screening and six feet of air between workers.
Gov. Andrew Cuomo's administration released the new rules May 13 after more than a month of discussions with building unions, contractors and developers.
Even compared with the challenges following 9/11 and Superstorm Sandy, building during the Covid-19 era will be the most complicated challenge the industry has faced, said Gary LaBarbera, president of the Building and Construction Trades Council of Greater New York.
For the time being, that challenge has brokered a peace among industry groups whose interests don't always align. The Real Estate Board of New York, the Building Trades Employers' Association and unions have been in discussions since April on social distancing rules for city worksites that would go beyond the state rules.
"We have to demonstrate that New York City is a healthy and safe place to live, work and build," said James Whelan, president of REBNY. "The primary focus for the next weeks and months has to be showing we can operate these sites safely."
While Cuomo has halted all nonessential construction in the city since March 27, the number of worksites cleared to keep going has steadily grown. The city Department of Buildings launched an online map of projects deemed essential on April 3, showing about 400 active sites. By May 15 the total shot past 8,000.
The definition for essential construction has expanded to include work on projects that have already broken ground for essential businesses, such as grocery stores, restaurants, banks and hotels.
SL Green has continued the transit-related work at Grand Central Terminal for its 1 Vanderbilt office tower. SJP Properties received emergency work approval for its 52-story luxury condo tower on the Upper West Side.
Shopping local
For builders, the social distancing standards mean masks and gloves—not steel, glass and iron—are the most in-demand supplies.
"Not just masks, but thermometers and disinfectants," said Louis Coletti, president and CEO of the Building Trades Employers' Association, which represents union construction managers and contractors. "We are not waiting until we get the signal to open up to make sure the supplies are there."
Construction projects that started before the pandemic likely have their physical construction supplies ready to go, Coletti said. But disruption to the global markets could pinch projects once new construction starts. U.S. builders typically source at least 30% of materials from China, with some projects importing as much as 80%, according to figures from the engineering firm Atkins. With those supplies disrupted during the pandemic, construction sites increasingly will attempt to source materials locally.
But shopping local also appears to be extending to construction supplies.
At the Taystee Lab Building, a life sciences center under construction in Harlem, a new glass curtain wall will soon be installed across its 11-stories that was manufactured by Island Exterior on Long Island's North Fork. Buying local material helped avoid the threat of tariffs two years ago, said Jerry Salama, principal of Janus Property Group, the project's developer.
"There may be experienced construction managers, who have the resources and the contacts, who decide to avoid foreign purchasing in case it messes up the supply chain and development timeline," Salama said.
Where the buyers are
The skyline has been reshaped in recent years by two types of buildings: office towers and luxury high-rise condos. Serious doubts exist about whether either market can return soon.
More than 45 million square feet of new office space has been built in Manhattan alone since 2010, according to CBRE data. The construction was spurred by the rebuilding of the World Trade Center, an expansion west to Hudson Yards and a 2017 rezoning of Midtown East that paved the way for new skyscrapers in the city's central business district.
The companies that fill those buildings—paying rents that topped out at $50 per square foot last year—have spent the past three months learning how to work remotely. Barclays CEO Jes Staley said in a recent earnings call that headquarters with thousands of staffers "could be a thing of the past," one of several warnings from major corporate leaders that office demand could sink.
"There is going to be a reduction in office size for every company that has a lease coming up in the next two or three years," LePatner said.
Major landlords don't appear shaken just yet.
Vornado Realty Trust's CEO Steven Roth surprised some analysts this month when he said a new mega-office tower at the company's 350 Park Ave. property could break ground in three years, replacing a roughly 500,000-square-foot building with one up to 1.8 million square feet.
The real estate titan swatted away concerns about a widespread work-from-home movement.
"The reaction to 9/11 was nobody wanted to rent space in the upper reaches of buildings because it was dangerous," Roth said on an investor call. "And now the space that's the most valuable is the upper reaches of the buildings. So this will pass."
Construction industry experts interviewed by Crain's expressed greater concern for new towers in the luxury condo market. Tax changes and a glut of new supply had already slowed sales of the multimillion-dollar penthouses in super tall buildings before the pandemic. A StreetEasy report at the end of last year estimated that 25% of the 13,000 new condos built in the city since 2013 sat empty.
Coletti said he has already heard from developers rethinking condo plans to build rentals instead. He declined to say which companies.
Relief in infrastructure?
The city's real estate industry has joined the lobbying effort for a new federal rescue package that it hopes will spur more public-sector construction projects. Experts told Crain's they hoped a federal bill would seize on low-interest rates to fund construction efforts rivaling the New Deal. A moonshot package that includes funding for the Gateway program, a $54 billion MTA capital plan and a $40 billion backlog of city water main and sewer work could keep the industry afloat.
"How long have we been talking about rebuilding our infrastructure?" Coletti said. "Now is the time for the federal government to step up."
https://www.crainsnewyork.com/real-estate/construction-industry-ponders-how-keep-cranes-busy-post-pandemic-city?utm_source=morning-10-tuesday&utm_medium=email&utm_campaign=20200526&utm_content=article1-readmore
