NYC construction costs rising again

Construction costs jumped as much as 2.68% last year and are on track to rise as much as 2.86% this quarter; labor rates in city projects account for up to 60% of building expenses.

Construction costs in New York City are rising again, following a recession-driven drop in 2009, according to a review of several surveys by the New York Building Congress.

Average construction costs rose between 0.54% and 2.68% in 2010, according to the Rider Levett Bucknall survey and the Engineering News-Record's Building Cost Index, respectively. Both surveys predict that costs will continue to increase in the first quarter of 2011, by 0.76%, and 2.86%, respectively.

“Costs are now creeping up again,” said Richard Anderson, president of the Building Congress. This is a reversal from a decrease in construction costs in 2009, which was explained mostly by the national recession and a steep drop in residential and commercial construction. Last year's cost increases, as well as those anticipated for the first quarter of 2011 are still far below those of 2007 and 2008, when costs soared at an annual rate of around 12%.

The Building Cost Index bases its numbers on New York City's prices for lumber the most common type of cement, the national price for structural steel and NYC union wages, plus fringes for carpenters, bricklayers and iron workers. The RLB survey also includes estimates of bid price changes, including overhead and profit.

Mr. Anderson attributed the increase in construction costs to the healthy construction activity level in the public sector. He noted that there has been too little activity in the residential and commercial sectors to see a significant increase there.

The Building Congress also found that New York City construction workers continue to earn considerably higher wages and benefit packages than their counterparts in other major U.S. cities.

Electricians in New York City, for example, earn $83.81 per hour in wages and fringe benefits in the city, compared to $73.08 in Philadelphia, the second highest in terms of compensation. Plumbers in the city earned $84.37 per hour in wage and benefits, followed by Boston at $68.20. Labor rates in New York City account for 50% to 60% of building expenses.

“They're just a large proportion of project costs,” said Mr. Anderson. “The cost of unionized workers in the city is superior to any other city in the U.S.” He noted that even as construction costs dropped in 2009, the cost of unionized workers didn't decrease because they were working under existing contracts.

Story by Marine Cole / Crain's New York Business
March 28, 2011

New York Construction Company files for Chapter 11

After pleading guilty to a bid-rigging scheme in the late 1990s, interior construction company Lehr Construction Corp. is again the subject of a state investigation into the alleged illegal activities of the interior construction industry as a whole. Citing the ongoing investigation and the continuing struggles of the real estate market, Lehr has been forced to file for Chapter 11 bankruptcy protection in order to protect its clients and subcontractors and to finish current projects.

Lehr Construction is a New York City-based interior construction company that was established over 30 years ago. Now, it has filed for bankruptcy in the face of $18.5 million in unsecured claims, with creditors including Capitol One Bank and several New York subcontractors, including Manhattan-based Superior Acoustics Inc. and Robert B. Samuels Inc.

According to a spokeswoman for the company, Lehr executives had those subcontractors in mind when it made the decision to file for bankruptcy. In a statement, the spokeswoman said that the Chapter 11 filing is intended "to protect the company's clients and subcontractors and give them the ability to complete all the projects the firm is committed to, on time and on budget."

Lehr Construction is certainly not the only business of its kind that has been forced to file for bankruptcy because of the recession. The continuing decline of the real estate market and the tightening of the credit market has forced many construction companies into deep debt and bankruptcy. In addition, an ongoing investigation into the interior construction industry has made Lehr the subject of some bad press, which has undoubtedly hurt its already struggling business.

Posted by the Law Offices of Joseph C. Perez
http://www.bronxbankruptcyblog.com