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November 14, 2008

The Future of Construction Costs?

carpenter-1108.jpgIn yesterday's Third & Bond post, the folks from Hudson Companies laid out several scenarios for construction costs could be impacted in the coming months by the evaporating pipeline of development projects. While they expected to see the cost of materials fall somewhat and the quality of work go up, they predicted that "prices won’t go into a free-fall." We heard an anecdote yesterday, however, that suggested otherwise: An architect told us that a contractor who had bid $1,750,000 for a job a few weeks ago just came back and lowered his bid by $150,000, or almost 10%. His logic? He'd rather give up his profit margin and be able to keep his team intact than not have enough work to keep his key people busy and fed. Are any readers in the midst of negotiating fees with general or sub contractors right now? What are you seeing?
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Posted by Brownstoner at 10:13 AM | Comments (20)
Categories: Development

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My wife's an architect and says that construction costs have gone up a great deal due to gas prices--the cost of materials is up due to transportation and the cost of running all of those diesel-guzzling bulldozers, etc is way up--but that lots of contractors are making huge cuts in prices in order to keep their businesses going. This is especially true for big projects that will last for a long time.

Posted by: shillstoner at November 14, 2008 10:36 AM

We're in the market to buy a fixer upper so really are curious about construction costs. I too had heard costs were up due to gas, but that was last summer. Does the plummeting cost of oil, coupled with weak economy, mean that construction costs are heading back down?

Posted by: Miss Muffett at November 14, 2008 10:59 AM

Common sense: Like the developments themselves, there'll be a glut of available contractors and materials that will compete downwards in price. Construction/renovation costs will plummet.

Posted by: DOW8000SP800 at November 14, 2008 11:07 AM


Contractors are quoting me higher prices than they did a few years ago, but not by that much, and the ones I use are still very busy.

I imagine it's the expensive "Park Avenue" contractors like the one Brownstoner refers to who pretend as if 1.6 million is just enough to cover costs, who've had to lower their previously insane prices to merely very expensive.

For 1.6 million my contractors could gut renovate a twenty unit tenement building.


Posted by: IronBalls at November 14, 2008 11:21 AM

Plummet? As far as GC's go, downward movement in price ends when one or more of the competing entities (gc's and/or their subs)is no longer solvent. While it is reasonable to expect operators to lower their margin expectations in order to stay in business there is a floor comprised of on-going obligations such as leased office space and equipment that at some point caps the reduction in management fees and material costs.

Posted by: ITM at November 14, 2008 11:26 AM

"...there is a floor comprised of on-going obligations such as leased office space and equipment that at some point caps the reduction in management fees and material costs."

Yeah, but that floor is sinking too. There's only one economy.

Posted by: DOW8000SP800 at November 14, 2008 11:41 AM

Gas prices have not "plummeted"--they are still WAY above what they were a year ago.

Posted by: shillstoner at November 14, 2008 11:46 AM

"Gas prices have not "plummeted"--they are still WAY above what they were a year ago."

A Asshat with a Metro Card!

I don't know what planet you are living on but construction costs are down. Contractors will work with you because the dynamics of the Mutant Asset Bubble has changed. Even Mexican are going back home. Real Estate is toast..

The What

Someday this war is gonna end...

Posted by: Return of The What at November 14, 2008 12:00 PM

"Gas prices have not 'plummeted'..."

I just bought gas for $2.50 at the BQE entrance near Flushing. I don't pay much attention to gas prices 'cause I only drive on the weekends but that's gotta be be a 40% hit. You're not serious.

Posted by: DOW8000SP800 at November 14, 2008 12:15 PM

DOW8000SP800 80% of the Asshats here do not own a car.

The What

Someday this war is gonna end...

Posted by: Return of The What at November 14, 2008 12:25 PM

Actually, 56% of readers who responded to last year's survey own a car. Or at least they did back then!

Posted by: brownstoner at November 14, 2008 1:53 PM

it is hilarious that the contractor says he will lower his price 10% as if that were his profit margin. Contractors in this city (especially the higher end ones)shoot for 50% profit. They still have a ways to go down before they are losing money on projects.

Posted by: jelly donut at November 14, 2008 2:32 PM

Re: price of oil - see NYT 2 days ago:

http://www.nytimes.com/2008/11/12/business/worldbusiness/12oil.html?scp=3&sq=oil%20price&st=cse

Oil has recently dropped from its high of $145 (in July) to $59/barrel. How is that not "plummeting"?

Posted by: Miss Muffett at November 14, 2008 2:39 PM

Prices will come down. How much depends on what happens with the economy in the next months. Most shops I know still have work from the overhang of a very busy summer. But everyone is looking to fill in scedules for the beginning of next year and there are fewer jobs out there. You should expect to negotiate a good discount if you're starting now, but I would be careful of huge price cuts as these are the companies that disapear and go out of business.

Posted by: nyurb at November 14, 2008 2:45 PM

Has anyone built a house from scratch in Brownstone Brooklyn. Would be interested to know what the cost difference is between renovating an existing building and building a house on a vacant lot.

Posted by: Boerum Hill at November 14, 2008 3:29 PM

Boerum Hill - I'd suggest asking the owners of 54 Butler St as they did just that. Although they had to demolish the existing house rather than just building from scratch on a vacant lot.

Posted by: 99luftballons at November 14, 2008 3:53 PM

Thanks 99 luftballoons.

Posted by: Boerum Hill at November 14, 2008 4:13 PM

What prevents a contractor from giving a low bid/estimate and then coming in 10% over budget. I expect you will see more of that than anything.

Posted by: boroughbred at November 14, 2008 4:39 PM

Nothing, boroughbred. But 10% would be welcome compared to what usually happens. But overruns were there during the market frenzy and they'll be there when the market finishes tanking. So really, they cancel out. Contract change orders are the name of the game for contractors.

Posted by: DOW8000SP800 at November 14, 2008 5:01 PM

Construction costs are already down. The price of steel coming in from China has taken a dive. I'm an architect and we were supposed to start construction this week and both the client and contractor have decided to put it on hold, wait until after new years to re-negotiate pricing with all the sub-contractors and move ahead saving a great deal of money.

Posted by: jesselise at November 14, 2008 5:50 PM

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