Third & Bond Blog
May 15, 2008
Inside Third & Bond: Week 37
We wanted to follow up on our interview with Jonathan Marvel last month with a posting about another key player in Third & Bond. I (Alison) pitched David on an interview with our expeditor but David thought “A Day in the Life of a Project Manager” would be a good idea. So…
What’s it like to be a project manager for the Hudson Companies?
For me, it is non-stop problem solving, decision-making, personality-soothing, and looking forward to wine-and-cheese hour on Friday afternoons. I have four projects all at different stages in the development process. In addition to Third & Bond, I have an affordable housing project in Far Rockaway that’s finishing up construction, a market rate project in Far Rockaway that’s in permitting, and a market rate project in Dingmans Ferry, PA that’s waiting on a storm water permit and a better market.
Most days it feels like I’m laying out a complicated maze of dominoes with the goal of tipping one and seeing them cascade in sequence. But just when I think I’m ready to tip – or some days just after I’ve tipped – I find out that the maze has to change. One day, we can schedule the test piles, the next day the Department of Buildings wants us to ask for an unheard of test pile permit. First we want nothing but aluminum windows with recycled content, next vinyl Energy Star windows are best. One day David likes his coffee black, the next day he only drinks herbal tea.
Seriously though, my job is to have a handle on the big picture and on the details that fall under my oversight. Big picture items I have my eye on today: how the permitting is progressing, whether the construction manager is buying out the job quickly enough and getting the right scope. Hudson’s Director of Architecture and Director of Construction, respectively, are tasked with seeing these items through day-to-day but in the end if they miss something, it’s on me. Details that I oversee include the financial analysis, bank loans and requisitions, the condo offering plan, all things green (LEED/Energy Star), marketing, neighbor relations, 421-a/taxes, overall coordination and anything that isn’t clearly on someone else’s plate.
Take my work today for example...
May 8, 2008
Inside Third & Bond: Week 36
The main event at Third & Bond this week is working on buy-outs. As we said last week, we need to get to 75% buy-outs to draw more than an initial $3M from our construction loan. Before we have buy-outs, we need enough bids to know what is a good price and then we need our CM to “beat up” the subs. Don’t worry, “beating up” takes place over the phone or in brightly lit conference rooms in which only egos get bruised.
Our buy-out issue of the week? Windows. Normally, we’d go with a high quality aluminum window. At J Condo, we went for triple-glazed to block the noise of the trains on the Manhattan Bridge. But we’re finding that the aluminum window bids are coming in 25% higher than what we budgeted. How did we under-budget by so much? Well, part of it was the NYSERDA Energy Star requirements and our goal of getting to be at least 20% more energy efficient than the standard, ASHRAE 90.1 2004. We had difficulty finding any aluminum windows that met the Energy Star rating, especially in terms of the thermal break. (Thermal break: Used to lessen or prevent the transfer of heat/cold between two surfaces—e.g., to keep the cold air outside from coming inside by traveling through a piece of metal that has surfaces both outdoors and indoors.) We considered using wood windows and cladding them in aluminum. That way we’d have our thermal break and low maintenance windows. The problem? Very, very expensive. It looked like we were at a dead end with the aluminum and the clad-wood windows so we went out on a limb and searched the Internet for vinyl windows.
May 1, 2008
Inside Third & Bond: Week 35
This week on Inside Third & Bond, the Hudson Companies folks provide a play-by-play look at how they got their $25 million loan.
Gloom and doom.
Now that we’ve gotten that out of the way… this week we want to celebrate our construction loan closing for Third & Bond. When we tell people that we’ve closed on a $25 million dollar loan, we get some slightly arched eyebrows like they can’t quite believe it. While terms are changing, banks are still in the business of lending and we took advantage of a long-standing track record with Wachovia to get the best deal we could find.
Not that we want it to sound too easy. After all, so many of our readers seem to love when we recite in painstaking detail all the tasks associated with the development process. (Biff, this one’s for you!)
Step one: Term sheet signed...
April 24, 2008
Inside Third & Bond: Week 34
Today the Third & Bond crew contemplates the financial impact of making, or not making, the 421-a deadline later this year.
With the flowers in bloom (tra-la-la) and sunny 70-degree days here at last, it finally feels like spring. In not too long the City’s 421-a office will start stamping applications, “rejected” and we’ll all know the last residential projects in brownstone Brooklyn to squeak through before the 421-a deadline. Although DOB is still sitting on our underpinning permit – making it impossible to pull the approved new building permits, we aren’t worried about missing the June 30th deadline (yet).
The 421-a abatement for this project means a considerable difference in taxes – our appraisal put the value of the abatement for the project as a whole at $2.7 million. For the buyer of a typical two-bedroom at Third & Bond, we estimate monthly taxes of $63. If the project did not have a 421-a exemption, monthly taxes would be more like $909, a whopping increase of $846/month.
Yikes, right?
If this buyer wanted or had to keep the same monthly carrying costs, then the price she would be willing to pay for the unit without 421-a tax abatement would be substantially less than for the same apartment with 421-a. In other words...
April 10, 2008
Inside Third & Bond: Week 32
What do you call someone who compiles and analyzes voluminous data of problematical accuracy from sources of dubious veracity and derives therefrom a numerical quantification of value commensurate with ambient configurations of the open market and promulgates thereby a precise written declamation which delineates his observation, deliberations and conclusions all done while he feigns absolute ignorance of the machinations of Buyers, Sellers, Brokers and Lenders, compensated only by that penurious stipend known as the professional fee?
An appraiser, of course!
Okay, so that joke, which we got from an appraiser humor website, would have gotten high-fives in an appraisal office but will probably earn us crabby comments here. Still, it’s an apt lead-in to this week’s topic of appraisals, something that ends up sounding much more complicated than it needs to be in part because of the layers of jargon that come along with it. It’s really pretty simple: the bank wants an independent opinion of the market value of the project they are lending money on and we want a high appraisal so the bank will lend us as much money as possible and we can spend our equity elsewhere.
It’s not quite white-knuckle time, but we are watchful of the appraisal inputs and outputs...
April 3, 2008
Inside Third & Bond: Week 31
We thought we’d take a break this week from the technical how-to-tell-a-helical-pile-from-a-wingnut discussion and offer something a little bit different: an interview with our architect, Jonathan Marvel of Rogers Marvel Architects.
Without the architect, every project would end up looking like the drawings 2nd graders tape to the front of the refrigerator: a window on each side of the door and a smoking chimney. The architecture team is absolutely essential to the project in ways that are completely unsung in this age of starchitects. Without the keen insight of the designers, our worst ideas would not be fettered out and without their unrelenting examination of every detail, even our best ideas would be rendered clumsy and unkempt in the physical form. Not to mention that they manage to make us feel like we have brilliant design ideas, despite a sneaking suspicion that they aren’t really our ideas at all.
For these postings to really capture what it’s like to be in development, you have to experience at least a little bit of what it’s like to work with a team of designers who have their own language and way of seeing the world—and whose livelihood depends on their ability to translate that back into the languages of business, community, and construction. The simplest way we could think of to share that experience with you was to pose some questions and let the architect speak for himself.
March 27, 2008
Inside Third & Bond: Week 30
This week the Hudson Companies bloggers tackle the topic of piles and realize that, lo and behold, they are about 1/3 of the way to the finish line!
Thirty weeks, dear readers, that’s how long you’ve been tagging along on this real estate venture. Thirty weeks of decisions, problem-solving, and money paid out. And not even a nail for the new building is on site yet. Yes, this is the glamorous world of development. And speaking of glamour, this week we continue our discussion on piles—those long, thin columns that keep buildings where they are supposed to be, like toothpicks through canapés.
Last week, we went over the foundation design decision process and left you with the “what kind of pile?” cliffhanger – gasp! As you’ll remember, there are a lot of different pile types. They’re like sports teams or little black sweaters or Democrats. They might seem identical but are actually very, very different. There are different ways to get piles into the ground, different ways that they support the weight of the structure, and different amounts supportable by a given pile type. There are also different materials. Here we’ll try to give you some basics – sure to make you a favorite at happy hour...
March 20, 2008
Inside Third & Bond: Week 29
Today, the Hudson Companies bloggers describe their efforts to get their foundation in before the 421-a deadline in June.
In building foundations, much like in people, there are two major categories: shallow and deep. Shallow foundations include slab on grade, spread footing, wall footing, and mat/raft foundations. Just imagine these as foundations that are poured concrete forming either a thick floor or thick walls and you’ll have the general idea. Deep foundations include piles and caissons. Here you can imagine a column of wood, concrete or steel that is driven into the ground and acts like stilts that go deep into the earth—that’s close enough for government blog work. Speaking of which (government), we have to get our piles going in order to meet the 421-a deadline of June 30, 2008 – and we have a ways yet to go.
Deciding what kind of foundation to use requires you know:
• Soil strength and stiffness
• Loads from the building (how heavy the stuff is pushing down on the ground)
• Neighboring conditions
• Foundation type best for all the above
Soil strength and stiffness: Some find borings boring but those people are fools. Understanding your soil is numero uno in knowing what kind of structure you can put on a site. Even if zoning permits you to build something, the soil has final say on whether it can be done (and for how much money and headache). Borings are taken by machines like the one pictured here.
They bore 100’or so into the earth and pull out long cylinders from which samples are taken at 5’ intervals. The sample depth is carefully recorded for each. The samples are then taken to a lab to be characterized: sandy, fill, gravel, peat, glacial rock, medium-bodied with hint of cherry and leather, etc.
March 13, 2008
Inside Third & Bond: Week 28
What is reputedly the most common cause for construction lawsuits in NYC? Underpinning woes. This week we are bringing the blog back to the physical development of the project with a look at what underpinning is and what underpinning we anticipate for Third & Bond.
If you google “underpinning” you are just as likely to end up with pictures of ladies in their undergarments as you are construction sites. To save you the embarrassment of an unintended nudie search (isn’t it enough that you read about Spitzer while at work?), we’ll explain the basics here. Underpinning is the process of strengthening foundations of an existing building. There are a couple of different reasons underpinning might be done; the most common for us is that we are excavating on our lot and that excavation will reach below the foundation of an adjacent building. Our excavation work could potentially destabilize the adjacent building’s foundations even though we are working solely on our property—the ground beneath the neighbor’s foundation doesn’t know about property lines and shifts as it likes.
March 6, 2008
Inside Third & Bond: Week 27
This week, the Hudson Companies bloggers turn their attention from waterproofing a neighbor's building post-demo (above) to consider the world of high-finance.
While most of the news from the financial world continues to be negative, in the world of real estate financing, there has been one bright spot amidst all the chatter about subprime loans, bad loans and “condo” becoming a bad word for lenders: interest rates. As we discussed back in week 14, most construction loans have an adjustable rate based on the LIBOR index. As of this past Tuesday, the rate was 3.08%. Next week, it could be 2.5% or 4%, the rate adjusts daily (every morning at 6 am) with no guarantees about where it’s headed. The construction lender, in this case Wachovia, adds its spread to the LIBOR index to calculate the full interest rate we pay. A standard spread in today’s world is 250 basis points (aka 2.5%). The spread is meant to account for the bank’s risk and profit in lending on the project, and spreads are rising. If we close on our $25 million construction loan today (we’re aiming to close in the next 30 days), we’d be paying approximately 5.58% interest on the funds outstanding as long as LIBOR stays at 3.08%.
When we take a broad view of everything we do as developers, we’re conscious of the incredible risks to which we’re vulnerable: the risk of the sales market, construction cost inflation, interest rate risk, environmental risk, etc, etc. Any one factor can upend a project whether it’s the price of condos, the price of raw materials, high interest rates, terrorism, fear of terrorism, you name it. If we can mitigate our risk in any way, it’s one less thing to worry about at night. So even when interest rates are looking favorable, we have a debate on every project regarding whether we should “swap” our floating interest rate to a fixed rate in order to give us some peace of mind and offer some certainty about what our interest rates will be during construction.
Here’s where it gets fun...