The Real Deal New York

A storm’s silver lining?

Sandy’s devastation could bring a boom to the construction and real estate industry

December 01, 2012
By C.J. Hughes

Mayor Bloomberg surveying Sandy destruction in the wake of the storm

President Obama touring storm damage on Staten Island last month.

The New York City area is very much still in recovery mode from Superstorm Sandy, which devastated the city and its suburbs in late October.

Debris is still being cleaned. Public transportation is not yet fully restored. And as of press time, many were still homeless. Plus a pall of mourning is present for the nearly 100 people who died from the disaster, many by drowning in their basements.

Yet the deadly storm has a scrap of a silver lining for the real estate industry. That’s because rebuilding after the hurricane — not to mention preparing for future mega-storms — will require an effort of Marshall Plan proportions.

That effort, which is expected to run into the tens of billions of dollars, could have benefits across the board for the real estate industry, from the developers who are being brought in to reimagine new infrastructure to the contractors who will nail together the boards to the brokers who will be involved in relocating homeowners and tenants.

“Our building industry, our landscaping industry, our retrofitting industry … they will have work for the next decade,” said Ron Shiffman, a professor of urban planning at the Pratt Institute and a former member of the City Planning Commission. “If we really take seriously the lessons of Sandy, it will kick-start a whole new economy.”

Of course, not all of the real estate industry is feeling rosy — many landlords are still grappling with office and apartment buildings that have mechanical systems destroyed by flooding (see related story, “Landlord losses”). But there is a consensus that a storm that so severely damaged, flattened or wiped out entire communities can’t help but stimulate the building and development businesses.

The Bloomberg administration had already spent $150 million or so on storm cleanup and meals through the middle of last month. And while many are reluctant to publicly comment on the upside of the storm, more state and city funds are likely to be available soon, much of it flowing into the hands of the real estate and construction industries.

“The construction industry is 10 percent of the GDP, so this is going to affect a wide spectrum of people,” said attorney Sarah Biser, who heads up the construction group at law firm McCarter & English. “Everybody in the food chain is going to benefit.”

A stretch of destroyed retail on Rockaway Beach Boulevard in Queens.

First wave of repairs

Many of the initial post-storm construction jobs were handled by the city.

The city’s initial $150 million layout included about $22 million to the Department of Transportation. That money went to repair the Battery Park Underpass, the mini-tunnel at the tip of Lower Manhattan that connects the East and West sides, and to fix the Whitehall and St. George Staten Island ferry terminals, including damage to the electrical systems that lift the boats’ ramps.

The city has also set aside another $500 million for repairs to the 23 damaged schools and the hospitals and health care facilities that were hit, including NYU Langone Medical Center on First Avenue in Murray Hill and nearby Bellevue Hospital, which took on 17 million gallons of water, according to news reports. Both had to evacuate patients because of severe flooding.

A spokesman for NYU Langone, which is estimated to have suffered as much as $1 billion in damage, did not return a call for comment.

Fixing those health care facilities will no doubt create construction and real estate jobs.

There will also be openings for construction firms through NYC Rapid Repairs. The new $500 million program, which is a joint effort between the city and the Federal Emergency Management Agency, is an attempt to ease the burden of the rebuilding process by paying for the cost of repairs.

To curb fraud, homeowners first must qualify and register with FEMA, through the website, disasterassistance.gov. By Thanksgiving, 6,000 New Yorkers had done so, city officials said. (The program is targeted to fixing homes that have not seen severe structural damage — the 891 buildings and homes that have been slapped with “red tags” by the city’s Department of Buildings, indicating they are currently not safe to enter, are off-limits.)

Brad Gair, who Bloomberg appointed as Director of Housing Recovery Operations after the storm, said the program was key to getting people back in their homes.

“One way to limit the number of temporary housing needed is to get homeowners back in the places they already live — this program will let us do that quickly and efficiently,” Gair said in a news release.

Tishman Construction was selected by the city to conduct “assessment” visits with qualified owners. By Thanksgiving, 134 Tishman-led teams, including carpenters, electricians and plumbers, had performed assessments at 1,700 houses, according to Bloomberg’s office.

Tishman is being compensated for the work by the city, a source confirmed, but the exact amount is unknown. After Tishman’s assessment, a city-provided contracting team will make the necessary repairs, though the city has not yet selected which private construction firms will be brought on to do that work.

In the middle of last month, it put out a call for interested firms to submit proposals. Nine proposals have been submitted, including from Turner Construction Company, Skanska, Sciame, Tutor Perini Corporation and E. W. Howell, according to sources close to the process. Between six and eight firms will be selected, sources said.

City officials had actually expected to receive more submissions — around 15, said Louis Coletti, president of the construction trade group Building Trades Employers’ Association of New York City.

“The interest is not as high as the city thought it would be,” said Coletti, who has spoken to the mayor’s office about the plan.

Governor Cuomo unloading water for storm victims.

The mayor’s office didn’t return several requests for comment.

One concern that construction firms have is that the city will not pay the repair teams a competitive wage, Coletti explained. And it’s not like those companies are hurting for work — landlords in Lower Manhattan have them working round the clock to repair their damaged buildings, Coletti said.

But while interest may have been somewhat weak among general contracting firms, it’s been robust among subcontractors, who’ve also been encouraged to sign up for the Rapid Repairs program, Coletti said.

Indeed, 1,800 members from the BTEA had registered with the city as of the fourth week of last month, Coletti said; plus, another 1,500 companies who are not members had signed up through a website set up by the association.

Meanwhile, the DOB announced last month that it will raze 200 unsalvageable (and dangerous) red-tagged homes in hard-hit parts of Queens, Staten Island and the Bronx. And, the agency said, another 500 could come down later.

If New York or other states decide that hard-hit areas are too vulnerable — consider that Breezy Point in the Rockaways,  which sits on a narrow spit of land and which has lost 110 of the 200 homes destroyed citywide — it could pursue the somewhat radical action of preventing homeowners from rebuilding. However, any move like that is bound to be highly controversial, analysts said, and it remains unclear how homeowners would be compensated.

In that sense, there could be thousands of displaced people in need of housing with money to pay for it, a situation that could have direct upsides for the real estate industry, sources said, though likely not immediately.

In addition, huge strips of the boardwalks in Queens and Brooklyn were ripped apart by Sandy and need to be replaced. For example, retail businesses like Tatiana, a popular Brighton Beach restaurant, lost its façade. And famed hotdog mainstay Nathan’s in Coney Island is closed until the damage it sustained is repaired.

 

An overview of the 110 Breezy Point homes that burned down during the storm.

Picking up the pieces

Some homeowners will, of course, stay and rebuild, like in New York’s hard-hit outer boroughs and in the coastline communities of neighboring states.

Perry Scarinni, a homebuilder based in Holmdel, N.J., said he had three times more business last month than he usually has in November. In waterfront communities like Monmouth Beach and Sea Bright, where the Atlantic breached a sea wall of 15 feet, Scarinni has already repaired dozens of homes, he said.

His jobs — which have required removing soggy and (possibly contaminated) dry wall, ripping out wood flooring and, in some cases, reducing a house to its framing — pay between $3,000 and $5,000, though other builders are charging $10,000 a house. Since most homeowners have not yet received insurance money to cover their losses, many are paying out of pocket, hoping they’ll be reimbursed later, Scarinni added.

A large portion of insurance proceeds — which FEMA caps at $250,000 for flood repairs, plus another $100,000 for water-damaged belongings — will likely be spent on contractors like Scarinni, meaning that more work will undoubtedly be directed their way. That’s because many lenders, in order to protect their investment, hang onto insurance payouts until a house is repaired, tucking the money into an escrow account.

In other words, homeowners can’t just pocket a check and retire to Mexico. Lenders “don’t want the market to crash,” Scarinni said.

Economists say these types of construction jobs go a long way toward stimulating the economy. They typically pay better than other blue-collar jobs and also typically lead to spending on building materials at stores like Lowe’s and Home Depot — a trend that rating agency Moody’s projects will give a slight bump to the national economy by early next year.

And Scarinni, like others, said the rebuilding effort hasn’t even begun in earnest. Once it does, it will be massive, he said, noting that there might be a shortage of contractors to go around.

That sentiment is echoed by Donna Olshan, owner of Olshan Realty, a luxury real estate brokerage in Manhattan (see related story, “Brokering after Sandy”). She’s worried about the heating systems in many high-rise condos and co-ops that Sandy rendered useless.

Not only do to those industrial-grade boilers need to be manufactured, specialists need to be found to install them. As a result, anybody in that line of work will likely be busy for months.

Lawyers, too, say legal services will be required, especially if there’s a rush to rebuild. “When things are done quickly, there are usually lawsuits,” Biser said.

As of late last month, two lawsuits had been filed by residents for negligence at a pair of Lower Manhattan apartment buildings: 88 Greenwich Street, a 452-unit condo, and 2 Gold Street, a rental owned by TF Cornerstone.

The big prize

The big prize for real estate industry players will likely be found in sweeping infrastructure projects, like seals for subway entrances, say, or new types of bulkheads to lessen the blow of future surges.

But the amount of work for those types of projects won’t be known in a couple of months. Gov. Andrew Cuomo has requested $42 billion in federal aid for New York State, including $7 billion for the bridges, tunnels and rail tracks used by the subway system, Metro-North Railroad and Long Island Rail Road. The governor also wants $9 billion of the total to be spent on building protective infrastructure for future storms.

Meanwhile, of the $42 billion in state aid, Bloomberg is seeking $15 billion for the city.

Politicians in Washington will need to approve the relief money before anything happens. But there is some confidence that a huge chunk of change will wind up here.

Under the federal Stafford Act, Washington usually covers up to 75 percent of the cost of storm-damaged infrastructure like roads and power lines. And that largesse is freed up when a President declares a federal disaster area, which has already happened.

Meanwhile, New Jersey’s Gov. Chris Christie has requested $37 billion in federal aid for rebuilding efforts in his state, which lost boardwalks, amusement parks, dunes, roads and homes.

Separately, city council speaker Christine Quinn, an expected mayoral candidate, has called for possibly building a storm-surge barrier across the city’s harbor, to block future storms from flooding the city.

The barrier might cost $16 billion, she said in a speech last month. Much of the work that would go into building such a barrier would probably be performed by the Army Corps of Engineers, but there would be ancillary jobs created for builders, designers and engineers.

Architect Lance Jay Brown, a disaster relief specialist, said if 2011’s Tropical Storm Irene was a wake-up call, Sandy should be a call to action. He expects the response to be similar to what happened in New York in the early 1800s, when a fire destroyed Lower Manhattan. In its wake, fire codes were established, which led to the manufacturing and installation of fire escapes, creating a new industry.

Many expect Sandy to also lead to changes in building codes, particularly when it comes to whether mechanical systems will be permitted in basements.

“The evolution starts off with a crisis, but slowly gets normalized,” Brown said, adding, in terms of its effect on the region’s built environment, “I think this will have greater longevity than 9-11.”

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