Market prompts contractors to drop prices

Nov.November 07, 2008 03:12 PM

Developers squeezed by high borrowing costs and low sales prices are getting a break these days from contractors and subcontractors, who are dropping prices by as much as a third as jobs are canceled and material prices fall, local industry members said.

The decline comes as a relief to builders who have been strapped for cash since a worldwide demand for building materials, such as steel and concrete, pushed up construction costs.

Kevin Comer, senior managing director with developer Beck Street Capital, said there was a 37 percent decline between an $8 million construction cost estimate his firm was given a year ago for a Flatiron District office rehabilitation project, and the final $5 million in contracts signed over the past month.

Price slashing is not a boon for contractors and subcontractors who have been hurt by a drop in job volume due to a tight credit market and an overall weak economy.

“It used to be contractors and subs [short for subcontractors] looked out 18 to 24 months and they had a full pipeline. Now what is happening is work they thought they were doing next year was pulled. We are seeing across the board general contractors and subs for the first time in a year saying, ‘We really need this job,'” he said.

Louis Coletti, president and chief executive officer of the Building Trades Employers’ Association, which represents union contractors in New York City, said that in the last week of October he received about a half-dozen calls from members who said they had had a project canceled, compared to about one a week in weeks prior.

“I had a call from one member who said he had four jobs canceled worth about $2 billion dollars,” Coletti said. He declined to identify the contractor.

Ron Berger, executive director of the Manhattan-based Subcontractors Trade Association, said its New York metro area members should be cautious about lowering prices, as they could easily rise again.

Jerome Rosenberg, president of Brooklyn-based J.J. Rosenberg Electrical Contractors, said the firm had dropped prices about 10 percent compared to a year ago. The company, with revenues of about $15 million a year, could reduce costs in part because of lower copper prices, which have fallen by about 25 percent from prices a year ago, he said.

Steel prices are down 1.5 percent this month, but are up 18.9 percent for the year, according to the McGraw Hill construction trade magazine Engineering News-Record.

Materials are only part of the cost analysis for contractors and subcontractors.

“Material prices have gone down, but as far as labor, it is very difficult,” Rosenberg said. “Your overhead stays the same. We are taking a bit of a lower profit margin.”

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