In the 1970s, non-union construction constituted only about 10 percent of the work going on in New York. Little official data exists on the subject, but industry insiders agreed that the figure now hovers around 40 percent.
“There was a time where if you were operating in a heavily unionized environment, it was almost considered to be anti-American to go non-union,” Ross said. “That’s not really the case anymore.”
Toll Brothers senior vice president David Von Spreckelsen said his company likely would have gone union at Northside Piers if it made financial sense.
“The market had changed, and we had a sense of what we’d be able to sell the condos for,” he said. “It wasn’t a number that would work if we used union construction.”
At the New York University Schack Capital Markets Conference last month, Related Companies chairman Stephen Ross complained about the price of union construction.
“We can build the same building in Chicago at 50 percent of the cost in New York,” he said. “Working with the unions, it’s hard to compete with other parts of the country. The best thing that could happen to New York is it would become an open-shop town.”
Most onerous for developers, one real estate honcho said, is not the wages, but the work rules: prescribed lunch hours, coffee breaks, and safety measures that many developers view as excessive and a waste of time.
The expiration of the New York Plan affects future developments, not projects already under construction. But as the plan takes effect, more developers may opt to use a combination of union and non-union workers, as opposed to the “closed shop” the plan required, said Duane Morris’s Ross.
Coletti noted that many developers have pledged to continue using union labor. “Most of the developers we work with would go union with or without the plan,” he said, though he declined to identify the developers in question.
Another possible consequence of the plan’s expiration, however, is that it “may drive a wedge between the unions themselves,” said Ross, the attorney. Aside from dictating the exclusive use of union contractors, the plan specifically outlines which roles certain workers can carry out. Its expiration will allow certain workers, like carpenters or electricians, to dabble in other kinds of construction, introducing an element of competition that might not otherwise have existed.
Traditionally, one incentive for developers to hire union workers has been that they are viewed as more skilled than their non-union compatriots. Plus, “larger projects, with more mass, require the skill of union labor and a volume of workers that only the union can supply,” said attorney Morris Missry, chair of the real estate department at law firm Wachtel & Maysr.
But the gap between the skill sets of union and non-union workers may be closing. Duane Morris’s Ross said the recession and ensuing layoffs at unionized companies has allowed non-union contractors to hire skilled workers they wouldn’t normally have access to.
Fernandes said that isn’t a significant factor. Since the recession, “there are 25,000 fewer construction jobs in New York City,” he said. “[Laid-off workers] are not going to work for non-union employers. They’re unfortunately not going to work anywhere.”
He added that unions are working to become more financially competitive. At TF Cornerstone’s Queens West Long Island project, Fernandes said, his organization made a special deal with the developer to cut the union’s payroll costs by 20 percent.
TF Cornerstone did not respond to a request for comment.
Lending to survive
Union labor has a few more cards up its sleeve, however. The unions are sure to maintain their grip on the New York market for at least a few more years, sources said, because developers are increasingly turning to labor pension funds for project financing in the continuing credit crunch.
The Housing Investment Trust arm of AFL-CIO, a voluntary federation of 57 national and international labor unions nationwide, has invested over $700 million in the New York metro area through its initiatives since 2002, an AFL-CIO spokesperson told The Real Deal. The most recent investment was $134 million for the rehabilitation of the historic Penn South Cooperative in Manhattan.
And union financing almost always comes with the condition that the developer must use union labor. Sometimes the agreement is constituted by “a wink or a nod,” sources said; other times it’s in writing.
The fact that unions are acting as lenders provides an additional incentive for developers to use union labor.
“If they desire to organize themselves in a manner that can create a lending arm, then that can be a healthy model for them,” Missry said.