When work stops, costs don’t

Developers' bills mount with intensifying safety crackdowns

Apr.April 29, 2008 02:21 PM

As construction safety becomes an increasing priority, building contractors and developers throughout the five boroughs are feeling the effects of the city’s recent inspection crackdown in their wallets.

Industry experts say the multi-day or multi-week work stoppages that sometimes follow an inspection can cost a developer or contractor millions of dollars in loan interest payments, rental costs of machinery and lost labor. And now, after several high-profile accidents — including the East Side crane collapse that killed seven people in March — and the resignation of the Department of Buildings’ commissioner, Patricia Lancaster, last month, the crackdown is likely to intensify.

Days after stepping in, Robert LiMandri, who was named acting buildings commissioner in the wake of Lancaster’s departure, said the city is prepared to
issue more stop-work orders if necessary.

“If safety rules are not observed and sites are unsafe, our inspectors are prepared to stop work until the sites are made safe. … Nothing gets an owner’s attention like a stop-work order, as the cost of construction delays can run into the tens of thousands of dollars per day,” LiMandri said during testimony to an Assembly committee.

Last year, construction sites throughout the city got slapped with 9,929 full and partial stop-work orders. That was up from 6,829 in 2006 and 3,319 in 2005, according to data from the DOB. Meanwhile, so far this year, 13 people have died in city construction accidents, including at sites like the crane collapse and the Trump Soho building, where a worker fell 42 stories to his death after a concrete molding collapsed. Those casualties compare to 12 in all of 2007.

The Trump Soho project was shut down for six weeks until the DOB partially lifted the stop-work order on Feb. 21. The partial stop-work order was still in effect at press time, according to the agency.

While there seems to be a consensus that more needs to be done to stem accidents and beef up safety, especially with so much building going on throughout the city, stop-work orders can lead to mounting bills. Contractors can face financial penalties from developers if their schedules are pushed back, and for developers, a delay in a project could mean missing their target market.

“We’re struggling to get our arms around this process because we’re all focused on the same goal [of safety], but the financial consequences and the time it takes to address the remedies for a particular stop-work order have tremendous financial implications,” said Louis Coletti, the president of the Building Trades Employers’ Association.

To put an actual price on the cost of a stop-work order depends on a host of factors, including how long the suspension is in effect, how far along the project is, how much of the construction loan has been drawn down and the kind of interest costs a site is carrying, explained Marolyn Davenport, a senior vice president at the Real Estate Board of New York.

“It could be $15,000 a day, or it could be almost $1 million a day for a really large site,” Davenport said. “It’s a huge variation. It’s just impossible to quantify.”

The DOB has hired nearly 150 new inspectors in the last six years. In fiscal year 2008, there are 426 budgeted inspectors, up from 278 in 2002. According to LiMandri’s Assembly testimony, by the end of the year, all inspectors will have hand-held computers with access to property information, including a history of violations.

Joel Klein, a developer in Williamsburg, recently discovered that if a project is delayed for an extended period of time, interest on loans starts to get expensive.

Klein said last year, the DOB approved a design for a seven-story Williamsburg condo project he was involved in, but that a department inspector later rejected the plan when he toured the site. The original design called for the building to rise 70 feet from the street without a setback, but, according to Klein, the department decided it needed a 10-foot setback from the street, or the building had to nix its seventh floor.

Klein said the eight-month stop-work order, which went into effect when the project was 70 percent complete, cost $1 million in loan interest costs. He said the two sides struck a deal that made no major changes to the original design.

The bank, Klein said, was “very upset.” Also, the project was hurt because it ended up hitting the market at a weaker time. “It was the best time of the market for Williamsburg, but now it’s not,” said Klein, who declined to specify the address of the building.

David Schwartz, principal of a local development firm in Williamsburg and a colleague of Klein’s, said he understands the need to put a hold on construction sometimes, but that getting things back on track can be frustrating and costly. “Everyone can understand safety, but it’s not always safety,” Schwartz said. “There’s definitely a need for [stop-work orders] to make sure that people are following the rules. My only gripe is getting them to come back once it’s fixed.”

Schwartz said he was working on a new 30-unit condo in Williamsburg last summer when a stop-work order over a building code discrepancy prompted a three-and-a-half-week halt in construction. He said he submitted and got approval for an underpinning plan, or the explanation for how his project would stabilize neighboring buildings during construction. But when construction began, the department changed procedures, and an inspector wanted more detail.

“We were able to update the drawings within a few days, but because there are only so many building inspectors, it took three and a half weeks to get them out again,” he said.

Coletti said what is most confusing to the industry are the discrepancies over why the stoppages are issued and the time it takes to get them lifted. “Right now, what seems to be going on is clearly, when there’s a safety violation, the Buildings Department issues stop-work orders. [But] there are times stop-work orders are administered for administrative reasons,” Coletti said.

Industry leaders said it’s not the violations that upset them; it’s the time it takes for inspectors to return to the site and lift them. Currently, representatives from the industry, including Davenport, are in talks with the city to draft standardized procedures for lifting stop-work orders.

Davenport said the process is laden with paperwork and is “very cumbersome.” Oftentimes, she said, a stop-work order is lifted but then put back in place or not updated in the computer system right away, leaving the construction site in limbo.

“The lack of standard procedures for getting a stop-work order lifted is a problem,” she said. “No one knows exactly what the procedures are, and they change from one project to the next. Papers get lost.”

A spokesperson for DOB, Kate Lindquist, said, “The department issues stop-work orders when safety hazards pose dangers to the workers and the public. Contractors can avoid stop-work orders by prioritizing safety instead of ignoring it.”

Meanwhile, developers said one of the biggest problems they face when slapped with a stop-work order is the threat of missing their target market. “We haven’t yet seen the depth of some of the problems in the housing market that are occurring in other parts of the country, but who’s to say that we won’t?” Coletti said. “All of that becomes critical to the timing of when a developer knows his project will be completed and when he can start renting or selling those units.”

Other problems arise when workers, sent home after a site is shut down, find work elsewhere the next day. Coletti said once the order is lifted, new workers must be trained for the project.

Industry experts said there are too many moving parts to prevent work stoppages and that many construction budgets leave wiggle room. But while developers work some of those possible costs into their budgets, it is impossible to predict the future, said Richard Anderson, president of the New York Building Congress.

“There are contingencies built in, but construction can be quite unpredictable,” he explained. “Some of the accidents we’ve had in the last few months have been extraordinary, and there’s no way you can price that in. If you price that into every job, a lot of construction would not be undertaken.”


Related Articles

arrow_forward_ios
Matt Lauer exposes Hamptons estate to the market
Matt Lauer exposes Hamptons estate to the market
Matt Lauer exposes Hamptons estate to the market
 Fredrik Eklund and the property (Getty, Steve Frankel)
Fredrik Eklund lists Bel Air mansion for rent as family moves to “forever home”
Fredrik Eklund lists Bel Air mansion for rent as family moves to “forever home”
Gordon Ramsey and his Lucky Cat restaurant (Lucky Cat)
Gordon Ramsay to open first South Florida restaurant in Miami Beach
Gordon Ramsay to open first South Florida restaurant in Miami Beach
Douglas Elliman's Scott Durkin and Howard Lorber (Douglas Elliman, iStock)
Elliman says it will cover abortion-related travel
Elliman says it will cover abortion-related travel
Peloton's Barry McCarthy, Hudson Commons (Peleton, Hudson Commons, iStock)
Peloton resorts to sublease at Hudson Commons
Peloton resorts to sublease at Hudson Commons
Gov. Kathy Hochul (Photo by Sasha Maslov)
At REBNY gala, Hochul pledges to “support” real estate
At REBNY gala, Hochul pledges to “support” real estate
Times Square Old Navy at 1516 Broadway (LoopNet, iStock)
Times Square Old Navy to reopen after losing rent fight
Times Square Old Navy to reopen after losing rent fight
From left: Alice Technologies founder and CEO René Morkos; Join CEO Andrew Zukoski (LinkedIn/René Morkos, LinkedIn/ Andrew Zukoski, iStock)
Construction tech startups Alice, Join score new commitments
Construction tech startups Alice, Join score new commitments
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...