Developers whittling down the size of their projects are also cutting back on the little extras.
No developer admits sacrificing quality to save money, but one of the first places ripe for cost cutting remains expensive amenities, like rooftop cabanas and bowling alleys. The trend has been growing over the past year. Even pools and fitness centers may go.
“I think developers finally started to realize that we don’t need high common charges for all these silly, nonsensical amenities that we barely use,” said Luigi Rosabianca, a managing member of the law firm Rosabianca & Associates, which specializes in residential and commercial real estate. “For a developer, it’s always nice to maximize your square footage, and you can do that by eliminating that pool we only use twice a year.”
Shaun Osher, the founder and CEO of CORE Group Marketing, which handles new development marketing, said basic amenities will stand the test of time. But, he said, extraneous, spare-no-expense features will be the first to go.
“Anything that makes sense and adds value in a buyer’s mind should stay intact,” he said. “A lot of people have to have a doorman. Not a lot of people have to have a putting green on the roof. Amenities that never made sense before still don’t make sense, and the ones that always made sense will still make sense.”
However, for property developers who already have an offering plan, excising amenities isn’t a viable option.
“I think a lot of these amenities have been overblown,” said Andrew Gerringer, the executive vice president of the development marketing group at Prudential Douglas Elliman. “But if you have an offering plan out there, and if you’ve sold some units, you’d have some disgruntled purchasers if you went back and started pulling out some of the major amenities.”
Those developers may want to cut costs in the area of marketing and advertising, industry experts said.
For example, the developer of Tempo at 300 East 23rd Street recently paid $500,000 for a rotating hologram of the building to spur sales of the condo development’s 103 units, said one broker, who asked not to be identified.
“I wish he had paid off [the] mortgage instead of spending that money, because he’s not going to get any more sales from it,” said the broker. “Smoke and mirrors don’t sell apartments.”
Jeffrey Levine, the chairman of Douglaston Development, said certain types
of marketing spending will be discontinued, but the Internet will continue to be important.
“The lavish parties you saw for condominiums are a thing of the past,” he said. “I think marketing is changing as a result of the world we’re living in. Internet advertising and presence is critical.”
That doesn’t have to be expensive, he said. One cheap marketing tactic that got Douglaston’s Edge condo in Williamsburg publicity was the banner it hung from the site a few hours before the vice presidential debate last month. The banner, which read, “Sarah Palin, Live Here, See Wall Street,” played on the Republican vice presidential candidate’s statement that she was able to see Russia from Alaska.
“We were just being lighthearted about our political situation, but that had a huge Internet presence that caused buyers to come upon us,” Levine said.
Meanwhile, shaving rates for various professional services may be another way to save on development costs. And certain glamorous perks favored by developers in the latest boom, like the use of celebrity architects, will most likely be jettisoned.
“For the moment, the days of ‘starchitects’ may be behind us,” Levine said. “Obviously, grandiose schemes are a thing of the past.”
While some developers will be looking to cut costs wherever possible, others will take advantage of the new terrain, especially when it comes to dropping Manhattan land prices, Levine said.
“At a certain point, and that point is coming closer, these construction lenders, land-loan lenders and bridge-loan lenders, be they hedge funds or whatever, will be selling some of this land to get it off their books,” he said.
While they’re on the lookout for those opportunities, developers will also likely see their labor costs falling, Rosabianca said.
“Any time you’ve got some competition among people looking for work out there, I think your labor costs will come down a little bit,” he said.
Levine said that construction costs are already being reined in as contractors begin to work more efficiently.
“Obviously, the lack of bank financing has made all of the contractors very much aware of the fact that we may be looking at a dearth of new construction projects,” he said. “The intelligent contracting firms are working tighter to insure their workflow.”
For now, too, oil is 50 percent cheaper than it was a year ago, while many of the metals used in construction, such as copper, steel and aluminum, have become less expensive, Levine said.
“Nationally, the homebuilding industry went to hell in a handbasket a year ago, so there’s less demand,” he said. “As a result of that, prices for materials like the gypsum wall board and wood boarding materials have come down, too.”
But the cost of glass has increased steadily. That has prompted many New York City developers to modify plans for glass curtain walls, or drop them altogether. That move away from glass will also save developers from having to install expensive shades.
While Levine said he believes contractors and subcontractors have begun lowering their bids, Gary Barnett, the president of Extell Development Company, said he hasn’t yet experienced that.
“We haven’t seen any really sharp drop in construction costs right now, but we expect that to start happening as the contractors and subcontractors see the shortage of development going forward,” Barnett said. “There’s very little in the pipeline coming up in 2009.”