From left: Nicholas Ricci, Daniel Kozlov, Eric Liftin, Mark Martinez, Paul Barnla, Robert Didier and Justin Korhammer
New York City homeowners are doing far fewer gut renovations than in the past. Instead, many are opting for cheaper cosmetic upgrades like refinishing floors, installing new appliances and replacing countertops.
In this month’s Q&A, The Real Deal talked to residential contractors and architects about what kind of activity they’re seeing in the home renovation business in the city, given the touch-and-go economy.
Many said that while the wealthiest of clients are still breaking down walls, most others are sticking to kitchens, bathrooms and surface-level fixes. The one exception is for price-conscious young families that are leaving Manhattan for cheaper, farther-flung neighborhoods in Brooklyn and Queens, where they’re buying old, dilapidated homes and buildings as fixer-uppers.
With less overall activity in the marketplace, prices have come down. While that might be good for homeowners, it’s putting a squeeze on many contractors. Those contractors say they are losing business to inferior and underqualified competitors who are dropping their prices too low. One contractor went so far as to say, “It’s destroying our industry.”
Still, some said they have seen an uptick in the New York City residential remodeling world more recently, especially among clients in the finance industry who want upgrades to already high-end apartments or vacation homes in Westchester, the Hamptons and elsewhere. They say that a backlog of homeowners who were hungry to do renovations, but held off until the New York economy stabilized, has recently been unleashed. And they note that despite the wild stock market swings last month, they expect things to continue on that course — unless the Dow drops below, say, 10,000.
For more on what kinds of remodeling jobs are most and least prevalent, as well as how construction materials are being used on renovation projects today and how contractors have accelerated their building time lines, we turn to our panel of experts.
Nicholas Ricci
owner/president, Professional Services Inc.
What’s the market for home renovations like in NYC right now, given the overall economy? Are there more or fewer homeowners renovating than there were a year ago, two years ago and during the boom?
The market for higher-end-type renovation work has shrunk drastically. There are far less home and apartment owners remodeling or renovating than there were even a year ago, and even a larger gap than those who were renovating two years ago.
As a contractor, what kinds of renovations would you say are most typical these days for homeowners in NYC?
Kitchens and bathrooms are still No. 1. It used to be complete renovation projects as No. 2 — but not anymore. Now, it’s painting, floor refinishing, replacing moldings and trim, new flooring, new countertops, new appliances and new vanities. There are nowhere near as many complete renovation projects as in the past.
Are homeowners using cheaper materials than they were in the past to save money?
No one is really using less costly materials. This is not where the real cost of renovating is. The real cost is the labor.
NYC real estate brokers often talk about how much resale value can be added to a property by renovating/upgrading the kitchens and bathrooms. Are homeowners less likely to do that now because their faith in the market has changed?
Although you hear brokers talking about adding resale value to a property by redoing bathrooms and kitchens, the truth is that anyone looking to buy something has their own taste and really doesn’t care that a bathroom or kitchen has been renovated recently. It may help in making the final decision to purchase simply because the bathroom or kitchen is in better shape, but it really doesn’t add value to the property.
How has the price for home renovations changed for contractors in NYC?
Pricing this year is way down compared to last year and tremendously down compared to five years ago for the average contractor. We lose projects to less qualified and/or experienced companies all the time. We simply cannot lower our pricing just because we are competing against inferior companies who will tell their prospective clients anything and charge them anything, just to win their job. This is a serious problem. Only a wise consumer will select the true professional over the cheaper contractor. It is very frustrating.
What kinds of clients are most likely to renovate today — new homeowners, or sellers preparing their apartments for the market?
New homeowners for sure. … Sellers have no interest in fixing things up. They have no interest in spending a dime in order to try and sell. They simply will sell it as is and get as much as they can.
What is the most challenging aspect of dealing with home renovations in New York today in light of the economy?
Again, the fact that all homeowners are getting so many estimates and for the most part selecting those companies with the lowest bid. This is a very sad situation and is destroying our industry. The average contractor is really a handyman or has worked for someone in the industry for a few years. It’s very easy to get a home improvement contractor’s license by going to the Department of Consumer Affairs and taking a 30-question, multiple-choice test. [These contractors] are all aware of what everybody else is charging and they want to get their foot in the door.
Daniel Kozlov
project manager, New York Modern Interiors LLC
What’s the market for home renovations like in NYC right now?
The market for home renovations has always been very sectioned off between different scope and price levels of work. Today, on the residential side, we see many of the specialists seeking out business in different niches. [That’s because] many [companies] went out of business. Many big guys [now] take on smaller projects to keep busy.
What’s the most challenging aspect of dealing with home renovations in New York today in light of the economy?
Many desperate-or-not professional contractors are trying to get into the jobs at unrealistically low prices. Many times, the hardest part is convincing homeowners that price is not everything and quality cannot be compromised.
What are the most surprising trends in home renovations in New York today?
Many wealthy clients who continue to purchase luxury properties in Manhattan, the Hamptons, Westchester and other places [are still] performing high-end renovations.
Eric Liftin
owner/founder, MESH Architectures
As an architect, what are you seeing in terms of activity in the home renovations market in New York?
There are certainly fewer renovation projects going on now than there were during the peak, three or four years ago. Activity has been steady at this lower level during the recession.
Are New Yorkers more or less likely to use an architect to complete a home renovation in this still economically uncertain climate compared to a year ago, two years ago and during the boom?
It depends on the size of the project. A larger project requires more vision, more coordination, and filing with the Department of Buildings. As homeowners and homebuyers have scaled back in the last few years, projects have become smaller, sometimes to the point where we say, “You don’t necessarily need an architect to do this work.”
Are gut renovations more or less frequent today than they were a year ago, two years ago and during the boom?
These times are encouraging families to venture farther into Brooklyn and Queens, and these properties typically need a complete rehab. These areas — East Williamsburg, Prospect Heights, Gowanus — are full of old garages, and people love the value proposition of creating a new home from a crumbling old shell. So we’re still transforming dilapidated brownstones into modern homes. But budgets have tightened up, of course.
Are homeowners using cheaper materials, like lower grades of granite for countertops, than they were in the past?
No. The difference between good-quality materials and cheap ones is relatively small, on the scale of a full project.
Is it a faster or slower process for homeowners to get contractors started these days, given the economy?
Contractors have less work and are easier to engage than a few years ago. The real delays, however, are due to the Department of Buildings. Everyone agrees that DOB’s review procedures for basic jobs has taken on Soviet proportions. Regulations have become punitive and are being enforced — often mis-enforced — by examiners who fear for their positions. There are no more routine approvals for straightforward work, and this process is usually the last barrier to beginning work.
How has the price for home renovations changed in New York compared to a year ago, two years ago and during the boom?
The price of materials has gone up with the cost increases in energy and other resources. The recession has not pushed down costs. Contractors are more willing to negotiate, so overall costs have not shot up significantly. This is a fact of life in New York: Even in a recession, the cost of services does not go down appreciably.
What kinds of clients are most likely to renovate today — new homeowners or sellers?
I don’t see clients who are renovating to sell, and I wouldn’t encourage people to do that under most circumstances. Nobody in New York likes to pay for other people’s renovations. You are betting that you’re going to nail the taste of your buyer.
Mark Martinez
president, Interior Management
As a contractor, what are you seeing in the market for home renovations in NYC?
Right now there’s a lot of activity. I’m seeing a tremendous amount of renovations happening, much more than in the past two years. After the collapse of the financial markets, the clients that we had, which are on the upper end of the income scale … were extremely cautious and put things on hold. [But] there was a backlog of projects unleashed very recently.
Do you think the stock market swings of the past few days will make a difference in the kinds of renovations that New Yorkers do in the near future?
It depends on what happens. If the Dow drops below 10,000 and stays there again, then yes. But as of today, with yesterday’s gain, it’s not going to make a difference.
Are New Yorkers more or less likely to use an architect to complete a home renovation in this still economically uncertain climate compared to a year ago, two years ago and during the boom?
I think they are still using architects. You really have to. Most of the homes in New York are condos or co-ops, and those buildings require it. So there isn’t much getting around it unless you live in a townhouse and you want to take the risk of working without one. I don’t see people doing that unless they are doing very small-scale cosmetic renovations like painting, cabinetry and finishes.
Is it a faster or slower process for homeowners to get contractors started these days, given the economy?
It is faster. During the boom there was a time when I was turning away a lot of work. Then things slowed down tremendously for a few years. Everyone in my field wanted to get projects and was available to start on a moment’s notice. Today’s market is not where it was during the boom, but the slots are getting filled a little more quickly. Compared to the boom years, people have more availability to start quickly.
How much has your business increased or decreased in the last year, in the last two years and since the boom?
We lost about 40 percent of revenue at the worst point compared to our best year of the boom. We have come back to approximately a 20 percent loss of revenue since that best year. As far as total revenue goes, we haven’t climbed back to that yet, but we are getting close to it. It’s extremely busy right now.
What kinds of clients are most likely to renovate today?
All my clients have been new homeowners. I have almost never had a client who was fixing up in order to sell. I think the reason is that we are sort of a boutique firm that does very high-end, custom interiors, and if someone is in the mindset of selling a unit or flipping it, they want to spend as little as possible to do that.
Paul Barnla
owner, Artistic License Interiors Inc.
What’s the market for home renovations like in NYC right now, given the overall economy?
We are a design-build firm, which means we provide both design and construction services. My experience and what I hear from my subcontractors is business is slower this year than in years past, but everyone is still working.
What kinds of home renovations are most typical these days for homeowners in New York?
A large percentage of my clientele in the last year and a half are in the banking industry. I’ve done more and more upgrades to brand-new, high-end apartments over the last two years than in years past.
How has the price for home renovations changed in New York recently?
The price has come down. Consumers are more careful with what they buy and are more educated on what fixtures and finish materials cost. Lots of new, young, competitive architects hitting the streets have driven down costs.
What are the most surprising trends in home renovations in NYC today?
The tolerance to spend significantly more on appliances, window covers and audiovisual systems. The $9,000 refrigerator has becoming ever less shocking.
Robert Didier
chapter president for NYC/LI National Association of the Remodeling Industry; project manager of residential and commercial projects, Irwin Contracting
Are there more or fewer homeowners renovating than there were a year ago, two years ago and during the boom?
There is more renovating being done now than a year or two ago.
What kinds of home renovations are most typical these days in NYC?
Due to the advanced age of most buildings in New York City, the most popular type of renovation is performed on the bathroom. Given the time period that most were built in, the bathrooms [are typically] very small. … In the past, the No. 1 remodeling job was the kitchen.
Are gut renovations more frequent or less frequent today than they were a year ago, two years ago and during the boom?
I would say that they are less frequent today.
Justin Korhammer
president/designer, Anima LLC
As an architect, what are you seeing in the home renovations market in NYC?
From our perspective, the market has not changed much. The type of projects and clients has shifted, but our overall volume of work has, in fact, increased within the last year.
Are you seeing more or fewer gut renovations today than in the recent past?
We find that clients who purchase properties in the upper range of the market tend to want to do gut renovations. This is often more a question of prestige than of necessity, and this has not changed since the real estate boom. There is definitely less appetite for complete renovations at the lower end. This is partially due to the difficulty to obtain financing, but also the less-than-certain return of investment. It’s simply no longer a given that every dollar invested in a property will double in resale value.
How have the materials that homeowners use in renovations changed in the last year, in the last two years and during the boom?
We have observed a great interest in green products and an increased awareness of the wastefulness of construction. Items that used to be the “must-haves” — such as the Sub-Zero fridge and Viking range — have become less of a focus of clients, whereas AV and home automation have become mainstream.
Is it a faster or slower process for homeowners to get contractors started these days, given the economy?
Timing has become a much more important factor of construction. Basically all of our jobs are run on the shortest possible construction schedule, with penalty clauses. At the same time, the permitting process has become more time-consuming and demanding.
Are you seeing more people buying fixer-uppers and renovating them now in the New York market?
Altogether we are seeing fewer of these properties on the market. Fixer-uppers are often not as discounted as they should be. … In my experience, sellers are typically unwilling to reduce the price low enough for a gut renovation to be worthwhile.