Changing NYC: Costs grow, plans shrink

By DAVID B. CARUSO,
Associated Press Writer

For a while, it seemed the sky was the limit for the grand public works that sprang off the drawing boards during New York's recovery from the Sept. 11, 2001, terror attacks.

Lately, though, soaring ambition has given way to hard reality.

Over the past few months, officials worried about high construction costs have scaled back some of their ambitious plans for rebuilding the city.

The latest casualty: a magnificent, glass-domed building that was to crown a redesigned subway hub near Wall Street.

The crystalline structure had been billed as a civic gem a downtown Grand Central Station and the Metropolitan Transportation Authority had already knocked down half a block to build it. This past week, however, the agency reluctantly axed the building, saying they couldn't do it within the project's $900 million budget.

"We're just in the middle of a construction inflation crisis," said MTA chairman H. Dale Hemmerdinger.

The announcement was the latest in a string. Earlier this winter, plans to add a huge new wing to the city's main convention center were all but tossed out after a new analysis said it could cost almost three times its initial $1.7 billion price tag. The revised plans call for a much smaller addition to the Jacob K. Javits Convention Center.

A plan to extend the city's No. 7 subway line toward the Javits center was scaled down as well, with one of its two proposed stations eliminated. Officials are also looking for ways to slash costs for a new rail station at the World Trade Center, following revelations that the original design by Spanish architect Santiago Calatrava might cost as much as $3.4 billion.

Experts say the downsizing has more to do with a global construction boom than a looming bust in the city's redevelopment. Recent years have seen big increases in the cost of steel, concrete, fuel and other construction materials driven in part by insatiable demand in fast-growing places like China, Brazil and Dubai.

New York's own building surge has driven up prices, too.

Unlike much of the rest of the U.S., where new home sales have sagged and construction spending fell by 2.6 percent in 2007, New York's demand for new and restored buildings of all types has remained hot.

"There is so much public and private construction going on in the city of New York that the contractors are all flat out and much of the union labor is booked and is busy," said Empire State Development Corporation President Patrick Foye, who was involved in the decision to downsize the expansion of the Jacob K. Javits Convention Center. "It's a symptom of the city's success and prosperity."

The result is that contractors can afford to charge top dollar, and a few projects have even failed to attract more than one bid because contractors are so swamped with work.

That isn't to say that the nation's economic storm clouds haven't raised concerns.

Forest City Ratner, the company preparing to build blocks of new skyscrapers in Brooklyn, anchored around an NBA basketball arena, recently suggested that a protracted court battle over the $4 billion project could compromise its financing.

"The credit markets are in turmoil at this time," Andrew Silberfein, the company's finance director, said in a court affidavit. "There is a serious question as to whether, given the current state of the debt market, the underwriters will be able to proceed with the financing for the arena while the appeal is pending."

Forest City officials have since sought to dispel any idea that the Frank Gehry-designed Atlantic Yards project is in trouble, saying the court filing was intended to persuade a judge to resolve the legal dispute quickly.

Indeed, Richard Moore, a real estate analyst for RBC Capital Markets, said there have been no signs that problems in the financial markets will put a crimp in Atlantic Yards or other private development in the city.

Demand for new housing and office space remains high, he said, and banks are still willing to make loans to proven developers.

"The capital seems to be out there," he said. "It is definitely more selective capital," he added, but even in a recession it could take time for job losses and company downsizing to cool the market.

New York Building Congress President Richard T. Anderson said the construction industry trade group has seen no reason yet to back off its predictions that building will continue at a solid pace in the near term.

"The dynamics of the New York City market are unique," he said. "I think you're going to find a market that continues with strength, maybe not as much as we had, but it is certainly not going to fall off a cliff."

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Copyright 2008 The Associated Press.