With 32 years experience in the architecture business, Kenneth Levien has seen more than one recession come and go. In 1992, he founded Levien & Company, a real estate project management and owner’s representation firm that has completed more than 300 projects for clients that range from nonprofits, such as independent schools and churches, to residential and hospitality developers, to private corporations, to city governments. He also serves on the Board of Governors of the New York Building Foundation, a branch of the New York Building Congress that promotes the industry through research, education, and philanthropy. Recently, AN sat down with the architect to get his perspective on the economic downturn and what to expect in the coming months.
It seems pretty much a foregone conclusion that times are tough all around, but how has it affected your business specifically?
During past recessions, not-for-profits, which make up about 75 percent of our business, have proven to be somewhat immune to the ups and downs of real estate. They are generally able to collect money from Wall Street during the high times as well as the low. This recession is a bit different in that the bankers, as well as the industry, are screwed—it’s a double whammy. The bankers have seen their net worth significantly reduced, and the credit market has dried up, so they’re not as easy about donating money as they might normally be. Our institutional clients are worried, but they’re not flat-out sunk because for the most part, they already have pledges in hand from before the market tanked. All of the not-for-profit work, our charter schools and churches, will continue to move forward.
Are your not-for-profit clients making any cutbacks or concessions as to how they proceed with projects?
Of course. But it depends where the project is in its schedule. The pre-construction process for a significant not-for-profit project takes from 18 months to three years before being ready to go. If a client has $20 million they raised before everything went to hell, it makes sense to continue the design and pre-construction process. We don’t have a single not-for-profit project that has stopped in this phase of the work. Projects that are in the process of construction are acting very carefully. What we’re doing generally is breaking the projects into smaller packages so that there are achievable goals. For example, if you’re doing a renovation and adding a new wing, you might be able to do the wing now and hold off on the renovation until another time. You bifurcate the project. Some of the projects on our board have been broken up into as many as eight phases, which means they take longer to complete, but you have to adjust for these problems.
What about other types of projects?
What we are not seeing, what has more or less stopped altogether, is the commercial work. There are no new corporate interiors, no apartment buildings, no hospitality or retail work. Either they’ve been killed altogether or significantly scaled back, so much so that they barely resemble the originally proposed development. We were working on a hotel project that involved the conversion of a large older building with a new hotel tower coming out of it. Once the crisis hit, the lenders reviewed the situation and said you can have money to finish the renovation of the original building, but you can’t do the tower.
Do you think that construction prices will drop and offer any salvation?
I think it’s interesting that people have this perception that construction costs are going to drop precipitously, but it’s a misunderstanding. With the drying up of the market, the commodity prices of materials like steel and concrete have come down ten percent or so, but they’re not going to drop any lower than that. Manufacturers will close plants, lay off people, and generally reduce production to keep prices stable. Labor in itself will create some kind of accommodation in the next couple of months. Labor can be between 50 and 60 percent of project costs. There are 130,000 construction workers unemployed right now in New York City. That number is supposed to go down to 105,000 unemployed in 2010. The unions will make some pay cuts to keep people working, enough that you could knock maybe ten percent off your overall construction cost, but it’s not going to plummet 30 or 40 percent. That hasn’t happened in the past, and it’s not going to happen now. The stimulus package will hopefully make a difference. A significant number of my projects have made requests, and some are ready to start construction this summer.