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After the Gold Rush

When banks in Iceland filed for bankruptcy in October and credit lines dried up, Iceland’s building industry went into a tailspin: Contractors halted construction, developers cancelled new projects, and thousands of foreign construction workers left the country almost immediately.

Next to fall victim were architects. As construction ceased, architecture firms saw an almost complete drop-off in new projects. By the beginning of November, architecture firms across the country announced massive layoffs. As of February 1 of this year after a three-month grace period, an estimated 90 percent of Icelandic architects became unemployed.

The past ten years in Iceland have seen unprecedented residential and commercial real estate development. Inflated interest rates in Icelandic banks attracted large sums of foreign investment, and as money poured into the country, Icelanders began to invest in real estate. Housing prices skyrocketed, inciting a manic building boom that architectural critic Guja Dögg likens to the Wild West. “People were just building and building, with no consideration for what anyone else was doing. It’s like they were all cowboys shooting into the air, and now the bullets are raining down on them.”

Now, as Icelanders sift through the fallout of a decade of frenzied real estate speculation, much of the detritus is new construction. Large swaths of suburbs surrounding the Reykjavik metropolitan area stand empty, many of the houses only partially built. In downtown Reykjavik, construction is halted on the 1.07-million-square-foot Icelandic National Concert & Conference Center, a 30 billion ISK (approximately $500 million) joint venture between Portus and the Reykjavik city government.

The current state of the real estate sector stems from the fact that despite its old history, Iceland is essentially a young country—it declared independence from Denmark only 64 years ago—and lacks an established urban development practice. The Reykjavik city planning authorities were largely unequipped to oversee the sharp increase in construction, leading to embarrassing city planning missteps.

Olafur Mathiesen, an architect at the firm Glama/Kim who now finds himself unemployed after 12 years, explained that the lack of coordination between local communities and zoning and planning practices led to a form of ad-hoc urban development, resulting in a suburban sprawl of shoddily built multi-family housing, out-of-place highrise apartments, little green space, and a road structure so complex that it makes public transportation slow and inconvenient. Past precedent suggests that this kind of development can lead to a serious decrease in standard of living, a cultural reality foreign to a country that has always prided itself on its progressive social policy and fluid class structure.

Sigrun Birgisdottir, director of the architecture department at the Icelandic Arts Academy, explained how the lack of urban organization is symptomatic of the Reykjavik planning authority’s difficulty administering such large-scale development. “The regulation system—both financial and political—was accustomed to a small-scale sense of the town,” she said. The authority literally was unable to control or account for most of the construction happening in the past few years.

The overwhelming feeling among Icelandic architects is that the architects themselves, as well as developers and city planners, should have known better. “There really has been no organized Icelandic architecture community,” said Birgisdottir, a situation that contributed to the current state of affairs. Until 2001, when the art school opened its undergraduate architecture program, there was no institution to foster conversation among architects. “Icelandic architects would return from studying abroad in their late 20s and then meet each other for the first time as professionals in competition with one another,” Birgisdottir explained.

Guja Dögg agreed, adding, “That doesn’t exist among my generation of architects.” Birgisdottir, Dögg, and Mathiesen are all hopeful that the current state of the architectural industry will allow the country’s architects the time and space to have these long-overdue conversations.

Bjorn Martensen, an architect and civil engineer, is organizing a team to create a review of quality control and assessment processes, while another group is planning a workshop where architects, industrial designers, and other creative professionals can come together to foster innovative design. Some firms are considering an arrangement with the government whereby architects would continue to work while receiving unemployment benefits if the firm could provide ten percent of the salary.

KRADS, a firm established by a group of young Danish and Icelandic architects with offices in both countries, is probably best poised to navigate the ongoing recession. Since opening the office in 2006, the group has been pioneering a new, collaborative type of architectural practice. “We do a little bit of everything,” said member Mads Bay Moller, “architecture, prototyping, conceptual design, and graphic design. And we like to bring people from outside of architecture into the conversation.” When they were recently asked to design a church, they brought on a priest as consultant. “Reykjavik is a super-interesting place,” Moller continued. He said the creative energy and abundant natural resources make it “a great atmosphere to generate new approaches to architecture.”

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It's the TARP, Stupid

While billings (yellow) continued their downward decline in January, inquiries (green) saw a nice bounce, the first in months.
The Architect's Newspaper

After a brief uptick in December, the AIA’s Architecture Billings Index slipped again in January, settling in at a new record low and continuing a larger six-month decline that began in September. Inquiries showed a marked improvement, however, possibly in concert with discussions of infrastructure spending generated by the stimulus bill, though of course that was not finalized—with somewhat unimpressive construction spending—until this week.

AIA chief economist Kermit Baker suggested as much in a press release accompanying the billings numbers on Wednesday, though he also saw a far greater problem constraining the industry: the continued freeze within the credit markets. “Now that the stimulus bill has passed and includes funding for construction projects, as well as for municipalities to raise bonds, business conditions could improve,” he said. “That said, until we can get a clearer sense of credit lines being made available by banks, it will be hard to gauge when a lot of projects that have been put on hold can get back online.”

In other words, for all the attention architects and the architectural media (AN included) have paid to the stimulus bill the president signed on Monday, the real salvation will most likely come from TARP, and its big brother, the Financial Stability and Recovery Plan.

(For the record, billings fell to 33.3 from 36.4 while inquiries rose to 43.5 from 37.7. Regionally, the Northeast shed 4.6 points to hit 29.8, the Midwest and South each lost about one to 34.6 and 34.4, respectively, and the West gain 1.5 points to 38.3. For the sectors, multi-family residential work held roughly stable, losing half-a-point to hit 29.5, commercial/industrial gained 5.7 to 33.8, while institutional fell 2.2 to 37.1, mixed use 5.5 to 39.6.)

“There are large parts of the stimulus that will go to public works that won’t be going to architects necessarily, like road and water treatment facilities and the so-called smart grid,” said Ken Simonson, chief economist at the Associated General Contractors of America. “Transportation and high-speed rail will provide some work, but for architects, the real recovery will come from the financial markets.” (A prime example of the former is the MTA’s commitment to build the Grimshaw- and James Carpenter-designed aboveground portion of the Fulton Street Transit Center.)

Simonson said that the part of the stimulus bill that will benefit architects is not the part that they think—the brick-and-mortar projects—but softer measures like tax breaks that may help restore consumer demand and lead to new projects. “The emphasis on stimulus is probably right in the sense that it will help the economy weather this downturn,” Simonson said. “But not in the sense that it will put money into the hands of architects, at least not in the way it will for construction workers.”

But this also means that other measures, like the $275 billion foreclosure package, could have an impact beyond the one architects might think. Given that most designers do not work on tract homes in suburban Phoenix, the program would seem to have little effect. But Richard Rosan, president of the Urban Land Institute, said the money is more far-reaching than that. “If you don’t get the lending back, the real estate development business is done,” he said. “If you can’t borrow, you can’t build, and if you can’t refinance, then you’re in terrible trouble with your existing buildings. Both TARP and the foreclosure plan will help fix these problems, albeit slowly.”

And financing has been a problem for some time already. The AIA, in preparing the billings index, surveys dozens of architects in the country each month. In addition to asking about their business, they pose a specific question. Back in September, it was “What is the most serious problem facing your firm?” The resounding answer, at 63 percent of firms, was client problems with project financing, followed by allied issues related to the overall financial turmoil, though that took only 19 percent.

“What we’re hearing from a lot of our people is that a lot of projects are ready to go and they just can’t go forward because they can’t get the financing,” said Jennifer Riskus, the AIA’s manager for economic research. Perhaps an architectural stimulus, separate from the all-important credit vehicles currently in the works, should be in order.

Correction: An earlier version of this story said the Obama administration's foreclosure program cost $750 billion. AN regrets the error.

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Pedal Parking
With DCP's help, New Yorkers may soon be parking their bikes inside.

The Department of City Planning has introduced new zoning language that would require secure bicycle parking in all new commercial, multi-family residential, and institutional buildings. The zoning change will go through public review before being voted on by the City Council. “It’s one of a series of incremental changes that we hope will lead to a snowball effect,” said Rachaele Raynoff, press secretary for Planning Commissioner Amanda Burden. “It’s about changing the culture to make biking a fun, easy, and safe mode of transportation.”

The requirements are relatively modest. Residential buildings with more than ten units will require one space for every two units. Office buildings must provide one space for every 7,500 square feet of space. Retail and most commercial and community uses would be required to have one space for every 10,000 square feet.

Bicycling advocates hailed the move as a significant step forward. “It’s major. It’s one of the big three, along with bike sharing and dedicated lanes, necessary to make New York a great biking city,” said Wiley Norvell, communications director for Transportation Alternatives (TA). Still, TA believes requirements need to be adopted for existing buildings, which make up the vast majority of the city’s building stock.

The change goes against the wishes of some in the real estate industry. In a letter to members, Real Estate Board of New York president Steven Spinola encouraged voluntary inclusion of indoor bicycle parking, but wrote, “We have strongly urged the city not to consider legislation requiring office buildings to provide bicycle parking and we will continue to do so.”

In another step toward upgrading cycling conditions in New York, the winner of the City Racks Design Competition, which called for a new standard bike rack for the city, will be announced on Friday, November 15. Ten finalists were named, but the announcement was delayed by a week to allow some of the winners to travel for the ceremony. On Friday, November 7, the design competition website Bustler incorrectly implied that a red, free-form design by Francis Anthony Bitonti’s FADarchitecture had been selected. According to Norvell, who knows the winning team but declined to name it, Bitonti was not the winner.

Day of Reckoning

The Numbers

With Wall Street in the throws of its greatest crisis in decades, the AIA released today it latest Architecture Billings Index, which continues to show a struggling design market. Billings continued to inch up in August, now for the fourth straight month, but they remained in overall decline. Furthermore, uneven numbers within the various regions and sectors cast doubt on whether the trend is towards recovery or simply stagnation.

“There’s really no pattern to these numbers except for weakness,” Kermit Baker, chief economist for the AIA, told AN. Baker said that when this downturn in billings began at the start of the year, “I expected them to hover in the 40’s for some months, and that has been the case.” The index measures productivity on a scale of 1-100, with any number above 50 indicating an increase and any number below a decrease.

For August, billings rose to 47.6 from 46.8 while inquiries fell to 52.4 from 54.6, another indication that there could be waning interest in design work. Still, inquiries were higher than June, when they were 51.4, or May, when they hit 46.5, the first sub-50 reading in index’s history.

Regionally, the Northeast and Midwest were each down roughly a point to 45.2 and 49.4, respectively. The South rose to 49.2 from 47.7, flirting with growth. And the West, which had been the hardest hit, posted the strongest gains, to 45.0 from 42.2, though it remained the weakest region.

The multi-family residential sector continues to be the weakest, rising to 40.8 from 39.2 and posting its sixth consecutive—and strongest overall—gain, from 31.7 in March. The commercial and mixed-use sector each fell a point-and-a-half to 47.5 and 44.8. The institutional sector continued to be the one bright spot for billings, though it did slip to 52.2 from 53.6. If credit continues to be an issue, though, even that sector could be struggle. A number of state governments have already begun to restructure their budgets facing mounting deficits, which could threaten such projects.

As for the problems set off earlier this week at Lehman Brother, Merrill Lynch, and AIG, Baker said any impact on the design and construction industry would be readily evident in the index in the next month or two. “There would be a pretty dramatic drop in inquiries almost immediate and then a further drop in billings some months after that,” he said. “If there ain’t money out there for these projects, they’re no going to happen, and we should know soon enough.” Until then, AN will keep you posted.

The New Math

With the expiry of 421a tax abatements on June 30, developers in New York City entered their most uncertain era of pricing decisions since the city created the program a generation ago. The Cooperative and Condominium Abatement program, which used a system of graduated tax abatements to spur development at a time when there was little, lasted decades longer than the crisis that gave rise to it, becoming a part of local developers’ financing logic. Now, anyone who uses it will also have to set aside 20 percent of new units for lower incomes. Some developers say they don’t know how to make the math work.

For more than a generation, 421a was a sine qua non in local development. The 421a program, as the city’s website defines it, came along in 1971 “to promote multi-family residential construction by providing a declining exemption on the new value that is created by the improvement.” In other words, a developer using the program can use the value of raw land to calculate taxes for somewhere between ten and 25 years. (The name references Section 421a of the relevant city law.) An exclusion zone between 96th to 14th streets and down through much of the West Village required developers to include affordable housing to qualify for abatements.

Beyond changing developers’ risk basis for construction in former industrial neighborhoods, 421a created a sort of currency. Developers who built affordable housing collected five certificates per low-income unit, which they could sell to developers working in the pricier districts where tax abatements were a particularly strong inducement for buyers. It was good policy in the Koch years, but as more and more of Manhattan gentrifed, projects in Soho and Tribeca took advantage of 421a. A law intended to preserve working-class housing had become an unintended boon to luxury developers.

Properties offering the abatement include 555 West 23rd Street in tony West Chelsea, and Soho Mews, a Charles Gwathmey–designed townhouse and condo with a private courtyard between Wooster Street and West Broadway. For even the most casual observer of the then-booming real estate market, it seemed out of whack.

Politically, though, 421a took a long time to reform. Condo buyers also became intimate with the program, since the abatement on taxes took the bite out of apartments’ closing costs and improvements. By 2007, nobody could argue that development would stall without a reform to the program. So as of July 1, the abatement only covers the first $65,000 of a property’s assessed value, and the exclusion zone has spread to parts of the outer boroughs. Now, uncertainties about the availability of bank financing and the thrust of the economy have some developers actually hedging before starting new projects. Evan Thies, a candidate for City Council in Greenpoint who worked for Councilmember David Yassky when the reforms came together, calls the new 421a more sensible and defensible. “David Yassky thought it absurd that we were giving away so much money to luxury developers,” Thies said. (Yassky is running for comptroller in a crowded field next year.) “So the new regime forces developers to find other ways to get a tax benefit.”

Romy Goldman, a principal in Manhattan’s Gold Development, takes a less blithe attitude. Without banking on tax abatements, she told AN, investors in projects like her firm’s cannot create meaningful forecasts for prices that will allow them to recoup their costs. Her firm developed the Deborah Berke–designed condo building at 48 Bond Street and is now marketing Hamilton Lofts, a 12-unit project on Edgecombe Avenue. Goldman calls herself a believer in mixed-income housing, but she said tacking a 20 percent requirement onto new condos in an uncertain mortgage market means forcing some developers to withdraw.

Indeed, developers who can neither offer buyers an inducement to pay high interest rates on mortgages nor sell only to very wealthy buyers may simply take their money off the table. If development slows down, the seemingly unthinkable would follow: The cost basis for local real estate may decline. “In six months, you’re going to see a major shift in land prices,” Goldman said. Theoretically, changes in the law should flow into land prices in a more orderly fashion, since the council debated reforms extensively before passing them earlier this year. Instead, in what Goldman calls a “perfect storm,” many developers rushed to pour foundations while they could still enroll in traditional 421a programs. That meant paying inflated construction and labor costs, which helped keep New York’s asking prices high even as the foreclosure crisis and Wall Street turmoil singed the economy.

Champions of 421a reform make no apologies. “My sense, from the developers that I have talked to, is that they will blame 421a changes for what many other factors in the marketplace are doing,” said City Council candidate Brad Lander. As head of the Pratt Center for Community Development, Lander advocated for more mixed-income requirements in new rezonings for residential development. If he and Thies win office and have to steer the new 421a to implementation, Goldman warned, they will find that such requirements are difficult to translate to a developer’s pro forma.

Thies says 421a was an anachronism in a city where developers are jockeying for sites in places like Greenpoint that suffer from poor subway access and extensive brownfields. The farsighted move, he argues, is to introduce a new trigger for tax abatement that matches a crisis of energy costs rather than a lack of eager developers. “Smart developers saw incentives for infrastructure improvements and environmentally friendly buildings on the way,” Thies said. By that logic, the end of 421a may mean the beginning of other programs that can make green architects, engineers, and planners valuable.

“If you can as a developer build an energy-efficient building for free because you’re going to get an abatement, you’ll make it energy-efficient,” Thies said. “Suddenly we as taxpayers have a lot more leverage.”

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Brave New World
Courtesy Lennar Corporation

A San Francisco ballot measure named Proposition G got the green light on June 3, authorizing the second phase of a $1 billion mixed-used development in Hunters Point and Candlestick Point, two of the city’s least affluent and most isolated districts. The proposal by Lennar-Urban, a division of the Florida-based Lennar Corporation, will transform two decommissioned naval yards into multi-family housing, commercial development, and over 400 acres of open space. Although infrastructure work began on the site as early as 2006, construction on the project, designed by Vancouver-based architects IBI Group, is scheduled to break ground in fall of 2009.

The 771-acre site in the southeast corner of the city is currently occupied by Monster Park (formerly Candlestick Park), which will house the San Francisco 49ers football team until 2012. The 13 parcels of land are slated to receive about 15,000 units of high-rise, mid-rise, and low-rise multifamily housing, divided into two primary clusters. Each cluster of residential development is to be anchored with a commercial retail district. The former shipyards are also zoned for a two-million-square-foot high-tech industrial park, or possibly a new football stadium should the 49ers stay. More than half the site will become public open space, including a formal recreation area that runs the entire length of the project’s shoreline.

Proposition G represents the latest in a series of initiatives proposed for the area. Beginning in 1997, the city proposed a redevelopment plan for the Hunters Point shipyards; that same year voters backed a plan for a new football stadium in adjacent Candlestick Point anchored by a mixed-use commercial project. The stadium deal eventually proved unfeasible and the city moved to combine the two sites. Lennar signed on to develop a new conceptual design that the city’s Board of Supervisors approved in 2007. Because Lennar would be receiving the land from the city for free, a ballot proposition was necessary, and in cooperation with Mayor Gavin Newsom’s administration, both properties were combined under the single initiative. Lennar invested a reported $3.4 million to promote the June election initiative. A competing measure, Proposition F, would have required half the new homes to be affordable, a suggestion that Lennar claimed would economically hobble the project.

The development agreement also reflects San Francisco’s agenda for sustainable development, transit-first initiatives, diversity, and open space. Public transportation schemes are being developed, 30 percent of the housing units will still be below market rate, and building plans include accommodations for artists already living in shipyard structures. Developers are to perform environmental restoration along the bay where the site overlaps state park lands. If the 49ers opt to relocate to the city of Santa Clara, where they’re currently negotiating to build a new stadium, the master plan proposes what it calls a “Clean/Green” research and development campus.

IBI Group leads a design team that includes SMWM, who designed the area’s original master plan about ten years ago, with Miles Stevens and Associates, and landscape architect Walter Hood. The plan, which builds on SMWM’s earlier scheme, also includes residential concepts from Solomon E.T.C. and landscape architects CMG. Several high-density housing prototypes will be considered, from San Francisco-style townhouses to more standard three- and four-story structures. Some residential architecture is already moving forward in localized developments, designed by Daniel Solomon. On Candlestick Point, the Doublerock parcel is a 28-acre site for mixed-income townhouses, a portion of which will replace the decrepit 1950s Alice Griffith public housing that currently occupies most of the parcel. A new low-rise and mid-rise cluster of housing to be erected on a 30-acre waterfront site at Hunters Point is in the design approval stage.

CMG’s ambitious open space plans led by Kevin Conger include a “green fringe” of parks along the area’s shorelines, a “Hillpoint Park” located on a 90-foothigh promontory overlooking the shipyards, and a network of smaller parks. The use of pocket parks and courtyards recalls high-density neighborhoods like Russian Hill and North Beach. Even the proposed stadium parking areas are designed using an irrigated natural turf with a 95 percent compacted subsoil for “dual use” recreation space.

Peter Vaucheret, SMWM’s director of urban design, said the master plan intends to reunite Hunters Point with the city by using a grid street layout that extends evenly over hillside locations, creating a residential density consistent with nearby established neighborhoods. SMWM’s master plan further enforces the open space initiative with housing types that enable porosity: mid-block breaks in the building masses allow alleyways and visual openings that link public and private spaces. Throughout the development, vantage points are also designed to give residents glimpses of downtown. Finally, it seems, residents in this once-isolated corner of San Francisco will be united with the greater city.

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Hard Times

The Numbers

In AN’s ongoing recession watch, there is good, or at least better, news to report today. The American Institute of Architects released its Architecture Billings Index numbers this morning, and while billings remain in decline, after hitting a record low last month, the rate of decline has abated. Also, inquiries about new work have begun to rise to positive levels.

Kermit Baker, the chief economist for the AIA, said the worst may be over. “There’s good news and there’s bad news,” he told AN. “The bad news is, the market activity still continues to decline. The good news is, it’s not as bad as it was.”

According to the index, billings in April rose to 45.5 from a record low of 39.7. A number above 50 means billings are rising while a number below 50 means they are falling.Inquiries for new work rose to 53.9 from 48.0 in March, which was also a historic low, and only the second time in the index’s 13 years that it has fallen below 50. The previous low for inquiries was in September 2001, largely resulting from 9/11.

The Architecture Billings Index, begun in 1995, is the closest thing the industry has to a market forecast. It is produced from the monthly Work on the Boards survey the AIA sends out to firms of all sizes scattered across the country.

Baker said the numbers fit the usual economic patterns for the industry. “The way these cycles play out is, you have a period of accelerated decline followed by a period of moderating decline and then of mild growth,” he said. “Unless the economy was really falling apart, you’d expect the decline to moderate, which is consistent with the numbers we’re seeing in the greater economy, such as first-quarter GDP and April jobs.”

Regional differences persist within the numbers, though none have yet climbed into the black. The Northeast, which had the steepest decline this year after hovering around 60 for much of 2007, rebounded in line with the national numbers, to 41.6 from 38.7. The South has remained the most stable region over the last year, and it has the highest index value, 46.6. The Midwest, which began to decline before other regions, had the largest gain of the month, to 41.6 from 36.9. Meanwhile, numbers in the West continue to fall, from 38.7 to 37.7.

Certain industry sectors have been relative bright spots in these trying times. Institutional work has yet to fall below 50, though it, too, has declined, to 50.4 from 54.9 in February. The commercial/industrial and residential sectors are doing less well, largely a result of the real estate crisis that has shocked the economy as a whole. The former is at 39.3, while the latter is 33.5. Despite the low numbers, all sectors saw a billings increase in April.

Baker cautioned architects against complacency, even if they feel as though they have more work than they can handle. He advised firms to maintain a healthy backlog of work, increase their marketing to find more, and keep a close eye on any projects that could falter. “You might get the phone call tomorrow to say, ‘Stop working on that project,’” Baker said.

Rik Master, the president of AIA Chicago, agreed with many of the index’s numbers, including the early hit to the Midwest, which he said might have been a blessing because it made people take notice. “Most architects are still looking at it very cautiously, and considering the whole economy,” he said. “Normally, they’re either ahead of it or behind it, and I think everyone is trying to figure out where we are in relation to everything else. Hopefully we’re ahead of it. I think we are.”

Matt Chaban

Billings (blue) and inquiries (red) for the last 12 months.
All Graphs by The Architect's Newspaper
Billings by Region: Northeast (Green), Midwest (Orange), South (Purple), West (Yellow).
Billings by Sector: Multi-family housing (Yellow), Commercial (Blue), Institutional (red).