3 October 2012 STA Past President Arthur Rubinstein recently published an article in Real Estate Weekly, in response to the newspaper’s October 3, 2012, article on the New York Building Congress’ statement on trends in growing construction costs in New York City. Citing Engineering News-Record’s (ENR) Building Cost Index (BCI), the October 3 article claims that lenders are backing away from construction firms and owners as a result of increased construction costs in New York City. Below, find Mr. Rubinstein’s response, published in the October 10, 2012, issue of Real Estate Weekly . Real Estate Weekly (October 3, 2012) reported on the recent New York Building Congress update on New York Construction costs in the article “NYBC: Lenders backing away from builders as constructions cost hit crippling levels.” Unfortunately, the Building Congress got it wrong! A review of the update makes it clear that the Building Congress incorrectly interpreted the data they collected and reached an erroneous conclusion, which is a disservice to a struggling construction industry. The article starts as follows: “Construction costs in New York City continue to rise , and may be approaching the inflationary rate experienced during the height of last decade’s building boom, according to a New York Building Congress review of multiple cost indices.” Now let’s examine the data: The Engineering News- Record (ENR) Building Cost Index (BCI) for New York City rose 3.55% in 2011 and 4.3% projected for 2012, as opposed to 5.71% in 2008. Their BCI is based upon sampling of key material and labor costs. However, the survey performed by Rider Levett Bucknall (RLB) is more broadly based, and includes bid price changes—the real “bottom line,” which is the price purchasers of construction services actually pay. RLB’s finding is an increase of 2.13% in 2011, and a projected decline in costs of 1.27% in mid-year 2012 compared to mid-year 2011. This is not a “typo;” they are projecting an actual decline in bid prices! It’s perplexing how the NYBC can compare this to the boom years when, according to RLB, the annual increase reached 8.18% (in 2008). How do we reconcile the differences between the ENR data and the RLB data? The answer is simple: ENR reports on costs components, while RLB reports on actual bid prices. This confirms what those of us in the construction industry know—contractors need work. To win awards, contractors are forced to cut margins, absorb the increasing costs for labor and materials, be productive, be efficient and stay in business. What is the correct message to send to decision-makers in both the public sector and the private sector? If you have a project ready to build, build it now! It’s a “win – win;” you will help a construction industry which really needs the work, and you will derive great value for your construction expenditures. Although I am not directly involved, it appears that lenders are in fact recognizing the stronger economy, stable- to-declining construction pricing and the climate for project financing has been improving. Arthur Rubinstein is President of Skyline Steel Corp. and a Past President of the Subcontractors Trade Association. The Time to Build is Now BY ARTHUR RUBINSTEIN, PRESIDENT, SKYLINE STEEL CORP.

The Time to Build is Now

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By Arthur Rubinstein, President, Skyline Steel Corp.

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3 3October 2012

STA Past President Arthur Rubinstein recently published an article in Real Estate Weekly, in response to the newspaper’s October 3, 2012, article on the New York Building Congress’ statement on trends in growing construction costs in New York City. Citing Engineering News-Record’s (ENR) Building Cost Index (BCI), the October 3 article claims that lenders are backing away from construction firms and owners as a result of increased construction costs in New York City. Below, find Mr. Rubinstein’s response, published in the October 10, 2012, issue of Real Estate Weekly.

Real Estate Weekly (October 3, 2012) reported on the recent New York Building Congress update on New York Construction costs in the article “NYBC: Lenders backing away from builders as constructions cost hit crippling levels.”

Unfortunately, the Building Congress got it wrong! A review of the update makes it clear that the Building Congress incorrectly interpreted the data they collected and reached an erroneous conclusion, which is a disservice to a struggling construction industry.

The article starts as follows: “Construction costs in New York City continue to rise , and may be approaching the inflationary rate experienced during the height of last decade’s building boom, according to a New York Building Congress review of multiple cost indices.”

Now let’s examine the data: The Engineering News-Record (ENR) Building Cost Index (BCI) for New York City rose 3.55% in 2011 and 4.3% projected for 2012, as opposed to 5.71% in 2008. Their BCI is based upon sampling of key material and labor costs.

However, the survey performed by Rider Levett Bucknall (RLB) is more broadly based, and includes bid price changes—the real “bottom line,” which is the price purchasers of construction services actually pay. RLB’s finding is an increase of 2.13% in 2011, and a projected decline in costs of 1.27% in mid-year 2012 compared to mid-year 2011. This is not a “typo;” they are projecting an actual decline in bid prices! It’s perplexing how the NYBC can compare this to the boom years when, according to RLB, the annual increase reached 8.18% (in 2008).

How do we reconcile the differences between the ENR data and the RLB data? The answer is simple: ENR reports on costs components, while RLB reports on actual bid prices. This confirms what those of us in the construction industry know—contractors need work. To win awards, contractors are forced to cut margins, absorb the increasing costs for labor and materials, be productive, be efficient and stay in business.

What is the correct message to send to decision-makers in both the public sector and the private sector? If you have a project ready to build, build it now! It’s a “win – win;” you will help a construction industry which really needs the work, and you will derive great value for your construction expenditures.

Although I am not directly involved, it appears that lenders are in fact recognizing the stronger economy, stable- to-declining construction pricing and the climate for project financing has been improving.

Arthur Rubinstein is President of Skyline Steel Corp. and a Past President of the Subcontractors Trade Association.

The Time to Build is Now

By ArThur ruBiNsTeiN, PresiDeNT, sKyLiNe sTeeL COrP.