How Tariffs Could Make That New Apartment More Expensive

Transcription

1 How Tariffs Could Make That New Apartment More Expensive With the prices of steel and aluminum rising, it may only be a matter of time before prices on new homes go up, too. By C. J. Hughes Aug. 7, 2018 The Trump administration s new tariffs on imported metals are rattling the construction industry and sending ripples of anxiety through related concerns, including the city s housing market. New fees imposed this spring on imported steel and aluminum are making it more expensive to produce the kinds of walls and windows that are found in apartment buildings, according to people who work in the development business. Because builders buy materials well before any ground is broken and months, if not years, ahead of the opening of sales and rental offices the effect of tariffs on apartment prices and rents may take a while to filter through the system. But if the import fees remain in place, buyers and renters will inevitably feel a pinch, said suppliers, contractors, construction trade groups, developers and brokers. It s still a little early yet, said Steven Rutter, the director of Stribling Marketing Associates, which has development projects in various stages, but I think these tariffs could have ripple effects all down the line. Page 1 of 7

2 Thus far, hard data about the effect of steel and aluminum tariffs on New York s development business are relatively scarce. And many developers seem loath to discuss the subject, perhaps unwilling to spook a market already showing signs of weakness, or hoping to avoid a charged political atmosphere. The new tariffs 25 percent on foreign steel and 10 percent on foreign aluminum are intended to level the playing field for international trade by encouraging companies to buy domestic rather than imported products, but some builders believe that American suppliers can t currently meet every demand. This is your last free article. Subscribe to The Times In March, President Trump announced the tariffs on imported steel and aluminum from most countries, exempting some allies like Canada, the European Union and Australia. But in June, the same tariffs were extended to those trading partners as well. Of course, the tariffs could also be temporary. In late July, President Trump said he was working with one trading partner, the European Union, to lift the taxes on metals and other goods. As a result, the front line of the supply chain those buying materials this summer for buildings slated to open a couple years from now appears unsettled. Page 2 of 7

3 CM & Associates Construction Management helped build the condo at 121 East 22nd Street in Gramercy. Christopher Mesbah, the owner of the Newark-based company, said new tariffs may force smaller businesses like his to charge buyers more. Winnie Au for The New York Times The price of steel which in residential buildings is used for rebar rods that reinforce concrete in walls and floors, supports for cooling towers and decorative elements like Juliet balconies has spiked, steel buyers said. Rebar accounts for most of the steel used in apartment buildings; developers estimate that a 20-story building might require 1.5 million pounds of it. In late July, domestic raw rebar cost about 39 cents a pound, up from about 34 cents earlier this year, a 15 percent bump, according to CFS Steel, a national company headquartered in the Bronx whose recent projects include 50 West Street, a 64-story condo in the financial district, and City View Tower, a 68-story condo under construction in Long Island City, Queens. Page 3 of 7

4 Price increases appear even higher for smaller companies that have less leverage over suppliers. Robert Vogelbacher, the president of Men of Steel Rebar Fabricators, a 14- year-old Pennsylvania company that cuts and shapes rebar for Manhattan apartment buildings, said his prices have gone up 35 percent since the spring. That increase cannot entirely be attributed to tariffs, but Mr. Vogelbacher said that forcing more steel buyers to compete in the domestic market has driven up costs. He added that about 60 percent of his steel had previously been bought from American companies, and that he expects that figure to grow. You ve got to get steel, even if the prices fluctuate, he said. You ve still got to feed your customers. In his talks with construction managers who handle projects for developers, Mr. Vogelbacher learned that he was expected to shoulder some of the extra costs. His portion will be about half the total, he said, meaning the developer will have to swallow the other half. And that New York-bound half, he said, could wind up on the price tag for a new condo. To cope, Men of Steel stocked up on inventory before prices started to rise. Mr. Vogelbacher is also putting off new orders as long as possible, he said, with the hope that the Trump administration reverses course. It s a very scary and very weird time, he said. I ve never seen anything like it. Higher prices might not hurt a mega-developer with deep pockets and the ability to get a discount through bulk purchases. But a smaller, less-capitalized player with thinner profit margins may have no choice but to pass the increases along to buyers, said Christopher Mesbah, the owner of Newark-based CM & Associates Construction Management. His firm s recent work includes a pair of Manhattan luxury condos, 121 East 22nd Street in Gramercy, from Toll Brothers City Living, and Steiner East Village at 438 East 12th Street, from Steiner NYC. Everybody wants their profit margin, and everybody tries to maintain that margin, Mr. Mesbah said. But costs are being passed on, and eventually they will be felt. Page 4 of 7

5 James Riso, a member of the Queens-based Briarwood Organization, a for-profit developer of affordable housing and other projects, said he recently received bad news from one of his steel suppliers: For a five-story commercial building that is supposed to break ground in September in the Mott Haven section of the Bronx, he had to increase the price of the metal by five percent. I told him, You re making me look bad in front of the owner, Mr. Riso said. He added that it could be hard to stockpile steel in a densely occupied place like New York, where there are fewer storage options. But as a Republican, Mr. Riso said, he supports President Trump s trade maneuvers and believes the tariffs are temporary, a negotiating tactic to achieve better deals with America s trading partners. Materials are only one part of the cost of a project in New York, accounting for about 25 percent, developers said. Labor is a much bigger concern, said Scott Shnay, a principal of SK Development, whose portfolio includes the Lindley, a 74-unit condo in Murray Hill. Sales at 435 West 19th Street, an 18-unit condo under construction in West Chelsea, are slated to start next year. Because of geopolitical turmoil, its developer, Six Sigma NYC, adjusted prices at the condo. Winnie Au for The New York Times Page 5 of 7

6 But if the tariffs are intended to create jobs at American steel mills, they may be having the opposite effect in other industries, said Steven Kraus, the chief executive of Skyline Windows in the Bronx, which counts Extell Development Company and Rose Associates among its customers. The short-term effect has been devastating, because we are losing work to competitors, Mr. Kraus said. Specifically, developers seeking to keep their costs down are buying windows from European fabricators that can make aluminum window frames without paying tariffs. Moreover, he said, the tariffs aren t imposed on completed frames shipped to the U.S. I wouldn t have thought that would be the outcome, Mr. Kraus said. Aluminum prices went through the roof this spring, he said, rising 32 percent from March to April. By late July, they had come down significantly, he added, but they were still elevated, at $1.15 a pound. About 150,000 pounds of aluminum is required for a 20- story residential building, Mr. Kraus said. In another side effect, investors from countries affected by tariffs have begun withholding their support for projects, according to the president of the boutique development company Six Sigma NYC, Jason Lee, who has lived in Hong Kong and has relied on Asian investors. Likewise, Chinese buyers, who have made up half of his clients at some buildings in the past, seem to be stuck in wait-and-see mode, Mr. Lee said, although he acknowledged that other factors could be at play. As a result, he said he has had to lower prices to compensate for his buyer pool drying up at projects like 435 West 19th Street, an underconstruction 18-unit condo conversion expected to hit the market next year. The geopolitical situation is causing a reduction in activity, which in turn made us adjust our prices, Mr. Lee said. If costs continue to climb, developers may not have a lot of room to maneuver. In the second quarter of 2018, the median sales price for a new condo in Manhattan fell to $2.67 million, according to Douglas Elliman Real Estate, down 19 percent from the same Page 6 of 7

7 quarter a year ago. Overall, the number of sales was down, too, according to the company. If expenses are going up, it s certainly not encouraging to a developer, said Kirk Henckels, the vice chairman of Stribling and Associates. The question about the tariffs is: Can the market bear them? For weekly updates on residential real estate news, sign up here. Follow us on Page 7 of 7