Bill Morris in Bricks & Bucks on November 17, 2021
We’ve all read about the Great Supply Chain Disruption, fed by the coronavirus pandemic, climate change, extreme weather and a shortage of workers, especially truck drivers. It has resulted in scarcity – and rising prices – for everything from computer chips to cars to pies. Inevitably, the kinks in global supply chains are beginning to crimp capital projects for New York co-op and condo boards.
Consider the 60-unit co-op at 6485 Broadway in the Riverdale section of the Bronx. A mandatory facade repair project was supposed to start last year, but it got put on hold by the pandemic. When the board tackled the job this spring, it ran smack into the Great Supply Chain Disruption.
“The scaffolding contractor didn’t have enough materials,” says Eddy Diamantis, 51, a retired police lieutenant who serves as the co-op board president. “It was a setback – and not only for us, it’s global. It set us back several weeks.”
Luckily, the board had an owner’s rep from its management company, New Bedford Management, overseeing the job and tracking delays, change orders and the resulting cost overruns. “The initial problem was a shortage of plywood and lumber,” says Andras Joo, the head of the owner’s rep department at New Bedford. “Once the metal frame was up, they couldn’t get wood from anywhere, not even Home Depot. This year lumber is 10 times more expensive than it was a year ago.”
The delays caused by the pandemic and the shortage of materials were not disastrous, according to Joo, but they had a ripple effect. “Unexpected delays can cause you to change your start date multiple times,” he says, “but wood shortages have happened in a lot of places. Costs for materials are much higher this year, and change orders are much higher than they would have been a year ago. This is beyond regular inflation.”
When an unexpectedly high number of bricks needed to be replaced and change orders began to come in, the cost of the project jumped from an estimated $120,000 to more than $200,000. That put the board in a bind. The co-op is composed of middle-income shareholders, with a high percentage of retirees. “We’re not a Park Avenue co-op,” Diamantis says. “We operate on a lean budget, but we had to levy a one-year assessment. At our annual meeting we explained to shareholders that we haven’t had a maintenance increase in three years, and we’ll need to increase maintenance by 4% next year. If necessary, we’ll draw on our line of credit to cover the cost overruns.”
This co-op’s struggles are going to become more commonplace across the city, Joo predicts. “We have many projects that had to be postponed,” he says, “and now we’re faced with higher prices and fewer resources. We have to renegotiate a lot of contracts. Contractors and architects are overbooked. Contractors’ prices are up to 30% higher this year on some projects.”
How can boards deal with this squeeze? “My advice,” Joo says, “is to start early and plan ahead. Every board that’s planning to do capital projects next year should have already started. Plan the budget with more flexibility, and plan for longer lead times. Hire an owner’s rep and very carefully work out the scope of work, then fix both prices and duration of the contract. Try to nail down costs so the contractor will take on any rising costs.”
Diamantis adds: “My advice to boards is to build up reserves as much as possible. These cost overruns and supply-chain problems are not going away anytime soon.” Then he brightens. “We’re squeezed, but we’re going to be all right.”
PRINCIPAL PLAYERS – PROPERTY MANAGER/OWNER’S REP: New Bedford Management. ENGINEER: Joseph Farahnik. CONTRACTOR: Super US Contracting. SCAFFOLD: Geo USA Construction.
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