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The Hard Truth About Soft Costs for Co-op and Condo Boards

Bill Morris in Bricks & Bucks on April 6, 2022

New York City

Soft costs, capital projects, scaffolding, sidewalk sheds, co-op and condo boards.
April 6, 2022

Many co-op and condo boards tackling capital projects are finding themselves caught in a perfect storm: as city regulations have become more stringent, the demand for scaffolding and sidewalk sheds has risen, while the cost of that protective equipment has also risen thanks to high insurance costs, inflation and simple laws of supply and demand. The result: in a small but growing number of cases, the cost of protective sheds and scaffolding — the so-called soft costs — are surpassing the cost of the work itself.

“This market is ripe for the scaffolding industry,” says Chris Alker, the vice president of building operations at the property management company Akam. “The rules have shifted to make inspections more stringent, and the fines are so high that people who might have just paid the fines in the past are now doing the work. So there’s more demand, but there’s only so much material to go around. Then there’s insurance. It all adds up.”

Inflation comes into play here. “The cost of metal, plywood and lumber has tripled since the onset of the pandemic,” says Happi Singh, the president of King’s Group New York, a Queens company that supplies scaffolding and sidewalk sheds. “But insurance is the big item. Insurance is 15% or more of the cost of the job.”

Alker’s mention of more stringent requirements refers to the Department of Buildings' tightening of the Facade Inspection and Safety Program (FISP) in 2020, after a piece of terra cotta fell from a facade near Times Square and killed a pedestrian. Fines for failure to file a report on the five-year cycle jumped from $1,000 to $5,000 a month; fines for late filing jumped from $250 to $1,000 a month; and fines for failure to correct unsafe conditions are $1,000 a month plus $10 per linear foot of sidewalk shed, with built-in annual increases. In addition, there are stricter requirements for qualified exterior wall inspectors; probes are required in cavity walls, a common type of postwar construction; and close-up inspections must be performed at least once every 60 feet on every exterior wall facing a public right of way. Drones and high-resolution photographs cannot replace close-up inspections.

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Suppliers of scaffolds and sidewalk sheds aren’t the only ones getting hit by high insurance premiums. “We’re also hearing from contractors that their insurance is through the roof,” says Matt Resnick, Akam’s director of project management. “Boards’ insurance brokers are demanding to see the contractors’ entire policies — not just the certificate of insurance.” This is in reaction to the state’s Scaffold Law, which holds building owners, including co-op and boards, liable if a worker is injured in a gravity-related accident. Brokers are now taking extra steps to make sure their board clients are not exposed to liability under a law that’s unique to New York State.

Gene Ferrara, president of JMA Consultants, cites a particular factor in the high, and rising, cost of exterior inspections and pedestrian protections. “The cost of sidewalk sheds is not too bad,” he says, “while the cost of pipe scaffolding is getting higher. But the cost of hanging scaffolding has gone up tremendously, because of the costs of filing, testing, tie-backs and other requirements. It’s a very expensive thing.”

And in many buildings, because of the new FISP rules, it’s a necessary thing. Ferrara, like Alker, has seen jobs where the soft costs have surpassed the cost of the repairs to the building. “It happens,” Ferrara says. “It usually happens when the thing you have to fix is in exactly the wrong place. But no question, soft costs are going up. On a $1 million job today, the soft costs are somewhere around $500,000. Ten years ago it would have been $100,000 to $200,000.”

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