Recovery Work Takes Center Stage
Now that Superstorm Sandy's floodwaters have receded and power is restored to most of the millions it affected, industry executives in the tristate region are warily eyeing the sudden surge in construction activity and spending. The storm's boost to industry may last till around mid-2013, they say. But, unlike Sandy, that boost is not powerful enough to affect the industry's long-term economic outlook dramatically.
That is in part because the storm slowed or stopped projects in the last quarter of 2012; whether and when some of these projects will restart is questionable, executives say. Also, much of the reconstruction work will take time to begin as owners and contractors wait on government funds and insurance payouts as well as the design, permitting and procurement processes, they add.
Some funds for recovery have quickly been made available, including the Federal Highway Administration's $13 million in quick-release emergency funds to New York ($10 million) and Rhode Island ($3 million), and a $27-million National Emergency Grant to put unemployed New Yorkers to work in the clean-up effort.
"The government appropriations, insurance checks and firms' own spending may at first seem to be 'new' funds for construction," Kenneth Simonson, chief economist at The Associated General Contractors of America (AGC), says in a statement. "But over time—perhaps within the same budget year—they will mostly be substitutes for other spending that would have occurred anyway," says Simonson, who also is president of the National Association for Business Economics.
"It's kind of a wash," says Mike Elmendorf, president and CEO of the AGC, New York State chapter. "You get the emergency work—contracts have already gone out and it's largely clean-out [work] at this point—so it's extra work that the industry wouldn't have had," he says. "But there are also negative impacts of things that got delayed—transportation projects and vertical projects."
The broader economic view is that both public and private work will likely be delayed or slowed, Elmendorf says. "Look at the now-famous crane [at One57 on 57th Street] that was dangling in Manhattan as Sandy pummeled the region. That's not going to speed that project along," he says. While there currently is work on the street, "it's not necessarily a windfall for industry," he adds.
Simonson underscores that point. "Most of the replacement activity will not occur for months or years—if ever," he says. Difficulties in getting workers, materials, equipment and even fuel and electricity to jobsites has also hampered projects, and many businesses will likely close or abandon plans to expand or occupy new space that could have triggered developers' spending, he says.
On the employment front, while some formerly unemployed construction workers have found work, especially for emergency repairs to homes, existing crews putting in extra hours are likely to undertake much of the work now under way, Simonson says. Other workers will be affected by the probable postponement of projects for which hiring would have begun in the next month, he adds.
Even so, executives point to the staggering amount of renovation and rebuilding work in the especially hard-hit N.J., NYC and Long Island coastlines where Sandy ravaged homes and infrastructure. N.J. Gov. Chris Christie announced late last month that a preliminary analysis of the storm's damage to the state puts the total cost at $29.4 billion. N.Y. Gov. Andrew Cuomo, citing a study with PricewaterhouseCoopers and the PFM Group, estimates the storm cost New York State $32.8 billion; he anticipates a further $9.1 billion in mitigation and prevention costs. In Connecticut, Gov. Dannel Malloy estimates damage costs so far at about $360 million, according to a recent Associated Press article.
"The storm has changed everything in New Jersey. Our members and the trades they employ are already at work on the clean-up efforts and we anticipate substantial reconstruction work in all sectors of the industry—public and private buildings, utilities, roads and bridges, and so on," says Jack Kocsis Jr., CEO of both the N.J. chapter of the AGC, and the Building Contractors Association of New Jersey.
"We've had a complete destruction of sections of the state, not just the Jersey Shore," adds Philip Beachem, president of the New Jersey Alliance for Action, a non-profit state business and government coalition. He cites as an example the Newark-based Passaic Valley Sewerage Commission wastewater treatment plant, the fifth-largest nationwide, which was severely flooded and lost power due to the storm.
"Things that once were a priority may not necessarily be a priority anymore," Beachem says. "So I would say that there will be a tremendous ongoing need here for capital construction."
Denise Richardson, managing director of the General Contractors Association of New York, sees the storm as a wake-up call. "We expect that we will have power, and when we don't, everyone's life changes in ways that we're not really equipped to deal with. We expect to have functioning mass transit," she says. But the region's infrastructure is old and has long needed closer attention. "The storm made everyone stop and think how we take all this infrastructure completely for granted."
But Richardson is doubtful that public attention to this issue will last. "That's my fear," she says. "We will get wrapped up in the need for the federal government to reimburse us for the cost of the storm clean-up, and we won't really look at what it is we need to do to protect what clearly is a vulnerable geographic area."
Both Cuomo and Christie have discussed their respective state's vulnerability as well as the need to study what to rebuild, where to rebuild and whether to rebuild certain areas. Such discussions will continue on into 2013. However, at least in New York City, they will not likely change the industry's forecast "in any formal way" for the year, says Richard Anderson, president of the New York Building Congress (NYBC).
Before the storm, NYBC forecast that overall NYC construction activity would dip slightly from $30.7 billion this year to about $30.2 billion in 2013 and $29.1 billion in 2014.
There will be a slight uptick next year in the construction market in the city's especially hard-hit areas—Staten Island, Brooklyn and Rockaway, Queens—"but not by that much," Anderson says. "Between now and the end of the year, this will add a few hundred million dollars" and post-Sandy repair work might add as much as 10% for 2013, he says. "I don't think it's going to be a bonanza or a windfall for a long period of time."
He says the city's infrastructure budget is already committed and repair work will only marginally add to it. "The residential market is not that large to start with, so while there'll be an increase, most of the residential work is for high-rise new construction, and repair work on Staten Island and the Rockaways [where hundreds of residential houses were destroyed] will add only a fairly modest amount."
Overall, Anderson expects the storm to add about $3 billion to the city's construction market during the next 12 months. "I can't conceive of it being any more than that, and it might be less," he says.
Meanwhile, trade groups say they will continue to help their members understand and work with the Federal Emergency Management Agency and other federal agencies. "Construction after a disaster like the one we have just endured is very different than the normal course of doing business," Kocsis says. "Contractors need to know the rules."