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Multifamily Executive Magazine (07/15/2006) < back to list
Caught in the Crunch: Multifamily Builders Confront Volatile Construction Costs
Cost fluctuation for raw materials is nothing newit's a reality of our business," says Glenn Ferguson, president of Clark Realty Builders in Bethesda, Md. ...
It's not just in Ferguson's imagination. According to the Bureau of Labor Statistics, the Producer Price Index (PPI) for multi-unit residential inputs rose 7.9 percent from April 2004 to April 2005. That's compared to a 6.8 percent rise between April 2003 and April 2004 and a scant 0.5 percent for the same period from 2002 to 2003. ...
Other developers award contracts out of sequence so contractors can nail down the priciest items first. "We try to make a concerted effort to get everything with steel or concrete awarded first, mitigating the risk by locking the price in," says John Fumosa, executive vice president and general manager of Hunter Roberts Construction Group's Philadelphia office. The newly formed construction firm focuses on commercial and residential projects, including multifamily, in the $10 million to $50 million range. ...
Developers should bear in mind that they may need to absorb some or all of the pass-through of construction price increases from material shortages to avoid serious construction delays. And they should protect themselves in other ways. "Subs can't always absorb an increase in cost," Fumosa notes, "so we bond certain contractors if we think they're not capable of absorbing a cost increase."