NYC sees slowdown in new building construction starts in March

By Atticus O’Brien-Pappalardo

Last month NYC issued the lowest number of new construction permits since the start of 2019, in a sign that the coronavirus may be having an impact on development. However, the decline was modest and as PincusCo reported last week, the volume of new permit applications for March actually rose compared with the prior month.

The number of permits decreased in each month of the first quarter of 2020, dropping to 40 in March, the lowest total over the last 15 months. It dropped by 15.6 percent from January to February and dropped a total of 37.5 percent from January to March.

This decline could continue for a sustained period of time, Ofer Cohen, founder and CEO of TerraCRG, said.

“New construction permits are likely to see a continued decline for the foreseeable future. We do expect them to have a V-shape recovery as soon as the state of emergency ends, but this is not as much about market sentiment as it is about a logistical holding pattern. We think the overwhelming majority of projects that were put on hold will eventually file for permits.”

PincusCo looked at permits issued for new building projects that were larger than 2,000 square feet, and if the project was residential, had to have at least 4 residential units. (New building and foundation permits were included but fencing permits were not included.)

To provide perspective, PincusCo compared permits over the past five quarters with the same period in 2008 and 2009, in the midst of the 2008 financial crash. It is important to clarify that June of 2008 was somewhat of an anomaly. That was a deadline for developers to have permits in order to receive certain benefits from the 421a tax exemption. Following that month, the financial crisis 12 years ago began to have a noticeable impact, the lowest month of permitted projects came in November of 2008, with 42 permits.

Total square feet across all permits also dipped significantly last month. After a huge surge in January that saw permits issued for 6.8 million square feet of projects, making it the highest level in the past fifteen months, the total was only 1.6 million in March. That’s over a 75 percent drop.

It’s likely that government restrictions, construction halts, and financial uncertainty have had a significant impact on the number of permits issued during the coronavirus pandemic.

The slowdown is in all sectors, retail included, brokers said.

“Retail tenants are shying away from construction,” Evan Schuckman, executive managing director of Ripco Real Estate, said.

And even as he is still negotiating leases on behalf of retailers, “clauses are being implemented that protect both landlords and tenants in force majeure events.” Clauses such as these would protect tenants from having to pay rent during forced shutdowns, as has been the case for many small businesses during the Covid-19 pandemic.

Total residential units across permits also fell in March. While the figure dropped only slightly from February, from 1,410 to 1,350, it was a massive fall off from the 4,039 units permitted in January. While the number of residential units has been somewhat volatile over the past fifteen months, March’s total was the second lowest over the span.

Despite the relatively low number of permits issued in March, there were still a handful of significant projects that moved forward. The top five permits accounted for 62 percent of the total square footage for the entire month.

Lendlease was permitted to construct a 345,000-square-foot residential and community facility building, with 187 units, on Union Technology Seminary campus located at 100 Claremont Avenue in Morningside Heights.. 250,000-square-feet of the building will be used for residential units while 25,000-square-feet is to be set aside for community space. The permit was issued on March 25.

Lalezarian Properties had the second largest permit, for a 317,000-square-foot mixed use building with 277 units on March 10. The building, located at 606 West 30th Street in Hudson Yards, will be split between commercial and residential space, with up to 25 percent of the apartments being affordable units.

The Brookdale University Hospital was given the third largest of the March permits. Their plans call for the construction of a 75-foot tall 137,000-square-foot residential building at 527 East 98th Street in Brownsville. The building will have 160 apartments and the permit was issued on March 19.

Rounding out the top five are SB Development, which was permitted on March 18 for the construction of a 109,000-square-foot mixed use building with 103 units at 29-17 40th Avenue and Comunilife, which was issued a permit on March 11 for an 80,000-square-foot affordable housing building with 148 units at 3401 3rd Avenue in the Bronx.