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Real estate record and builders' guide: [v. 99, no. 2572: Articles]: June 30, 1917

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REAL ESTATE AKD (Copyright. 1917, by The Record and Ould* Co.) NEW YORK, JUNE 30, 1917 FACTORS GOVERNING BUILDING CONSTRUCTION High Rentals Obtainable, Though Labor Problems and Scarcity of Materials Must Be Considered—Owners of Vacant Land Warned < By CLARKE G. DAILEY, Vice-President. Alliance Realty Co OWNERS of improved property in New York City are in a stronger position today than at any time for many years past. The shortage in available space for renting, caused by the general business activity the past year or two and the sudden diminishing in the amount 'j of building- construction, has resulted in : an increase in rents and a deinand for space. This has enabled the owners to ■fill up the vacancies which prevfously were only too frequent. In most sec¬ tions of the city the landlord has in¬ creased not only his income but the rate at which his buildings were rented. Of course, there must be offset aga-inst this the increased cost of coal, labor and other operating expenses, but the ab¬ sence of vacancies is nevertheless suffi¬ cient to cause a substantial net increase I'n the income to the owner. The owner of unimproved property, however, faces an entirely different and more discoura.ging situation. Knowing that a new building erected on the site of his property would rent immediately, and at splendid rentals, he obtains infor¬ mation as to the cost of such building, and the increase over the cost of a simi¬ lar building erected two or three years ago is staggering. However, the equally discouraging prospect of carrying prop¬ erty vacant, with carry charges accuiiiu- lating from year to year, compels hiin now to face this question: Is it better to pay the increased cost and secure the ad- vailtages of the splendid renting situa¬ tion, or carry the property for a period of time and perhaps wake up to realize that the advanced costs have come to stay, while others have foreseen the trend, improved their property and reaped the advantages? In order that the owner should prop¬ erly decide whether he is justified in pay¬ ing the present prices for building mate¬ rials and labor depends upon two fac¬ tors: first, whether within any reasona¬ ble period of tiine there is going to be a decided slutnp in building costs and, secondly, whether the property can be improved with a low building. In this latter case recession in the value of the property when improved (due to a slump in building costs) would not be a serious item on account of the preponderating land value. I believe the present high cost of building material and of labor will, in a broad sense, be maintained for a number of years to come. The production of materials necessary for the conduct of the war in which we are now engaged, added to what is required to supply individual demands, must necessarily tend to compel still fur¬ ther the enlargement of our manufactur¬ ing, shipping and assemblin.g plants. The drain upon labor and materials will con¬ tinue until the end of the war and for some time thereafter, and I think it is safe to say the price of labor and mate¬ rials will go, if anything, higher than at present and will be on a more or less permanent basis for some years to come. .\ considerable period will have to pass after Deace is declared before building rnaterial prices recede to the levels exist¬ ing about two years ago. if they ever do. RECOBD .\ND GriDE Labor has a habit of holding on to what it has gained, and labor, of course, is involved in making up the greater part of the price of any material. Moreover, our new restrictive immigration laws, which will undoubtedly be unchanged after the war, will cut off a supply of cheap labor that has been a source of great importance in the building world in the past. No one can predict how long the war will last, but as soon as the demands for special buildings caused by the war cease, the pressure which has accumulated for new buildings for other purposes will make itself felt. Shortage of Steel. I believe there has been a real short¬ age in steel as a result of the large mu¬ nition and other Governmental contracts, which shortage has been the cause of the tremendous advance in prices. The demand which will continue to exist for steel, not only for the making of muni¬ tions but in response to the foreign de¬ mand for structural steel after the war, will continue to create, if not an actual shortage, a steady demand which will keep the price of steel practically at its present level for a lon.s time to come. The price of pig iron today is mount¬ ing upward and will continue to do so in response to the large contracts for shell and shrapnel which our "War and Navy Departments are giving out in large numbers. No doubt there will be some reaction when peace is declared, but the great amount of iron and steel wlTicTi has been used up in munitions and in the creation of certain types of buildings and other special uses caused by the war will have its effect upon the amount of iron and stee! available for the use of the world. Iron and steel play a very large part in the commerce of today, bemg only surpassed by the factor of labor. Transportation Problem. .\nother factor is the increased cost to the owner occasioned bv delay in the construction of the building dtie to the difficulty in getting quick transporta¬ tion of the materials to be used, when they coine from out of town. The progress of many a building has been seriously hampered by waitine for materials from out of town, and this situation is still serious, although now bein.g prepared for it we are better able to encounter it. The government will, of course, have the right of way for the transportation of troops and its own material, and the owner should take this into account in figuring the probable time which the con¬ struction of a building will take. I do not look for any falling off in the rate paid for labor for many vears to come. It will doubtless be higher in this countrv as we feel the effect of the withdrawal from peaceful pursuits of the million voun.e- men who are to take un ariTis. How long these conditions will last and the effect upon this country will largely depend upon the extent to which our nation becomes actively involved in the .great war. I believe, however, even after peace is declared and the soldiers abroad and in this country return to their homes, there will be so much to do in rebuilding the destruction caused bv the war that there will be no danger of idleness amon.g the working classes. IS IN ITS FIFTIETH YE-iR and consequently tlie high rate of wage will be maintained. The United States, on account of its vast natural resources, is the logical country to supply materials to be used in repairing the destruction in Europe caused by the war. Upon the conclusion of peace we shall still be called upon to supply the world's market with many necessities of peaceful industry, as the business of the countries abroad has been radically affected by their endeavor to attain efficiencv in war. Gradually no doubt they will again build up their own industries and become inde¬ pendent, but this will take time. Doubtless it will be cheaper to build homes and biisiness buildings when a slump in building material prices comes, but a considerable period must elapse before that time arrives. Notwithstanding our conclusion on the question as to how long a period of time will elapse before building costs will be materially reduced, there are certain circumstances under which the owner should not hesitate to pay the advanced costs of today. For instance, the price paid therefor does not really count providing the profits of the businesses, which the new buildings are to house, warrant the expenditure. We recently sold a plot of ground in White¬ hall street to a large steamship com¬ pany, which is now erecting on the site a building for its own use and paying a price per cubic foot for this building which must be nearly double the price we paid to erect the adjoining building two years ago: but they apparently feel that proper accommodations to take care of their wonderfully increased business warrants the expenditure. It is necessary to consider the height of the building and the proportion the cost of the building bears to the land value in order to properly estimate the possible loss of capital value should there be a shrinkage in building costs later. Certainly if one owns a piece of prop- ertly which can be improved so that if will bring in a good income by the con¬ struction of a low building, there can be no doubt that it would be more profita¬ ble to pav the present cost than to wait until buildin.g prices recede. For such a building it might even pay to go out and buv land, as the existing low land values will helo to offset advanced building costs. However, where the property must be improved with a high building more caution should be used, for if the value of the improvement is large in proportion to the land value a shrinkage of capital value later, caused by a drop in cost of building, would be apt to wipe out the profits obtained on account of good renting conditions. AVe should also remember that the profits of today will be appreciably diminished by the taxes to be levied by Congress. -\s an illustration of the low building tvpe of improvement take the example of the synagogue property which w? own on the west side of Madison avenue, be-, tween 64th and 65th streets. This proo- ert.v is exceptionally well adapted for the site of an eleven-story apartment build¬ ing, and an improvement of this char- (Continued on page 904.) OF CONTINVOUS PUBLIC.tTION.