Though soaring energy costs and overseas demand have driven up the prices of most building materials, the developer of a proposed nine-story apartment complex on Center Street said plans are moving ahead, with construction to commence after the first of the year.
“Obviously we’re going to have to update our costs with the latest steel and concrete prices,” said Darrel de Tienne, who is ramrodding the proposed Seagate high-rise at 2941-67 Center St. through the city’s planning process.
Berkeley’s Zoning Adjustments Board gave their final approval to the project Oct. 14, though de Tienne said, “It’s Berkeley, so someone’s going to appeal.” He said he expects the final go-ahead from the City Council might come at their Dec. 7 meeting.
An analysis by the Berkeley Housing Department in April estimated that Seagate Properties, the Marin County firm developing the 149-apartment complex built atop a ground floor retail and theatrical space, would only yield a 1 percent annual return for Seagate.
“That’s based on the city’s figures. We hope it’s more,” he said. “We’ll probably re-price it three or four times before construction begins.”
The developer said one upside of the current economic picture is increasing rents in the San Francisco area and increases in sales prices for homes and condos.
RealFacts, a Novato-based firm that tracks rent prices in Northern California, recently reported marginal Bay Area rent increases in the last quarter, the first upward movement in three-and-a-half years.
“Obviously, it’s kind of a crap shoot, but we hold buildings as part of a portfolio rather than building on spec. It’s not a single, one-shot deal. You hold it long enough, and you’ll do fine,” de Tienne said.
Rising construction materials prices have doubled construction cost estimates for the new Bay Bridge, and only continuing low interest rates have kept the overall construction pace up, according to some economists.
Construction materials are energy-intensive, with large amounts of electricity and fossil fuels consumed in baking limestone into cement, drying lumber and refining ore and recycled metals. PVC pipes, wire coatings and other construction products are also created directly from fossil fuels.
Increased transportation costs brought on by rising oil prices push costs still higher. Demand from China, in the midst of a national infrastructure rebuilding program, has sent prices higher still.
By midyear, materials prices had outpaced, by nearly three times, the consumer price index, according to a study by Peter Morris of the Sacramento office of Davis Langdon Adamson, a leading national construction cost planning firm.
“We’ve seen pretty sizable increases in the last year compared to the last few years, which were pretty flat,” said Ben Bartolotto, research director for the Burbank-based Construction Industry Research Board.
“The prices for steel frame and reinforced concrete construction have gone up considerably,” he said, referring to the principal construction techniques for the multi-story mixed residential/commercial projects now rising or planned to rise in Berkeley.
Chinese steel consumption has doubled over the past four years, and some economists say there is no immediate sign of letup, “UCLA reports that the bubble should burst once the Chinese building program peaks in a year or so,” de Tienne said.
“In the past decade we saw very little escalation of construction material prices,” said Tim Rogan, chief economist for Engineering News Record, a leading industry publication based in New York. “Starting at the end of last year, we’ve seen historic price increases for steel that kicked the ball off, and now we have across the board increases for most construction materials and they seem to be holding.”
Average prices for structural steel have risen 23 percent in the past year, one of the largest increases since the inflationary years of the 1970s, he said.
“Rebar, iron bars used in reinforced concrete construction, are up 43 percent from a year ago, and steel plate is up 42 percent,” Rogan said. “Lumber is up 15 percent from a year ago. In June, plywood was up 48 percent from a year earlier, though it’s only up one percent more now.”
The biggest increases in steel prices were in the first quarter, most of the others followed in the second quarter, and now cement is catching up, Rogan said.
Wallboard and particle board are up 10 percent, and pipe prices have increased from 8 percent to 22 percent, depending on the material.
Rogan said recent reports, not yet figured into his calculations, cite significant increases in concrete costs. “We have field reports of 15 percent,” he said.
Evan McDonald, of Berkeley developer Hudson McDonald, said the increases haven’t had an impact on their firm, which had locked in prices on its recently completed projects three years ago, before the prices increased.
Panoramic Interests, Berkeley’s other major developer, also has no major projects now in the construction pipeline.
The Federal Reserve Bank, under the tenure of Director Allan Greenspan, has been keeping interest rates down to spur an otherwise ailing economy. That has caused the dollar to lose value against other currencies, including the Canadian dollar which has surged to record highs, further increasing prices for lumber products, a major export of that nation.
Construction industry officials are pushing for the Bush Administration to drop tariffs against Mexican concrete, which sells for less than the domestic product.›