US real estate: changing the way New York is built
Hudson Yards developer Stephen Ross is picking a fight with organised labour that could transform city development
In the realm of New York real estate, Stephen Ross reigns as the developer king Donald Trump could only pretend to be. The son of a failed inventor, Mr Ross grew up in Detroit and worked as a tax lawyer and investment banker until he was fired by Bear Stearns. It turned out that fateful failure allowed him to discover his true calling in property.
His crowning glory is now rising on a site on the western edge of Manhattan that is the biggest in North America — the $25bn Hudson Yards development. When completed in 2025, it will total 18m sq ft of state of the art office and residential space — the equivalent of Pittsburgh’s central business district.
Yet for Mr Ross, 78, the exacting chairman of The Related Companies, the developer of the project, transforming the city’s skyline is only part of the story. With Hudson Yards, he is aiming to leave what may be a more lasting imprint on New York by changing the way developers build.
He is doing so by taking on the city’s most powerful construction union, which has played a storied role in New York’s development. The two sides are now butting heads over a 2m sq ft office tower at 50 Hudson Yards that is rising amid an epic test of wills.
Union president Gary Labarbera, right, with New York governor Andrew Cuomo © Alamy
Underlying their clash are questions about equity between bluecollar workers and the masters of the universe that are polarising metropolises everywhere. There is also a uniquely New York wrinkle: a city that prides itself as the world capital of commerce is governed by an expensive and arcane, even clannish, system of building from an earlier era — something Mr Ross is determined to challenge.
“Steve Ross sees himself as a transformative figure,” says one real estate executive, seeking to explain why the developer would risk picking a fight during such a complex project.
A more prosaic explanation is that Hudson Yards still has years of construction ahead. If it can tame the unions now, Related and its investors stand to make big savings on the remaining work.
Mr Ross’s foe is Gary Labarbera, a one-time forklift driver who heads the Building and Construction Trades Council — an umbrella group that represents the 100,000 or so union workers who put up the city’s skyscrapers and dig its subway tunnels. Mr Labarbera — who at 59 still has the broad shoulders and build of a longshoreman — boasts close ties to the state governor Andrew Cuomo and a reputation as a canny operator.
A day after Amazon chose Long Island City, Queens, in November as the site of its new headquarters , the company’s chief of real estate was in Mr Labarbera’s Flatiron office, adorned with a hard hat and a shovel, paying homage to the labour boss.
One developer who has tangled with Mr Labarbera marvelled at how he could be bombastic on a picket line and then surprisingly personable — even likeable — when they sat down to negotiate. “He does get it that he’s this caricature of the old era when the unions reigned supreme and broke your legs if you crossed them,” the developer says.
For years, Mr Ross dealt cordially with Mr Labarbera. To build the first phase of Hudson Yards, Related played by the rules and struck a broad agreement with Mr Labarbera and the unions he represents. The pact was supposed to lower costs and ease some of the Byzantine work rules that developers blame for making New York one of the most expensive places on earth to build.
But after complaining about more than $100m in cost overruns over six years, Related opted to do what was once unthinkable: it cut Mr Labarbera out of the next phase of Hudson Yards and threw open the bidding — including to non-unionised contractors. It was a declaration of war.
Picketers now stage regular protests at Hudson Yards, the one blemish on what is otherwise expected to be a triumphal opening in March of its first wave of shops and public spaces. They accuse Mr Ross of condoning racism and sexism and harbouring extreme rightwing views that have made breaking the unions an obsession. They have hounded the Miami Dolphins owner at a meeting of the National Football League. They are now planning to target investors and the tenants of affordable housing built by Related.
“Greed! Greed!” says Mr Labarbera, when asked what he believes has motivated Mr Ross. “They’re going to have an incalculable amount of profits in this project. They should be a responsible developer — and they’re not.”
For Mr Labarbera there is much more at stake at Hudson Yards than a single office tower. Even in unionfriendly New York, organised labour has been in decline. Statewide membership in the private construction industry has fallen from 48 per cent in 1983 to 24 per cent last year, according to unionstats.com.
The 2008 financial crisis appears to have been a pivot point. With the industry in crisis, developers and contractors turned to less expensive, non-union labour for large residential projects in the city. If Mr Ross can now succeed at building a commercial tower — a far more complicated endeavour — without the BCTC, then it could be a death blow for the movement, say observers.
“Gary’s worried that this is the beginning of the erosion of his market,” says the executive, expressing sympathy for Mr Labarbera’s plight.
Joshua Freeman, a professor at Queens College who has chronicled the city’s labour history, agrees. “This is not nibbling at the edge of [the unions’] universe any more — this is at the heart of what they do. I think they see it as an existential threat and that’s why the unions are fighting so hard.”
Mr Labarbera regularly irks Related by claiming construction delays at 50 Hudson Yards are because of a shortage of skilled labour. “I will tell you they’re behind schedule — they will deny it,” Mr Labarbera says. “There’s no question they’re having problems.”
Not so, says Related, which has named Mr Labarbera in a $100m lawsuit it filed in March, accusing him of stuffing the site with no-show jobs and $42-an-hour “coffee boys”. The company says it is happy to use union labour but it would like to negotiate with each trade directly rather than striking a collective deal through Mr Labarbera.
A key point of contention appears to be labourers who perform lowskilled tasks on worksites, such as hauling goods. They still earn upwards of $70 an hour, thanks to Mr Labar- bera’s clout. “That is not sustainable,” a Related executive complains, fuming at the suggestion that a company that has already employed — by its count — 20,000 union workers at Hudson Yards could be portrayed as anti-union.
Mr Ross has notched a key victory in his latest fight: in effect splintering the unions by persuading the carpenters to break with Mr Labarbera and negotiate their own agreement to work at 50 Hudson Yards.
But Mr Labarbera may soon play his trump card — Mr Cuomo. Once a union critic, the New York governor has formed a tight bond with organised labour. He has championed public works projects that may one day secure his legacy as one of the city’s great builders. The unions, in turn, have repaid him with their support, backing him over a more progressive candidate, the former Sex and the City actor Cynthia Nixon, in last year’s Democratic primary. Mr Cuomo will undoubtedly need them if, as many expect, he makes a run for the White House in 2020.
Draft state legislation was leaked in December that would formally designate Hudson Yards and other major developments as public works because of tax breaks and other public benefits they have received, thereby requiring them to use only union labour.
The hope among activists is that the governor will endorse the bill. In his “state of the state” speech on Tuesday, Mr Cuomo pledged to expand the list of projects that are considered public — and therefore pay union rates. Doing so, he said, would ensure that they are “built right, built fairly”.
The relationship between New York developers and labour has long been fraught. In the 1980s, the unions had become so infiltrated by the Lucchese and Gambino crime families that a state report described the industry’s workings thus: “Criminally controlled unions shake down contractors who need labour peace to complete jobs on time.” Bribery, it said, was “a way of life”.
Such excesses have been reined in, say executives, and the two sides have enjoyed a period of relative harmony in recent years. Since the devastation of the financial crisis, the city has been awash in cheap money that has fuelled a building boom.
From 2018 to 2020, the New York Building Congress estimates $177bn will be spent on construction in the city, including new airport terminals, major bridges — and Hudson Yards. It is the greatest building frenzy, some say, since the New Deal, attracting ironworkers and steamfitters from across the region.
That is again pushing up construction costs for developers, who are anxiously watching the Hudson Yards battle. They are reluctant to stick their heads above the parapet but eager to see if Mr Ross may soon free them from costly — many say antiquated — regulations.
Chief among them are the city’s 19th century pay rules, which were designed to prevent newly arrived immigrants and cheap labour from southern states from undercutting local tradesmen. For all public works, contractors are obliged to pay the “prevailing wage” — a rate unions have negotiated through collective bargaining agreements — if at least 30 per cent of workers for a particular trade in the area are union members.
Critics say the system is opaque and has artificially inflated wages. An electrician in the New York-new Jersey metro area who would earn an average of $94,000 a year in pay and benefits on a non-union contract stands to make $220,000 under the prevailing union wage system, according to calculations from the Real Estate Board of New York, a developers’ group.
Those figures may be open to dispute since construction work tends to be seasonal and irregular — making it difficult to extrapolate annual salaries from hourly wages. “The iron worker on the project is not living as well as the executive who thinks he’s too expensive,” says Prof Freeman.
The bigger cost, say developers, is not pay but union work rules. An example: New York requires building sites to have separate lifts for personnel and materials. So a worker and his wheelbarrow would have to ride up in separate lifts and then meet on a particular floor. Even though they are automatic, those lifts must be manned by highly paid union operators.
“There’s zero reason to do that — except for the union rules,” says Jonathan Rose, a New York developer who specialises in affordable housing.
In Denver, where Mr Rose has also built projects, he estimated the gap between union and non-union labour costs at about 5 per cent. In New York, various government and think-tank estimates put it at 20 to 25 per cent — a cost for public works projects that is ultimately borne by taxpayers.
A New York Times exposé last year provoked outrage after it revealed that the cost of building a mile of New York’s new Second Avenue subway line was $2.5bn compared with $500m or less in the rest of the world. “The trades are very skilled but they come with a set of constraints that don’t make sense in the 21st century,” says Mr Rose.
Mr Labarbera does not deny that union labour is more expensive. He says his organisation is “evolving” and willing to work with developers to become more competitive. At Hudson Yards, he blames mismanagement by Related’s contractors for cost overruns.