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New York City apartment remodeling makes for raging inflation

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In Manhattan, where two-bedroom apartments now average $1.5 million, remodeling costs have jumped at least 50 percent in five years as building managers dictate everything from where to put appliances to when carpenters can play the radio.

Many buildings now limit the number of projects allowed at once, while some bar contractors without $5 million of liability insurance. At 941 Park Ave., where real estate records show Merrill Lynch & Co. Chief Executive Stanley O'Neal and Goldman Sachs Group Inc. President Lloyd Blankfein have apartments, construction must be completed within 120 days.

"It's become increasingly complex to do renovations," said Gordon Kahn, a Manhattan architect for two decades. "There has been a focusing of the lens on this stuff."

U.S. homeowners spent $132.9 billion on remodeling in the 12 months through June, according to the Joint Center for Housing Studies at Harvard University. In New York, renovation prices are up about 12 percent in the past year and at least 50 percent since 2000, said Lesa Dresher, who runs the regional office of the National Association of the Remodeling Industry and regularly surveys her 340 members.

Manhattan buyers often build before they move in, figuring the extra money -- a marble bathroom can easily cost $50,000 -- isn't that much extra.

"Renovation in the city is pretty much a standard," said Laurie Bloomfield, an 18-year broker at Prudential Douglas Elliman in Manhattan. "There are people who are spending $2 million or $3 million dollars for the space, and if it's not to their taste, they will rip out everything."

Old is out

People buying apartments in elegant pre-World War II "co- ops," buildings that are jointly owned by unit holders, used to want the quirks of original fixtures. Not anymore.

"Almost nobody goes into an original apartment and leaves it that way," Bloomfield said.

Unit sales of Manhattan apartments rose 7.5 percent to 2,181 in the second quarter from the first, according to Miller Samuel Inc., the borough's biggest appraiser, while the average New York apartment sold for a record $1.32 million, up 30 percent from a year earlier.

For co-op boards, the owners elected to oversee a building's operations, tightening renovation rules is a matter of balancing progress with protecting the neighbors. Along with all the plaster dust and pounding, some lower-floor residents, for example, may be forced to cope with outdoor scaffolding that limits their daylight for months at a time.

Then there's the wear and tear on elevators, and the extra work for service staff having to monitor dozens of deliveries, painters and plumbers.

'Takes a toll'

"All the activity really takes a toll on the building," said Paul Gottsegen, director of management at Halstead-Heron Management Co. in New York. His company oversees 85 city buildings, including a 57th Street high-rise currently dealing with 17 renovation projects.

Most buildings restrict the hours that work can take place, while others require apartment owners to pay penalties that may run from $100 to $300 a day when projects go past a target completion date.

At 720 Park Ave., a 1929 co-op that was once the home of R.H. Macy & Co. president Jesse Isidor Straus, work is strictly limited to June, July and August, when neighbors are likely to be out-of-town.

Anything that might affect pipes or damage adjoining apartments is a particular interest, said Richard Grossman, the former board president of 20 East 9th St., a 330-unit co-op.

Washers and dryers can be a sore point. In many buildings, the machines are now all-but banned from individual apartments because of the demands they make on plumbing, real estate brokers said. Older models can often be replaced only with low-water front-loaders and a promise to use low-suds detergent.

Ban on jackhammers

"It's good for a building that people upgrade, but there are physical things you have to look out for," Grossman said. After one neighbor installed an unapproved washer-dryer and did terrace work, his building increased inspections and fired its engineer, who "wasn't doing the job."

At 320 Riverside Drive, a pre-war co-op with 120 units at the corner of 104th St., residents complained "bitterly" about power tools used to combine a penthouse with the unit below, said Ed Koral, the board's president. That prompted a ban on jackhammers, and may leave future remodelers chipping out bathroom tiles with hand tools.

Crushing

Manhattan general contractors say they are submitting ever-higher bids to make up for new restrictions, the skyrocketing costs of liability and workers compensation insurance and rising materials prices.

"You have to adapt or you are going to get crushed," said Peter Comito, a contractor who added that Manhattan jobs are now double the price of renovations in Brooklyn or Queens. "It's reflected in the pricing."

As apartment values climb, many boards require at least $3 million of insurance when $1 million used to suffice, said Robert Mangi, a contractor's insurance broker in Mineola, New York. Some demand $5 million, he said. Premiums for a busy contractor have risen to more than $60,000 a year from $10,000 or less five years ago.

Taking on more

The increase has forced some of Mangi's clients to merge and many more to stop working in Manhattan altogether, he said.

Keith Steier, a general contractor with eight projects this summer, said he's been forced to pass on rising insurance rates and the extra costs of board demands such as inspections for asbestos and lead paint and mechanical drawings from plumbers and electricians. A kitchen installation that went for $15,000 five years ago now costs at least $25,000, he said.

Steier, who has been in the business since 1992, plans to increase his work to 14 projects in the next few months and hire more subcontractors, spurred by booming demand for his services.

The complexities of working in Manhattan have "weeded out the contractor who said on Friday he was going into business on Monday," he said. "This is the busiest we've ever been."

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