In January, a failed attempt to safely drill into bedrock at the Museum Plaza site stopped construction. At the same time, developers announced they would wait for interest rates to improve before borrowing the money needed to resume work. It was hoped builders would be back on the job this month.
But the economy continued to falter, the city budget was cut, and as a result, the bond issue for the project was postponed.
“We delayed the interest expenditure on the bond by 2 months, knowing they aren’t going to be issued by then anyway. There wasn’t any need to have that money budgeted for interest,” says Kelly Downard, co-chair of the Louisville Metro Council’s budget committee.
The city saves money when bonds are delayed by not paying interest. Downard says the council won’t issue bonds for the project until at least September, and maybe longer.
“Principally, the people who buy bonds, they are not buying them. There’s not a market for them. So it’s very difficult for them to issue a $300 million bond issue or a $400 million bond issue in the market. It has to do with the marketplace,” says Downard.
Museum Plaza’s developers declined to comment for this story; they recently announced that they’re in the process of moving utility lines to the site. One of them, Craig Greenberg, told us in March that the delay could end up saving the project money.
“There are costs of materials like steel and concrete where we might be able to realize savings, so we’re pursuing all of that as well to try and make the project a stronger project given the current market conditions,” said Greenberg.
“The index of materials used in non-residential buildings has gone up 10% from June of 07 to June of 08,” says Ken Simonson.
Simonson is the chief economist for the Associated General Contractors of America. He says there’s been a nearly 2% increase in concrete prices over the past three months, and steel has gone up more than 26% during the same period.
“Steel is being affected by the low value of the dollar and the big construction programs happening throughout the Middle East, India and China,” he says.
Simonson says if construction of Museum Plaza were to resume today, its $490 million price tag would go up about $49 million. And it’s not just steel and concrete that are driving up construction costs.
“Diesel fuel is kind of the hidden element. Contractors have to use a lot of it to operate their equipment and they’re starting to see a fuel surcharges on deliveries of equipment and materials and the hauling away of dirt and debris and equipment at the end of the job,” says Simonson.
Since March, diesel fuel has gone up more than 18%. Simonson predicts material prices will continue to rise, and developers would stay closer to budget if they started building now.
“I think if you go ahead sooner rather than later, chances are you’ll see lower prices,” he says.
“So as they wait to build this tower it’s going to keep getting more expensive?” we ask.
“I’m afraid so, unless they redesign it, take out some elements, substitute materials,” says Simonson.
Louisville Metro Councilman Kelly Downard says he doesn’t know if the developers would consider a re-design to cut costs. He says the council has yet to see a completion agreement for Museum Plaza to assure that it will be the same 62-story skyscraper they broke ground for in October.
(Museum Plaza image from Newscom.)