Goldtex Project Calls City-Wide Union Dominance In Construction Into Question

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So what are the true costs of union building? For comparison, the Hidden City Daily examined a similarly sized–though new construction and not renovation–development a few blocks south of the Goldtex site that is being built using all union labor, the Hilton Home2Suites. Located at 12th and Arch, this $60 million construction project also differs from the Goldtex project because it was financed in part by $12.8 million in state-funded incentives (of which $4.8 will be repaid). Situated across from the newly expanded Convention Center, a hotel seems like the kind of money-making endeavor that would be the last sort of project to require government subsidy. Are the extra $8 million going to cover the costs of using union labor?

Hilton Home2Suites construction site, 12th and Arch | Photo: Peter Woodall

State Representative Dwight Evans, who was instrumental in steering state dollars to the Home2Suites development, said that that the grants were mainly doled out because “financing was difficult and depended on cooperation from the local government.” He emphasized that the tight lending market made any development difficult, even profit-earning hotels in Center City, and that the Convention Center had created an urgent need for hotel space. But when asked if the money was also going to cover the above market cost of union labor, he acknowledged that it was “a factor, although not the only factor.”

“The building is going to be a union project. They’ve got union pension funds invested in it so obviously they should work there,” said Evans, adding that the state financing had helped create hundreds of temporary and permanent jobs.

The hotel’s developer, Robert Zuritsky, president of Parkway Corporation, agreed that there were multiple factors involved in his project receiving state money. “It’s really a combination of lack of activity along with labor costs,” he said, citing Philadelphia’s flagging job base as putting a drag on hotel rates. “You build the same project in Manhattan and you’re getting 100 bucks, on average, on top of your ADR (Average Daily Rate).” But Zuritsky acknowledged that union labor made up the other half of the equation. “Union costs increase your overall costs by 40 percent, as a sort of rule of thumb,” he explained.

Interestingly, Zuritsky’s company had actually been given the opportunity to buy the Goldtex building from its previous owner. “We looked at that building, because it was offered to us, and even if they gave us building for free we couldn’t make it work because we were gonna build it union,” he said.

Zuritsky also made comments that indicated that other developers were closely watching the battle for the Goldtex building–and what precedent would be set by its outcome. “You know what those guys (the Pestronks) are doing is really interesting. They’re doing everything they can, they’re working on the weekends, they’re really doing it quickly…I hope the best for them, I hope they make it,” said Zuritsky. Then he added, “You know you can build non-union in Manhattan now?”

Kevin Gillen, economist and vice president of Econsult, a Philadelphia-based research firm, says both projects exemplify the difficulty of building in the city, where hard-won union wages crash against relatively low real estate values.

“Philadelphia has the fourth highest construction costs in the nation, about 20 percent higher than the national average. There’s nothing wrong with that, per se, if you have high house prices, high rents and incomes to cover that,” said Gillen. But Philadelphia’s rents and incomes are more in line with places like St. Louis and Cleveland. “I like to say we have Manhattan building costs with Baltimore rents,” he added.

Gillen says that part of these costs are related to Philadelphia’s taxes and governmental inefficiency, but that labor premiums for city unions alone pushed construction projects to the suburbs. “The difference between building in the city and the suburbs is a 20 percent premium on union labor costs. You cross City Line Avenue and your costs go down 20 percent,” he said.

More damaging, Gillen said, was the inflexibility of union labor costs, particularly during recessions. Gillen says in Philadelphia, union labor costs actually went up during the height of the real estate crash as all the trades, except the Carpenters, pushed for raises in their contracts.

“It’s not just that wages increase, it’s that they increase in variance to any movement in the business climate or the economy. During a recession labor prices typically come down, but these guys, whether the economy is booming whether it sucks or it’s just flat, their wages only move up,” he said. Gillen says the overall result is that only luxury developments with the highest rates of return become economically feasible, exacerbating gentrification fears as unsubsidized low and middle-income developments become impossible to build.

“Developers can’t just eat those costs, they get passed on in the form of higher rents they have to charge people. And if you’re not willing to pay, than stuff doesn’t gets built. The only place you see construction is in the high end of the market. Even during the building boom all the construction projects were condos and townhouses around Center City. To get a low or middle income development built you almost always need to have some sort of government subsidy,” he said. Eventually, as in the case of Home2Suites, even profitable, high-end development starts seeking government subsidy, and the whole system becomes unsustainable without constant infusions of government cash.

Gillen credited the unions for their impeccable safety record and efficiency. “It’s worth paying someone a wage premium if they’re more skilled and productive,” he said, but added that eventually high wages, generous benefit packages, and expensive work rules reached a point where they created incentives for developers to stop hiring union labor. Hence the Goldtex conflict.

Flier for union protest of Elixr Coffee’s new cafe, the kind of small job that’s now attracting such attention

“There’s a reason none of them are working right now. That’s why they’re protesting: they’re not working. During the boom years you could get away with small non-union projects in the city because as long as the trades are working and making money, they’re happy. But not now.”

Post Brothers insists it is caught in the same trap. “We’re not on any crusade, we’ve always used union contractors and mixed crews. More than half the guys on the site were going to be union guys. All we wanna do is build our projects,” said Mike Pestronk.

“They took this position that it has to be all or nothing, and that ended up harming their own men,” he said, adding that there negotiations with unions were ongoing.

Gillespie maintains Post Brothers is just trying to undermine the unions that built the region’s middle class to line their own pockets, saying labor savings would never be passed on to the consumer.

“The wages they pay are something like 30 percent less than what our members make, so I wonder if there is going to be a 30 percent discount on these units,” said Gillespie. “All these areas are exploding right now and all these developers are driving Mercedes-Benz and they’re renting their projects and they’re doing more and more work. But somehow or another for the Pestronk brothers it’s too expensive to pay a person a fair negotiated wage,” he added.

“Well, we’re not going anywhere,” he said.

As good as tough talk sounds, the facedown reveals that intractability serves no one. Developer’s capital and visions are needed to fuel the revitalization of the city as much as the union’s skills and wages are needed to realize those projects and help create a class of people that can actually afford to live there. Selling out to developers is no solution, but neither is war. Reasonable wage negotiation on the part of the union, that truly takes into account what the real estate market in Philadelphia can support, would serve everyone involved because it would lift the lid on what’s able to be built here.

Crusade or not, Post Brothers has fired a shot across the bow of previously unchecked union hegemony and people have taken notice. Without real compromise now, it is certain that they will not be the last to do so.

About the author

Ryan Briggs is a journalist who lives in West Philadelphia. A veteran of several economic development agencies in Philadelphia, Ryan has contributed to the Philadelphia City Paper, Next City and other fine, local publications. Follow him on Twitter at @rw_briggs.

E-mail him at: rwbmetropolis[at]gmail[dot]com



18 Comments


  1. Please read this note if you are inclined to leave a comment on this article. First, if you’ve already made an argument about this issue on our previous article about the Goldtex project, don’t repeat it here. Second, please keep all comments on point and fact. No conjecture, no vitriol will be tolerated; comments not based in fact will not be accepted.

  2. Harry Kyriakodis

    Excellent piece…

  3. As a witness,I can attest to the well written, factual and non-biased reportage by Ryan Briggs, bringing to light the differences on both sides of the coin.

  4. The windows are not floor to ceiling, the sills are over 3 feet high. You cant fall out them. OSHA is there every day because the unions call them. They would fine us and make us change our practices if they were unsafe!

  5. billy ray valentine

    In addition to costing 60mm the hilton next to the reading terminal market that the hiddencity article compared to the Goldtex building also featured crane workers sleeping on the crane itself. I took a picture of this scene this morning around 1130, but I cant seem to paste it in here.

    Also, I would imagine the reason there is “no protection” in the windows at that building is because the windows are not floor to ceiling. I live in the building across the street and can see into the Goldtex building, there is at least a 4 foot high concrete wall from the floor before the window opening starts.

    Right on Post Brothers, thanks for cleaning up my neighborhood!

  6. NickFromGermantown

    This is very well written and incredibly insightful. This is much better than any of the journalism that is being done by the major media outlets in Philadelphia. It’s astounding.

    As for the subject matter itself, the most telling thing is the methods being used by either side. The Post Brothers have an excellent website that uses excellent rhetoric. By “excellent”, I mean it is both written well as well as being well-reasoned. Are their “facts” all true? I don’t know, but they certainly seem believable. Meanwhile, the unions’ “facts” seem to be concocting stories and hearsay of rumors. Many of their “arguments” are really ad hominem attacks.

    And let’s point out the irony of complaining about “German money” leaving Germany to build something in the United States. How would such a nationalist sentiment work in the context of the fact that so much of the money the United States federal government uses for its projects come in the form of loans from the Chinese? Would the same guy complaining about “German money” also complain about “Chinese money”?

  7. Street Photographer

    Interesting.

    I’m near that building almost every day. Maybe I should start taking photos of the union protesters parking on private property, urinating against peoples buildings and between cars and leaving trash on the sidewalk.

    Also, this was a very well written story.

  8. I’m going to start picketing 100% union jobs. How come it’s Okay for to have 100% union, but not the other way around. Instead of an inflatable rat, I’m going to get an inflatable rubber ducky!

  9. FANTASTIC piece. On my walk to work every morning, I see at least 3 different union protests outside active work zones…. and my walk is barely 9 blocks. This is a huge issue that’s affecting any possible progress in Philly’s urban blight situation, and it isn’t talked about enough.

  10. This is a great article. Well supported with some interesting facts- like most of these guys go home to the suburbs after a long day of trying to prevent development in the city.

    Between Philadelphia’s absurdly ineffective government, high taxes (some of which are laundered back into private developments to pay the unions), and these inflated construction costs, it is truly amazing is that the city has been growing recently all.

    Wonder what the city could do if it weren’t weighed down by the government/union axis?

    A big part of the story is city council still says how hi whenever these guys jump- Jim Kenney shutting down the project at the unions behest using some bureaucratic pretense. He is obviously part of the problem with Philly government corruption, though hardly the only one.

    Kudos to the Pestronk’s for trying to make the city a better place and their courage in confronting these thugs.

  11. Excellent article!

    I particuarly appreciate this:
    “Interestingly, Zuritsky’s company had actually been given the opportunity to buy the Goldtex building from its previous owner. “We looked at that building, because it was offered to us, and even if they gave us building for free we couldn’t make it work because we were gonna build it union,” he said.”

    ‘Nuff said, I think…

    I live in the neighborhood and in no way do I support the unions. Post Brothers is doing a great thing for our neighborhood and, potentially, for the City. Imagine more and more sites going non-union because of this. Imagine the extent to which this City could improve because developers can afford to be innovative and creative?

    Go Post Brothers!

  12. Other articles that I have read on this say that union work is no longer required in the suburbs due to the Valley Forge Plaza using non-unionized labor in the early 80’s. Is that how it works, one large non-union development begets more non-union work? So is the Goldtex renovation the first mixed labor development of this magnitude in the city?

  13. Yes, an excellent piece. Finally an intelligent take on a situation that no one had the guts to address.

    I think political corruption is the underlying cause here….Philllie needs an overhaul!

    $63 an hour? In this economy that is unheard of, the rest of us are working for 1/3 of that, sorry to not be so empathetic to your cause union workers!

  14. Every person working on that site should be commended. They suffer jeers, degrading comments, physical threats, flattened tires, broken windshields, they get followed home, just for working an honest job for an honest wage.

    Thank you for your patience.

  15. It is appalling that the Philadelphia Inquirer, which touts itself as a voice for reform and transparency, has not run an editorial taking a position on the accusations and counter-accusations involved in this important showdown.

  16. How easy would it be for all of the non-union guys on that job to join up with the protesting union? I hear lots of stories about how insular and closed–off unions are.
    If they don’t allow new members, than it’s a case of hiring one shop over another and not fair pay for all.
    Am I getting this right?

  17. didn’t bart blatstein foreshadow this entire process with his work in northern liberties years ago….?

    also, the entire construction industry is moving in a new direction – albeit moving very slowly. this new direction involves designers, contractors, and owner/developers working closely together (even contracting all three of these parties together) and there is no voice at the table for workers other than the tired “we want huge wages but our safety record is great and we all live outside the city anyway” voice of the unions.

    the unions are placing themselves outside of this game changing industry conversation and therefore they will be left behind. instead of protesting, the unions should be training a new crop of project managers and laborers in “just in time” and “lean” management and construction practices. simply stated: the unions must innovate or they will certainly die.

  18. I’d just like to chime in with the others and say this is an excellent piece, very well-written and thought through. That should be the standard for journalism but these days it simply isn’t. It’s great to see it.

    As to the subject of the article, since the Goldtex project seems to be moving forward despite the protests, is there an estimated completion date? Does the union have anything else they can do to stop it (I’m not advocating that the should, I am just asking if they can).

    Because if not, it will mean that you can build non-union in Philadelphia, albeit with great difficulty. A bigger developer, particularly an out-of-towner who does not play Philly-ball, might see that as an encouraging sign.

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