Features

Hard Times for Star Architects


The inside of Studio Daniel Libeskind is crowded with hope. Every desktop, table, storage shelf, and file cabinet in the loft that serves as the firm's Lower Manhattan headquarters sprouts a scale-model building. These detailed miniatures, made of plastic, cardboard, and wood, are an early step in the architectural process, a 3D glimpse of structures that, with a little faith and a lot of money, will one day rise from the ground, spreading good design along with the Libeskind name.

On one table is a four-tower residential/hotel complex destined for Busan, South Korea, in 2011. On another is a 58-story condominium high-rise that just got under way in Toronto after a two-year hiatus. Over there is a shopping mall in City-Center in Las Vegas, which opened last December. And that's where faith and financing reach their limits. The $80 million New Center for Arts & Culture in Boston? Canceled, as is the mixed-use seaside development in Monaco. A 54-story residential skyscraper in Warsaw grew to just 16 floors before the cash ran out. A 43-story condo in Los Angeles is delayed pending new financing. The World Trade Center redevelopment in New York has been scaled back after almost eight years of delays. "You have to be an optimist as an architect," says Daniel Libeskind, 63, the firm's founder and principal. "I don't know of a single project where someone said, 'We just ran out of money, no more project.' Some of them are hibernating."

Architecture is notoriously cyclical, rising and falling in tandem with real estate. Firms suffered large losses, and dumped employees, as construction sank in 1991-92 and again in 2002-03. Yet neither retrenchment approached the severity of the current slump. The American Institute of Architects' billings index—a survey of nearly 600 firms that measures planned construction—has been contracting for 26 consecutive months. Since mid-2008, when architecture employment in the U.S. peaked at 220,500 jobs, the profession has cut 55,000 people, or one in four, according to the Bureau of Labor Statistics. The layoffs continued in March even as overall payrolls grew.

Executives from architecture firms such as Gensler and Perkins + Will say that prior to the recession, they competed with just a handful of rivals on any given bid. Now, because work is so scarce, they commonly face 12 to 15 rivals. Fees have plunged as clients press the negotiating advantage and firms race one another to the bottom. Historically, margins averaged 15%, these executives say. That has fallen to 5% to 10%, and in some cases firms are submitting breakeven bids just to get the work. "It's a rough-and-tumble world out there," says David Gensler, executive director of Gensler, the biggest U.S.-based practice by number of architects. "It's become a battle for market share."

In an attempt to compensate for the paucity of meal-ticket projects, major firms are broadening their services. Commercial architecture represented 50% of business at San Francisco-based Gensler in the mid-2000s. This year, that has dropped to 35%, with renovations of offices and car dealerships now the fastest-growing area. St. Louis-based HOK, which ranks second in the U.S. and fourth in the world, had two megaprojects in Dubai die within 36 hours in late 2008 and has stepped up its building rehab and product design practices. The firm recently launched a line of commercial lighting fixtures.

None of those sidelines, though, brings in as much as soaring planes of concrete, steel, and glass. Revenue at HOK fell 21% in 2009, to $473 million. Vice-Chairman Clark Davis says labor accounts for more than 80% of costs, which left management little choice but to cut the workforce from 2,300 to 1,800 today. As revenues at Gensler fell 30% to under $500 million in 2008, the company cut 750 people from its workforce of 3,000.

"We're not a flush industry. We're not Goldman Sachs (GS)," says Phil Harrison, CEO of Perkins + Will, which laid off 150 people, 10% of its workforce, over the past 18 months. He says the Atlanta-based partnership is moving further into urban planning, infrastructure projects, and building rehabs. Still, the firm won't add personnel until next year at the earliest, Harrison says.

The architecture recession has been just as brutal to the profession's celebrities, or starchitects. Since the Frank Gehry-designed Guggenheim Museum Bilbao opened to the public in 1997, starchitects such as Gehry, Norman Foster (London's glass-sheathed "Gherkin" and Wembley Stadium), and Santiago Calatrava (Athens' Olympic Stadium and the Milwaukee Art Museum) have become as famous as their buildings. Calatrava shared a booking with Sandra Bullock on Charlie Rose. Gehry has been featured in People magazine.

Foster's Foster + Partners fired 300 workers in 2009, a quarter of its total staff, and closed offices in Berlin and Istanbul. The London-based firm's Russia Tower in Moscow, a wedge-shaped structure that would have topped out at nearly 2,000 feet, was canceled last year after the developer ran out of cash. Held up for years, Foster's Tower 2 for a new World Trade Center in New York was postponed indefinitely in March. Calatrava's twisting Chicago Spire, designed to surpass the city's Willis Tower as the Western Hemisphere's tallest building, was halted in late 2008, leaving a large pit in the ground. There's not even a hole to mark the Spanish architect's planned 835-foot-tall residential high-rise in New York; it was dropped because the developer couldn't presell enough units. Among Calatrava's more notable 2010 commissions is a stage set for the New York City Ballet.

Frank Gehry has cut his Gehry Partners workforce from 250 to 120 since 2007, as clients shelved a $4 billion project in Brooklyn that would have filled 22 acres with offices and residences, and a $3 billion project in downtown Los Angeles that would have brought high-rise luxury condominiums and shopping to the area adjacent to Gehry's undulating silver Walt Disney Concert Hall. Gehry, 81, says he enjoys managing a smaller staff, and the slower pace has given him time for oddball projects: He recently dashed off a hat design on his iPhone for Lady Gaga. Still, traveling to drum up jobs is aggravating, and, even as he remains selective, Gehry admits he's settled for smaller commissions than he's accustomed to. ("I'm not taking on houses yet," he points out; houses, and their finicky owners and relatively measly price tags, are low on any celebrity architect's list of desirable projects.) Still, work at Gehry Partners is so slack that the firm is going without summer interns.

The lone starchitect who seems to be thriving in the downturn is Iraqi-born deconstructivist Zaha Hadid; her namesake firm hired 90 people over the past year, increasing its worldwide staff to nearly 400. Roberto Sforza, chief financial officer of the London-based practice, says revenue jumped 27% in the year ended Apr. 30, to $57 million, despite the cancellation of two trophy projects in Dubai in 2009 and, a year earlier, the headquarters for the Architecture Foundation in London. New projects elsewhere in the Middle East, such as the Stone Towers in Cairo, an office and residential complex more than twice as big as the Empire State Building in square footage, have more than made up for those setbacks. Sforza says Hadid has so much business—the firm is evaluating 87 additional projects and getting 20 inquiries a month—that it can charge more than the standard 15% markup. "Clients are knocking on our doors more than ever," he says. Hadid, 59, is prospering not only because of her distinctive designs, says Paul Finch, editorial director of the Architectural Review/Architects' Journal. Since she is the first woman architect to gain name-brand status, her work comes with "excitement, glamour, and an expectation of design beyond architecture," Finch says.

Daniel Libeskind was a star, too, when his master plan was selected for the World Trade Center redevelopment in 2002. Shortly after, Libeskind—a naturalized American born in Poland—and his wife, Nina, relocated from Berlin to New York. He chose his new office because it was just a couple of blocks from Ground Zero. By late 2006, the studio had doubled to almost 70 employees in five years; there were so many projects, and so many incoming proposals, that the Libeskinds discussed another doubling of staff. By January 2009, the downturn had taken hold and, for the first time, Libeskind was laying people off. "This was a terribly traumatic event," Nina Libeskind says.

Today the Libeskinds think the worst might be over. True, the studio is getting 25% fewer new work proposals than in 2007, and the headcount remains 15% below its peak. But multiyear developments are under way in Italy and Singapore. The L Tower in Toronto is under construction after a two-year delay, and would-be clients in the Middle East, Asia, and South America are showing interest. The firm, which puts its annual revenue between $20 million and $25 million, has hired a half-dozen employees and, late last year, gave the 58-person staff small bonuses and 5% pay increases.

Libeskind's portfolio has become noticeably less glamorous, however. His latest jobs include shopping centers in Bern, Switzerland, and Las Vegas, a single-family home in Connecticut, limited-production "Villa Libeskind" prefab homes for German builder Proportion, and door handles for Italian manufacturer Olivari. Libeskind says he took the assignments because they seemed interesting, not because he needed the money. "I didn't come into architecture as a business," he says. "I never started with the point of view of profitability. It was from sheer madness of loving architecture."

He adds: "I don't think you can be a pessimistic architect, because even if you have no work, you are still working with drawings; you are still working on future ideas. Those buildings get built later." Maybe they will: His Jewish Museum in Berlin didn't open until 2001. That's 12 years after he was awarded the project.

Michael_arndt
Arndt is editor of Bloomberg Businessweek's innovation and design coverage.

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