October 26, 2008
It's going to take a lot more than a pair of ruby slippers. Remember last year? When saying there was a fast approaching conflagration in housing and the financial markets drunk with the foolish optimism (or craven short-sightedness) that those same markets were a foolproof way to mint profits would get you mauled by brokers and their lapdogs like fresh venison covered in honey in a bear den? Housing goes up just like rocks fall down: always and anon. Never mind places like Amsterdam (where prices returned to their previous high -- in 1736 -- just last year; I bet they didn't stay there long either). Everyone seemed to have forgot that any time someone tells you a financial instrument is a sure thing that your immediate reaction should be to reach for your wallet -- to make sure it hasn't been lifted.
The song and dance from the broker and broken community over the past year is that Europe -- no Russia! -- no, the super-rich who are insulated from day to day vagaries are going to save the Manhattan real estate market from the absolute implosion experienced everywhere else in the known universe. It recalls the scene at the end of It's a Mad, Mad, Mad, Mad World, where the Dorothy Provine character realizes the location of the treasure before everyone else, indulging in a short fantasy of wealth before concluding wistfully, "Well, it was a nice dream, while it lasted."
Though the particulars are hard to parse, the sharp drops in the outer boroughs is telling, and anecdotes such as apartments being 'flipped' for a loss at the Plaza, the contraction in value of Stuy Town of 10% since Tishman bet $5 billion of your money (via Fannie Mae and Freddie Mac) they could evict rent stabilized tenants with more alacrity than the sorts of people who would invite crackheads into building lobbies (leading to such drastic measures such as charging tenants for their utilities) and what some would call anemic sales at trophy properties in TriBeCa point to a winds of change. Though it may be that sharply contracting values might not lead to foreclosures at 740 Park, it also means that the smart money will sit considerably tighter. After all, why race to drop $60 million on an apartment you don't need if you are reasonably confident it can be had for $50 million in six months (expecting that you would lose less in real estate than in equities at this point)?
Historically, contractions hammer studio and one-bedroom owners. Even with the crazed pace of ultra-luxury housing developed that scoffs at the quaint notion of a one-bedroom, froth at the bottom end will have the same causal effect that credit squeezes and capital support requirements for CDOs have had on financial markets. Ripples will become tidal waves in no time.
So now that we have crowned our Mayor for Life (and, look, I'm voting for him again -- in two years he will probably own the only going private concern in the city and manage all the public sector jobs to boot), it's time to take a page from Nouriel Roubini's book and declare the city is in an outright housing panic. Better still, that we have a real estate crisis across the board.
The reason we are in crisis that the many of the deals that enabled the buying and building frenzy are unwinding, meaning we may see more Macklowe-like fire sales of commercial properties, just as major building initiatives are pressing forward (WTC, anyone?) and the financial services titans that could normally be counted on to swallow up huge swaths of floor space are imploding into each other daily.
Thousands of condos are slated to come to market in the next year or two, all predicated on numbers that are looking more unsustainable each day. Tricks like rent-to-own, or straight rentals will work at the middle range of the market for a few more months, but even though it's likely New York's historically tight rental market will persist, those buildings will go wanting for tenants as people scramble to ratchet down their housing costs.
And this is where the Bloomberg promise of 160,000 units of affordable housing (the accounting for which was always dodgy) looks pathetic, and recent milestones -- the rezoning of the Willamsburg waterfront, and the shunting of the 11,000 units of Stuy Town from Mitchell Lama to the aggressive attempt at 'market rate' pricing come immediately to mind -- look terribly shortsighted. 'Middle-income' housing (to say nothing of stabilized rental units or creative programs to make ownership anything besides a vague dream for median income earners) was sorely needed before this crash, from a cultural or humanist perspective. Now we need it for purely economic reasons, since the people who will forestall savings or other types of economic advancement in pursuit of lives heavy on service and cultural spending, and will accept below median wages to live that dream were being priced into the Bronx and beyond for the past two decades with the glib argument that financial service lunkheads who supplanted them might not be the best substitute in the broadest sense, but their excess of dollars would, um, trickle-down, or prop up the shining Sodom on the Hill that is Manhattan. Those days have come to a grinding, nasty halt.
So the first step is admitting you have a problem, and it's not clear that we've actually done that. Well some people have, they just aren't people spending all their time getting reelected. When the manic expansion of real estate values, and the concomitant growth it brought (construction jobs, tax receipts, absurd growth in personal income at the upper echelons and the ridiculous luxury services sector that raced after the proceeds) was seemingly endless, the only evidence of a housing policy was restricted to softening the already spongy edges of regulation: the 421(a) mapping fiasco, the increasing allowance of developers to shift moderate and low income units off-site when applying for mortgage tax breaks, and tepid attempts to find ways to extend Mitchell Lama.
So the city lacks any tools to deal with the impending issue of systemic failure in the condo market, while the feds and state retreated from the business of social housing around the time people thought the Laffer Curve would make us all rich, in a trickly sort of way. The time it will take to kick start programs, shove through the necessary legislation and then actually start, you know, building things -- provided there's any money left in the coffers -- it may well be too late to have any immediate benefit. Increasing affordable housing stock in always a good long term strategy. But since the government just poured $90BN in to a local company (and that might just be the beginning) to prop up the remnants of an easily identified real estate bubble, maybe we can argue for peeling off a couple billion for some local investment that can have a more tangible social benefit and operate within a reasonable expectation of return.
Found always via this permanent link.
October 14, 2008
Everyone say the serenity prayer with me. I briefly considered writing an entire post about the SLA (State Liquor Authority) as if I had it confused with the SLA (Symbionese Liberation Army). But that would prove technically complex, and likely not worth the payoff. Plus, the only thing I know about the SLA (the latter) is what I gleaned from Doonesbury collections about the Patty Hearst trial (in point of fact, only one panel that I recall, which was a joke that the defense attorney made the entire jury get in a closet so they could empathize with Hearst's brainwashing, a joke that wouldn't play as well since the SLA [the former] is only three members, who might actually fit comfortably in a closet, even if that visual accurately reflects what most bar owners would like to do them). So I'm using the 'this is the joke I would have made' gambit instead.
Whew, that was exciting. Maybe a little more than an actual SLA meeting (or reading a recap thereof), but not much. Since you aren't obliged to read community newspapers or food blogs, what then is the big deal about the SLA? Well, they are currently in the hot seat of a strange nexus of competing interests that comprise the nebulous boundaries of 'community' in Manhattan neighborhoods. Simply put, the SLA is the make or break hurdle for anyone who wants to sell alcohol. There are over a hundred types of licenses (covering retailers and wholesalers as well), but the general breakdown is for bars and restaurants, and full liquor (spirits) and beer/wine. I won't claim to be an expert, so I can't say for certain how restrictions apply (operating times, etc.) -- either though rules or on a case-by-case basis, though it seems to be the latter.
Buying established properties is the safest bet for business owners. Leases aren't granted conditionally, so signing a ten year lease and then spending three years (Boxcar on Avenue B) getting a full license can be a scary business proposition. And finding out the space downstairs that was supposed to be a restaurant but ends up morphing into Le Souk makes for anxious tenants and apartment owners.
Because suspension of a license or refusal to grant can drastically change the character of a place, the SLA has an outsized footprint in a process that also includes Community Board review as well as some city licensing, namely cabaret and sidewalk dining, all of it compounded by the imposition of the smoking ban. Zum Schneider, on Avenue C was embroiled in a particularly bruising court case (and the owner proved himself to be quite the modest victor), much of which stemmed from noise and congestion due to sidewalk seating.
In effect, the argument is about licensing taste. No one wants to be the cranky neighbor yelling at kids, but it's also not unreasonable to make it through a weekend without someone puking on your stoop. The competing interests implicitly argue over whom gets to define the culture of a place. And like all New York turf arguments, people inflate the significance of precedent and persistence, not to mention the inevitable superiority of their own opinion.
The tropes are pretty tired: stroller-constrained aging hipsters who forget how to they used to party, tasteless interlopers who don't respect community standards, indifferent policing, mercurial community boards and malicious bar owners trying to siphon the last dollar from that drunk braying loudly at harried cab drivers. Everyone accusing everyone else of not knowing how to have fun. Given the tenor of all these conversations, that may very well be true.
Pretty broad generalizations carry some legitimate weight. Problem locations tend to draw disproportionate numbers of non-local patrons, and owners with sketchy reputations oversee venues with sketchy manners. It would be hard to strictly define causation, but put a rope outside your door and trouble starts. There are plenty of examples proprietors who manage the most refined exclusivity through entirely different means (and still manage to have a hard time navigating the shoals of the SLA), and others who deal with large sidewalk crowds without the concomitant mayhem some residents would have you believe is inevitable. And simply telling everyone to not be an asshole pretty much counters every extant notion of New York culture.
The chicken-egg aspect of individual cases make it hard to argue for substantial overhaul. Death & Co. has proved to be an exceptional neighbor, and EU has even gotten approval for sidewalk seating. In both cases, you could argue they got the screws applied because Le Souk continues to be a zoo. That might be true, but you could also argue that effective regulation produced its intended result. The continuing troubles of Death & Co with licensing seem to stem from a disregard for, or misunderstanding, of the rules. EU suffered plenty of kitchen turnover, which took the wind out of the sails more than a little (though that turnover may have been directly the result of fears of financial viability). The latest effort from the AvroKO team (which designed EU), Double Crown, certainly skirted on the edge of officious neighbor the night I was there, so the fears of the residents on Fourth Street may be vindicated on that point.
Aside from Le Souk, which, until it closes, will be everything that is wrong with New York nightlife, the latest scourge is The Box, located on Chrystie Street, and is beset by everything from angry neighbors, a obstinate SLA and rather dramatic charges from former employees. The politics here are a little trickier, since by any measure, everything The Box is known for is exactly what it wants to be known for, alluding to various golden eras of New York, from vaudeville to Studio 54. Catering to a celebrity crowd underwritten by suckers ($1,000 plus two bottles for a six-top reservation on a Saturday), you can't really blame the business model, only lament when someone suggests going there under such terms. The neighbors who are raising a fuss have their own cred: pioneers dating back into the early nineties on a stretch of street that still isn't that apartment-friendly.
You could ask for a little more discretion on the part of the bouncers and managers, but keeping a lid on things via obscurity is no longer an option in the Internet (and Dodgeball) era. People went to Save the Robots if they knew where it was and if they were willing to brave the trip. Now, people will pile into a car service (themselves becoming bad neighbors) to the most remote parts of Ridgewood and Bushwick on a tip from a blog.
What's tiresome is the repetition of the lobbying: nightlife is dead or living in the city is untenable, even though statistics on both fronts fail (more parents are staying put, and bars grow like mushrooms). Zoning as it pertains to dancing and the cabaret laws need to be reformed. The interconnection between the Community Boards and the SLA doesn't seem as dysfunctional. The city finally has a local board member on the SLA, but if one constituency benefits disproportionately remains to be seen. We need drinking to be able to talk to strangers and we need to have something to talk about when we are drinking, so maybe it's just the cycle of (night) life repeating itself.
These are not minor concerns. Given that drinking appears to be the go to refuge in times both good and bad with the economy (thankfully the swings are so dramatic we can justify nightly binges), we don't want to imperil what will be the last viable sector of our local economy. And now, it's time for a drink.
Found always via this permanent link.
September 23, 2008
Masters of None. That old canard about being money not being worth the paper its printed on? Well, if three is a trend story, but your sample set maxes out at five, arguing that investment banks turned out to not be worth the buildings they are housed seems like a viable argument, even if that only turns out to be true of two of them.
Remember investment banks? Batting about the acronym IB to malign any boorish nonintellectual who was destroying wide swaths of Manhattan culture, with his evening at Scores followed by bottle service at Lotus and the unthinking embrace of ostensibly marquee quality architecture at positively obscene rates? That was so last week.
Really, let that sink in. FIRE, the term that has haunted New York and any other 'intellectual capital' center that has watched the traditional mix of light manufacturing, civil service and the arts get squeezed by an untenable (I think I get to use that term unreservedly now; if not, let me introduce you to a $700 billion bailout -- which would pay for a shitload of theater companies and have a higher ROI on a job created/retained basis) market model, just lost one of its legs. Granted, the catch all 'Finance' embodied for better and worse by Jamie Dimon, who will cast a longer shadow over the next ten years of Manhattan more than any financier since his progenitor, Morgan, is still a heavy footprint, but rest easy, no one will ever tell you with a straight face that they are an 'Investment Banker' ever again. But if they do, be sure to have a good laugh.
In six months, a century of high finance, the center of a charlatan driven-engine of 'compound interest' spun out from 1929 to now as the absolute unstoppable force of western civilization, vanished. Really, allowing that Jimmy Cayne's dope & bridge habit caused Bear Stearns to implode early, saying that investment banking died in seven days is a scenario the most exercised undergraduate Marxist sociology fantasy couldn't have dreamed up, no matter how many Clash albums you own.
But this is an architecture blog, you say? Well, you say. I try to write about the culture of the city, and since the days of Milken, it's hard to argue that any other culture mattered. Sure, those idiots who went to the kickball prom think they are the zeitgeist, but that is just part of a rapidly unwinding real estate scam, the rickety basis of which they are about to learn most painfully.
How will this abrupt change refashion the culture of the city? Well, aside from the glib, but still hoped for elimination of the term 'bottle service', the nasty effects will of course be felt some rungs further down.
Early signs are not good. Today it was reported that Starrett City bids will take a massive haircut. Not a bad thing in and of itself, but it will likely erode the almost infinitesimal gains in affordable housing, since little headway was made on 421 revisions and the Bloomberg administration has mostly paid lip service to developing new mechanisms to mandate affordability, we will see over-leveraged efforts on the part of organizations like the Toll Brothers simply whither. And once the likes of those people skip, there will be no modern day Sam LeFrak to take up the mantle.
The contagion may well move up and down the ladder. Debt servicing on Stuy Town blows up in about two years. Lacking a pliant Fannie Mae to bail out Tishman, who can say what happens when the largest rental complex in Manhattan becomes insolvent? In both cases, regulated tenants will have a modicum of protection, and are used to living under the tutelage of maliciously benign landlords, but what of the growing ranks of market-rate tenants who think that, you know, garbage should be picked up? Our knight in Shining Silver take another inch or two about the knees he already cut them off at, smiling and telling you he is all about constituent services, too late for you to realize his notion of constituency ends at about where his shoes go. And that is important information when the likes of Tishman start showing up in Albany hat in hand, demanding additional 'reforms' to rent stabilization.
Signature buildings only now just sprouting downtown, looking to remake the skyline of New York as more residential than commercial, will likely proceed apace. Sales may make completion a bit tricky. The Euro is losing ground -- provided condos are willing to embrace all manner of sketchy Russians, it may be the hordes of ostensible discount shoppers from Europe drying up might not adversely effect things too much.
This is all just dithering about real estate. The vibrancy of this town should not depend on eyeing one's burgeoning property investments, if only because this has proved to be futile just about everywhere else on earth at this point (though one should not discount the boundless egocentric focus of a New Yorker). What the past ten years have stripped is a thorough-going discussion of what it means to have land management. Now that value are plummeting to earth and far removed suburbs are reproducing the worst vestiges of urban decay (without the density that city services provide to offset the challenges), these questions are being tentatively raised. Here, the forever spiral upward squeezed out rational conversation about mixed use, about historical pricing patterns, about just about anything except the worst pimping of a Curbed comment thread.
So here we are, gazing at the interesting but intellectually bankrupt offerings of Herzog & de Meuron and Koolhaas, edifices that may prove compelling over time, but being touted on the verge of the nationalization of everything that made them possible, ring more than a little hollow.
On the commercial side, the outlook isn't directly fatal, but leaking into territory where the conventional numbers don't apply, since we are drowning in highly-leveraged debt. Lehmans's commercial portfolio is positively absurd, as are some of the notable apartment complex deals in the Barron's article (linked above), eye popping numbers such as writing $350 million in debt on a complex with $17 million in revenue (almost all rent-regulated) -- this after the purchasers refinanced, cashing out almost the entirety of the purchase price.
As the Treasury gears up its printing press, driving our already absurd daily cost of living expenses higher, expect little relief in any way you can measure. The effects should start to become evident in a couple months. Charitable giving, already on the decline, will eviscerate arts organizations (how much was that new New Museum building next door?). Projects underway will slow and construction costs will abate. This will help in areas, such as the WTC, but the concomitant job loss (going all the way up the ladder) and shrinking tax base will offset any benefit. Though in place financing means many of the projects going up will finish, as things start to go sideways here and there, ripples such as construction firms going under and banks that finally start looking at their balance sheet mean the prospect of unfinished hulks in Williamsburg isn't beyond the pale.
Sure doesn't look any different outside. Yet. Nameplates haven't been pulled down, and everyone is warily eyeing the market. The last days of the emperor are writ perfect. Denying the foolhardy greedy and myopic decision making of the last eight years means that doubling, trebling and more down is the only solution they can imagine. Stare at those numbers really hard and pretend. Change? We have no choice; no one has realized it yet.