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WFH is Here To Stay. But.

When the COVID-19 pandemic took hold and spread across the US, we all became subjects in likely the greatest remote work and telecommuting experiment ever. Abruptly, and on an ad-hoc basis, millions of us brought our offices into our homes, and just kept on working. Overall, the work from home (WFH) experiment is succeeding. And not only that, it’s succeeding under conditions far less than ideal. It would be one thing if we were working at home and the kids were in school. But our kids are home, too, challenging us to balance both our kids’ needs and our bosses needs under the same roof at the same time.

We’ve learned, thanks to widely available broadband, home WiFi networks, and teleconferencing software that works remarkably well despite the security and data scraping issues, that physical offices aren’t really all that important anymore. We’ve been able to work effectively without them even if there have been some strains in the transition.

This lesson has not been lost on the C-Suite crowd. As we start to think about how to reopen offices, keeping public health and liability concerns front and center, they will not pass up the opportunity to shift their companies’ occupancy costs to their employees while they cut their companies’ office space requirements. The savings will drop right to the bottom line, and they’ll be richly rewarded as the stock-based part of their compensation zooms in value. While I’m familiar with the arguments about how “social” we all are, how we need to be with one another, and how important face-to-face collaboration is, we’ve proven by our actions that there is another way. And when management decides what’s best for the company, the matter is pretty much settled, especially in this time of record-high unemployment and spreading insecurity.

Looking ahead, I believe that we will see a lot of office space reduction in the coming year, whether in the form of consolidation, lease renegotiation wherever possible, greater use of reconfigured co-working or flex spaces, or other space-shedding strategies. And WFH will be a big part of the “new normal”. Overall, we’ll see lower head counts and more square feet per person, also known as lower density.

The office spaces that do survive this shift will be different. While the adjustment is just getting under way, changes are coming. The most obvious thing will be spreading out people in order to maintain social distancing, which is the only strategy proven effective in containing and controlling the spread of this terrible virus. And the impact will be significant. In New York, the ratio of worker to space dropped in recent years to as low as 80 square feet per person, as companies packed people in to manage their occupancy. Look for that allocation to at least double as employees are spaced further apart both for the sake of their health and the companies’ liability. Bench seating will become a relic of the recent past, and quickly. I doubt anyone will miss it.

Constant, routine daily cleaning and disinfecting will become the norm, both within office spaces and in building common areas. That will significantly increase operating and maintenance costs. Individual tenants will have to shoulder their own internal costs, but expect to see landlords trying to pass their increased costs through.

The concepts of attendance and start times will have to change. In nearly every office building, the elevators are the bottleneck. Queuing people up in the lobby spaced six feet apart, and limiting the number of people in each elevator at any time means that it will just not be possible to move people upstairs the way we used to just a few short months ago. When there is a vaccine, this problem may go away. Until then, expect to see a lot more flexibility in office starting times, limits on capacity beyond those imposed by office layout changes, work shift setups along the lines of factory work, and other concepts. Some will work and some won’t.

The biggest change will come when management looks carefully at how they use the space they have, and what their people actually do in that space. Then they’ll figure out how to prioritize which tasks actually have to be done onsite and reconcile those space needs in order to use less space more efficiently. Hoteling concepts are probably dead; after all, why pay for transient space when your people will work from home? We may see new designs for spaces for teamwork and collaboration onsite, taking into account social distancing criteria, while relying on WFH for what used to be individual offices or cubicles. An idea that may work in some businesses would be to keep everyone working remotely and only bring people in to make the important “in person” new business pitches or similar presentations. These are only a few ideas. There will be others.

Look for changes in mechanical systems. I think we’ll see new interest in increasing outside air changes, possibly ditching return air plenum designs in favor of ducted returns, attention paid to internal airflow, consideration given to operable windows, ultraviolet duct sanitizing systems used more widely, and other concepts. Proximity systems could also be expanded. Most office workers these days already have a key fob or ID card for access; there’s no reason they can’t be used to control a broader range of things. And hands-free washrooms could easily become the standard going forward.

Those are just some of the physical changes we can look forward to. As we start talking seriously about reopening, WFH needs to be developed from its ad-hoc format to a more fully featured way of working.

Home offices or workspaces have to be upgraded and improved. It’s one thing to spend a couple of months doing videoconferences with your laptop balanced on your knees as you juggle your notes, all the while backlit by the light pouring in your living room window as your fellow video conferees look up your nose. It’s another thing to spend a substantial part of your career that way. To really perform at one’s peak, remote workers need a comfortable workspace separate from the family. That requires dedicating a space in your home for work, in effect losing the use of it by you and your family. It also requires investment in the form of, possibly, physically modifying your home. There are also operating costs incurred, be they paper, printer cartridges, or other supplies that used to be available at the office. We may also see new house and apartment plans evolve to include a usable home office or workspace. Apartment dwellers, especially in the small units built in this current cycle, will be particularly challenged. One idea could be for their landlords to convert the ground floor retail spaces to intelligently, and safely, designed resident work spaces. Retail is failing, so this may be a way to make lemonade from lemons. No matter the solution, there is a value, and a cost to the employee to be accounted for.

We all have to learn new presentation skills. We may not all be anchormen or women, but we do need to improve the way we look on video. There are also a lot of tools and tricks to presenting oneself better on video, all of which are part of a truly successful WFH setup. Again, it takes investment in hardware, software, and training. And costs that the remote worker will have to bear.

The “time bleed” has to stop. Anecdotal evidence indicates that people working from home put in an extra three hours a day. While, as professionals, everyone accepts putting in some extra time as part of the landscape, three hours a day extends to 750 hours a year. Consider that a standard working year is around 1,900 hours; working an additional 750 hours is the same as putting in around an additional 40%. Since it would be naive to expect a commensurate raise, the solution is a social one. Companies and employees have to recognize that working from home requires clear limits and a clear understanding of start/stop times. Most important, employers must understand and respect these limits.

The tax laws need to change. By shedding office space and pushing the WFH model, companies are shifting their occupancy costs to the staff without compensation. Since all of this will be done as a cost-cutting move on the employers’ side, and since it’s unlikely that the companies will turn around and share those savings with the staff, the Federal and State governments should step in and do what employers can’t be expected to do: provide tax incentives or other rewards to people who work remotely. One way would be to drastically expand the range of office-at-home tax deductions. Another way would be a tax credit for individuals, in other words a dollar-for-dollar reduction of tax liability based on the annual value of an employee’s home office or workspace. Since the big companies have been vacuuming up all kinds of tax favors in recent years, not to mention stimulus dollars recently, it’s only fair that employees get their share.

Child care will be a bigger and more urgent issue. On one hand, having our children see what we do to put bread on the table can be a valuable part of learning and becoming a good citizen. On the other, our kids need us when they need us, and they can’t always be expected to understand the demands of working. The school day is also shorter than the work day, and so something has to close that gap. A good start would be respect and understanding of the family’s needs, and an acknowledgment that those needs really do have to be balanced with company’s needs. One solution could be a greater use of flex time, or shift setups that allow working couples to stagger their days to provide continuous child care. Another solution would be reliable, broadly accessible after school programs. Along with this, child care tax credits should be broadly expanded so that employees at all levels can get help with the cost of child care, whether it is day care, after school programs, special needs support, or other qualified activities that working parents need in order to attend to their children’s’ needs while performing at a high level while working from home.

The WFH experiment has, among other things, finally killed off the stigma of working from home. When I started my business, I worked from home, as have many others. I will never forget the sneers that greeted me when I acknowledged that, and the presumption that I was somehow less professional because I didn’t have an “Office”. But, when newscasters, entertainers, and even political candidates work from home, all of a sudden it’s OK. As companies of all sizes across the US push this, it will be even more OK. Meantime, the lack of an office is now an equalizer, and those of us who’ve been doing it for some time have the advantage: we’re space-efficient, nearly paper-free, and very tuned in to how we look on Zoom. Advantage the WFH crowd.

Make it Even Bigger

With yesterday’s announcement, Governor Cuomo brought a needed sense of urgency to the redevelopment of the Farley Post Office and Penn Station in Manhattan, a now nearly twenty year saga most notable for its total lack of progress.

It’s a great start, and an ambitious plan, but not ambitious enough. Here’s what should be on the table.

Evict Madison Square Garden. Back in 2013, the City Council wisely declined to grant MSG management a special permit to operate in perpetuity, and instead gave another ten years. The clock is ticking, and now it’s time for the Council to close ranks, dig in, and make it clear that MSG has to find another site, build it out, and vacate. No extensions.

Tear the Garden Down. It’s old, it’s outmoded, and the fact that a even Newark has a better-designed arena should be a regional embarrassment. It also sits on top of the busiest, most important train station in the country. No half measures here, no insertion of a glazed entry in place of the theater. Tear it all down and build a new, state-of-the art railway station that will serve the region for the next century or so.

Dump Moynihan Station. It’s a seductive repurposing of a building, a relic of 1970s design thinking that appeals only to the preservation/adaptive reuse crowd. For the rest of us, it’s a poorly conceived plan that would never be quite right. Not even Amtrak wanted any part of this one; even they didn’t want their waiting room a block away from the train platforms. If the project had been done twenty years or so ago, when first proposed, it would have been here already and we would have seen just how flawed the concept it. By living with it.

Move Madison Square Garden. Here’s a radical proposal: tear down the west half (or more) of the Farley Post Office and replace it with a new, up-to-date Madison Square Garden with all the amenities and features that a 21st century arena needs. Preserve the magnificent portico and principal façade on Eight Avenue and incorporate it into the new complex (rail and entertainment) in a creative way befitting the times we live in. As for the west half, yes, McKim, Mead & White designed it, but it’s a loading dock for heaven’s sake. Let’s preserve what’s worth saving and remake the rest in our contemporary image.

OK, how do we pay for all this? Fair question. The knee-jerk reaction these days seems to be to get a private sector developer onboard, give them a piece of the action, in this case the retail space, and turn them loose. The problem is, developers, like all business people, have their own agendas, which are usually not aligned with anything resembling the public good. The other problem is that this approach didn’t work with Related and Vornado in control of the Farley Post Office project, which is why they are out and a new RFP is coming. The alternative is Federal money, and lots of it; there’s a very strong argument that this is a national growth driver that deserves Federal money. Add to that a massive state bond financing, and a requirement that the private developer selected to build all this should be able to finance whatever piece of the action it gets upfront, and we should get there. You can read the NY Times article here

Time to think really, really big. Maybe even huge.

Tunnel Rats

Yesterday, none other than the New York Times editorial board got on the train to urge the construction of new rail tunnels under the Hudson to alleviate the strain on the existing tunnels, which are around 100 years old and in dire need of replacement, or augmentation, or both. It’s about time.

Readers of Naked Urbanism already know the back story: how Chris Christie torpedoed the ARC project back in 2010 that would have addressed this now urgent situation. No matter what he said at the time, he was angling to be President, and used this issue to vault onto the national stage, playing as he was to the national Republican Party to burnish his credentials as a slash-and-burn rock ribbed conservative, the needs of his constituents be damned.

Clearly, the New York metro area contributes much more to the national economy than its size would suggest, and Republican politicians across the country would ever admit. But it’s true. We have more high-value, high income jobs here per capita than anywhere else, save perhaps the Bay Area/Silicon Valley, and I would suggest that our distribution is more diverse than theirs. So this is arguably both a local and a Federal matter.

Now that Christie’s performance to date in the Republican circus makes clear that his Presidential aspirations were far-fetched at best, and delusional at worst, it’s time to get back to reality and face the music. But how to pay for this?

Let’s start with how the ARC, a $10 billion project, was to be financed. The Federal government committed to 51% of the cost. The balance was to come from New Jersey Transit, the state of New Jersey (until Christie pulled the plug), and the Port Authority.

So if the Feds were ready to step up for 51% a few years back, there is no obvious reason why they wouldn’t do at least that much again. The revised estimate is now $20 billion, so there should be $10 billion right there. New Jersey will benefit tremendously from this project once it is done, and so should step up, too, for big money: According to a study done by the Regional Plan Association for the ARC, New Jersey can expect to see another $375 million in new tax revenue. If New Jersey contributed even a portion of that windfall, say $200 million, which would be recurring income, mind you, that would cover the debt service on nearly $4 billion in public finance at 5%. That would get us to $14 billion. New Jersey Transit should also take a piece, as should New York State, since New York will benefit from is a precedent to financing projects like this. At least on the back of the envelope, this job can be paid for, and we should start it immediately.

Chris Christie ceded the leadership on this one five years ago as he prepared for his quixotic quest on the backs of his constituents. Senators Menendez and Booker from New Jersey seem to absent on this one, Menendez possibly distracted by his indictment last April, and Booker likely wearing out his thumbs tweeting. So Chuck Schumer has rightly taken the lead here; the spectacle of spanking a deserving Republican a mere side benefit to this important project.

Mid Century Modernism Endangered

For those of you who do not read Architects Newspaper, Pamela Jerome of WASA recently published a thoughtful comment on mid-century modernist curtain walls (AN 9 April 2014), which raises a number of important issues that deserve comment and further study.  You can find Ms. Jerome’s article here:

In the interest of full disclosure, I have had the pleasure of being a client of Ms. Jerome and her preservation studio on two façade rehabilitation projects, one of which involved a single glazed curtain wall on a mid-century modernist building.

Having successfully redeveloped two major twentieth century commercial buildings, and having tried unsuccessfully on a third, I can attest to the fact that the preservation issues surrounding twentieth century commercial buildings are probably the least understood, and the most arbitrarily reacted to, in all of preservation theory.  What is often lost in the discussion is that these buildings were built by clear-eyed, unsentimental men who saw them as tools in the pursuit of trade, commerce, and wealth, and most definitely not as edifices of any kind.  As a result, these buildings were altered time and again within their useful lives as tastes changed, styles and “looks” went in and out of fashion, neighborhoods and districts evolved, and tenants came and went.  In our commercial society, those cultural issues are just as important as the esthetic issues inevitably associated with any building, and they are very hard to reconcile.  Looking ahead, the challenge that the mid-century modernist commercial buildings face, beyond the important one of the integrity of the curtain wall, is whether they will remain desirable in an era when office tenants, for one, demand the higher ceilings, larger windows, vast column free spaces, and decentralized HVAC and control systems that 21st Century office buildings routinely deliver.

Emery Roth & Sons’ contribution to both architectural practice and our landscape is often underappreciated.  In their time, that firm embodied the hard-nosed pragmatism and drive that are at the core of our New York commercial culture.  The buildings Roth’s office produced were efficient, economical, and executed quickly.  The firm also had a clear grasp of the importance of production, something the profession would do well to rediscover today.  Having worked with an Emery Roth & Sons job captain early in my career, when I was with a small firm struggling to execute a large commission, I can freely say that the grounding I got in that three or four month experience certainly shaped me and has served me well ever since.

Market forces aside, though, mid-century modernism really is a particular moment in time that expresses the world’s desire for rebirth as it emerged from the horrors of World War II.  That optimism is evident in UN Secretariat, as it is in every part of the UN campus.  Lever House, the Seagram Building, and scores of other projects of that time personify it, too.  One of the ways we can see it is in the refusal to accept the state of the art as a limitation.

It is a moment worth understanding and serving as inspiration in our own time.  In that context, the story of Lever House is illuminating.  Having survived the infamous Swanke Hayden Connell “White Paper”, which described it as an undistinguished building underbuilt for the zoning, and proposed its demolition and replacement with an SHC design based on an old Wurtlitzer jukebox, it was landmarked.  Around that time, when I was a young associate at SOM, the firm received an AIA award for the building.  In commemoration, the partners retrieved the original full size curtain wall details from the archives, had them framed, and displayed them as fine art in the gallery on our main floor.  The contrast between the Lever House details and the sophisticated aluminum curtain wall systems we were executing at the time was striking:  curtain wall technology in the early 1950s, if it existed at all, was in its infancy.  To do Lever House, they really cobbled the wall together from a collection of miscellaneous iron sections, bent plates, and who knows what else.  With razor sharp hindsight, we know now that they didn’t really understand all of the issues of curtain walls. But they were determined to create somethingbrilliant from the means at their disposal.

And they did.

Scrap Moynihan Station

New York State’s recently announced plan to sell development rights associated with the Farley Post Office site, and the resulting controversy, brings the whole Moynihan Station project into a new focus. I’ll get to New York’s proposal later.  More to the point, we should take the opportunity to do the right thing and scrap the Moynihan Station project altogether.

Twenty years ago, the idea of converting the McKim Meade &White-designed Farley Post Office into a replacement for Penn Station was a beguiling concept.  What better way to right the grievous wrong that is the demolition of the magnificent McKim Meade & White-designed Pennsylvania Station, than to replace it with a new station in another magnificent McKim Meade & White-designed building that, providentially, sits atop the railroad tracks?  And so the project began.  And stalled.  And re-started.  And stalled.  Again and again and again.  The problem was, and is, that it isn’t really a good project.  Conceived as it was in an effort to recapture something that is gone forever, it can’t really be much more than an old post office that someone converted into an approximation of a transit hub.

If it had been a good project, and if there had been real support for it, it might have already been done.  And had it actually been done, soothed by the knowledge that we had righted some historic wrong, we would have put up with the limitations and deficiencies of the plan, best expressed as recently as last year by David Gunn, who used to run Amtrak, when speaking to the New York Observer:

“From a transportation point of view,” Mr. Gunn said, “it makes no sense.” For         passengers coming from the 1/2/3 trains, “what the Farley Building does, is make you walk from Seventh Avenue all the way across Eighth Avenue. You’ll have to go under the Eighth Avenue subway, then climb up to the [new] head house, which is to the west of Eighth Avenue, over towards Ninth Avenue. And then, you walk back to where the train is! The trains are still going to be between Seventh and Eighth avenues.” For passengers arriving at Moynihan Station via the IRT Seventh Avenue Line, Mr. Gunn said, “they’ve gotta walk almost a mile.”

But in the twenty years that the Moynihan Station project has lingered in development limbo, things have changed.   The  best thing to do today is to abandon  the Moynihan Station project altogether and devote our resources and energy to relocating Madison Square Garden and building a completely new Penn Station in its place.

It’s not as farfetched an idea as it seems.  This is, after all, New York.  And thanks to Michael Kimmelman of the New York Times and the Municipal Art Society, a concerted lobbying effort last year got the City Council to deny Madison Square Garden, which was unceremoniously dropped on top of what is left of the old Penn Station, the license it sought to operate on the site in perpetuity.  Instead, MSG got another ten years, and a pretty clear message:  move Madison Square Garden.

There are ideas and schemes aplenty as to what the new Penn Station should look like, courtesy of the MAS and the Regional Plan Association, who asked four local architects what a new Penn Station could be (my point is not to critique or advocate one design scheme over another, but if you really want to see them, they can be found here:  At best, they are all conceptual sketches albeit very elaborate and seductive ones; the real design will emerge from the hard work of talented people.  But the weakest and least resolved of the bunch is far better than what is there today, and far superior to an adapted post office.

The opportunity here is that, a little more than a hundred years since the original Penn Station opened to the public, we have a the chance to rebuild to build the world-class transportation hub that New York should have, and get a twenty first century arena in the bargain.  It will take a tremendous effort but it will be worthwhile.

There are a lot of ideas out there as to how to get this done, and it will take a full court press.  Two obvious obstacles loom large:  how to pay for a new Penn Station, and where to put Madison Square Garden.

Because none of this is possible without money, let’s start there.  In July of 2013, the Municipal Art Society released a report that proposed the creation of a revenue capture district, kind of like a BID, which would collect payments from property owners in the area, actually payments in lieu of taxes (PILOT).  These PILOT funds would be the income stream that pays down bonds issued to fund the demolition of MSG and the construction of the new Penn Station.  MAS contends that the area property owners would reap the benefits of increasing property values and rising rents, and so should sign on.  In the abstract it makes sense, but area property owners, in whatever the final configuration of this new district will be, must be lobbied and made to understand the need for this and the benefits to them; otherwise it’s hard to imagine a bunch of NYC landlords leaping at the opportunity to pay yet another recurring cost.  In addition, City and State approval of this new revenue capture district would be required.  The MAS report also recommends that the area be rezoned:  both Madison Square Garden and Penn Station are already in the Hudson Yards Special District and are subject to its regulations, which favor the creation of commercial space over residential at present.  There is also a City Planning proposal from 2007 that may be worth re-evaluating.

Then there is New York State’s latest proposal, which is to sell the development rights from the Farley Post Office to fund Moynihan Station. While it, too, is an intriguing idea, and certainly consistent with the new hypercapitalist concept that government should sell its public assets to the highest bidder, funding Moynihan Station is throwing good money after bad.  As an idea, it may also be premature.

As noted above, the Farley Post Office is in the Hudson Yards Special District, which was designed to foster the creation of 28 million square feet of new office space, 12.6 million square feet of new residential space, 1.5 million square feet of new hotel space, and 700 thousand square feet of new retail space. Development of the Hudson Yards district, by which I mean actual construction and execution of the plan, has really only gotten underway in the past year or so, as we crawl out of the real estate slump.  Of the 28 MM SF of office space the plan provides for, somewhere in the neighborhood of 4MM SF are either under construction or close to starting, and of the 12.6 MM SF of new residential space, only one new apartment building has actually been built so far.  All this tells us that it is early in the process, and that no one really knows what the actual demand, absorption rate, and pace of the buildout will be.  It may be more prudent for New York State to hold these development rights until we can see what the demand, and therefore what the real value of these development rights are.  Selling them today sets the State up to sell them too low.

There is also the issue of transferring those rights, whether they are sold today, or in ten years.  Transfers of development rights in the Hudson Yards Special District are governed by the regulations for landmark development rights transfers in the NYC Zoning Resolution.  As the regulations stand, these rights can only be transferred from a landmark site to a receiving site across a street, or diagonally across an intersection.  So, under the current rules, there is a very limited set of receiving sites, and therefore buyers, for these development rights.  While it would make more sense to expand the set of receiving sites, and therefore potential buyers, of these rights, that would require  amendment of the NYC Zoning Resolution, a proposition approached carefully under the best of circumstances.  Still, it is worth further investigation, and may be part of a strategy that calls for holding them in in abeyance, as a kind of backstop to other funding efforts.

Lastly, what to do with Madison Square Garden?  There are some potential sites within a few blocks of where it currently sits, each with its attributes, and each deserving of further study.

And, inevitably, what of the Farley Post Office?  Having rued the last generation’s demolition of Penn Station, and since we think we are more evolved, I believe it should stay in place and a creative new life imagined for it as the development of neighborhood picks up steam.

Time, however, is not on our side.  The fact that Moynihan Station has lingered for twenty years, despite the work of many, should tell us that ten years is a blink of an eye.  Relocating Madison Square Garden and building a new Penn Station are huge, complicated tasks that require focus and commitment from government at the City, State, and likely Federal levels; lobbying and advocacy from the preservation, design, construction, and development communities; and lots of money from every reasonable source possible.  It can, however, be the signature achievement of a new administration, and create a valuable new public benefit for the next century or so to come.



Are We Kidding Ourselves?

Earlier this week I attended a real estate panel in Manhattan called Beyond the Headlines:  New Development, Sales & Rental Market, put on by the Real Estate Service Alliance (RESA).  RESA is a group of people who, as its name suggests, provide services to the real estate industry; their periodic presentations are attended by brokers, attorneys, contractors, insurance professionals, environmental consultants, title insurers, expeditors, and the occasional owner’s representative (that would be me).  For this panel, a prominent local residential developer and three residential brokers who specialize in the marketing and sale of new developments discussed the current state of play in Manhattan and Brooklyn residential development.

On the condominium side, not much news here:  inventory is at an all-time low, sale prices are at all-time highs, and all the development activity is focused on the high end of the market.  The developer did acknowledge, to the agreement of all, that new rental development in Manhattan is all but impossible.  In view of the stratospheric price of development sites, you just can’t get these projects to pencil out to any acceptable return; there are no more “easy” 50 x 100 foot sites left; the only development deals in Manhattan that can be done are the ones that involve really difficult sites and significant entitlement risk; if only one could find a site that can be had for around $500/Buildable Square Foot, one could build condos that will sell profitably, and quickly, for under $2,000/SF.   Construction of new condo product, while climbing slowly out of the post-2008 cellar, remains well behind the pace set pre-crash, and still below historical norms.  The prediction was that the current scarcity will continue into 2016 at least, which means that sale prices will remain high for the foreseeable future.

On the rental side, average residential rents in Manhattan, while still higher than in Brooklyn, fell slightly at the end of last year; the feeling was that the market pushed back.  On the other hand, rents in Brooklyn are surging, and while rents there are still lower than in Manhattan, the gap between Brooklyn and Manhattan residential rents has never been so narrow.  Not surprisingly, Brooklyn is home to a lot of new residential rental projects.  One of the panelists noted that of the approximately 10,000 units slated to come to market in Brooklyn in the next two years or so, only 10% will be for-sale units, and the rest rentals.  These new rental projects are underwritten based on earning $55-$65/SF in annual rents: that means to you as a tenant, that your 400 SF studio apartment will cost you somewhere between $1,833.00 and $2,166.00 monthly.  These are big numbers for Brooklyn.

The most notable part of the discussion, for me, came when one of the panelists acknowledged that incomes are stagnant, and have been for some time, and job growth is virtually nonexistent.  Which led to the question I put to one of the panelists after the Q&A session:  if wages really are stagnant, and there really is no job growth, how does one reconcile these high rents?  And where are these tenants getting the money?

The answer was, simply and without blinking an eye:  Parents.  All of the tenants have parents who guarantee the leases, and who likely cover the difference between Junior’s income and the cost of Junior’s pad.

Put this in perspective.  A reasonably sized newly built rental apartment building in New York these days represents a development cost of between $90MM and $200MM by the time you’ve bought the land, built the building, carried the acquisition/construction financing, paid the architects, all the other consultants, fees, insurance, and so on (it’s a broad range, to be sure, but there are a lot of variables here).  In order to make this investment pay, the building has to be filled with tenants who pay the rent at the price that brings the needed return.  But in this environment, the tenants really don’t have the means to pay the rent because their incomes are too low, or they don’t have jobs, or they don’t have jobs that pay adequately.  Which everyone acknowledges.  So the economic success of this multimillion dollar investment rests on the parents’ guarantees, or on the ability of one generation to pay for another.

If we were tapping an endless supply of very affluent parents in perfect health who are extending their peak earning years well into their eighties, this might work in theory.  The reality is very different.  The parents are getting older.  They’ve seen their own investments hammered (at least until very recently).  At some point in the near future, they will either stop working, or work less, and their incomes will plummet.  Throw in the desire to see the world before leaving it, or some medical problems, or the need for extended care, or some other indignity of age that comes with a staggering price tag these days, and sooner rather than later the parents will need their money for themselves.  When this happens, forget the guarantee.  Any support that goes to Junior dries up, and if Junior’s earnings don’t pick up, which doesn’t look likely, there’s nothing to pay the rent.  You can guess the rest.

All in all, it’s a very shaky foundation for a very significant investment.  A better way would be to revert to the world the parents came of age in, when incomes really did rise, wealth was created broadly, and our economy really did grow.  Is that too much to ask?


Opening Shot

As a born-and-bred Manhattanite, architect, builder, and real estate developer, I have both a personal and professional interest in what gets built in town.  Not just who creates it, and who executes it, but also the policy machinations behind this incredibly opaque process, and the consequences, intended or otherwise, in the city we live and work in.

There is no doubt that New York is changing, and in fact has been for the past ten years or so.  Part of this is due, no doubt, to the notion that Manhattan is, or should be, a premium product, put forth years ago by our soon-to-be-former mayor.  Part of this is also due to forces in the global economy that, frankly, no one can control, let alone understand: the fact remains that New York is a very attractive place for plutocrats from all over the world who know that they have a better chance of holding onto the money they park in New York than they do at holding onto the money they park at home, wherever that is.  Yet another part is that we discovered that we really do live on an island and as a result use the waterfront like never before.  The list goes on and on: the changing nature of work and employment, the death of industries that for decades were stalwarts in the local economy, the incredible stratification of wealth and its concentration at the very top, the new desirability of neighborhoods that even we natives had only heard of and certainly never visited.  The end result is that New York today, and going forward, bears very little resemblance to the New York of E.B White’s immortal essay, “Here is New York”.

In the coming months, I will write about the High Line, the flap over Penn Station, the proposed East Midtown/Grand Central rezoning, life in New York, and other similar issues that catch my interest.  I also spent a decade or so developing real estate in Newark, and as a result have opinions about what is going on, or not, out there, too.  My only criteria will be that I have something considered to say about the subject, whatever it is.