Coney Island Low. Astroland is officially, officially closed as of last weekend, with the completion of its last lease. This is not quite the collapse of Chumley's (which may actually return now that owning a landmark approaches being as lucrative as selling a couple studio apartments once again), since the notion of a "golden era" of Coney is a slippery proposition. Is it the days when it was a gambling destination? A rough and tumble but thriving amusement paradise? A wind -- and trash -- strewn ghost town, depressed enough that an absurd enough to be brilliant effort to revive a freak show would prove be the enduring symbol for resurgence for over a decade?
And would it surprise you to learn that the long, practically inevitable decline was set to rolling by names as reviled as they are familiar? That's right: Robert Moses rezoned what he didn't outright level, though his plans to eliminate amusement zoning altogether eventually failed. And decades later a developer named Trump stepped in with the tried and dull model of luxury housing being the solution to the problem of a vibrant and colorful seashore. He failed, but not before he amassed enough money to leave a pile of it to his officious son, teaching him the most valuable lesson of New York living: use someone else's fortune and skill to promote yourself and then take all the credit.
Trump's court battles set the stage for the next 30 years of Coney development: rapid valuation and devaluation of the land as various proposals were floated and folded, all of them highly speculative, all of them highly improbable. In that sense, gambling has returned to the peninsula, albeit at high stakes and with few seats at the table. And every wager was dependent on the panacea of "luxury" housing. If one silver lining has come from the Great Contraction (still coming soon to most of Manhattan) is that the simplistic notion that the relatively narrow, single-use notion of "luxury" (density higher than social housing, some upscale shops and eateries, with a precious, albeit tiny, greenspace touted as 'amenity'. Oh, and a gym with three treadmills) is the most economically effective use of scare urban resources.
Regardless of the baubles attached to the renderings that ostensibly recall the amusement past, we cannot escape this mantra: Coney cannot be saved without overpriced condos. The best analogy would be shoving a person's head underwater and then claiming the only way to save them is to sell them a scuba tank. And now that we have incontrovertible proof that real estate is beholden to the business cycle like any other industry, the spectre of looming, gleaming, Scarano-quality monoliths can be dismissed as the short-sighted, greedy over-reaches they are.
The developers will piece together documentation about land and construction costs, returns and carrying costs, all the while holding out the other hand for some type of tax break, claiming they have no other options. But if we've learned anything this year, it's that the brittle financing is but a short-term squeeze completely disconnected from urban reality. If you doubt this argument, take a quick review of the large, residential-driven development schemes proposed recently:
The Brooklyn Bridge Park: on hold because developers don't feel confident they can sell condos that will steal views from Brooklyn Heights, the tabula rasa of gentrification. Pier 17, dunzo as General Growth slides from a legit stock to over the counter (hell, it might be under the counter by now). Governor's Island: broke-ass. The WTC site: replacing two million square feet of office space with 'stumps'. Atlantic Yards: now doubtful we will even see a Brooklyn Nets, let alone 'Miss Brooklyn' -- even the Williamsburg Bank Building (excuse me, the Hanson) is going rental. Hudson Yards: next year -- for reals, sayeth Related.
In short, are there any large-scale schemes moving forward? The High Line had a head start, and depends on a lot of private donations (which were generously extracted from the developers looking to secure an amenity of equal Tyler Brule-ishness to accompany their $50 million over-budget towers). Willet's Point? 125th Street? The Williamsburg waterfront? Nondo city, and that's only because the Toll Brothers didn't have as much high-flying debt as GGP. Give it a couple more months. It will topple over the Edge, surely.
Do we have any counter-examples? Was it ever possible to set up a tax abatement program that would result in housing that could provide middle class families a decent existence? One that was cash flow positive for decades? One that was bought out with a massively leveraged house of cards notion of conversion to the very luxury that was claimed to be the only future? And that is now cratering under the weight of all that debt? Nope, nothing like that to be found in Manhattan.
Only when the deals turn sour do people wax poetic. To speak ill of the pyramid as it's being constructed is to undermine the mojo. Once the majesty of its perverse uselessness is complete, and eroding, people wallow in the truth of the narrative. "No next time, no next time" is the chorus. Astroland wasn't really done in by malice. The owners, after all, cashed out to the tune of $30 million dollars, a number that will seem princely and astute in the coming years as the weeds return again to Surf Avenue. Nathan's will stand strong opposite the lovely new train station, and boardwalk will slowly become the plasticwalk. Do not fear: it might take a few years, or a decade or two, and some one will pop up, renderings in hand. First the housing. Then the accommodation of the amusement requirement. Then the request for a zoning variance and a subsidy. Then the outcry, petitions and activist organizing. This sort of dust up is the only renewable resource this city has; too bad we can't mine it for rent.
Field of 'Hey, get your hands off my wallet!' So Randy Levine wanted a better television, and you (and I) ponied up another $370 million. I've heard of overcompensation, but even for an outfit that spends $240 million on new payroll in a week, this is still an impressive bit of mid-life crisis outlay. I want to meet the 20 year-old he's trying to impress, because s/he must be fine.
If would be unfair to use the 'hat in hand' analogy to describe how the Yankees get money from anyone. Turning us upside down and shaking the every last bit of change is more accurate, provided they make pants that can hold a billion quarters.
The 'value' of sports stadia is no longer an open question. In the past ten years of data collection and number crunching, no one has provided any solid argument that the investment is a net gain for the region that funds a project. For the Yankees one component of this 'privately' funded sinkhole is a city-built parking garage, now estimated to cost $170 million (the city will lease it to an operator, so hard revenue from this investment is unclear -- the new garages will create more parking inventory, but no one knows if more people will drive to the games, and it is unlikely any operator will opt for a fixed amount, since the garage will produce very little non-game day revenue), so the net cost is still murky. Beyond that, the city is touting that it will create 20 permanent jobs. That's right: 20. The city is spending $425,000 a year (over 20 years) to create each position.
The failings of this sordid tale are well documented. Here are some of the highlights: Giuliani signed off on a rent credit of $5 million a year for each year the new stadium was under construction for 'development costs'. Those monies paid for the lobbyists and lawyers required to structure this deal, which required a ruling by the one-time IRS (that was questioned by Congress), the patching together of a Bronx-specific special-entity 'community benefit' non-profit to qualify for the bonds (the sole member of which is a non-profit located outside the city that has done no business other than generate bonds for similar projects outside the state). The other direct investment elements (including a promise to replace parkland that has been unavailable to the community that was seized to start construction) are behind schedule, and over budget -- one drastically so, since the initial estimate did not include costs for the interior.
Aside from the initial handout from Rudy, which the team did not utilize to their full extent, the Bloomberg administration (with lots of help from the Bronx machine and the state) has overseen all the successive backtracks and overruns. The incrementalism at play is depressingly familiar: push the available financing as far as you can and then backload the budget. Once the money runs out, blame everyone but yourself and plead 'out of scope'. Some of the 'revisions' are upgrades to seating and enclosing the press box. This coming at a facility that already planned to include a Hard Rock Cafe and steakhouse.
What is important to note here is that the stadium is free to the Yankees, no matter what. The MLB has a revenue sharing agreement (that sounds like it would run afoul of anti-trust regulations, doesn't it? Oh, right). The Yankees are the highest revenue team in the country, and their out-sized payroll also mandates a "luxury tax" be assessed, which also feeds into the sharing pool and all but insures they will always be on the contributing end of the spectrum. But capital expenses (such as a new stadium) are deducted from the revenue sharing contribution. As we sit and marvel at contracts such as were provided to C.C. Sabathia and Mark Teixeira maybe we shouldn't be impressed with the front office gumption, but the back room deals, which get us coming -- the best estimate at direct public investment is nearing half a billion dollars -- and going: the Yankees will get to increase ticket prices, reduce eliminate rent payments and deduct any pesky bond payments from a revenue sharing number that would be fixed no matter who paid for the new jernt).
Or, put another way: the Yankees are using public money (see Page 38 of the PDF) -- obtained via bond programs structured to increase public benefit -- to artificially reduce its revenue sharing contribution and increase profitability. They literally can't lose. Maybe Randy Levine should be coaching. Lord knows writing $200 million checks on the field hasn't had any perceptible benefit.
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.
