Category Archives: commercial real estate

Sold Out Futures by State:  The Sold Out Future Ranking For 2019

Over the past three posts I’ve documented how today’s and tomorrow’s Americans have had their future sold out and cashed in with regard to state and local government debts, inadequate past infrastructure capital construction, and retroactively increased and underfunded public employee pensions.  Over and above the generational inequities at the federal level in government, in the private sector, and even in many families.  Plus climate change, which some have claimed will be so bad I should stop worrying about other aspects of generational inequity.

These aren’t technical issues to be discussed one at a time, as if they were independent of each other.  They are a single ethical issue to be discussed and understood as a whole.  Look at any issue, any institutional decision in government, business and the professions, any social trend of the past 40 years, and examine how it has affected those in different generations – who benefitted, and at whose expense.  And you will find the same thing.  

That is why our society is in decline, something all those crazed about the tribalist cultural issues that consume out geriocratic politics apparently understand, and are desperate to find someone else to blame for.  The Sold Out Futures by state ranking, based on the state and local government part of it, is my contribution to the bigger story, one that remains under Omerta.  

Adding it up, on average today’s and tomorrow’s Americans have inherited a Sold Out Future due to past state and local government deals and non-decisions equal to 47.0% of their personal income in FY 2019.  That is virtually unchanged from the 47.1% I found when I did the same analysis for FY 2012, despite a much stronger economy and another asset price bubble.   

Unlike the other generational inequities in our society in the wake of Generation Greed (and more like the differences between families), the state and local government burden is not the same everywhere in the U.S.   It is greater or smaller depending on where you live.  It attaches to the people there now, unless they move away from it, and may eventually attach to each place’s real estate, since real estate cannot pick up and move.  This final post in the series will rank states, and New York City and the Rest of New York State separately, based on how sold out their futures are.

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The MTA:  Why Always the Most Expensive, Interminable Way?

A couple of, well, decades ago, the MTA started planning MetroNorth service for the time when East Side Access opened and many Long Island Railroad trains would be going to Grand Central Station.  This could provide an opening for MetroNorth trains, at least those on the Hudson and New Haven Lines, to go to Penn Station.  The tracks are already there, so this should be relatively simple and cheap right?  

Wrong.  After 22 years of planning, and the expenditure of however many $millions or $tens of millions on staff and consultants, the MTA might finally spend $1.6 billion to add a few stations to the New Haven line as part of the Metro North to Penn project.  Perhaps there will be service in another decade or two.

If there wasn’t such operational inefficiency involved, however, MetroNorth service to Penn Station could start next spring for no money at all.  How?

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“Affordable” Phonies Make Life Unaffordable for the Serfs

According to Merriam Webster online, affordable means able to be afforded: having a cost that is not too high.  And among New York’s Democrats and progressives there is always talk of having government policies make something affordable:  affordable education, affordable health care, affordable housing, affordable transportation, etc.  And yet observing 40 years of public policy in New York, I can think of only a handful of examples of policies that have actually made life, or a better life, less costly for the public at large.

When one examines the totality of public policies enacted in so-called Blue States, you see that the goal actually seems to be to make many things more expensive.  

Sometimes for reasons I agree with.  A developed country (and I’m not sure ours is) shouldn’t be making goods and services more affordable in the short run by making them more expensive, more dangerous, or more misery-inducing for the community as a whole, in the long run.  That’s what the builders of the “affordable” Surfside condo in Florida did by cheaping out on the building structure.

But mostly for reasons that would be impossible to justify if openly admitted.  To make some workers — those who work for the government, or are paid funded by government programs — richer compared other similar workers, at the expense of making those other similar workers pay more and become poorer.  And to make it more expensive to live in politically influential “liberal” communities, ensuring the less well off, their burdens and troubles, will be somewhere else.  The result is hypocrisy.

When Democrats and progressives say “affordable” what they really mean is “subsidized.”  Part of the cost is paid for by someone else, so it seems to be more affordable.  But since fiscal resources are not unlimited, even in New York City where we have the highest state and local tax burden and the most debt, the subsidies for “affordable” health care, education, transportation, housing etc. only end up going to the fortune few.  And many if not most of those few often turn out to be among those were already fortunate.  For the rest, somebody has to pay after all.  Often those who are already burdened by policies to make things more expensive – policies that lead to the need for subsidies to begin with.

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Rebenchmarked Current Employment Survey Data for 2020: New York City Was Clobbered Last Year, But the Long Term Data Is Still Very Positive

The U.S. Bureau of Labor Statistics released rebenchmarked annual average Current Employment Survey data for 2020 and prior years on March 15th 2021.

More than any other year, there is reason to take the data with a grain of salt.  State departments of labor faced the challenge of collecting the data during a pandemic, while working at home.  An appointee of Mr. Transparency, Donald Trump, was in charge of the Bureau of Labor Statistics, during an election year.  The BLS was hacked by the Solar Winds computer virus late in 2020.  And this data source is most inaccurate during sudden shifts in the economy, due to the need to guesstimate the number of workers employed in new businesses and businesses that closed but were not surveyed.  Large revisions often follow and the unemployment tax records roll in.  There was more than one sudden shift, many businesses closed, and some opened in 2020.  That said, many people worked to produce the best data they could under the circumstances, and this post will discuss what it shows.  

It shows the biggest year-to-year private sector wage and salary job loss for New York City since at least 1950, and perhaps ever.  A job loss that was larger, on a percentage basis, than any U.S. area of any size save the state of Hawaii.  A job loss that was significantly larger than had been reported prior to rebenchmarking.  And yet there is another way to look at the data. New York City still had more private wage and salary jobs in 2020 than it had in any year prior to 2014 – and a boom in self-employment is on top of that.

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The Extraordinary Privilege of Private Passenger Cars in Metropolitan New York

What makes the transportation system of Metropolitan New York unique in the United States, and perhaps in the developed world?  You might think it is New York’s extensive rail mass transit network, including both heavy rail (subway) and three commuter rail lines. But similar networks exist in other older major U.S. metro areas such as Boston, Philadelphia, Washington, Chicago, and San Francisco, and many global cities have even larger rail transit systems, compared with their populations.

In fact, what makes transportation in metro New York unique is something that is in some ways the opposite of extensive mass transit.  The large share of its grade-separated, limited-access expressway system that is restricted to passenger cars only, and thus excludes trucks, other commercial and service vehicles, and mass transit vehicles such as buses.   Expressways – hugely expensive to site, build and maintain; hugely destructive when built through developed areas; lacking the property tax benefit provided by adjacent land uses; and destructive to the value and use of adjacent land – represent major commitments of social resources.   Having many of those expressways restricted to a limited class of road users is a unique and extraordinary privilege, one that puts proposals to allocate a greater share of the space on other mixed-traffic roads to bicycles, buses, trucks and other commercial vehicles in perspective.

To show the extent of this privilege, and its consequences, I asked Susan Zwillinger of 4CGeoworks (Pittsburgh) to produce a cartogram map of the Major Roads and Paths of Metro New York.  It is shown below.

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The 2019 American Community Survey: Last Year Compared With Prior Economic Peaks, NYC and the U.S.

The U.S. Census Bureau released 2019 data from the American Community Survey (ACS) last week, and 2019 will almost certainly represent the peak of the recent economic cycle.  Because there are booms and recessions, an enlightening analysis of trends over time requires that similar years be used.  For 2019, the peak of the everything bubble, that would be 2000, peak of the bubble, and 2007, the peak of the housing bubble.  Unfortunately, when the Census Bureau shut down American Factfinder and replaced it with, it only included data starting in the year 2010 – near the bottom of the last recession.  So this post only compares the latest data with data that I happen to have on my computer, downloaded over the past 15 years, or available on the Department of City Planning website.

In a break from my usual style, I’m not going to bury the lede.  From 2000 to 2019, the number of employed New York City residents soared by nearly 850,000. And the number of households with work earnings — fell slightly, remaining at about 2.5 million!   The number of households with Social Security income increased by nearly 200,000, or about the same amount as the increase in the total number of occupied housing units.  Housing has continued to be occupied by Baby Boomers, now moving into retirement, including cost-privileged housing – rent regulated, Mitchell-Lama, public housing, owned units purchased at pre-housing bubble prices.   Meanwhile, the young workers surging into the city were forced to double and triple up, sharing apartments and even rooms, because rents soared and they couldn’t afford their own place.  No wonder so many left when they became able to work remotely.  Comparing the 2000 Census with the 2019 American Community Survey, the median gross rent increased 42.0% — after adjustment for inflation. The percent of city renters paying at least 30.0% of their income in rent increased to more than 50.0%.

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The Coronavirus and Commercial Real Estate: In the Long Run Neither is the Real Threat to New York

The debt-driven U.S. economy was heading for a crash before the coronavirus even hit.   And in some metro areas, including New York, the excess concentration of economic activity during the past decade had sent the cost of commercial and residential real estate to unaffordable and unsustainable highs.  Moreover, the wealthiest generations in U.S. history are now over age 62, with later-born generations much poorer – and facing large costs from the past as well.  And now a once in a century pandemic has accelerated an economic and social crisis that was always in the cards.  None of this, obviously, is good.

With regard to commercial real estate, however, a market adjustment that some might see as a calamity is actually part of the solution. Lower housing prices would allow later-born generations to pay less for housing, offsetting some of their other disadvantages.  Lower residential rents might cause apartments to go through bankruptcy, foreclosure and workout, eventually causing existing asset holders to take losses on mortgage-backed securities.  But the lower building prices would allow future landlords to charge less and still make money, in turn allowing tenants to live better on their lower incomes.  Lower commercial rents could also cause the value of commercial mortgage-backed securities to fall.  But they would also make it easier to open a business, even if it doesn’t produce a high level of revenue per square foot right off the bat.  A market adjustment on the price and property value side, and private sector creativity, could forestall damage on the occupancy side, allowing buildings – and the communities they are located in — to be re-occupied and maintained, and the economy to re-boot.

And yet there is the possibility that things will turn out much worse for many parts of the country, including New York City.  I would divide the real threats into three categories: federal, state and local.

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The Coronavirus and Commercial Real Estate: Can Urban Retail and Shopping Centers be Re-Occupied Yet Again?

Compared with other types of commercial real estate, brick and mortar retail had been in crisis for years even before the coronavirus hit.   The average compensation of most U.S. workers has been falling for decades, offset by rising public and private debt, and after 2008 consumer spending finally began to follow, as those debts no longer covered the difference.   Dollar stores became one of the few sources of retail growth.  Then e-commerce started taking a rising share of whatever consumer buying power was left.  But even before that suburban and Sunbelt America, built after WWII, were thought to be “overstored” as a result of decades of local zoning policies that favored commercial tax “ratables” that provide property and sales tax revenues, but sought to exclude multifamily housing that might attract less-well-off people, whose local service needs exceeded the local taxes they paid.

How much could US retail shrink? And where?

The national average is about 46 square feet of retail space per capita, with most metropolitan areas having between 40 and 55 square feet per capita…By global standards, the U.S. has much more space devoted to retailing than anyone else: comparable estimates for other countries include: 23 square feet per capita in the United Kingdom, 13 square feet per capita in Canada, and 6.5 square feet per capita in Australia. If the experience of these countries is any indication, it’s a good bet that there’s lots there’s still lots of room for downsizing in the U.S. retail sector.

Before the virus hit the real estate industry was responding with a burst of innovation, shifting space from retail stores selling goods to service establishments selling health care, entertainment, dining, and exercise.  Along with housing, where permitted.  Then the coronavirus shut down many of these alternatives. So now what?

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The Coronavirus and Commercial Real Estate: Will New York’s Arts, Entertainment and Culture Industries Collapse, Leaving Their Venues and Hotels Abandoned?

Ever since the Port Authority of New York and New Jersey published its seminal report on the importance of arts, culture and entertainment in the New York City economy, these activities, instead of being thought of as a social benefit that affluent societies could afford, have been thought of as part of the economic base.

The same may be said of sports stadiums, convention centers and casinos elsewhere in the United States.  In fact, had I written this post a year ago, the subject might have been an art, culture and entertainment bubble in New York City, with more venues than the city’s economy and population could support.  And an eating and drinking places bubble nationwide, with Americans running up their credit cards unsustainably to eat out.

Then the coronavirus pandemic hit.  It will eventually end, but whenever and however that comes to be, travel and in-person gatherings for the purpose of arts, entertainment, culture, sports, leisure or otherwise will be among the last activities to recover.  The question is whether New York City’s arts, entertainment and culture industries will collapse entirely.  Although a retrenchment was coming in any event, I would argue that these activities will be hit less hard here than elsewhere, and NYC’s share of the national total may in fact, increase.  In part because the demand for space and place cannot be understood separately from its price.

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The Coronavirus and Commercial Real Estate: Is Office Space in Central Locations Obsolete?

Out of the blue, millions of Americans have been forced to work from home, and hundreds of thousands of employers have been forced to allow them to do so.   Somehow most have managed to pull it off, with a limited decrease in short term productivity, one of the few triumphs of American ingenuity of the coronavirus crisis.  Perhaps this moment for the internet is like the triumph of electricity, which had a limited impact on productivity, economic growth and American life for the first few decades after new applications for it were invented, and then suddenly transformed everything.

History suggests that there were also long lags before both steam power and electricity boosted productivity. Work by Paul David, an economist at Oxford University, shows that productivity growth did not accelerate until 40 years after the introduction of electric power in the early 1880s. This was partly because it took until 1920 for at least half of American industrial machinery to be powered by electricity. But firms also needed time to figure out how to reorganise their factories around electric power to reap the efficiency gains.

So what does this mean for office towers in central locations, built to allow large numbers of workers to interact in person, both within firms and between them?  That is the question that is being asked in media, academia, finance and the real estate industry.  And the answer seems to be 70 to 75 percent, but in different directions.

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