Gated communities are typically associated with areas in California, Florida and other southern states, however, Brooklyn NY has its very own gated community located on the south shore, at the far west end of Coney Island called Sea Gate.
Coney Island is area most people associate with an amusement park, a boardwalk, and Nathan’s Famous restaurant. This neighborhood is on a peninsula located along the south shore of Brooklyn, and was once a barrier island before the land was reclaimed between it and Brooklyn. Capping the far west end of the Island is Sea Gate, a private gated community of 832 homes. Residents of Seagate pay for street cleaning, trash removal, maintenance of the beach and their own police force. The following picture, taken from a high-rise in Coney Island, shows the northern part of Seagate with the Verrazano Bridge extending over the Narrows, which is the tidal straight separating Staten Island from Brooklyn.
In the late 1800’s Sea Gate was a summer home destination for the likes of the Morgan and Vanderbilt families, which owned homes there during the period of the storied Atlantic Yacht Club. These days it’s very much a middle class neighborhood.
In 2012 many of the homes in Sea Gate were severely damaged due to Hurricane Sandy, and much of the neighborhood was under water. Looking down on the neighborhood, it appears most of the homes have been rebuilt. However, exteriors can sometimes be misleading, as I’ve been volunteering in Far Rockaway recently – another area that saw plenty of damage from Sandy – and while many of the homes appear rebuilt on the outside, there’s still plenty of work to be done on the interiors.
One of my favorite office towers in the City is One Bryant Park, also known as the Bank of America Tower. The 2.35 million square foot tower stands at 55 stories on the northwest corner of Sixth Avenue and West 42nd Street overlooking Bryant Park. The building was designed by Cook + Fox and is anchored by Bank of America. The developer, The Durst Organization, a family-run company that has been investing, managing and developing real estate for a century in New York, also has offices in the building. One Bryant Park is also arguably the most sustainable office building in the City, with LEED Platinum status. Some of the green features include a water capture system, a thermal storage cooling system, an onsite co-gen system, and of course, a green roof. The Durst website claims a 50% energy reduction, a 50% reduction in water usage, and a 95% reduction in storm drain water contribution due to the green features. When I have time during the workday, and when the weather allows, I take my lunch to the park. Here’s the view One Bryant Park from the lawn of the park:
Down on the southwest corner of Bryant Park, there’s a new building going vertical: 7 Bryant Park, designed by the renowned Pei Cobb Freed & Partners. At 30 stories and 470,000 square feet, it will be small by modern NYC office building standards. The developer is the Houston-based Hines Interests LP. Like Durst, Hines is a privately held, family-run business. Hines is known for partnering with some legendary architects including Gehry and Phillip Johnson, as such, they have an attractive collection of buildings around the globe. 7 Bryant Park shaping up to be a very attractive building; the rendering below is taken from Hines website:
Bryant Park was the first park I spent time in when I moved to NYC 13 years ago, and it’s become one the busiest parks in the City, with the ice rink and shops during the winter and concerts and film series during the summer. At lunchtime is tough to find a patch of grass to sit on. The retail around the park is also booming, with Whole Foods to open on the west side of Sixth Avenue. But what initially sparked this post, was a rumor that The Bank of China will be the anchor tenant for 7 Bryant Park, which will likely come with naming rights. Thus, on the northwest corner of the park we will have the Bank of America Tower and on the southwest corner we will have the Bank of China Tower. For two counties with a growing rivalry in the world, they will both occupy prime corners overlooking one of my favorite parks in the city.
There was an article by Neil Irwin in The Upshot section of the New York Times last week titled Welcome to the Everything Boom or Maybe the Everything Bubble. Mr. Irwin contemplates that near record high commercial real estate prices, junk bond prices, and stock market indices (and conversely the near record low yields on all of these assets) are a result of the trillions of dollars the Fed and other central banks have pumped into the economy.
As can be expected, Krugman responded to Irwin’s article by defending the trillions of dollars created by the Fed – his defense is basically that most inflation measure are relatively normal, and therefore there’s “not much reason to believe that assets in general are overvalued.”
Yes, it’s true that inflation is generally in check, but that’s because the inflation from all this cheap money is manifesting itself in asset prices that financial institutions and the very wealthy buy. Little of the trillions of dollars created has got into the hands of middle class Americans to drive up the prices of good and services the average American buys. The money created has primarily benefited banks, financial intuitions, and only the top percentile of the world’s elite, which has seen their wealth boom. As such, we see bubbles in the assets banks and the wealthy buy: stocks, bonds, and the income producing real estate as mentioned in the article.
I appraise multifamily real estate in Manhattan, and just when I think that I’ve seen the highest price/lowest returns ever, there’s another record sale with investors accepting even lower returns. A few years ago, my colleagues and I use to be surprised at sub 5% cap rates, then it was sub 4%, now we are even seeing sub 3% cap rates. When I asked the brokers involved in the transactions why investors are accept such low rates, they tell me the same thing: there’s so much money out there, investors will do anything just to park their wealth somewhere. Prudential Real Estate Investors recently addressed the issue of the low treasury rates pushing office property yields down (and valuations up) worldwide, as illustrated in this chart:
This inflation is manifesting itself in other areas: Luxury condo prices, high-end art prices, classic cars, anything the extremely wealthy buy. The reason we don’t see the effects in the CPI, which economists use to measure inflation, is because there’s only so many cartons of milk, cotton sweaters, and other typical goods and services the 1% can buy. The CPI doesn’t consider housing prices (only what it costs to rent a primary residence), or items that resell like art, collectables, stocks and bonds.
I think the term “bubble” is very appropriate for what we’re seeing in asset prices worldwide.
After reading my last post on housing costs in NYC, I received a comment from a friend who was surprised to learn that the median household income for Manhattan was “only” $68,370 per annum. There is a perception, that I suspect is due to shows such as Million Dollar Listing, that only the very wealthy live in Manhattan. While there are clearly upper income areas of the city, and housing costs to match (as I explored in my last post) there are also pockets of deep poverty. The 2012 American Community Survey numbers have been mapped on this Census Explorer website.
For example, the median household income of Census Tract 130, located on the Upper East Side is $242,500 per year. By contrast, the median household income of Census Tract 194, just a few miles north in East Harlem is $18,082. While these two median incomes fall at the statistical tails in the distribution of median incomes in the City, it’s not hard to see where our new mayor, Mr. de Blasio, draws his populist rhetoric from.
As 2013 comes to a close, most of us will take time to reflect on the year gone by. As I reflect, I’ve come to realize how important it is to have a long-term outlook in life – whether it’s in the work I perform, or in my impact on the earth, or in my relationships. Life doesn’t always play out the way we planned, and most of us have experienced some major loss in our life: a loved one passes, a natural disaster strikes, or a change in the economic wind turns our life upside down. In turbulent times we can lose faith in the world, especially when our leaders fail us by refusing to make common sense comprises, when corruption is exposed as during the financial crisis, or worse, when someone we trusted ends up betraying us.
In this volatile world, with a rapidly increasing pace of life, where our day is measured in seconds and conversations take place in 140 characters, there is even more reason to think long term. This is why I admire the Long Now Foundation and the 10,000 Year Clock project. The foundation was formed in 1996 with the goal of instilling long-term thinking in society and culture. The massive clock was designed by the physicist Daniel Hillis, and is now largely being funded by Amazon founder Jeff Bezos. Two sites have been selected: the first in West Texas, and the other in Nevada. The first multistory clock, now being built deep underground, is designed to be powered by heat differentials in the massive weights and gears, while also allowing for humans to wind it. With or without human intervention, the clock will function for 10,000 years. Civilization itself is only roughly 10,000 old, and only a scattering of relics remain from early civilization. Long after we’ve tossed out today’s relics: our iPads, Kindles and flat screens, and long after any of us reading this blog-post have passed on, the clock will continue to keep time throughout the next 10,000 years of civilization.
Many of us will make some sort of plans for the year ahead: perhaps we’ll make new year resolutions, plan a career change, or vow to do some volunteer work. Whatever the goal, I recommend taking a moment to think about choices that will have a long-term and lasting impact (big or small) on someone or in our society. The 10,000 Year Clock project can be looked at for good inspiration.
Positive news is coming from every direction in the housing market lately. The big headline today was the March S&P Case-Shiller index, which reflected price gains in all 20 metro areas tracked. The composite was up 10.9% from a year ago, the biggest annual gain in close to 7 years:
This complements the Census Bureau and HUD’s data on new home sales, which indicates that the average price in the new home sector at $230,800, is up 15% from a year ago in March, while the Median price was up 8% at $271,600. New home sales increased to an annualized pace of 454,000, up 2.3% for March. However, while the number of transactions were up in the South and the West, the overall number of transactions fell in the Northeast and Midwest regions.
This is a godsend for homebuilders, who generally reported positive first-quarter earnings, commenting that business is strongest in the areas that were the hardest hit during the downturn: mainly the South and West. These positive numbers are driven by consumer confidence, which reached its highest level since February 2008.
Are we in bubble territory, as some pundits are already predicting? No (not yet anyway). While some areas like Phoenix and Vegas have seen massive 20%+ gains, these cities also saw the largest drops after the housing market crash, and thus have the farthest to rise to reach market equilibrium. With credit still relatively tight for homebuyers, the key bubble indicator to look for is when the cost of homeownership rises above the cost of renting.