Sea Gate

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:

One Bryant 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:

7 Bryant park

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:

Screen Shot 2014-07-13 at 8.52.59 PM

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.

Two Tails of a City

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.

There’s an adage about living in New York City that I heard recently: that one must be either very rich or very poor to afford an apartment in Manhattan.  Everyone I know is always complaining about the high housing costs in NYC, however, there is some truth in this saying, which I’ll expose though my brief examination of the highs, and lows of housing costs in Manhattan.

Given that more the two-thirds of the housing stock in NYC are rentals, it makes sense to analyze the rental market first (I’ll analyze the sales market in a later post). I began by looking at what a household must earn to lease an average free-market apartment in Manhattan, and then compare this to what a typical household in a new affordable housing development would have to earn to qualify. I want to stress the term ‘free-market’ rentals, because roughly 50% of the rental housing stock in NYC falls under Rent Stabilization Guidelines.

The Rent Stabilization Guidelines board recently voted to raise rent stabilized apartment rents by 1% for a one-year lease, the lowest increase ever approved. While I’m a proponent of affordable housing, rent stabilization guidelines do not consider renters’ incomes, and rent stabilization skews the overall rental market. As I’ve mentioned in a past post, according to a study done by Harvard, rent stabilization laws actually benefit wealthier households the most. So if you’re not lucky enough to land a rent-stabilized unit, then you have to either rent free-market apartment, or qualify for to rent in an affordable housing development.

Below are Jonathan Miller’s rental numbers for Manhattan in May 2014 (Miller Samuel Inc. Manhattan Market Rental Report 5-14):

MS Rentals 5-14

From Jonathan’s numbers, I’m going to use the median rent of $3,300 per month, which is a more accurate representation of typical NYC apartment than the average (which skews the numbers up due to high-end luxury rents).   Using HUD’s recommendation that 30% of a households income should be applied to housing costs, then based on an annual rent of $39,600, a household should make $132,000 per annum (as a side note, landlords in NYC use 40 times the monthly rent as their qualifier, which gets to the same number).

Having recently moved to Upper West Side and viewing many apartments, I can opine that $3,300 would rent a very nice (probably doorman), but modest one-bedroom apartment.  In Manhattan, based on the 2012 American Community Survey census figures, the median household income is $68,370 – far below the income needed to rent the average apartment.  A qualifying renter household for this average apartment would be the top 12% of household incomes nationwide, or the top 16% of NYC earners.

On the other end of the income spectrum is affordable housing. During Bloomberg’s 12 years in office, 165,000 units of affordable housing were either developed or preserved (i.e. measures were taken to be sure existing affordable units didn’t go to market). De Blasio has promised to develop of preserve 200,000 in 10 years.

In NYC what income qualifies as affordable housing? Most new affordable housing gets built with the Low Income Housing Tax Credits (LIHTC), and as such, the bulk of this housing is slated for households making 60% of the Area Median Income (AMI) or less, which is required by the LIHTC regulations. What does this translate to? First of all, for NYC, the LIHTC calculated median income is not based on the actual median income for the city. For example, from the 2012 American Community Survey census figures, the area median income for each borough is as follows:



Brooklyn $45,215
Manhattan $68,370
Queens $56,780
Staten Island $73,496

However, due to NYC’s high housing costs, HUD adjusts to the area median income up to what a household would essentially need to earn to rent an average housing unit in the city (per HUD standards). For those curious and with time on their hands, here are the calculation explanations from HUD. For 2014, HUD’sadjusted AMI is $83,900 per annum – much higher than any of borough’s actual median incomes. Therefore, to rent a LIHTC unit at 60% AMI, which is most of the new affordable housing stock coming on line, a household (based on a family of four, which is then adjusted up or down according to family and apartment size), can make up to $50,340 per annum.

These two simple exercises illustrate that free market housing, and new housing developments in Manhattan are either catering to $50,000 and below range, or the roughly $130,000 and up range. Which is why there is so much criticism that there is no help for those in the “middle.” Many 20 something and 30 something professions can’t afford more than a studio, despite decent incomes, or they must live a roommate. Or take for example a family of say a young firefighter and a public school teacher with two children. Both admirable and essential City jobs, however, their initial salaries are in the $40K to $50K range, which means together they could not afford an average apartment in the city.

However, there are a handful of projects underway now that address middle income renters, such as the first phase of buildings at Hunter’s Point South in Long Island City, Queens, a development being led by Related Cos. Many of the apartments in this massive development are reserved for the 80% to 165% AMI range or roughly $55,000 to $158,000 (based upon the figures at the time the rents were set).

Do we need more low-income housing in the city? Absolutely. We also need more middle income housing, and with vacancy rates in the 1% to 2% range, just more total housing. The de Blasio administration needs to find ways to spur all forms of residential construction by partnering with developers, and looking for ways to bring total development costs down, so more total housing units can be built catering all income segments.

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.

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