Detroit comes to Manhattan!
Palm Beach and Los Angeles represent two cities famous for their marquis identities. Palm Beach Florida is home to the worlds wealthiest, and Los Angeles is known for its celebrities. These two cities are the headquarters for the “rich” and “famous”, respectively. In the past few days, I have written about how symptoms of the declining economy have made their way into these cities in posts titled Detroit Comes to Palm Beach and Detroit Comes to Los Angeles.
Today we look at the third crown jewel of American cities, Manhattan, to see if there is a developing trend of serious effects arriving in the Big Apple.
First, we find that sellers are having difficulty unloading Manhattan properties. While this is not a new concept, NYC real estate has largely bucked the trend of declining values until recently, and the urgency is getting more severe. The headline for the New York Times article is “Gotta Move, Gotta Sell”. The story describes how most New Yorkers are hunkering down in their largest depreciating asset; their home. Many who need to sell are not just facing selling for a loss, but not being able to sell at all. “The world has changed,” said Frederick W. Peters, the president of Warburg Realty. “In a market like this, I can’t guarantee a quick sale at any price.”
No buyers, in New York City?
One property owner tells a story which you may not have expect to hear in Manhattan, but are becoming increasingly common. Adam Rogers, 45, a United Nations spokesman thought he had it made when he was transferred to Switzerland from New York. He bought a four-bedroom, 2,000-square-foot condo for $599,000 in January 2006. His job was recently reclassified into a category that required him to relocate at regular intervals, so the property went up for sale. At first the Rogerses asked $679,000, the price at which their neighbor had sold his apartment.
They have since cut the price several times and switched agents; the apartment is listed at $599,000; they will lose about $60,000 in transaction costs if it sells at that price. So far, the couple have had no offers. “There’s a higher cost of living over there, and the house was a bigger space, so I bought new furniture,” Mr. Rogers said. “Because I was very optimistic the apartment would sell, I probably wasn’t as frugal as I could have been.” He has been using credit cards to finance part of his new life abroad. “I started getting worried in January. I’ve maxed out all my credit cards. Right now we’re stuck at Hertz for two hours trying to rent a car because none of the credit cards work — the wire transfer I made before we left apparently has a delay of several days.”
Commercial properties are not faring much better. As New Yorkers have drastically cut back, the shops that line the streets, from chain outlets to family-run shops, have started to disappear. The storefront vacancy rate in Manhattan is now at its highest point since the early 1990s. Some of the more desirable shopping districts are littered with empty storefronts. For example, Fifth Avenue between 42nd Street and 49th Street, the stretch just south of Saks Fifth Avenue, has a vacancy rate of 15.3 percent, according to the brokerage Cushman & Wakefield. The outlook is even worse in other boroughs. Hessam Nadji, managing director of research services at Marcus & Millichap, estimates that vacancy rates in Brooklyn and Queens, currently at 7 to 10 percent, will rise to 12 to 15 percent by year’s end. He said some neighborhoods have been ravaged by vacancy rates of 25 to 40 percent. “It’s a crisis,” said Stephen Null, director of the Coalition for Fair Business Rents.
The vacancies have the affect of making neighborhood living difficult. “New York is different than the rest of America because it is the last bastion of storefronts,” said Kenneth T. Jackson, a historian at Columbia University. “You don’t live in a city of eight and a half million people. You live in a city of neighborhoods.” “We feel a loss when the store is gone,” he added. As residents find it more difficult to obtain items, it places more of a downward pressure on coop and apartment prices, further pushing the downward cycle.
At the same time, the decline creates a less appealing environment. The temporary construction sheds which are common over sidewalks are 
becomming permanent. Sidewalk sheds consist of pipes, beams, planks and plywood. They can be a few feet or a few hundred feet long, and they make it possible to walk in New York without getting beaned by bricks falling off buildings.
In New York, especially if landlords are broke, sheds go up and stay up because work is making no progress. “They’re ugly, dismal and ubiquitous,” says Rick Bell, who heads the American Institute of Architects’ New York chapter. “They define our pedestrian experience — like the arcades of Bologna.” One shed’s plywood was warped and peeling. Rust coated its columns and duct tape, wrapped around its bolts so they wouldn’t rip people’s pockets, crumbled to the touch. The permit number had faded from the mandatory sign, but the owner’s name was legible: NYCHA. New York City Housing Authority spokesman Howard Marder explained: “That shed was put there several years ago. The actual work that was supposed to be performed actually wasn’t.”
News from the job front in Manhattan are not any better. Some laid-off workers in the financial-services industry are making a novel pitch for jobs: They are offering to work for nothing. From hedge fund managers to analysts, thousands of unemployed professionals are competing for jobs, and the HR people are noticing. “People have been sending their CVs to our New York office saying, ‘hire me for free for six months.’” says Christophe Chouard, head of sales at French fund of hedge funds manager HDF Finance. “The CVs we are receiving are pretty good. These people are saying, ‘just let me show you what I can do.’”
For many, the only strategy is to consider “Life After Wall Street.” Alicia Whitaker reports in the Huffington post that “It’s no secret that thousands of former Masters/Mistresses of the Universe have left Wall Street since last year’s meltdown. Many are still looking for their next job but a few have made the transition to a new industry and role, creating the kind of life.” As the financial industry sheds more jobs, more people will leave Manhattan, and those who stay will have less money to spend there. This will lead directly to lower residential real estate prices, and indirectly to depressed commercial prices as shopowners receive fewer purchases from residents. “I’ve never seen such an across-the-board problem,” said Lorraine Nadel, a lawyer who has represented tenants and landlords for 18 years. “Store owners can’t pay their rent, and they can’t keep their businesses going.”
Palm Beach. Los Angeles. New York. Do we see a pattern here yet? These are just snapshots of one days stories in each city. As you carry out your days business, take a look around and see what you see in your city. What stores are vacant? What properties are going unmaintained? Is there less traffic and fewer people participating in commerce? Being aware of your surrounding requires looking past and through the superficial distractions which capture the attention of many people. Look at the logo of this blog at the top for a visual metaphor of this.
Good luck.
