When it comes to some property taxes, the rich are different
by patrick arden
metro new york, AUG 30, 2006
The elegant glass tower at 176 Perry St. looks like a place where the elite would meet. Its residents paid top dollar for the privilege of enjoying seamless views of the Hudson River.
The building is in the chic West Village historic district, which falls just outside the section of Manhattan that qualifies for the city’s 421-a tax exemption program designed to encourage development in less desirable areas. But the developer of 176 Perry St. was still able to offer condo buyers a 421-a tax subsidy by purchasing certificates from builders of affordable housing.
That’s exactly how the program was meant to work, said Neill Coleman, a spokesperson for the city’s Department of Housing Preservation and Development.
“A developer who is building affordable housing in, say, the Bronx gets the certificates,” Coleman explained. “When the market-rate developer buys those certificates, he is able to get the 421-a tax break, but in return he is essentially subsidizing affordable housing in the Bronx.”
A useful tool?
Yet in a report this spring, the office of City Comptroller William Thompson found that relatively little affordable housing has been financed compared to the value of the exemptions that have been taken.
Manhattan exclusion-zone developers taking the 421-a exemption over 20 years are required to set aside 20 percent of their units for affordable rentals, but, according to the comptroller’s office, they realized $50,000 in tax savings on each of those units in 2005 alone. Exclusion-zone developers taking the exemption over a 10-year period can instead buy the housing certificates. While 1,918 units of affordable housing were financed, more than 7,675 market-rate units got tax subsidies in 2005.
Last year, the comptroller’s office reported, the city provided more than $320 million in 421-a subsidies, 78 percent of which went to Manhattan developments. Over the last seven years, the annual value of these subsidies has jumped by $240 million. Some owners of units in Trump World Tower and 176 Perry St. — both exclusion-zone buildings participating in the 421-a program — received tax subsidies of more than $100,000.
At 176 Perry, fashion mogul Calvin Klein got a $151,797 reduction from the 2005 taxes due on his penthouse, while his downstairs neighbor, hip hotelier Ian Schrager, saved $39,827 in property taxes. Almost $47,000 was lopped off the property tax bill for celebrity chef Jean-Georges Vongerichten, who said through a spokesperson yesterday he was unaware of his good fortune.
Worn out welcome?
Bertha Lewis, the executive director of New York ACORN, complained that 421-a is now subsidizing the gentrification of areas outside the exclusion zone, where developers have no obligation to provide affordable housing.
“Brooklyn is being re-segregated because developers are getting this stuff without any strings attached,” she said. “It’s like working people in East New York or Crown Heights are actually paying through their tax dollars to have themselves pushed out.”
Rather than killing the program, she would like to see the rules for the exclusion zone applied citywide and the 20 percent affordable housing rule pushed up to 30 percent. She also wants the certificate program eliminated, saying, “If you want to use 421-a on Block B, then you need to build the affordable housing on Block B.”
After the mayor’s 421-a task force issues its recommendations this fall, the City Council will have to act on them before the current program expires in 2007. Whatever it decides will then go to Albany.
“We will not advance it, unless certain things happen,” warned State Assembly housing chair Vito Lopez, D-Brooklyn.
Lopez wants to apply citywide the changes introduced under the recent rezoning of Williamsburg-Greenpoint, calling for all affordable housing to be built on-site and the paying of “prevailing wages” to building staff.
“Do builders love the 20-percent affordable concept?” Lopez asked. “No, because it limits the amount of profit. But, in my mind, there isn’t a real need for market-rate housing. The vacancy rate is about 6 percent. Where there’s a 2 percent vacancy rate is on affordable housing units. That’s a real crisis in the city, and the only way to meet this crisis is by doing something like a 421-a bill that has on-site affordability. We want landlords to take advantage of 421-a, and the way to take advantage is, create affordable units.”
A half-dozen developers contacted for this story did not return calls.
“They want the status quo,” Lopez said.
Exclusion zone
• The 421-a tax abatement program was created in 1971 to spur housing development north of 96th Street and south of 14th Street in Manhattan.
• Builders in the area between those streets, the excluded zone, can still get the tax break if they make a contribution to affordable housing.
• Since 1971, the program has played a role in 110,000 apartments citywide.
Wednesday, August 30, 2006
Big league breaks
Big league breaks
patrick arden
metro new york, AUG 30, 2006
Yankees’ slugger Derek Jeter was paid $19.6 million last year, but that wasn’t all he pocketed from playing in New York.
Courtesy of city taxpayers, Jeter got to deduct $135,825 from the 2005 tax bill on his posh digs high up in the Trump World Tower, where he looks down on the United Nations and the East River.
A 421-a tax abatement secured by the developer of that building dropped Jeter’s assessed property taxes last year from $205,798 to just $69,973, making his exemption worth almost twice what he finally paid in taxes to the city.
Jeter wasn’t alone: On five units on the 45th floor of his building, the Kingdom of Saudi Arabia realized tax savings of $114,103 in 2005. Yankee teammate Hideki Matsui paid $3 million to live on the 50th floor, far less than the reported $13 million price tag on Jeter’s palatial flat, but then Matsui’s property-tax break last year was only $25,929. This subsidy alone cut Matsui’s tax bill by nearly two-thirds.
The 421-a tax exemption was meant to stimulate development back in the 1970s, when the city wanted builders to venture north of 96th Street and south of 14th Street in Manhattan. Developers building inside that excluded zone, where the Trump World Tower stands, can still take advantage of the 421-a program, but only if they set aside affordable housing or purchase certificates generated through the construction of low-income housing elsewhere in the city.
Times, of course, have changed, and luxury housing is thriving outside the excluded zone. The incentive now benefits many developers and buyers of these high-end apartments without any contribution to affordable housing. This spring Mayor Michael Bloomberg convened a task force to study the program, which has been providing property-tax exemptions for 10 to 25 years and is set to expire in late 2007.
“We’re expecting the recommendations to be announced at the end of September or early October,” said Neill Coleman, spokesman for the city’s Department of Housing Preservation and Development. “It may be that one of the task force’s recommendations will be to expand that exclusion zone.”
patrick arden
metro new york, AUG 30, 2006
Yankees’ slugger Derek Jeter was paid $19.6 million last year, but that wasn’t all he pocketed from playing in New York.
Courtesy of city taxpayers, Jeter got to deduct $135,825 from the 2005 tax bill on his posh digs high up in the Trump World Tower, where he looks down on the United Nations and the East River.
A 421-a tax abatement secured by the developer of that building dropped Jeter’s assessed property taxes last year from $205,798 to just $69,973, making his exemption worth almost twice what he finally paid in taxes to the city.
Jeter wasn’t alone: On five units on the 45th floor of his building, the Kingdom of Saudi Arabia realized tax savings of $114,103 in 2005. Yankee teammate Hideki Matsui paid $3 million to live on the 50th floor, far less than the reported $13 million price tag on Jeter’s palatial flat, but then Matsui’s property-tax break last year was only $25,929. This subsidy alone cut Matsui’s tax bill by nearly two-thirds.
The 421-a tax exemption was meant to stimulate development back in the 1970s, when the city wanted builders to venture north of 96th Street and south of 14th Street in Manhattan. Developers building inside that excluded zone, where the Trump World Tower stands, can still take advantage of the 421-a program, but only if they set aside affordable housing or purchase certificates generated through the construction of low-income housing elsewhere in the city.
Times, of course, have changed, and luxury housing is thriving outside the excluded zone. The incentive now benefits many developers and buyers of these high-end apartments without any contribution to affordable housing. This spring Mayor Michael Bloomberg convened a task force to study the program, which has been providing property-tax exemptions for 10 to 25 years and is set to expire in late 2007.
“We’re expecting the recommendations to be announced at the end of September or early October,” said Neill Coleman, spokesman for the city’s Department of Housing Preservation and Development. “It may be that one of the task force’s recommendations will be to expand that exclusion zone.”
Want Solar Energy Write-Offs? Try New Jersey
Want Solar Energy Write-Offs? Try New Jersey
John F. Wasik
Bloomberg, 2006-08-28
As the U.S. property market and summer both cool down, turning your house into a power producer can make sense. If you want to ``go solar'' with your home and boost its market value, New Jersey is a good place to start.
Although it won't usurp the title of sunshine state from Florida any time soon, New Jersey has generous benefits for homeowners installing solar equipment. Yet you don't have to live in Bruce Springsteen's home state to reap these breaks; similar programs are offered across the U.S., Europe and Australia.
Eric Olsen, a systems architect for United Parcel Service Inc., installed solar panels to generate electricity on his 3,500-square-foot home in Totowa, New Jersey. In the summer, the 48 panels generate 8.5 kilowatts, enough to pay all of his energy bills.
While the retail price of the panels was $62,500, his net cost was reduced significantly by state incentives. As his energy bills rose, the payback period for his investment has shortened.
``If the economics didn't work out, I wouldn't have done it,'' Olsen said. ``About 70 percent of the equipment and installation cost was paid for by New Jersey. It's the hottest state for solar power.''
The total cost of Olsen's system was offset by a number of financial plums that make a pricey product more affordable.
Doing the Math
Because he is using ``clean'' energy not produced by fossil fuels, Olsen receives a check for the power he generates. Under New Jersey's program, local utilities are required to buy back any power produced by solar or alternative sources. That credit was worth $1,850 to Olsen last year and covered his natural-gas heating bill.
While Olsen didn't qualify for federal-tax credits -- he installed his system before the latest U.S. income-tax write-offs became law -- New Jersey also partially subsidized the solar equipment, so that he paid only $18,000, the price of a moderate kitchen upgrade.
Using a home-equity line of credit to buy the equipment, he figures his system will be paid off in four to five years. Better yet, he estimates that his home's market value will increase by more than $60,000 because of the units and resulting lower operating costs.
Alternative energy sounds sexy these days, but there are no guarantees that adding solar, wind or geothermal systems to your home will raise its value.
You can assume, though, that your energy bills will drop. At a time when natural-gas, heating-oil and electricity prices are expected to rise, this may be one of the smartest home improvements you can make.
Three Questions
You need to do some calculations before taking the plunge. Solar equipment isn't cheap and it's important to know how long it will take for your equipment to pay you back. Those staying for only a few years in a home might not ever see a return on their investment. Here are some questions to ask:
-- What is the net cost of the system you are considering minus any state rebates and federal tax credits? A good solar vendor can help you run the numbers.
-- Is your home suitable for solar appliances? It would be difficult to install an efficient unit if you don't have an open, south-facing area or are in a wooded area. A certified solar installer or consultant should be able to make an assessment. See http://www.findsolar.com. This site also includes a calculator that estimates net cost and estimated property appreciation.
-- Will your local utility help you out? Many local utilities also provide rebates or reduce your power bill through ``net metering.'' Keep in mind if you already obtain cheap electricity, solar might not make sense. And the payback largely depends on state incentives. To see what your state is offering, check http://www.dsireusa.org.
Energy Prices Rise
As an added bonus to energy home improvements, you don't have to spend money on solar equipment to reap the savings.
Federal-tax credits are available on energy-efficient whole- house fans, hot-water heaters, furnaces, central air-conditioning units, windows, doors and insulation systems. The credits range from as little as $50 to as much as $3,400 for the most fuel- efficient cars and trucks.
To qualify for the credits, the items must meet U.S. Energy Department guidelines and be bought or installed before the end of next year.
It's a safe bet that retail energy prices may not fall dramatically any time soon.
From 1990 to 2004, power and heating/cooling bills were about 7 percent of household expenditures, according to a Chicago Federal Reserve study. Last year, that tab was estimated at 8.5 percent -- a 21 percent increase.
While I've always advocated that governments promote a clean energy policy through tax benefits, Congress should expand its program beyond 2007, when the federal-tax credits expire.
In the meantime, grab all the energy breaks while you can. As the old saying goes, ``make hay while the sun shines.''
John F. Wasik
Bloomberg, 2006-08-28
As the U.S. property market and summer both cool down, turning your house into a power producer can make sense. If you want to ``go solar'' with your home and boost its market value, New Jersey is a good place to start.
Although it won't usurp the title of sunshine state from Florida any time soon, New Jersey has generous benefits for homeowners installing solar equipment. Yet you don't have to live in Bruce Springsteen's home state to reap these breaks; similar programs are offered across the U.S., Europe and Australia.
Eric Olsen, a systems architect for United Parcel Service Inc., installed solar panels to generate electricity on his 3,500-square-foot home in Totowa, New Jersey. In the summer, the 48 panels generate 8.5 kilowatts, enough to pay all of his energy bills.
While the retail price of the panels was $62,500, his net cost was reduced significantly by state incentives. As his energy bills rose, the payback period for his investment has shortened.
``If the economics didn't work out, I wouldn't have done it,'' Olsen said. ``About 70 percent of the equipment and installation cost was paid for by New Jersey. It's the hottest state for solar power.''
The total cost of Olsen's system was offset by a number of financial plums that make a pricey product more affordable.
Doing the Math
Because he is using ``clean'' energy not produced by fossil fuels, Olsen receives a check for the power he generates. Under New Jersey's program, local utilities are required to buy back any power produced by solar or alternative sources. That credit was worth $1,850 to Olsen last year and covered his natural-gas heating bill.
While Olsen didn't qualify for federal-tax credits -- he installed his system before the latest U.S. income-tax write-offs became law -- New Jersey also partially subsidized the solar equipment, so that he paid only $18,000, the price of a moderate kitchen upgrade.
Using a home-equity line of credit to buy the equipment, he figures his system will be paid off in four to five years. Better yet, he estimates that his home's market value will increase by more than $60,000 because of the units and resulting lower operating costs.
Alternative energy sounds sexy these days, but there are no guarantees that adding solar, wind or geothermal systems to your home will raise its value.
You can assume, though, that your energy bills will drop. At a time when natural-gas, heating-oil and electricity prices are expected to rise, this may be one of the smartest home improvements you can make.
Three Questions
You need to do some calculations before taking the plunge. Solar equipment isn't cheap and it's important to know how long it will take for your equipment to pay you back. Those staying for only a few years in a home might not ever see a return on their investment. Here are some questions to ask:
-- What is the net cost of the system you are considering minus any state rebates and federal tax credits? A good solar vendor can help you run the numbers.
-- Is your home suitable for solar appliances? It would be difficult to install an efficient unit if you don't have an open, south-facing area or are in a wooded area. A certified solar installer or consultant should be able to make an assessment. See http://www.findsolar.com. This site also includes a calculator that estimates net cost and estimated property appreciation.
-- Will your local utility help you out? Many local utilities also provide rebates or reduce your power bill through ``net metering.'' Keep in mind if you already obtain cheap electricity, solar might not make sense. And the payback largely depends on state incentives. To see what your state is offering, check http://www.dsireusa.org.
Energy Prices Rise
As an added bonus to energy home improvements, you don't have to spend money on solar equipment to reap the savings.
Federal-tax credits are available on energy-efficient whole- house fans, hot-water heaters, furnaces, central air-conditioning units, windows, doors and insulation systems. The credits range from as little as $50 to as much as $3,400 for the most fuel- efficient cars and trucks.
To qualify for the credits, the items must meet U.S. Energy Department guidelines and be bought or installed before the end of next year.
It's a safe bet that retail energy prices may not fall dramatically any time soon.
From 1990 to 2004, power and heating/cooling bills were about 7 percent of household expenditures, according to a Chicago Federal Reserve study. Last year, that tab was estimated at 8.5 percent -- a 21 percent increase.
While I've always advocated that governments promote a clean energy policy through tax benefits, Congress should expand its program beyond 2007, when the federal-tax credits expire.
In the meantime, grab all the energy breaks while you can. As the old saying goes, ``make hay while the sun shines.''
College-Town Real Estate: The Next Big Niche?
College-Town Real Estate: The Next Big Niche?
By VIVIAN MARINO
NYT, Aug 20, 2006
FROM now through Labor Day, thousands of college students will be settling into off-campus apartments across the country as they haul in their PC’s and stereos, their boxes of DVD’s, clothing and sports paraphernalia, for the fall semester.
For some unhappy neighbors, this may conjure up images of ceaseless parties and beer cans galore. But some investors see something more propitious: a steady stream of revenue, for starters, and growth potential for years to come.
“The student housing market is a good niche opportunity today,” said Kenneth T. Rosen, chairman of the Rosen Consulting Group, a real estate and economics research company in Berkeley, Calif. “The demographics are excellent, and the demand is great.”
College enrollments have been on the rise as the baby boomers’ children — sometimes known as the “echo boom” generation — come of age. This group, born from 1982 to 1995, is about 80 million strong. Yet the supply of on-campus housing is becoming increasingly limited.
At some state universities, like the University of New Mexico in Albuquerque and the University of Nevada in Las Vegas, fewer than 10 percent of the students live on campus, according to Michael H. Zaransky, author of the new book “Profit by Investing in Student Housing” (Kaplan Publishing). At Boise State University in Idaho, the ratio of beds to enrolled students was just 4.6 percent, according to data he collected two years ago.
“Most resident dorms are aged, but universities, particularly the public universities, are under severe financial pressure and simply do not have the money to meet the demand by building more dorms,” Mr. Zaransky said.
Seeing an opportunity to meet widening demand, Mr. Zaransky’s own real estate firm, Prime Property Investors in Northbrook, Ill., has been shifting its focus to off-campus student housing in the last couple of years, with the purchase or development of apartments and town houses near the University of Illinois, Purdue University, Loyola University of Chicago and Florida State University. The firm rents out 700 beds in all, he says.
“We try to buy as close as possible to the schools — within walking distance,” he said. “Those are the apartments that tend to get rented first and get higher rental increases.”
Right now, with the school year about to commence, all of its units are spoken for. “I’m not aware of any other sector in the residential housing business where you can count on 100 percent occupancy,” he said.
Of course, there are few other segments where the turnover can approach 100 percent. While roughly a third of the student tenants typically renew their leases before they expire by early to mid-August, property owners must work hard earlier in the year to rent the remaining units.
They also have only a narrow window of time to replace furnishings and to do all the repair work, cleaning and painting that is often required after everyone moves out.
“It is much more management intensive” than traditional housing, said Ralph L. Block, a real estate portfolio manager at the Phocas Financial Corporation, who is looking into investing in student housing for his company. He called the sector “risky in one sense and not as risky in another.”
“The risk comes with the fact that the turnover period is very short; if you make some bad estimates and you don’t get your apartments filled at the right time, you’ll have a vacancy rate lasting the entire year, because it’s hard to convert them to alternative uses,” Mr. Block explained. “But the steadiness of demand and still fairly limited supply argues for less risk.”
(Unlike traditional apartments, which are leased by the unit, student housing projects are often leased by the bed, and, increasingly, the leases are guaranteed by a parent.)
Student housing has already proved profitable for many investors. The capitalization rates — meaning the initial yields — can often exceed those on conventional multifamily homes, industry experts say.
“We averaged, on the projects sold in the last year, around 6.4 percent, compared with a 5.1 percent cap rate for traditional multifamily,” said Ryan S. Reid, first vice president and national director of student housing at CB Richard Ellis, a commercial real estate brokerage firm.
But as student housing becomes more widely accepted by investors — and more expensive to buy — the gap is expected to narrow. Markets where land is in short supply — like New York, Boston, Chicago and parts of Florida and California — are already considered hot markets, according to Mr. Reid. Austin, Tex., is another favored spot.
The bulk of the estimated $160 billion student housing market remains controlled by independent companies and investment groups that operate mostly regionally. Institutional and individual investors can participate in some deals, usually for a minimum investment of $50,000 to $150,000.
Some tenants-in-common programs, or T.I.C.’s, nascent products that offer fractional ownership of properties, also invest in student housing.
Wall Street has been slower to catch on. “The capital markets weren’t quite sure how to look at this product type,” Mr. Reid said. “They still had what we could call more of the ‘Animal House’ view of what student housing was.”
But in the last couple of years, three real estate investment trusts specializing in student housing have emerged — GMH Communities Trust, American Campus Communities and Education Realty Trust — making the sector more accessible to passive investors with less money to invest. (Equity Residential also has some student housing properties in its portfolio.)
Although the three student-housing REIT’s are still finding their bearings, at least two of them, American Campus Communities and Education Realty Trust, have managed healthy returns. This year through July, American Campus Communities had a total return (price appreciation and dividend) of 10.07 percent while Education Realty returned 28.76 percent, according to the National Association of Real Estate Investment Trusts. By comparison, the total return for all equity REIT’s during that period was 16.12 percent, the association said.
But GMH Communities, which also builds and operates military housing, had a negative yield of 16.04 percent for the first seven months of this year, according to the association. The company recently disclosed that it has had to borrow heavily in order to pay dividends.
Mr. Block of Phocas Financial said he likes Education Realty, in which he invests himself. The company has focused mostly on smaller schools in less-urban areas but plans to expand into bigger cities. Its portfolio includes 36,637 beds at 59 college communities in 21 states.
The company was developing private off-campus housing long before it was public.
“Our first project was in 1964 in Chapel Hill, N.C.,” the home of the University of North Carolina, “and we are still there,” said Paul O. Bower, the chief executive. “We’ve served the children of the original tenants, and soon the grandchildren.”
Some of Education Realty’s units include luxury amenities like swimming pools, while others are more like dormitories, Mr. Bower said.
At this time of year, the occupancy level for all of them starts at 100 percent. “We lose a percentage point or two throughout the year,” he said, adding that the most labor-intensive part of the operation is managing the units. “Eighty percent of the overhead expenses is for management,” he said.
Mr. Zaransky of Prime Property Investors suggests that intrepid investors who want to go it alone — by buying condominiums or town houses and renting them out — hire professional managers to oversee the properties. Management fees are typically 5 to 8 percent of the rent collected, he said.
Monthly rents vary by region. In the Southeast, for instance, they can range from $450 to nearly $800 a bed, according to Tom E. Lewis Jr., a managing partner at Flagstone Holdings in Miami, which specializes in acquiring and developing student housing in that region.
And with demand for private student housing expected to remain strong for the next several years, industry experts say, investors can almost bank on steady rent increases regardless of economic conditions or the interest rate climate. The same can’t be said about conventional apartments.
“The success of these investments is tied to college enrollment, not to external economic factors like job creation,” Mr. Zaransky said. “In fact, one can argue that in bad economic times, people will want to pursue better credentials and go back to school.”
By VIVIAN MARINO
NYT, Aug 20, 2006
FROM now through Labor Day, thousands of college students will be settling into off-campus apartments across the country as they haul in their PC’s and stereos, their boxes of DVD’s, clothing and sports paraphernalia, for the fall semester.
For some unhappy neighbors, this may conjure up images of ceaseless parties and beer cans galore. But some investors see something more propitious: a steady stream of revenue, for starters, and growth potential for years to come.
“The student housing market is a good niche opportunity today,” said Kenneth T. Rosen, chairman of the Rosen Consulting Group, a real estate and economics research company in Berkeley, Calif. “The demographics are excellent, and the demand is great.”
College enrollments have been on the rise as the baby boomers’ children — sometimes known as the “echo boom” generation — come of age. This group, born from 1982 to 1995, is about 80 million strong. Yet the supply of on-campus housing is becoming increasingly limited.
At some state universities, like the University of New Mexico in Albuquerque and the University of Nevada in Las Vegas, fewer than 10 percent of the students live on campus, according to Michael H. Zaransky, author of the new book “Profit by Investing in Student Housing” (Kaplan Publishing). At Boise State University in Idaho, the ratio of beds to enrolled students was just 4.6 percent, according to data he collected two years ago.
“Most resident dorms are aged, but universities, particularly the public universities, are under severe financial pressure and simply do not have the money to meet the demand by building more dorms,” Mr. Zaransky said.
Seeing an opportunity to meet widening demand, Mr. Zaransky’s own real estate firm, Prime Property Investors in Northbrook, Ill., has been shifting its focus to off-campus student housing in the last couple of years, with the purchase or development of apartments and town houses near the University of Illinois, Purdue University, Loyola University of Chicago and Florida State University. The firm rents out 700 beds in all, he says.
“We try to buy as close as possible to the schools — within walking distance,” he said. “Those are the apartments that tend to get rented first and get higher rental increases.”
Right now, with the school year about to commence, all of its units are spoken for. “I’m not aware of any other sector in the residential housing business where you can count on 100 percent occupancy,” he said.
Of course, there are few other segments where the turnover can approach 100 percent. While roughly a third of the student tenants typically renew their leases before they expire by early to mid-August, property owners must work hard earlier in the year to rent the remaining units.
They also have only a narrow window of time to replace furnishings and to do all the repair work, cleaning and painting that is often required after everyone moves out.
“It is much more management intensive” than traditional housing, said Ralph L. Block, a real estate portfolio manager at the Phocas Financial Corporation, who is looking into investing in student housing for his company. He called the sector “risky in one sense and not as risky in another.”
“The risk comes with the fact that the turnover period is very short; if you make some bad estimates and you don’t get your apartments filled at the right time, you’ll have a vacancy rate lasting the entire year, because it’s hard to convert them to alternative uses,” Mr. Block explained. “But the steadiness of demand and still fairly limited supply argues for less risk.”
(Unlike traditional apartments, which are leased by the unit, student housing projects are often leased by the bed, and, increasingly, the leases are guaranteed by a parent.)
Student housing has already proved profitable for many investors. The capitalization rates — meaning the initial yields — can often exceed those on conventional multifamily homes, industry experts say.
“We averaged, on the projects sold in the last year, around 6.4 percent, compared with a 5.1 percent cap rate for traditional multifamily,” said Ryan S. Reid, first vice president and national director of student housing at CB Richard Ellis, a commercial real estate brokerage firm.
But as student housing becomes more widely accepted by investors — and more expensive to buy — the gap is expected to narrow. Markets where land is in short supply — like New York, Boston, Chicago and parts of Florida and California — are already considered hot markets, according to Mr. Reid. Austin, Tex., is another favored spot.
The bulk of the estimated $160 billion student housing market remains controlled by independent companies and investment groups that operate mostly regionally. Institutional and individual investors can participate in some deals, usually for a minimum investment of $50,000 to $150,000.
Some tenants-in-common programs, or T.I.C.’s, nascent products that offer fractional ownership of properties, also invest in student housing.
Wall Street has been slower to catch on. “The capital markets weren’t quite sure how to look at this product type,” Mr. Reid said. “They still had what we could call more of the ‘Animal House’ view of what student housing was.”
But in the last couple of years, three real estate investment trusts specializing in student housing have emerged — GMH Communities Trust, American Campus Communities and Education Realty Trust — making the sector more accessible to passive investors with less money to invest. (Equity Residential also has some student housing properties in its portfolio.)
Although the three student-housing REIT’s are still finding their bearings, at least two of them, American Campus Communities and Education Realty Trust, have managed healthy returns. This year through July, American Campus Communities had a total return (price appreciation and dividend) of 10.07 percent while Education Realty returned 28.76 percent, according to the National Association of Real Estate Investment Trusts. By comparison, the total return for all equity REIT’s during that period was 16.12 percent, the association said.
But GMH Communities, which also builds and operates military housing, had a negative yield of 16.04 percent for the first seven months of this year, according to the association. The company recently disclosed that it has had to borrow heavily in order to pay dividends.
Mr. Block of Phocas Financial said he likes Education Realty, in which he invests himself. The company has focused mostly on smaller schools in less-urban areas but plans to expand into bigger cities. Its portfolio includes 36,637 beds at 59 college communities in 21 states.
The company was developing private off-campus housing long before it was public.
“Our first project was in 1964 in Chapel Hill, N.C.,” the home of the University of North Carolina, “and we are still there,” said Paul O. Bower, the chief executive. “We’ve served the children of the original tenants, and soon the grandchildren.”
Some of Education Realty’s units include luxury amenities like swimming pools, while others are more like dormitories, Mr. Bower said.
At this time of year, the occupancy level for all of them starts at 100 percent. “We lose a percentage point or two throughout the year,” he said, adding that the most labor-intensive part of the operation is managing the units. “Eighty percent of the overhead expenses is for management,” he said.
Mr. Zaransky of Prime Property Investors suggests that intrepid investors who want to go it alone — by buying condominiums or town houses and renting them out — hire professional managers to oversee the properties. Management fees are typically 5 to 8 percent of the rent collected, he said.
Monthly rents vary by region. In the Southeast, for instance, they can range from $450 to nearly $800 a bed, according to Tom E. Lewis Jr., a managing partner at Flagstone Holdings in Miami, which specializes in acquiring and developing student housing in that region.
And with demand for private student housing expected to remain strong for the next several years, industry experts say, investors can almost bank on steady rent increases regardless of economic conditions or the interest rate climate. The same can’t be said about conventional apartments.
“The success of these investments is tied to college enrollment, not to external economic factors like job creation,” Mr. Zaransky said. “In fact, one can argue that in bad economic times, people will want to pursue better credentials and go back to school.”
Friday, August 25, 2006
What Is A Junior One Bedroom Anyway?
What Is A Junior One Bedroom Anyway?
topBy Alison Rogers
Resident, August 21, 2006
What’s the difference between a “Junior 1 bedroom” and a “convertible one-bedroom?”
Brokers often use the terms interchangeably in ads – but technically, they’re different. In NYC, a “bedroom” has to have a window in order to get called a “bedroom”. So a “convertible one-bedroom” or a “flex one-bedroom” is a studio with a windowed alcove, so if you did want to put up a wall, you could have a one-bedroom.
A “Junior 1,” on the other hand, is an apartment with a separate place for the bed that's more developed than an alcove — it might be a fancy sleeping loft platform, or an extended walk-in closet, or a separate interior room — but it's windowless, so you could never officially call it a one-bedroom.
In my mind, a “Junior 1” — we see them occasionally in Chelsea — attracts couples, who may need to have two separate rooms with a door to slam in between them more than they need outside light.
I’m buying a $1 million apartment and I’d like to skip the mansion tax. Can I pay $998,000 for the apartment and $2,000 for the stove?
I would never urge you to avoid paying taxes, because then the burden falls on someone else, probably me.
But there have always been stories circulating about two-contract deals put together in the Hamptons, to avoid the Mansion Tax, back in the day.
Now, with a million dollars not what it used to be, this 1% tax on a home’s transaction price — which goes directly to New York State — hits some not-so-rich buyers. Is a 900-square-foot one-bedroom apartment really a “mansion?” just because it costs $1 million?
So I can understand the impulse to try and avoid the bite, but I wouldn’t try to make a side deal on an appliance such as a stove – appliances are generally considered to be part of an apartment.
And before you end up buying a $950,000 apartment and a $50,000 couch, you might want to check with a really good tax lawyer. You need to find out if you’ll get in trouble keeping from the state what is theirs – and if the IRS decides that you’re getting your place a little too cheaply and that’s somehow “imputed income.”
I’m broke. Should I call my landlady and tell her the rent’s going to be a little late?
If you want to stay in the place, I would definitely call and let her know what’s going on rather than make her shake you down for the money.
Sending what you have and sending the balance a few days late is better, too, from her point of view, than sending the entire amount a few days late.
But be sure it’s a one-time-only thing, because most landlords are programmed to anticipate that “late” quickly turns into “never” and will set the eviction wheels in motion faster than you can say “I swear it’s in the mail.”
topBy Alison Rogers
Resident, August 21, 2006
What’s the difference between a “Junior 1 bedroom” and a “convertible one-bedroom?”
Brokers often use the terms interchangeably in ads – but technically, they’re different. In NYC, a “bedroom” has to have a window in order to get called a “bedroom”. So a “convertible one-bedroom” or a “flex one-bedroom” is a studio with a windowed alcove, so if you did want to put up a wall, you could have a one-bedroom.
A “Junior 1,” on the other hand, is an apartment with a separate place for the bed that's more developed than an alcove — it might be a fancy sleeping loft platform, or an extended walk-in closet, or a separate interior room — but it's windowless, so you could never officially call it a one-bedroom.
In my mind, a “Junior 1” — we see them occasionally in Chelsea — attracts couples, who may need to have two separate rooms with a door to slam in between them more than they need outside light.
I’m buying a $1 million apartment and I’d like to skip the mansion tax. Can I pay $998,000 for the apartment and $2,000 for the stove?
I would never urge you to avoid paying taxes, because then the burden falls on someone else, probably me.
But there have always been stories circulating about two-contract deals put together in the Hamptons, to avoid the Mansion Tax, back in the day.
Now, with a million dollars not what it used to be, this 1% tax on a home’s transaction price — which goes directly to New York State — hits some not-so-rich buyers. Is a 900-square-foot one-bedroom apartment really a “mansion?” just because it costs $1 million?
So I can understand the impulse to try and avoid the bite, but I wouldn’t try to make a side deal on an appliance such as a stove – appliances are generally considered to be part of an apartment.
And before you end up buying a $950,000 apartment and a $50,000 couch, you might want to check with a really good tax lawyer. You need to find out if you’ll get in trouble keeping from the state what is theirs – and if the IRS decides that you’re getting your place a little too cheaply and that’s somehow “imputed income.”
I’m broke. Should I call my landlady and tell her the rent’s going to be a little late?
If you want to stay in the place, I would definitely call and let her know what’s going on rather than make her shake you down for the money.
Sending what you have and sending the balance a few days late is better, too, from her point of view, than sending the entire amount a few days late.
But be sure it’s a one-time-only thing, because most landlords are programmed to anticipate that “late” quickly turns into “never” and will set the eviction wheels in motion faster than you can say “I swear it’s in the mail.”
Wednesday, August 23, 2006
Housing Slump Proves Painful For Some Owners and Builders
Housing Slump Proves Painful For Some Owners and Builders
By JAMES R. HAGERTY and MICHAEL CORKERY
WSJ, August 23, 2006
For years, real-estate brokers and home builders promised that the soaring property market eventually would glide to a soft landing. These optimists predicted that home prices, which had more than doubled in parts of the country between 2000 and 2005, would continue to rise, but at a more normal pace of 5% or 6% a year.
It isn't working out that way. The rapid deterioration of the market over the past 12 months has caught many homeowners and builders off guard. Some are being forced to cut prices far below what their homes could have fetched a year ago. It's too early to say how hard the landing will be, but at a minimum it will be bumpy for many people who need to sell homes. And the economy as a whole, buoyed in recent years by the housing frenzy, could suffer.
The pain that homeowners and home builders are now feeling follows a raging national house party. As Americans soured on the stock market after the tech bubble burst in 2000, they poured money into real estate, spurred on by the lowest interest rates in four decades and looser lending standards. Surging demand created home shortages in California, Florida and the Northeast. Over the five years ending Dec. 31, average U.S. home prices jumped by 58%, according to a federal housing index.
But mortgage rates began rising and surging inventories of homes for sale finally caught up with demand. Though economists had been predicting a slowdown in housing for years, many homeowners and builders were surprised by how fast the market changed. "It's just like somebody flipped a switch," says Lynn Gardner, a real-estate auctioneer who works in Northern Virginia.
"It would be difficult to characterize the position of home builders as other than in a hard landing," says Robert Toll, chief executive of luxury home builder Toll Brothers Inc., which reported yesterday that net income fell 19% in the third quarter ended July 31. (See related article2.)
In his 40 years as a home builder, Mr. Toll says, he has never seen a slump unfold like the current one. "I've never seen a downturn in housing without a downturn in employment or... some macroeconomic nasty condition that took housing down along with other elements of the economy," he says. "This time, you've got low unemployment, you've got job creation, you've got a stable stock market and relatively low interest rates."
Joan Guth is one homeowner who was taken by surprise. Last September, she put her stately five-bedroom home in Herndon, Va., on the market for about $1.1 million. She was confident she would get something near that price, and planned to use the proceeds to buy a retirement home in Florida. But her home in the Washington suburbs attracted few serious lookers, and in March, she cut her asking price to $899,900. Still there were no takers. Finally, on the advice of her broker, she called in an auction firm, beginning a process that would eventually reveal to her just how weak the Northern Virginia market had become.
In much of the country, property markets began cooling rapidly in the second half of last year. Home builders were still turning out houses at a rapid clip, and the surge of new and previously occupied homes on the market convinced buyers there was no need to hurry. Over the past year, the number of previously occupied homes listed for sale nationwide has risen nearly 40%. In some metropolitan areas, including Orlando and Phoenix, the supply has quadrupled.
Investors who during the boom had been snapping up properties from the outskirts of Phoenix to the slums of Baltimore began dumping them on the market, hoping to get out with a profit before it was too late.
The resulting slump, thus far, is being felt mainly on the East and West coasts and in Florida, where home prices had soared beyond the average working family's ability to pay. In California's San Diego County, the median home-sale price was $487,000 in July, down 1.8% from a year earlier, according to DataQuick Information Systems, a research firm in San Diego. Prices in the Northern Virginia counties of Fairfax and Arlington and in nearby towns, near Washington, averaged $537,731 in July, down 3.9% from a year earlier, according to the Northern Virginia Association of Realtors.
Joan Guth, outside the Herndon, Va., home she agreed to sell earlier this month.
In some other parts of the country, notably Texas and the Seattle area, local housing markets remain robust. Texas' low housing costs are attracting new residents and investors, while Seattle's strong job market and shortage of homes have kept prices rising.
Nationwide, the median sale price of previously occupied homes in June was 0.9% higher than it was a year earlier, the smallest year-to-year increase since May 1995, according to the National Association of Realtors, a trade group. Over the next few months, the median price may decline from year-earlier periods, a spokesman for the association says, something that hasn't happened since February 1993.
The market may be weaker than the Realtors' widely followed monthly reports suggest. The group's data don't reflect the latest transactions. Its report on July home sales, for instance, due today, will mainly reflect sales that were agreed upon in May or June and closed in July. Moreover, when the market turns down, many home sellers initially let their homes sit instead of cutting prices enough to entice buyers.
Allen Sinai, chief economist at Decision Economics Inc., a New York research firm, contends that housing is poised for something "harder than a soft landing but softer than a hard landing." The weaker market will hurt the economy by eliminating jobs in construction and other housing-related fields and by reducing the ability of consumers to finance spending by borrowing against their home equity. Mr. Sinai predicts these factors could shave as much as a percentage point off economic growth over the next year or so. Taking that into account, he expects the economy to grow at a relatively sluggish annual rate of 2.5% to 2.75% in 2007, compared with 2.5% in this year's second quarter and 5.6% in the first quarter.
In a speech yesterday, Michael Moskow, president of the Federal Reserve Bank of Chicago, noted: "While we factor a housing slowdown into our outlook, there is some evidence -- such as higher rates of cancellation in home-building contracts -- that the slowdown could be more extensive."
With fewer consumers applying for home loans, some big mortgage lenders are already retrenching. Countrywide Financial Corp. last month announced plans to reduce costs by $500 million. Earlier this year, Washington Mutual Inc. eliminated 2,500 jobs at loan-processing centers.
Builders, who were optimistic about prospects until a few months ago, are cutting back too. KB Home, a big home builder based in Los Angeles, has eliminated 7% of its work force, or 440 jobs. In July, U.S. home builders started construction at an annual rate of 1.45 million single-family homes, down 20% from the January peak.
Last August, when Horsham, Pa.-based Toll Brothers reported that its quarterly profit had doubled, Mr. Toll boasted: "We've got the supply, and the market has got the demand. So it's a match made in heaven." Since then, Toll has cuts its guidance four times on the number of homes it expects to close on, and its share price has fallen by more than 45%. Yesterday, the company said orders for new homes in the third quarter were down 48% from a year earlier.
Mr. Toll blames a "drop in confidence" among prospective home buyers, who he says are worried about "the direction of America" and the situation in Iraq. The retreat of speculators who were buying and "flipping" homes also hurt the market, he says. Such speculative buyers, who Mr. Toll estimates accounted for about 10% of demand one year ago, are now sellers.
Even so, Mr. Toll contends that new household formation, immigration, job creation and rising affluence are currently producing a pent-up demand for housing. Once Americans believe that home prices have bottomed, he argues, they will rush back into the market, although he is unwilling to predict when that will happen.
At D.R. Horton Inc., the nation's largest home builder by units built per year, executives said late last year they were confident that quarterly earnings would continue to increase even during a housing-market slump. In July, Horton reported a 21% decline in net income for the third quarter ended June 30, the first quarter in 28 years in which it didn't report year-over-year profit growth. Horton's chief executive, Donald Tomnitz, said the surge in home prices had priced many people out of the market.
"Every time we've gone into a downturn in the home-building industry, they've always been longer and deeper than we've all imagined," Mr. Tomnitz told analysts in a July 20 conference call. "So we're preparing for the worst, and we think this one will be longer and deeper than just the last six months."
For some homeowners who bought as the market was peaking last year, the downturn is already creating a financial pinch.
In April 2005, Jennifer Bloom paid about $229,000 for a condominium in Yarmouth Port on Massachusetts's Cape Cod, where her son planned to live. After his plans changed, Ms. Bloom, a software specialist for a computer company, decided early this year to sell the condo. She initially listed it at $229,000, and then gradually shaved the price to $199,000 as the market weakened. Earlier this month, she gave up on finding a buyer at a price she could bear to accept. Instead, she is renting out the condo for $1,000 a month, which she says is more than $200 below her monthly costs for mortgage payments, insurance, taxes and other items. She says she intends to hold off on selling it until the market improves.
The slump has been particularly harsh in Northern Virginia, where in recent years, large home builders have turned open fields and wooded lots into new subdivisions. Inventories of unsold homes here have risen 147% over the past year, compared to a 40% increase nationally.
Would-be sellers such as Tahir Javed, a 36-year-old management consultant, are growing frustrated. One year ago, Mr. Javed decided to move up from his town house in Ashburn, Va. He signed a contract to buy for $983,000 a four-bedroom brick colonial that a developer planned to build in nearby Leesburg. He put down a $60,000 deposit and planned to move into the new house in October 2006.
In May, Mr. Javed put his town house on the market for $499,900, which he says is far above the $212,000 he paid in 1999, but in line with asking prices for similar homes in the neighborhood. He hasn't been able to find a buyer, and the balance he owes on his new house -- about $920,000 -- is due in about six weeks.
Mr. Javed says he asked the builder for a price break, but the answer was no. He's considering cutting the asking price for his town house to slightly under $470,000, and if that doesn't work, he may try to find a renter. He had planned to use the money from selling the town house as a 20% down payment on what he owes on his new home, and to borrow the other 80%. Now he may need a bigger loan, which could carry a higher interest rate, he says. "That is the painful part," he says.
Ms. Guth, whose home in Herndon, Va., had failed to attract a buyer after months on the market, eventually turned to Tranzon Fox, an auction firm based in Burke, Va. Ms. Guth had based her initial $1.1 million asking price on a 2005 appraisal of her home, which now appeared far off the mark. She and her family decided they would accept the highest bid of at least $675,000.
Kristin Eddy, a 35-year-old pediatric occupational therapist living in a town home in Reston, Va., had noticed Ms. Guth's dark-green turreted home with its wraparound verandas while riding her bike along a nearby trail. "I've had my eye on that house for a long time -- as a dream," Ms. Eddy says. When it first went on the market, it was far beyond her price range. Then she noticed the sign announcing the auction.
On the morning of Aug. 5, the auctioneer, Stephen Karbelk, set up loudspeakers on Ms. Guth's side lawn. Ms. Guth handed bottles of chilled water to the several dozen bidders and curious neighbors who showed up. "I have a whole stomach full of butterflies," Ms. Guth said.
Ms. Eddy figured her chances of winning were near zero. When the auction began, it became clear that there were only two serious bidders. Although Mr. Karbelk tried to stir excitement, the bidding petered out within minutes. Ms. Eddy was the high bidder, at $475,000.
Looking stricken, Ms. Guth and one of her sons huddled with their broker for a few minutes. Then they told the auctioneer they wouldn't accept the bid, which fell below the stipulated minimum that hadn't been revealed to bidders. The auction was over.
Ms. Guth said she would move and leave the house empty until she could sell it at a reasonable price. Late that afternoon, Ms. Eddy raised her offer to $525,000. The Guths wavered for two days before agreeing to accept about $530,000. Ms. Eddy is getting a home with five bedrooms, four full bathrooms, a half-acre lot and a three-car garage for about what some people had been paying until recently for town houses in the area.
Ms. Guth has revised her retirement plan. The disappointing auction result made it difficult for her to afford the kind of home she wanted in Florida. She has decided to buy a home in South Hill, a rural area of south-central Virginia where home prices are cheaper than they are in either Florida or the Washington suburbs. She thinks she can find a home there for $175,000 or less.
By JAMES R. HAGERTY and MICHAEL CORKERY
WSJ, August 23, 2006
For years, real-estate brokers and home builders promised that the soaring property market eventually would glide to a soft landing. These optimists predicted that home prices, which had more than doubled in parts of the country between 2000 and 2005, would continue to rise, but at a more normal pace of 5% or 6% a year.
It isn't working out that way. The rapid deterioration of the market over the past 12 months has caught many homeowners and builders off guard. Some are being forced to cut prices far below what their homes could have fetched a year ago. It's too early to say how hard the landing will be, but at a minimum it will be bumpy for many people who need to sell homes. And the economy as a whole, buoyed in recent years by the housing frenzy, could suffer.
The pain that homeowners and home builders are now feeling follows a raging national house party. As Americans soured on the stock market after the tech bubble burst in 2000, they poured money into real estate, spurred on by the lowest interest rates in four decades and looser lending standards. Surging demand created home shortages in California, Florida and the Northeast. Over the five years ending Dec. 31, average U.S. home prices jumped by 58%, according to a federal housing index.
But mortgage rates began rising and surging inventories of homes for sale finally caught up with demand. Though economists had been predicting a slowdown in housing for years, many homeowners and builders were surprised by how fast the market changed. "It's just like somebody flipped a switch," says Lynn Gardner, a real-estate auctioneer who works in Northern Virginia.
"It would be difficult to characterize the position of home builders as other than in a hard landing," says Robert Toll, chief executive of luxury home builder Toll Brothers Inc., which reported yesterday that net income fell 19% in the third quarter ended July 31. (See related article2.)
In his 40 years as a home builder, Mr. Toll says, he has never seen a slump unfold like the current one. "I've never seen a downturn in housing without a downturn in employment or... some macroeconomic nasty condition that took housing down along with other elements of the economy," he says. "This time, you've got low unemployment, you've got job creation, you've got a stable stock market and relatively low interest rates."
Joan Guth is one homeowner who was taken by surprise. Last September, she put her stately five-bedroom home in Herndon, Va., on the market for about $1.1 million. She was confident she would get something near that price, and planned to use the proceeds to buy a retirement home in Florida. But her home in the Washington suburbs attracted few serious lookers, and in March, she cut her asking price to $899,900. Still there were no takers. Finally, on the advice of her broker, she called in an auction firm, beginning a process that would eventually reveal to her just how weak the Northern Virginia market had become.
In much of the country, property markets began cooling rapidly in the second half of last year. Home builders were still turning out houses at a rapid clip, and the surge of new and previously occupied homes on the market convinced buyers there was no need to hurry. Over the past year, the number of previously occupied homes listed for sale nationwide has risen nearly 40%. In some metropolitan areas, including Orlando and Phoenix, the supply has quadrupled.
Investors who during the boom had been snapping up properties from the outskirts of Phoenix to the slums of Baltimore began dumping them on the market, hoping to get out with a profit before it was too late.
The resulting slump, thus far, is being felt mainly on the East and West coasts and in Florida, where home prices had soared beyond the average working family's ability to pay. In California's San Diego County, the median home-sale price was $487,000 in July, down 1.8% from a year earlier, according to DataQuick Information Systems, a research firm in San Diego. Prices in the Northern Virginia counties of Fairfax and Arlington and in nearby towns, near Washington, averaged $537,731 in July, down 3.9% from a year earlier, according to the Northern Virginia Association of Realtors.
Joan Guth, outside the Herndon, Va., home she agreed to sell earlier this month.
In some other parts of the country, notably Texas and the Seattle area, local housing markets remain robust. Texas' low housing costs are attracting new residents and investors, while Seattle's strong job market and shortage of homes have kept prices rising.
Nationwide, the median sale price of previously occupied homes in June was 0.9% higher than it was a year earlier, the smallest year-to-year increase since May 1995, according to the National Association of Realtors, a trade group. Over the next few months, the median price may decline from year-earlier periods, a spokesman for the association says, something that hasn't happened since February 1993.
The market may be weaker than the Realtors' widely followed monthly reports suggest. The group's data don't reflect the latest transactions. Its report on July home sales, for instance, due today, will mainly reflect sales that were agreed upon in May or June and closed in July. Moreover, when the market turns down, many home sellers initially let their homes sit instead of cutting prices enough to entice buyers.
Allen Sinai, chief economist at Decision Economics Inc., a New York research firm, contends that housing is poised for something "harder than a soft landing but softer than a hard landing." The weaker market will hurt the economy by eliminating jobs in construction and other housing-related fields and by reducing the ability of consumers to finance spending by borrowing against their home equity. Mr. Sinai predicts these factors could shave as much as a percentage point off economic growth over the next year or so. Taking that into account, he expects the economy to grow at a relatively sluggish annual rate of 2.5% to 2.75% in 2007, compared with 2.5% in this year's second quarter and 5.6% in the first quarter.
In a speech yesterday, Michael Moskow, president of the Federal Reserve Bank of Chicago, noted: "While we factor a housing slowdown into our outlook, there is some evidence -- such as higher rates of cancellation in home-building contracts -- that the slowdown could be more extensive."
With fewer consumers applying for home loans, some big mortgage lenders are already retrenching. Countrywide Financial Corp. last month announced plans to reduce costs by $500 million. Earlier this year, Washington Mutual Inc. eliminated 2,500 jobs at loan-processing centers.
Builders, who were optimistic about prospects until a few months ago, are cutting back too. KB Home, a big home builder based in Los Angeles, has eliminated 7% of its work force, or 440 jobs. In July, U.S. home builders started construction at an annual rate of 1.45 million single-family homes, down 20% from the January peak.
Last August, when Horsham, Pa.-based Toll Brothers reported that its quarterly profit had doubled, Mr. Toll boasted: "We've got the supply, and the market has got the demand. So it's a match made in heaven." Since then, Toll has cuts its guidance four times on the number of homes it expects to close on, and its share price has fallen by more than 45%. Yesterday, the company said orders for new homes in the third quarter were down 48% from a year earlier.
Mr. Toll blames a "drop in confidence" among prospective home buyers, who he says are worried about "the direction of America" and the situation in Iraq. The retreat of speculators who were buying and "flipping" homes also hurt the market, he says. Such speculative buyers, who Mr. Toll estimates accounted for about 10% of demand one year ago, are now sellers.
Even so, Mr. Toll contends that new household formation, immigration, job creation and rising affluence are currently producing a pent-up demand for housing. Once Americans believe that home prices have bottomed, he argues, they will rush back into the market, although he is unwilling to predict when that will happen.
At D.R. Horton Inc., the nation's largest home builder by units built per year, executives said late last year they were confident that quarterly earnings would continue to increase even during a housing-market slump. In July, Horton reported a 21% decline in net income for the third quarter ended June 30, the first quarter in 28 years in which it didn't report year-over-year profit growth. Horton's chief executive, Donald Tomnitz, said the surge in home prices had priced many people out of the market.
"Every time we've gone into a downturn in the home-building industry, they've always been longer and deeper than we've all imagined," Mr. Tomnitz told analysts in a July 20 conference call. "So we're preparing for the worst, and we think this one will be longer and deeper than just the last six months."
For some homeowners who bought as the market was peaking last year, the downturn is already creating a financial pinch.
In April 2005, Jennifer Bloom paid about $229,000 for a condominium in Yarmouth Port on Massachusetts's Cape Cod, where her son planned to live. After his plans changed, Ms. Bloom, a software specialist for a computer company, decided early this year to sell the condo. She initially listed it at $229,000, and then gradually shaved the price to $199,000 as the market weakened. Earlier this month, she gave up on finding a buyer at a price she could bear to accept. Instead, she is renting out the condo for $1,000 a month, which she says is more than $200 below her monthly costs for mortgage payments, insurance, taxes and other items. She says she intends to hold off on selling it until the market improves.
The slump has been particularly harsh in Northern Virginia, where in recent years, large home builders have turned open fields and wooded lots into new subdivisions. Inventories of unsold homes here have risen 147% over the past year, compared to a 40% increase nationally.
Would-be sellers such as Tahir Javed, a 36-year-old management consultant, are growing frustrated. One year ago, Mr. Javed decided to move up from his town house in Ashburn, Va. He signed a contract to buy for $983,000 a four-bedroom brick colonial that a developer planned to build in nearby Leesburg. He put down a $60,000 deposit and planned to move into the new house in October 2006.
In May, Mr. Javed put his town house on the market for $499,900, which he says is far above the $212,000 he paid in 1999, but in line with asking prices for similar homes in the neighborhood. He hasn't been able to find a buyer, and the balance he owes on his new house -- about $920,000 -- is due in about six weeks.
Mr. Javed says he asked the builder for a price break, but the answer was no. He's considering cutting the asking price for his town house to slightly under $470,000, and if that doesn't work, he may try to find a renter. He had planned to use the money from selling the town house as a 20% down payment on what he owes on his new home, and to borrow the other 80%. Now he may need a bigger loan, which could carry a higher interest rate, he says. "That is the painful part," he says.
Ms. Guth, whose home in Herndon, Va., had failed to attract a buyer after months on the market, eventually turned to Tranzon Fox, an auction firm based in Burke, Va. Ms. Guth had based her initial $1.1 million asking price on a 2005 appraisal of her home, which now appeared far off the mark. She and her family decided they would accept the highest bid of at least $675,000.
Kristin Eddy, a 35-year-old pediatric occupational therapist living in a town home in Reston, Va., had noticed Ms. Guth's dark-green turreted home with its wraparound verandas while riding her bike along a nearby trail. "I've had my eye on that house for a long time -- as a dream," Ms. Eddy says. When it first went on the market, it was far beyond her price range. Then she noticed the sign announcing the auction.
On the morning of Aug. 5, the auctioneer, Stephen Karbelk, set up loudspeakers on Ms. Guth's side lawn. Ms. Guth handed bottles of chilled water to the several dozen bidders and curious neighbors who showed up. "I have a whole stomach full of butterflies," Ms. Guth said.
Ms. Eddy figured her chances of winning were near zero. When the auction began, it became clear that there were only two serious bidders. Although Mr. Karbelk tried to stir excitement, the bidding petered out within minutes. Ms. Eddy was the high bidder, at $475,000.
Looking stricken, Ms. Guth and one of her sons huddled with their broker for a few minutes. Then they told the auctioneer they wouldn't accept the bid, which fell below the stipulated minimum that hadn't been revealed to bidders. The auction was over.
Ms. Guth said she would move and leave the house empty until she could sell it at a reasonable price. Late that afternoon, Ms. Eddy raised her offer to $525,000. The Guths wavered for two days before agreeing to accept about $530,000. Ms. Eddy is getting a home with five bedrooms, four full bathrooms, a half-acre lot and a three-car garage for about what some people had been paying until recently for town houses in the area.
Ms. Guth has revised her retirement plan. The disappointing auction result made it difficult for her to afford the kind of home she wanted in Florida. She has decided to buy a home in South Hill, a rural area of south-central Virginia where home prices are cheaper than they are in either Florida or the Washington suburbs. She thinks she can find a home there for $175,000 or less.
Tuesday, August 22, 2006
Affordable-Housing Empire Fuels Developer's Upscale Aims
Affordable-Housing Empire Fuels Developer's Upscale Aims
By ALEX FRANGOS
WSJ, August 22, 2006
Stephen M. Ross erected the $1.7 billion Time Warner Center, twin 80-story towers stuffed with offices, shops, a hotel and expensive apartments overlooking Central Park. He is planning to transform downtown Los Angeles with a more-than-$2.5 billion retail and residential complex, and with a partner, to rebuild a chunk of central Manhattan, replacing both Pennsylvania Station and Madison Square Garden.
Behind his soaring ambitions and colossal budgets is something unusual in the world of commercial real estate: a financial engine based on government-subsidized housing that funds these risky endeavors.
The Ocean Park apartment complex in working-class Far Rockaway, Queens, is one cog in his machine. The twin brick-and-concrete towers, perched atop a parking garage overlooking the Atlantic Ocean, are typically drab affordable housing from the 1970s. Mr. Ross's real-estate firm, closely-held Related Cos., owns the buildings and collects just $848 a month for each two-bedroom apartment -- below-market rates that are set by the New York State Housing Finance Agency. Mr. Ross turns a profit because he has mastered the complex business of tax credits that help finance the nation's low-income housing.
Ninety percent of the 37,700 apartments Related owns in 16 states are government-subsidized units. And Mr. Ross's involvement in low- and moderate-income housing extends far beyond that. He founded and is the chairman of CharterMac, a publicly traded finance company that sells tax credits to investors and invests in tax-exempt bonds that also help to finance low-income housing. CharterMac has financed more than 400,000 apartments.
This massive low-income housing operation throws off a river of cash for Related that runs fairly steadily through real-estate boom and bust. It helps Mr. Ross bankroll some of the nation's ritziest -- and riskiest -- commercial developments.
"The consistent stream of fee income from the affordable side enables us to take on larger scale market-oriented projects," explains William Witte, president of Related's California operation. For the planned Los Angeles project, for example, Related beat out competing developers in part by plunking down a nonrefundable $50 million deposit.
Mixing high-end and low has turned Mr. Ross, 66 years old, into a wealthy man. Through Related, he controls $11.5 billion worth of property, although Related does not disclose how much debt those properties carry. He lives in a Time Warner Center penthouse and is a major philanthropist. In 2003, he gave $100 million to the University of Michigan Business School, which bears his name.
These days, with the luxury-condominium market cooling, Mr. Ross's high-low strategy may be put to the test. In June, a much-hyped, $3 billion Related condo project in Las Vegas in which actor George Clooney planned to invest was scrapped before it got off ground. Related blamed rising construction costs.
Nevertheless, Mr. Ross is forging ahead with preparations for his two most ambitious and expensive projects ever. In its Los Angeles project, Related is leading the planned redevelopment of a dilapidated stretch of Grand Avenue in the downtown area into a mixed-use neighborhood of condominiums, hotels, stores and parks.
And in New York, Related is working with Vornado Realty Trust, a real-estate investment trust, on plans to rebuild Madison Square Garden one block to the west, then raze the current home of the sports and entertainment arena. In the process, Pennsylvania Station, Manhattan's underground railroad hub, would become two connected stations, one of them within the historic building that now serves as the city central post office. In addition, there would be tall office buildings, condominiums and retail space. All told, it could cost more than $7 billion. "I've never been involved with anything that would have that much impact," says Mr. Ross.
Trained as a tax lawyer, Mr. Ross realized years ago there was money to be made though tax incentives created by the federal government to produce affordable housing. Although the details of government programs have changed over the years, their premise has stayed the same: private developers will build and preserve affordable rental housing if they are given adequate tax breaks.
Currently, the federal government distributes $5 billion in affordable-housing tax credits each year to private developers who agree to keep rents artificially low for periods ranging from 15 to 40 years. The housing is reserved for tenants earning no more than 60% of an area's median income. State housing agencies administer the credits.
The developers, however, typically don't use the credits to offset their own taxes. They sell them to syndicators, who bundle them and sell them to investors looking to offset their own tax bills. Syndicators charge fees to these investors, who are mostly large financial institutions. Developers use the money from selling the credits to build or renovate the low-income housing.
The tax-credit business is sufficiently complex that few real-estate developers handle it themselves, and few syndicators, for their part, build apartments. "Most syndicators don't want to get their feet muddied tromping around on bare dirt," notes John McIlwain, senior resident fellow at the real-estate trade group Urban Land Institute, who spent 20 years as a lawyer in the tax-credit world. "By the time you figure out the tax-syndication business you deserve free psychiatric care."
Mr. Ross, however, does both. Related builds affordable housing, buys and renovates existing buildings, and manages the properties. CharterMac, which is 14%-owned by Related, invests in such housing to secure tax credits, generates fees by syndicating the credits to investors, and invests in tax-exempt bonds sold to finance such housing. CharterMac also provides mortgages on both affordable and market-rate apartment projects. In 2005, it reported net income of $59 million on $295 million in revenue.
Mr. Ross grew up middle-class in Detroit and Florida. His uncle, the late Max M. Fisher, a billionaire oil and real-estate investor, paid his college tuition. After completing law school, Mr. Ross went to work on Wall Street as a finance executive. While working at Bear Stearns Cos., he says, he put together a business plan for what he envisioned as an affordable-housing company that would both build apartments and handle tax-credit financing. The finance side would generate steady income, he explains, but "the big picture was in development."
Bear Stearns declined to fund his plan, so in 1972, Mr. Ross started Related Housing Co. By the early 1980s, he had built 15,000 apartments and was a leading syndicator of tax credits. He spun his profits into more-lucrative commercial developments. In suburban New York, he built offices for CA Inc., International Paper Co. and Nestlé SA.
He expanded his affordable-housing business to Florida, starting Related Group of Florida with housing entrepreneur Jorge Pérez. Today, that company, which is majority-owned by Mr. Pérez, is the largest developer of apartments in the state. Messrs. Ross and Pérez are also partners in Related investments in Las Vegas and California.
Mr. Ross pushed employees hard. After a 1982 skiing accident left his leg in a cast for nine months, he barked at underlings from a couch in his office. One evening a few years later, he emerged from a meeting to find the office apparently empty. "If anyone is still here, I'll give you $500," he shouted, according to both Mr. Ross and an employee. Dozens of heads popped up from the cubicles. "It cost me," he recalls.
In the 1980s, Mr. Ross began to combine affordable and luxury units in the same buildings, utilizing a new federal program known as 80/20. In exchange for reserving 20% of apartments for low-income tenants, Related was allowed to sell tax-exempt bonds. Mr. Ross's first such building, on the fringe of New York's Upper East Side, rented quickly and remains nearly 100% occupied.
He discovered that luxury projects were considerably riskier and more difficult. He spent the 1980s trying unsuccessfully to build an apartment complex called Riverwalk on piers in Manhattan's East River. Eventually, the city canceled his permit.
When commercial real-estate markets collapsed in the early 1990s, Mr. Ross had $120 million in loans outstanding on speculative projects. Banks began calling for repayment, and Mr. Ross canceled several condominium projects. If the loan problems had become public, investors might have steered clear of Related's tax-exempt deals, threatening its otherwise stable affordable-housing operations, according to two people familiar with the matter.
"How did we survive?" says Mr. Ross. "I had the other sources of income coming in from my financial-services business, the syndication doing all these tax-credit deals." It paid Related's overhead while he looked for additional money to keep the banks at bay. Eventually, he got a large cash infusion from several investors, including his wealthy uncle, Mr. Fisher, and he restructured the loans.
"My whole philosophy is totally different since then," says Mr. Ross. "We generate enough cash flow to put in to the projects internally from our profits...I control my destiny." He says Related now carries no debt other than short-term construction loans and nonrecourse mortgages, secured only by specific properties and not by Related's other assets or by Mr. Ross personally.
In order to obtain such financing, developers must put up significant equity. For the mammoth Time Warner Center, Related relied on more than the profits of its affordable-housing operations and other businesses. Mr. Ross tapped Apollo Real Estate Partners as an equity partner.
Income from the subsidized-housing business plays a vital role in the large-scale developments. "We've been working on large projects in and around L.A. for three years," says Mr. Witte, who heads Related's California unit. "We've had to carry the staff that are working on those. We have the financial capacity to do that in large part because of the success we have on the affordable side...All this comes into play when negotiating with lenders."
Following Related's near collapse, the commercial real-estate market once again boomed. Much of Related's projects since then have been high-end, including CityPlace in West Palm Beach, a massive mixed-use complex; Time Warner Center, and dozens of luxury condominium towers around the country. In recent years, these luxury projects have contributed a significant portion of Related's profits.
On the affordable-housing side, Mr. Ross was confronted with a separate set of problems. Related had begun selling tax-exempt bonds to investors through Prudential Securities. In a class-action suit filed in Manhattan federal court, investors accused Prudential, Related, and several other companies that sold limited partnerships of improperly characterizing bonds as more liquid than they in fact were. To settle the suit in 1997, Related paid $2 million and agreed to take its bond funds public so that investors could sell their investments more easily.
But that didn't end the problems. Related began collecting fees as outside manager of the newly public company, which became CharterMac. Investors didn't like that either. They were wary of having a private company manage a public one, which they saw as a conflict of interest, according to a 2002 CharterMac filing with the Securities and Exchange Commission. A second restructuring ensued, which shifted the management of CharterMac from Related to CharterMac itself. In exchange for the lost revenues, Mr. Ross received $50 million and CharterMac stock then valued at $181 million. Four other Related executives received $83 million of stock.
Before the deal was put to a shareholder vote, some shareholders sued in New York state court, claiming the deal amounted to Mr. Ross -- as both the principal owner of Related and the chairman of CharterMac -- negotiating with himself. CharterMac's independent directors had handled the negotiations for that company. One of those directors, Arthur Fisch, says the deal resulted from a "brutal negotiation." He insists that Mr. Ross "did not have any undo sway, certainly not over me." To settle the suit, Mr. Ross and his four Related partners agreed to vote the same way as the majority of outside shareholders. Those shareholders voted in favor of the deal.
These days, Related receives about $24 million a year in dividends -- most of it tax-free -- from its CharterMac stock holdings. But that is only part of the income it squeezes out of its investments in glamourless buildings such as the Ocean Park apartment complex.
In June 2005, Related agreed to buy Ocean Park for $34.5 million from Cord Meyer LLC, a small Queens real-estate company. In exchange for its promise to keep the apartments affordable for 40 years, Related received $11 million in federal tax credits, which it then sold to CharterMac. To raise the rest of the money needed to buy and renovate the building, Related received authorization from the New York State Housing Authority to sell $38 million in tax-exempt bonds.
Related and CharterMac earned money from the deal in several ways. Related took $2.2 million of the money it raised as a fee to manage the renovation of the property.
A CharterMac spokeswoman declines to say what the company's fee was for selling the Ocean Park tax credits to investors, but says it typically takes around 4% to 5% on such deals. CharterMac charges investors a separate fee to guarantee the tax credits if something bad happens to the property.
During the past year, Ocean Park tenants got new windows, stoves and refrigerators. Mark Carbone, president of Related's affordable-housing unit, says the property "will just purr along" for the 40 years Related has pledged to keep it affordable. And when that commitment runs out, the two buildings overlooking the Atlantic may turn into even more lucrative beachfront property.
By ALEX FRANGOS
WSJ, August 22, 2006
Stephen M. Ross erected the $1.7 billion Time Warner Center, twin 80-story towers stuffed with offices, shops, a hotel and expensive apartments overlooking Central Park. He is planning to transform downtown Los Angeles with a more-than-$2.5 billion retail and residential complex, and with a partner, to rebuild a chunk of central Manhattan, replacing both Pennsylvania Station and Madison Square Garden.
Behind his soaring ambitions and colossal budgets is something unusual in the world of commercial real estate: a financial engine based on government-subsidized housing that funds these risky endeavors.
The Ocean Park apartment complex in working-class Far Rockaway, Queens, is one cog in his machine. The twin brick-and-concrete towers, perched atop a parking garage overlooking the Atlantic Ocean, are typically drab affordable housing from the 1970s. Mr. Ross's real-estate firm, closely-held Related Cos., owns the buildings and collects just $848 a month for each two-bedroom apartment -- below-market rates that are set by the New York State Housing Finance Agency. Mr. Ross turns a profit because he has mastered the complex business of tax credits that help finance the nation's low-income housing.
Ninety percent of the 37,700 apartments Related owns in 16 states are government-subsidized units. And Mr. Ross's involvement in low- and moderate-income housing extends far beyond that. He founded and is the chairman of CharterMac, a publicly traded finance company that sells tax credits to investors and invests in tax-exempt bonds that also help to finance low-income housing. CharterMac has financed more than 400,000 apartments.
This massive low-income housing operation throws off a river of cash for Related that runs fairly steadily through real-estate boom and bust. It helps Mr. Ross bankroll some of the nation's ritziest -- and riskiest -- commercial developments.
"The consistent stream of fee income from the affordable side enables us to take on larger scale market-oriented projects," explains William Witte, president of Related's California operation. For the planned Los Angeles project, for example, Related beat out competing developers in part by plunking down a nonrefundable $50 million deposit.
Mixing high-end and low has turned Mr. Ross, 66 years old, into a wealthy man. Through Related, he controls $11.5 billion worth of property, although Related does not disclose how much debt those properties carry. He lives in a Time Warner Center penthouse and is a major philanthropist. In 2003, he gave $100 million to the University of Michigan Business School, which bears his name.
These days, with the luxury-condominium market cooling, Mr. Ross's high-low strategy may be put to the test. In June, a much-hyped, $3 billion Related condo project in Las Vegas in which actor George Clooney planned to invest was scrapped before it got off ground. Related blamed rising construction costs.
Nevertheless, Mr. Ross is forging ahead with preparations for his two most ambitious and expensive projects ever. In its Los Angeles project, Related is leading the planned redevelopment of a dilapidated stretch of Grand Avenue in the downtown area into a mixed-use neighborhood of condominiums, hotels, stores and parks.
And in New York, Related is working with Vornado Realty Trust, a real-estate investment trust, on plans to rebuild Madison Square Garden one block to the west, then raze the current home of the sports and entertainment arena. In the process, Pennsylvania Station, Manhattan's underground railroad hub, would become two connected stations, one of them within the historic building that now serves as the city central post office. In addition, there would be tall office buildings, condominiums and retail space. All told, it could cost more than $7 billion. "I've never been involved with anything that would have that much impact," says Mr. Ross.
Trained as a tax lawyer, Mr. Ross realized years ago there was money to be made though tax incentives created by the federal government to produce affordable housing. Although the details of government programs have changed over the years, their premise has stayed the same: private developers will build and preserve affordable rental housing if they are given adequate tax breaks.
Currently, the federal government distributes $5 billion in affordable-housing tax credits each year to private developers who agree to keep rents artificially low for periods ranging from 15 to 40 years. The housing is reserved for tenants earning no more than 60% of an area's median income. State housing agencies administer the credits.
The developers, however, typically don't use the credits to offset their own taxes. They sell them to syndicators, who bundle them and sell them to investors looking to offset their own tax bills. Syndicators charge fees to these investors, who are mostly large financial institutions. Developers use the money from selling the credits to build or renovate the low-income housing.
The tax-credit business is sufficiently complex that few real-estate developers handle it themselves, and few syndicators, for their part, build apartments. "Most syndicators don't want to get their feet muddied tromping around on bare dirt," notes John McIlwain, senior resident fellow at the real-estate trade group Urban Land Institute, who spent 20 years as a lawyer in the tax-credit world. "By the time you figure out the tax-syndication business you deserve free psychiatric care."
Mr. Ross, however, does both. Related builds affordable housing, buys and renovates existing buildings, and manages the properties. CharterMac, which is 14%-owned by Related, invests in such housing to secure tax credits, generates fees by syndicating the credits to investors, and invests in tax-exempt bonds sold to finance such housing. CharterMac also provides mortgages on both affordable and market-rate apartment projects. In 2005, it reported net income of $59 million on $295 million in revenue.
Mr. Ross grew up middle-class in Detroit and Florida. His uncle, the late Max M. Fisher, a billionaire oil and real-estate investor, paid his college tuition. After completing law school, Mr. Ross went to work on Wall Street as a finance executive. While working at Bear Stearns Cos., he says, he put together a business plan for what he envisioned as an affordable-housing company that would both build apartments and handle tax-credit financing. The finance side would generate steady income, he explains, but "the big picture was in development."
Bear Stearns declined to fund his plan, so in 1972, Mr. Ross started Related Housing Co. By the early 1980s, he had built 15,000 apartments and was a leading syndicator of tax credits. He spun his profits into more-lucrative commercial developments. In suburban New York, he built offices for CA Inc., International Paper Co. and Nestlé SA.
He expanded his affordable-housing business to Florida, starting Related Group of Florida with housing entrepreneur Jorge Pérez. Today, that company, which is majority-owned by Mr. Pérez, is the largest developer of apartments in the state. Messrs. Ross and Pérez are also partners in Related investments in Las Vegas and California.
Mr. Ross pushed employees hard. After a 1982 skiing accident left his leg in a cast for nine months, he barked at underlings from a couch in his office. One evening a few years later, he emerged from a meeting to find the office apparently empty. "If anyone is still here, I'll give you $500," he shouted, according to both Mr. Ross and an employee. Dozens of heads popped up from the cubicles. "It cost me," he recalls.
In the 1980s, Mr. Ross began to combine affordable and luxury units in the same buildings, utilizing a new federal program known as 80/20. In exchange for reserving 20% of apartments for low-income tenants, Related was allowed to sell tax-exempt bonds. Mr. Ross's first such building, on the fringe of New York's Upper East Side, rented quickly and remains nearly 100% occupied.
He discovered that luxury projects were considerably riskier and more difficult. He spent the 1980s trying unsuccessfully to build an apartment complex called Riverwalk on piers in Manhattan's East River. Eventually, the city canceled his permit.
When commercial real-estate markets collapsed in the early 1990s, Mr. Ross had $120 million in loans outstanding on speculative projects. Banks began calling for repayment, and Mr. Ross canceled several condominium projects. If the loan problems had become public, investors might have steered clear of Related's tax-exempt deals, threatening its otherwise stable affordable-housing operations, according to two people familiar with the matter.
"How did we survive?" says Mr. Ross. "I had the other sources of income coming in from my financial-services business, the syndication doing all these tax-credit deals." It paid Related's overhead while he looked for additional money to keep the banks at bay. Eventually, he got a large cash infusion from several investors, including his wealthy uncle, Mr. Fisher, and he restructured the loans.
"My whole philosophy is totally different since then," says Mr. Ross. "We generate enough cash flow to put in to the projects internally from our profits...I control my destiny." He says Related now carries no debt other than short-term construction loans and nonrecourse mortgages, secured only by specific properties and not by Related's other assets or by Mr. Ross personally.
In order to obtain such financing, developers must put up significant equity. For the mammoth Time Warner Center, Related relied on more than the profits of its affordable-housing operations and other businesses. Mr. Ross tapped Apollo Real Estate Partners as an equity partner.
Income from the subsidized-housing business plays a vital role in the large-scale developments. "We've been working on large projects in and around L.A. for three years," says Mr. Witte, who heads Related's California unit. "We've had to carry the staff that are working on those. We have the financial capacity to do that in large part because of the success we have on the affordable side...All this comes into play when negotiating with lenders."
Following Related's near collapse, the commercial real-estate market once again boomed. Much of Related's projects since then have been high-end, including CityPlace in West Palm Beach, a massive mixed-use complex; Time Warner Center, and dozens of luxury condominium towers around the country. In recent years, these luxury projects have contributed a significant portion of Related's profits.
On the affordable-housing side, Mr. Ross was confronted with a separate set of problems. Related had begun selling tax-exempt bonds to investors through Prudential Securities. In a class-action suit filed in Manhattan federal court, investors accused Prudential, Related, and several other companies that sold limited partnerships of improperly characterizing bonds as more liquid than they in fact were. To settle the suit in 1997, Related paid $2 million and agreed to take its bond funds public so that investors could sell their investments more easily.
But that didn't end the problems. Related began collecting fees as outside manager of the newly public company, which became CharterMac. Investors didn't like that either. They were wary of having a private company manage a public one, which they saw as a conflict of interest, according to a 2002 CharterMac filing with the Securities and Exchange Commission. A second restructuring ensued, which shifted the management of CharterMac from Related to CharterMac itself. In exchange for the lost revenues, Mr. Ross received $50 million and CharterMac stock then valued at $181 million. Four other Related executives received $83 million of stock.
Before the deal was put to a shareholder vote, some shareholders sued in New York state court, claiming the deal amounted to Mr. Ross -- as both the principal owner of Related and the chairman of CharterMac -- negotiating with himself. CharterMac's independent directors had handled the negotiations for that company. One of those directors, Arthur Fisch, says the deal resulted from a "brutal negotiation." He insists that Mr. Ross "did not have any undo sway, certainly not over me." To settle the suit, Mr. Ross and his four Related partners agreed to vote the same way as the majority of outside shareholders. Those shareholders voted in favor of the deal.
These days, Related receives about $24 million a year in dividends -- most of it tax-free -- from its CharterMac stock holdings. But that is only part of the income it squeezes out of its investments in glamourless buildings such as the Ocean Park apartment complex.
In June 2005, Related agreed to buy Ocean Park for $34.5 million from Cord Meyer LLC, a small Queens real-estate company. In exchange for its promise to keep the apartments affordable for 40 years, Related received $11 million in federal tax credits, which it then sold to CharterMac. To raise the rest of the money needed to buy and renovate the building, Related received authorization from the New York State Housing Authority to sell $38 million in tax-exempt bonds.
Related and CharterMac earned money from the deal in several ways. Related took $2.2 million of the money it raised as a fee to manage the renovation of the property.
A CharterMac spokeswoman declines to say what the company's fee was for selling the Ocean Park tax credits to investors, but says it typically takes around 4% to 5% on such deals. CharterMac charges investors a separate fee to guarantee the tax credits if something bad happens to the property.
During the past year, Ocean Park tenants got new windows, stoves and refrigerators. Mark Carbone, president of Related's affordable-housing unit, says the property "will just purr along" for the 40 years Related has pledged to keep it affordable. And when that commitment runs out, the two buildings overlooking the Atlantic may turn into even more lucrative beachfront property.
Saturday, August 19, 2006
The Most Expensive Homes In America
The Most Expensive Homes In America
Felicia Paik, Forbes.com
Nelson Peltz, Elizabeth "Libbet" Johnson and Michael Egan have more in common than large bank accounts. Not only do Peltz, a financier, Johnson, an heiress to the Johnson & Johnson pharmaceutical fortune and rental car tycoon Egan own three of the most expensive houses in the world, they're also all trying to unload them--and having a tough time doing it.
Last March, the Peltz, Johnson and Egan properties topped Forbes.com's list of the most expensive homes for sale in America and still remain there six months later. Of the eight properties featured last spring, only one has sold: The Palm Beach residence listed at $39 million found a buyer in April. The selling price was $30 million. The other seven are still on the market with the same asking prices.
To be sure, superluxury properties take much longer to sell than the average suburban tract home because only a very finite number of people can afford them. There's also a lot of ego wrapped up in these prices and everyone always thinks that his property is worth more no matter what price range it's in. So it's certainly no different for these captains of industry and heiresses to see more value in their properties than prospective buyers do. What's noteworthy, though, is that these high-end sellers in particular have not budged one nickel on their prices and seem to have the wherewithal to hold out for the magic number they're looking for.
Even though they're asking respectively $75 million, $66 million-plus and $54 million for their homes, Peltz, Johnson and Egan don't need to sell them before buying somewhere else--as do most other people.
But they may still wind up waiting longer than they had originally hoped. When all three properties originally went on the block, the real estate market was still hot. But major luxury residential sales, which were already slowing down before the Sept. 11 terrorist attacks, appear to be frozen while prospective buyers wait to see which way the economy will be going before they write any big checks.
"It's rare for these properties to sell quickly," says Cecelia Waeschle, who sells homes in Beverly Hills, Calif. "With properties over $30 million, it can take over two years. But now, with the situation after Sept. 11, who knows how long it could take?"
Peltz tried to sell his 13-acre Palm Beach estate for several years during the late 1990s for the same asking price of $75 million. He put it back on the market officially just about six months ago. One Palm Beach broker who did not want to be named says, "There is nothing else like Nelson Peltz's property in terms of the land size, but I'd be surprised if it sold for that."
Johnson's Manhattan apartment in the Trump International building has been on the market for the better part of a year and Egan's Nantucket spread been on the market for even longer.
There are some instances when flush buyers swoop in and just slap down the money: In June, talk show host Oprah Winfrey forked over $50 million for an under-renovation, 23,000-square-foot, Georgian-style mansion in Montecito, Calif. Eleven years ago, when entertainment mogul David Geffen learned that the Beverly Hills residence of late film producer Jack Warner was going to be for sale, Geffen approached Warner's estate attorneys directly and brokered the deal himself. Geffen acquired the 10-acre property for $47.5 million, still the record price paid for a residential property in Los Angeles.
However, there is only one Oprah, one Geffen and a handful of others that can throw down money like that without thinking about it. So, while sellers and their real estate brokers await the right buyer, the properties sit on the market. And the longer they stay there, the harder it is to sell. As Waeschle says, "When properties languish on the market too long, it can be the kiss of death."
Palm Beach, Fla., $75 million
Situated on North County Road, the Nelson Peltz property, overlooking the Atlantic Ocean and just north of the famed Breakers Hotel, features a French Regency-style, 44,000-square-foot main residence. The 13-acre property also has a 16,000-square-foot guesthouse, two swimming pools, a tennis court and a movie theater.
Peltz, who is a member of The Forbes Four Hundred Richest in America list, is chief executive of New York holding company Triarc Companies. He is trying to sell the property because he doesn't use it anymore. Ned Monell of Sotheby's International Realty has the listing.
New York, N.Y., over $66 million
When Elizabeth "Libbet" Johnson put her three-floor apartment on the market in Trump International Hotel and Tower located at One Central Park West last year, she was asking $62.3 million. Johnson had knocked down the walls of five apartments to make her own massive residence but then abruptly changed her mind about living there, leaving steel beams and concrete blocks behind.
Since then, the Trump organization has decided to reconfigure the 49th, 50th and 51st floors and finish the units for occupancy in the spring of 2002. There are various floor plans to choose from and all have separate asking prices. But the new aggregate asking price for the entire space owned by Johnson is now in excess of $66 million, reflecting the cost of construction and completion.
Nantucket, Mass., $54 million
At $54 million, Westmoor Farm has the highest asking price in New England. Set on 24 acres, the property has 12 guest cottages, four staff buildings and two owner's residences plus the 14-room Westmoor Inn with two barns for entertaining. It also has a baseball field, movie theater and petting zoo.
Westmoor Farm is owned by Michael Egan, former chairman of Alamo Rent-A-Car and now head of Alamo parent company ANC Rental (nasdaq: ANCX - news - people).
Clarence "Frenchie" Doucette of Maury People and George Ballantyne of Sotheby's in Boston are sharing the listing.
Wainscott, N.Y., $50 million
Twenty-five coveted acres in the Hamptons can be yours for $50 million. The estate, known as "Burnt Point," is located on Georgica Pond in the hamlet of Wainscott next door to East Hampton. The property has an 18,000-square-foot home designed by local architect Francis Fleetwood. It has eight bedrooms and 13 bathrooms.
Owner David Campbell, a commodities trader, has been trying to sell the property for more than year. Allan M. Schneider Associates, Dunemere and Sotheby's International Realty are sharing the listing.
Montauk, N.Y., $50 million
Instant fame would certainly come your way as the new owner of the home that belonged to late pop artist Andy Warhol. Located in Montauk, the village at the farthest end of Long Island, "Eothen" came on the market in July with a bold asking price of $50 million. Situated on the Atlantic Ocean, the 5.5-acre property has a seven-bedroom main house, four guest houses and several other outbuildings.
Eothen, which means "toward the east" in classical Greek, was built in 1931 by Richard E. Church, a scion of Arm & Hammer Baking Soda. Over the years, it has served as a hideaway of Lee Radziwill and Jacqueline Kennedy Onassis, Elizabether Taylor, Julian Schnabel and Liza Minelli. Warhol had purchased the property for $220,000 in the 1970s with his manager Paul Morrissey, who is Eothen's seller.
Linda Stein of Douglas Elliman in Manhattan and Lee Minetree of Allan M. Schneider Associates have the listing.
Hidden Hills, Calif., $50 million
This 92-acre property is located in Hidden Hills, a horsy community just north of Los Angeles. The ranch offers Grand Prix dressage and jumping as well as paddocks, guest residences, staff apartments, a tennis court and a swimming pool. The main house has four bedrooms and four bathrooms.
The ranch's owner is Dr. Bernard Salick, who sold his chain of outpatient cancer centers to British pharmaceutical giant Zeneca Group in 1997 for $480 million. Sotheby's International Realty has the listing.
Sands Point, N.Y., $50 million
Lands End is said to be the inspiration for the fictional home of Daisy Buchanan in F. Scott Fitzgerald's famed novel The Great Gatsby. The 13-acre estate on Long Island's North Shore town of Sands Point came on the market in May at $50 million. But over the summer the estate's owner, Virginia Kraft Payson, hired Chicago-based Sheldon Good & Co. to sell the property in a sealed bid auction on Oct. 30.
Architect Stanford White designed the 25-room, white-shingled Colonial Revival home in 1902. With more than 1,500 feet of waterfront, the property has a swimming pool, a tennis court, a seven-room guest cottage and a seven-car garage. Payson is the widow of industrialist and financier Charles Shipman Payson.
Los Angeles, Calif., $45 million
Iris Cantor is seeking $45 million for her one-acre property in the Bel-Air enclave of Los Angeles. Cantor is the widow of B. Gerald Cantor, founder of securities firm Cantor Fitzgerald. In the Sept. 11 terrorist attacks, the firm lost 600 of its 1,000 employees who worked in Tower 1 of the World Trade Center.
The Cantor home has eight bedrooms and 21 bathrooms in more than 35,000 square feet. It also has a ten-car garage, a wine cellar accommodating 5,000 bottles, a tennis court, swimming pool and beauty salon.
Medina, Wash., $45 million
For $45 million, you can become a neighbor of Bill Gates. Located in the Seattle suburb of Medina, this estate with 372 feet on Lake Washington has a 30,000-square-foot English Tudor-style mansion. The property also has an indoor swimming pool, guest house and parking for six cars. Ewing & Clark in Seattle has the listing.
Dallas, Tex., $44.9 million
This unfinished 43,000-square-foot mansion in a prime section of Dallas has four bedroom suites, a 21-seat home theater, a 20,000-bottle wine cellar and a 14-car garage. The ten-acre property originally belonged to George Perrin, founder of Paging Network. Since 1997, it's changed hands twice and no one has lived there yet.
Carole McBride of Adleta & Poston has the listing.
Palm Beach, Fla., $39 million
In April, Boston financier Howard Kessler and his wife Michele purchased this five-acre estate for $30 million.
The property features a 28,500-square-foot house with a master suite, five guest bedrooms and three staff bedrooms. The property, with 372 feet on the Atlantic Ocean, also has a tennis court and two swimming pools. It had belonged to the late Leonard Davis, founder of insurance company Colonial Penn Group, who helped start the American Association of Retired Persons.
Felicia Paik, Forbes.com
Nelson Peltz, Elizabeth "Libbet" Johnson and Michael Egan have more in common than large bank accounts. Not only do Peltz, a financier, Johnson, an heiress to the Johnson & Johnson pharmaceutical fortune and rental car tycoon Egan own three of the most expensive houses in the world, they're also all trying to unload them--and having a tough time doing it.
Last March, the Peltz, Johnson and Egan properties topped Forbes.com's list of the most expensive homes for sale in America and still remain there six months later. Of the eight properties featured last spring, only one has sold: The Palm Beach residence listed at $39 million found a buyer in April. The selling price was $30 million. The other seven are still on the market with the same asking prices.
To be sure, superluxury properties take much longer to sell than the average suburban tract home because only a very finite number of people can afford them. There's also a lot of ego wrapped up in these prices and everyone always thinks that his property is worth more no matter what price range it's in. So it's certainly no different for these captains of industry and heiresses to see more value in their properties than prospective buyers do. What's noteworthy, though, is that these high-end sellers in particular have not budged one nickel on their prices and seem to have the wherewithal to hold out for the magic number they're looking for.
Even though they're asking respectively $75 million, $66 million-plus and $54 million for their homes, Peltz, Johnson and Egan don't need to sell them before buying somewhere else--as do most other people.
But they may still wind up waiting longer than they had originally hoped. When all three properties originally went on the block, the real estate market was still hot. But major luxury residential sales, which were already slowing down before the Sept. 11 terrorist attacks, appear to be frozen while prospective buyers wait to see which way the economy will be going before they write any big checks.
"It's rare for these properties to sell quickly," says Cecelia Waeschle, who sells homes in Beverly Hills, Calif. "With properties over $30 million, it can take over two years. But now, with the situation after Sept. 11, who knows how long it could take?"
Peltz tried to sell his 13-acre Palm Beach estate for several years during the late 1990s for the same asking price of $75 million. He put it back on the market officially just about six months ago. One Palm Beach broker who did not want to be named says, "There is nothing else like Nelson Peltz's property in terms of the land size, but I'd be surprised if it sold for that."
Johnson's Manhattan apartment in the Trump International building has been on the market for the better part of a year and Egan's Nantucket spread been on the market for even longer.
There are some instances when flush buyers swoop in and just slap down the money: In June, talk show host Oprah Winfrey forked over $50 million for an under-renovation, 23,000-square-foot, Georgian-style mansion in Montecito, Calif. Eleven years ago, when entertainment mogul David Geffen learned that the Beverly Hills residence of late film producer Jack Warner was going to be for sale, Geffen approached Warner's estate attorneys directly and brokered the deal himself. Geffen acquired the 10-acre property for $47.5 million, still the record price paid for a residential property in Los Angeles.
However, there is only one Oprah, one Geffen and a handful of others that can throw down money like that without thinking about it. So, while sellers and their real estate brokers await the right buyer, the properties sit on the market. And the longer they stay there, the harder it is to sell. As Waeschle says, "When properties languish on the market too long, it can be the kiss of death."
Palm Beach, Fla., $75 million
Situated on North County Road, the Nelson Peltz property, overlooking the Atlantic Ocean and just north of the famed Breakers Hotel, features a French Regency-style, 44,000-square-foot main residence. The 13-acre property also has a 16,000-square-foot guesthouse, two swimming pools, a tennis court and a movie theater.
Peltz, who is a member of The Forbes Four Hundred Richest in America list, is chief executive of New York holding company Triarc Companies. He is trying to sell the property because he doesn't use it anymore. Ned Monell of Sotheby's International Realty has the listing.
New York, N.Y., over $66 million
When Elizabeth "Libbet" Johnson put her three-floor apartment on the market in Trump International Hotel and Tower located at One Central Park West last year, she was asking $62.3 million. Johnson had knocked down the walls of five apartments to make her own massive residence but then abruptly changed her mind about living there, leaving steel beams and concrete blocks behind.
Since then, the Trump organization has decided to reconfigure the 49th, 50th and 51st floors and finish the units for occupancy in the spring of 2002. There are various floor plans to choose from and all have separate asking prices. But the new aggregate asking price for the entire space owned by Johnson is now in excess of $66 million, reflecting the cost of construction and completion.
Nantucket, Mass., $54 million
At $54 million, Westmoor Farm has the highest asking price in New England. Set on 24 acres, the property has 12 guest cottages, four staff buildings and two owner's residences plus the 14-room Westmoor Inn with two barns for entertaining. It also has a baseball field, movie theater and petting zoo.
Westmoor Farm is owned by Michael Egan, former chairman of Alamo Rent-A-Car and now head of Alamo parent company ANC Rental (nasdaq: ANCX - news - people).
Clarence "Frenchie" Doucette of Maury People and George Ballantyne of Sotheby's in Boston are sharing the listing.
Wainscott, N.Y., $50 million
Twenty-five coveted acres in the Hamptons can be yours for $50 million. The estate, known as "Burnt Point," is located on Georgica Pond in the hamlet of Wainscott next door to East Hampton. The property has an 18,000-square-foot home designed by local architect Francis Fleetwood. It has eight bedrooms and 13 bathrooms.
Owner David Campbell, a commodities trader, has been trying to sell the property for more than year. Allan M. Schneider Associates, Dunemere and Sotheby's International Realty are sharing the listing.
Montauk, N.Y., $50 million
Instant fame would certainly come your way as the new owner of the home that belonged to late pop artist Andy Warhol. Located in Montauk, the village at the farthest end of Long Island, "Eothen" came on the market in July with a bold asking price of $50 million. Situated on the Atlantic Ocean, the 5.5-acre property has a seven-bedroom main house, four guest houses and several other outbuildings.
Eothen, which means "toward the east" in classical Greek, was built in 1931 by Richard E. Church, a scion of Arm & Hammer Baking Soda. Over the years, it has served as a hideaway of Lee Radziwill and Jacqueline Kennedy Onassis, Elizabether Taylor, Julian Schnabel and Liza Minelli. Warhol had purchased the property for $220,000 in the 1970s with his manager Paul Morrissey, who is Eothen's seller.
Linda Stein of Douglas Elliman in Manhattan and Lee Minetree of Allan M. Schneider Associates have the listing.
Hidden Hills, Calif., $50 million
This 92-acre property is located in Hidden Hills, a horsy community just north of Los Angeles. The ranch offers Grand Prix dressage and jumping as well as paddocks, guest residences, staff apartments, a tennis court and a swimming pool. The main house has four bedrooms and four bathrooms.
The ranch's owner is Dr. Bernard Salick, who sold his chain of outpatient cancer centers to British pharmaceutical giant Zeneca Group in 1997 for $480 million. Sotheby's International Realty has the listing.
Sands Point, N.Y., $50 million
Lands End is said to be the inspiration for the fictional home of Daisy Buchanan in F. Scott Fitzgerald's famed novel The Great Gatsby. The 13-acre estate on Long Island's North Shore town of Sands Point came on the market in May at $50 million. But over the summer the estate's owner, Virginia Kraft Payson, hired Chicago-based Sheldon Good & Co. to sell the property in a sealed bid auction on Oct. 30.
Architect Stanford White designed the 25-room, white-shingled Colonial Revival home in 1902. With more than 1,500 feet of waterfront, the property has a swimming pool, a tennis court, a seven-room guest cottage and a seven-car garage. Payson is the widow of industrialist and financier Charles Shipman Payson.
Los Angeles, Calif., $45 million
Iris Cantor is seeking $45 million for her one-acre property in the Bel-Air enclave of Los Angeles. Cantor is the widow of B. Gerald Cantor, founder of securities firm Cantor Fitzgerald. In the Sept. 11 terrorist attacks, the firm lost 600 of its 1,000 employees who worked in Tower 1 of the World Trade Center.
The Cantor home has eight bedrooms and 21 bathrooms in more than 35,000 square feet. It also has a ten-car garage, a wine cellar accommodating 5,000 bottles, a tennis court, swimming pool and beauty salon.
Medina, Wash., $45 million
For $45 million, you can become a neighbor of Bill Gates. Located in the Seattle suburb of Medina, this estate with 372 feet on Lake Washington has a 30,000-square-foot English Tudor-style mansion. The property also has an indoor swimming pool, guest house and parking for six cars. Ewing & Clark in Seattle has the listing.
Dallas, Tex., $44.9 million
This unfinished 43,000-square-foot mansion in a prime section of Dallas has four bedroom suites, a 21-seat home theater, a 20,000-bottle wine cellar and a 14-car garage. The ten-acre property originally belonged to George Perrin, founder of Paging Network. Since 1997, it's changed hands twice and no one has lived there yet.
Carole McBride of Adleta & Poston has the listing.
Palm Beach, Fla., $39 million
In April, Boston financier Howard Kessler and his wife Michele purchased this five-acre estate for $30 million.
The property features a 28,500-square-foot house with a master suite, five guest bedrooms and three staff bedrooms. The property, with 372 feet on the Atlantic Ocean, also has a tennis court and two swimming pools. It had belonged to the late Leonard Davis, founder of insurance company Colonial Penn Group, who helped start the American Association of Retired Persons.
Thursday, August 10, 2006
N.J. has highest property taxes in U.S.
N.J. has highest property taxes in U.S.
By TOM HESTER Jr.
AP, Aug 10
Barbara Lehman has lived in this central New Jersey community for 30 years, but her time here is nearing an end.
She sent her children through Montgomery's well-regarded schools. And she enjoys the rolling landscape even as housing developments have spread across it in recent years.
But her property taxes have climbed 56 percent since 2000 to a knee-buckling $14,000 a year — a heavy load for a high school French teacher whose salary goes up only about 3 percent a year.
"Oh, it's terrible," Lehman said.
Despite efforts by governors and lawmakers to do something about it, New Jersey has the highest property taxes in America — a burden that is alarming young couples and retirees alike and deepening public cynicism in a state with a long and rich history of graft and self-dealing.
The average property owner in the Garden State pays about $6,000 a year in property taxes, twice the national average.
A recent analysis by The New York Times found property taxes increased two to three times faster than personal income from 2000 to 2004 in the suburbs surrounding New York City. New Jersey's booming Somerset County — where Montgomery is situated — got slammed harder than anywhere else in the region, with property taxes climbing 41 percent there while income increased but 5 percent.
Susan Horowitz and her husband just marked their 30th year in Montgomery, but they are unsure how long they will be staying. Both are retired teachers who have watched their property taxes nearly double since 2000 to about $12,500 per year.
"I look at my pension as paying my property taxes," Horowitz said. "We love living here and as long as we can afford the taxes — because we've paid off our mortgage — we'd like to stay here, but we just don't know."
The burden is blamed on a number of factors, including New Jersey's inordinately heavy reliance on property taxes. Property taxes are used to cover most county, municipal and school operations. They account for about 50 percent of taxes collected in the state, compared with a national average of about 30 percent.
In addition, because of state budget woes, most New Jersey municipalities and schools have gone five straight years without an increase in their state aid. During that time, property taxes statewide have risen, on average, 7 percent a year.
Many also pin the blame on the way many of New Jersey's 566 cities and towns insist on having their own schools, police departments, public works crews and the like, instead of consolidating services with those of other communities to reduce administrative costs.
Somerset County, for example, has 21 municipalities. Densely populated Bergen County, just across the Hudson River from New York City, has a staggering 70.
Some lawmakers are looking into merging school systems and municipalities but are likely to run into resistance from local officeholders if they try to force the issue.
Another reason for high property taxes: State and local government owe billions per year to the state's public employee pension system, which has been riddled by abuses.
Also, by court order, the state must send huge chunks of school aid to struggling urban schools, meaning less money is available for middle-class districts.
Somerset County is about an hour's drive west of New York City and has gone through explosive growth over the past two decades as the ring of commuter communities extends farther and farther west.
Its population has ballooned from about 200,000 people in 1980 to nearly 300,000, and it boasts giant new housing developments and brand-new schools. Its winding two-lane highways now get clogged during rush hour.
Somerset ranks as the seventh-wealthiest county in the country with a per capita income of $37,970, according to Census figures. Many Somerset County residents commute to New York; others work in Somerset County or close by at several big pharmaceutical companies, including Johnson & Johnson.
Much of its property taxes go toward the building of schools to accommodate the boom in population.
Lehman paid $2,500 a year in property taxes when she moved to Montgomery in 1976. By 2000, her taxes had reached about $9,000.
"I will miss it, but I'm moving somewhere where my taxes are a little lower," said Lehman, who plans to move to Long Beach Island.
Democratic Gov. Jon S. Corzine and the Legislature are trying to provide some relief. They plan to spend the rest of the year considering ways to cut state reliance on property taxes.
But Lehman and others are not convinced help is coming.
Phyllis Beal, a psychiatric social worker who has seen her property taxes in the Somerset County community of Franklin increase 50 percent since 2000, said: "Our legislators are so beholden to special interests in every direction."
By TOM HESTER Jr.
AP, Aug 10
Barbara Lehman has lived in this central New Jersey community for 30 years, but her time here is nearing an end.
She sent her children through Montgomery's well-regarded schools. And she enjoys the rolling landscape even as housing developments have spread across it in recent years.
But her property taxes have climbed 56 percent since 2000 to a knee-buckling $14,000 a year — a heavy load for a high school French teacher whose salary goes up only about 3 percent a year.
"Oh, it's terrible," Lehman said.
Despite efforts by governors and lawmakers to do something about it, New Jersey has the highest property taxes in America — a burden that is alarming young couples and retirees alike and deepening public cynicism in a state with a long and rich history of graft and self-dealing.
The average property owner in the Garden State pays about $6,000 a year in property taxes, twice the national average.
A recent analysis by The New York Times found property taxes increased two to three times faster than personal income from 2000 to 2004 in the suburbs surrounding New York City. New Jersey's booming Somerset County — where Montgomery is situated — got slammed harder than anywhere else in the region, with property taxes climbing 41 percent there while income increased but 5 percent.
Susan Horowitz and her husband just marked their 30th year in Montgomery, but they are unsure how long they will be staying. Both are retired teachers who have watched their property taxes nearly double since 2000 to about $12,500 per year.
"I look at my pension as paying my property taxes," Horowitz said. "We love living here and as long as we can afford the taxes — because we've paid off our mortgage — we'd like to stay here, but we just don't know."
The burden is blamed on a number of factors, including New Jersey's inordinately heavy reliance on property taxes. Property taxes are used to cover most county, municipal and school operations. They account for about 50 percent of taxes collected in the state, compared with a national average of about 30 percent.
In addition, because of state budget woes, most New Jersey municipalities and schools have gone five straight years without an increase in their state aid. During that time, property taxes statewide have risen, on average, 7 percent a year.
Many also pin the blame on the way many of New Jersey's 566 cities and towns insist on having their own schools, police departments, public works crews and the like, instead of consolidating services with those of other communities to reduce administrative costs.
Somerset County, for example, has 21 municipalities. Densely populated Bergen County, just across the Hudson River from New York City, has a staggering 70.
Some lawmakers are looking into merging school systems and municipalities but are likely to run into resistance from local officeholders if they try to force the issue.
Another reason for high property taxes: State and local government owe billions per year to the state's public employee pension system, which has been riddled by abuses.
Also, by court order, the state must send huge chunks of school aid to struggling urban schools, meaning less money is available for middle-class districts.
Somerset County is about an hour's drive west of New York City and has gone through explosive growth over the past two decades as the ring of commuter communities extends farther and farther west.
Its population has ballooned from about 200,000 people in 1980 to nearly 300,000, and it boasts giant new housing developments and brand-new schools. Its winding two-lane highways now get clogged during rush hour.
Somerset ranks as the seventh-wealthiest county in the country with a per capita income of $37,970, according to Census figures. Many Somerset County residents commute to New York; others work in Somerset County or close by at several big pharmaceutical companies, including Johnson & Johnson.
Much of its property taxes go toward the building of schools to accommodate the boom in population.
Lehman paid $2,500 a year in property taxes when she moved to Montgomery in 1976. By 2000, her taxes had reached about $9,000.
"I will miss it, but I'm moving somewhere where my taxes are a little lower," said Lehman, who plans to move to Long Beach Island.
Democratic Gov. Jon S. Corzine and the Legislature are trying to provide some relief. They plan to spend the rest of the year considering ways to cut state reliance on property taxes.
But Lehman and others are not convinced help is coming.
Phyllis Beal, a psychiatric social worker who has seen her property taxes in the Somerset County community of Franklin increase 50 percent since 2000, said: "Our legislators are so beholden to special interests in every direction."
Wednesday, August 09, 2006
NYC – Buyers look to the boroughs
NYC – Buyers look to the boroughs
By Ted Phillips
amNewYork Staff Writer
August 9, 2006
Monifa Thomas, a working mom with a young son and another on the way, had been looking for a place she could afford for more than a year when she landed a spacious co-op in Brooklyn's Bed-Stuy neighborhood listed for $155,000.
"I think I lucked out," said Thomas, 32, who had been priced out of her current neighborhood of Fort Greene.
The 800-square-foot railroad apartment where Thomas plans to live with her husband, 7-year-old son and newborn due in October was reserved for middle-income buyers. On the open market, the apartment -- now in contract -- probably could have sold for double that amount, brokers said.
The Housing Development Fund Corp. co-op was originally was owned by the city and then turned over to the residents for a small fee. Part of the agreement was that the units could only be sold to people meeting income guidelines.
In her case, Thomas, a social worker for the city's Administration for Children's Services, qualified because the annual income of her family was less than $77,000.
Even with the price break, Thomas has had to scrimp and save to meet the costs. They are "eating out less, cutting back on certain organic foods, … going to movies (less often) and stuff like that," she said.
Anyone who has looked to buy in the city knows deals like the one Thomas found are few and far between.
"You can't build homes fast enough to fill the demand," said Pat Julien of the Pratt Area Community Council, a Brooklyn-based group that follows housing issues.
In most of the United States, buying a home is a rite of passage into adulthood. New York City is different, especially for those people who hoped to buy in Manhattan, where the median price of an apartment in the first quarter of this year was $880,000, according to Prudential Douglas Elliman.
First-time homebuyers can find better deals in the boroughs. On Craigslist.org, there is no shortage of listings for under $200,000 for people willing to buy in the Parkchester section of the Bronx or Rego Park, Queens.
The median price for a condo in Brooklyn in the second of quarter of this year was $585,000, according to the Corcoran Group. And The Real Deal, a real estate magazine, recently reported the median price of a home in the Bronx was $400,000.
"It's a dream for a couple to own something, to have something that's ours," said Mike Medina, 42, who was among 1,000 people attending a homebuyers' fair sponsored by Bronx Borough President Adolfo Carrion earlier this summer.
He and his girlfriend pay $1,000 a month in rent. "That's (money) that could go to a house," he said.
Shirley Brown, 58, a city employee, also attended the fair and listened closely to a presentation on a program by the city's Department of Housing Preservation and Development that helps first-time homebuyers within a certain income limits come up with money for a down payment or closing costs.
Brown has her heart set on the Shorehaven development in the Soundview section of the Bronx, where her name is on a waiting list. She still goes on the Internet to compare prices in the area.
"You have to live it, breathe it. Even if you are not ready," she said. ""If you wait until you are ready, you won't have a clue."
As New Yorkers struggle to find housing they can afford, the mayor's office has set into motion a program it hopes will ease the tight market.
The Bloomberg administration's New Housing Marketplace plan proposes to create or preserve more than 48,000 units of affordable housing for purchase by 2013.
Most of the housing in the plan – including additional rental units -- would be available for people making 80% of a set median income, about $50,000 for a family of four. The plan also calls for moderate and median income housing for New Yorkers making between $50,000 and $100,000 a year.
But experts and house hunters know that even with the city's effort, affordable housing will remain elusive.
"The person who's making a median income, the only way they can get a home is if they get lucky and get in to a lottery for a development project," said Julien, of the Pratt Council.
Thomas' advice to others is to be patient and prudent.
"Sometimes you find a place and you really love it, but when you crunch the numbers you realize how hard it's going to be … sometimes it's hard to walk," she said.
By Ted Phillips
amNewYork Staff Writer
August 9, 2006
Monifa Thomas, a working mom with a young son and another on the way, had been looking for a place she could afford for more than a year when she landed a spacious co-op in Brooklyn's Bed-Stuy neighborhood listed for $155,000.
"I think I lucked out," said Thomas, 32, who had been priced out of her current neighborhood of Fort Greene.
The 800-square-foot railroad apartment where Thomas plans to live with her husband, 7-year-old son and newborn due in October was reserved for middle-income buyers. On the open market, the apartment -- now in contract -- probably could have sold for double that amount, brokers said.
The Housing Development Fund Corp. co-op was originally was owned by the city and then turned over to the residents for a small fee. Part of the agreement was that the units could only be sold to people meeting income guidelines.
In her case, Thomas, a social worker for the city's Administration for Children's Services, qualified because the annual income of her family was less than $77,000.
Even with the price break, Thomas has had to scrimp and save to meet the costs. They are "eating out less, cutting back on certain organic foods, … going to movies (less often) and stuff like that," she said.
Anyone who has looked to buy in the city knows deals like the one Thomas found are few and far between.
"You can't build homes fast enough to fill the demand," said Pat Julien of the Pratt Area Community Council, a Brooklyn-based group that follows housing issues.
In most of the United States, buying a home is a rite of passage into adulthood. New York City is different, especially for those people who hoped to buy in Manhattan, where the median price of an apartment in the first quarter of this year was $880,000, according to Prudential Douglas Elliman.
First-time homebuyers can find better deals in the boroughs. On Craigslist.org, there is no shortage of listings for under $200,000 for people willing to buy in the Parkchester section of the Bronx or Rego Park, Queens.
The median price for a condo in Brooklyn in the second of quarter of this year was $585,000, according to the Corcoran Group. And The Real Deal, a real estate magazine, recently reported the median price of a home in the Bronx was $400,000.
"It's a dream for a couple to own something, to have something that's ours," said Mike Medina, 42, who was among 1,000 people attending a homebuyers' fair sponsored by Bronx Borough President Adolfo Carrion earlier this summer.
He and his girlfriend pay $1,000 a month in rent. "That's (money) that could go to a house," he said.
Shirley Brown, 58, a city employee, also attended the fair and listened closely to a presentation on a program by the city's Department of Housing Preservation and Development that helps first-time homebuyers within a certain income limits come up with money for a down payment or closing costs.
Brown has her heart set on the Shorehaven development in the Soundview section of the Bronx, where her name is on a waiting list. She still goes on the Internet to compare prices in the area.
"You have to live it, breathe it. Even if you are not ready," she said. ""If you wait until you are ready, you won't have a clue."
As New Yorkers struggle to find housing they can afford, the mayor's office has set into motion a program it hopes will ease the tight market.
The Bloomberg administration's New Housing Marketplace plan proposes to create or preserve more than 48,000 units of affordable housing for purchase by 2013.
Most of the housing in the plan – including additional rental units -- would be available for people making 80% of a set median income, about $50,000 for a family of four. The plan also calls for moderate and median income housing for New Yorkers making between $50,000 and $100,000 a year.
But experts and house hunters know that even with the city's effort, affordable housing will remain elusive.
"The person who's making a median income, the only way they can get a home is if they get lucky and get in to a lottery for a development project," said Julien, of the Pratt Council.
Thomas' advice to others is to be patient and prudent.
"Sometimes you find a place and you really love it, but when you crunch the numbers you realize how hard it's going to be … sometimes it's hard to walk," she said.
Monday, August 07, 2006
Futures Market for Home Price
The Global Home
Robert J. Shiller Commentaries
March 2006
Homes are the most local of investments, rooted to a particular place like a tree, and thus thriving or withering in response to local economic conditions. The whole world flashes by on our television screens, but the market for our homes, which is comprised almost entirely of local amateurs, remains grounded right there in our own backyard.
Soon, however, this could all change. Within a month, the Chicago Mercantile Exchange (CME), in collaboration with my company, MacroMarkets, as well as Fiserv and Standard & Poor’s, will launch futures and options contracts on home prices in ten cities in the United States. The contracts will be settled on theS&P/Case-Shiller Home Price Indices , which developed out of academic work that my colleague Karl Case and I pioneered almost twenty years ago. For many years we have been campaigning for housing futures, but no exchange wanted to use such indices to create a futures market until now.
The futures markets on home prices will allow investors around the world to invest in US homes indirectly, by buying interests in them through these markets. An investor in Paris, Rio de Janeiro, or Tokyo will be able to invest in owner-occupied homes in New York, Los Angeles, and Las Vegas.
A fundamental principle of financial theory – “diversification” or “risk spreading” – implies that interest in the new contracts will be high. People and businesses in New York, for example, are overexposed to their local real estate risks, so they should reduce this risk by selling New York home price futures. People in Tokyo will assume some of this risk by purchasing New York home price futures if the price is right. The New Yorkers still live in their own homes, but now they have spread their investment risk worldwide.
A genuine futures market on single-family homes has not been attempted since 1991 when the London Futures and Options Exchange (now merged into Euronext.liffe) failed in its effort to launch such a market in Britain. That attempt never generated much trading volume. The Exchange threw a party and no one came. British spread-betting markets for home prices, and some retail online markets, have never amounted to much either.
Will it be different this time? To be sure, starting a new market is always an uncertain proposition: people want to go to parties only if a lot of other people are there; if no one is there, no one wants to come. Likewise, in markets without many investors, not enough trades can be executed to generate the returns needed to attract them. As is often true of great parties, it can be a bit of a mystery how substantial new markets get started, but we know that it does happen from time to time.
Initial indications suggest growing interest in futures trading for home prices, particularly as so much talk about the “housing bubble” underscores the importance of diversifying risk. After the CME’s announcement, one of its competitors, the Chicago Board Options Exchange, said that it plans to create futures and options contracts on major US regions, to be based on the median home price published by the National Association of Realtors.
But, aside from strong public interest in investing in housing and in hedging housing risks, another critical issue must be resolved if futures markets are to succeed: prices must be revealed, and investors must understand what these prices mean.
I believe there is a very good chance that many of these futures markets will soon be predicting substantial price declines in some US cities over the next year. They will be in what traders call “backwardation”: the future price in the market today is lower than the price of a home today. Maybe backwardation won’t appear on the first day that housing futures are traded, but there is a good chance it will come within a matter of months.
We may need backwardation in some of these markets if they are to fulfill their function. Everyone knows that there has been a huge real estate boom in many of these cities (and elsewhere in the world) in recent years. International investors are not likely to want to invest in these cities unless expectations of a price decline are built into the futures markets, as people in Tokyo understand from their own bitter experience. But if backwardation is strong enough, even investors who think that the US housing market is headed for a fall will still be able to expect a good return from home price futures, because they are already getting a discounted price in the futures market.
Nevertheless, it will require some adjustment for New Yorkers seeking to hedge their own real estate investments to sell futures contracts that have a built-in price decline. They will have to get used to the idea that the market already expects the decline, and that they can protect themselves only for that margin of possible future price declines that exceed this expectation.
In fact, such adjustments in our thinking will likely occur when we actually see the futures market prices. Until now, the future course of real estate prices has been merely a matter of diverse opinion. When markets create an international consensus on the future price of homes in cities around the world, we will be better able to manage the risks facing these cities, thereby stabilizing their economies – and our own lives.
Robert J. Shiller Commentaries
March 2006
Homes are the most local of investments, rooted to a particular place like a tree, and thus thriving or withering in response to local economic conditions. The whole world flashes by on our television screens, but the market for our homes, which is comprised almost entirely of local amateurs, remains grounded right there in our own backyard.
Soon, however, this could all change. Within a month, the Chicago Mercantile Exchange (CME), in collaboration with my company, MacroMarkets, as well as Fiserv and Standard & Poor’s, will launch futures and options contracts on home prices in ten cities in the United States. The contracts will be settled on theS&P/Case-Shiller Home Price Indices , which developed out of academic work that my colleague Karl Case and I pioneered almost twenty years ago. For many years we have been campaigning for housing futures, but no exchange wanted to use such indices to create a futures market until now.
The futures markets on home prices will allow investors around the world to invest in US homes indirectly, by buying interests in them through these markets. An investor in Paris, Rio de Janeiro, or Tokyo will be able to invest in owner-occupied homes in New York, Los Angeles, and Las Vegas.
A fundamental principle of financial theory – “diversification” or “risk spreading” – implies that interest in the new contracts will be high. People and businesses in New York, for example, are overexposed to their local real estate risks, so they should reduce this risk by selling New York home price futures. People in Tokyo will assume some of this risk by purchasing New York home price futures if the price is right. The New Yorkers still live in their own homes, but now they have spread their investment risk worldwide.
A genuine futures market on single-family homes has not been attempted since 1991 when the London Futures and Options Exchange (now merged into Euronext.liffe) failed in its effort to launch such a market in Britain. That attempt never generated much trading volume. The Exchange threw a party and no one came. British spread-betting markets for home prices, and some retail online markets, have never amounted to much either.
Will it be different this time? To be sure, starting a new market is always an uncertain proposition: people want to go to parties only if a lot of other people are there; if no one is there, no one wants to come. Likewise, in markets without many investors, not enough trades can be executed to generate the returns needed to attract them. As is often true of great parties, it can be a bit of a mystery how substantial new markets get started, but we know that it does happen from time to time.
Initial indications suggest growing interest in futures trading for home prices, particularly as so much talk about the “housing bubble” underscores the importance of diversifying risk. After the CME’s announcement, one of its competitors, the Chicago Board Options Exchange, said that it plans to create futures and options contracts on major US regions, to be based on the median home price published by the National Association of Realtors.
But, aside from strong public interest in investing in housing and in hedging housing risks, another critical issue must be resolved if futures markets are to succeed: prices must be revealed, and investors must understand what these prices mean.
I believe there is a very good chance that many of these futures markets will soon be predicting substantial price declines in some US cities over the next year. They will be in what traders call “backwardation”: the future price in the market today is lower than the price of a home today. Maybe backwardation won’t appear on the first day that housing futures are traded, but there is a good chance it will come within a matter of months.
We may need backwardation in some of these markets if they are to fulfill their function. Everyone knows that there has been a huge real estate boom in many of these cities (and elsewhere in the world) in recent years. International investors are not likely to want to invest in these cities unless expectations of a price decline are built into the futures markets, as people in Tokyo understand from their own bitter experience. But if backwardation is strong enough, even investors who think that the US housing market is headed for a fall will still be able to expect a good return from home price futures, because they are already getting a discounted price in the futures market.
Nevertheless, it will require some adjustment for New Yorkers seeking to hedge their own real estate investments to sell futures contracts that have a built-in price decline. They will have to get used to the idea that the market already expects the decline, and that they can protect themselves only for that margin of possible future price declines that exceed this expectation.
In fact, such adjustments in our thinking will likely occur when we actually see the futures market prices. Until now, the future course of real estate prices has been merely a matter of diverse opinion. When markets create an international consensus on the future price of homes in cities around the world, we will be better able to manage the risks facing these cities, thereby stabilizing their economies – and our own lives.
Mr. Ratner’s Neighborhood
Mr. Ratner’s Neighborhood
By Chris Smith
New York Magazine, August 14, 2006
Manipulative developers, shrill protesters, and a sixteen-tower glass-and-steel monster marching inexorably forward. What the battle for the soul of Brooklyn looks like—from right next door.
Jim Stuckey is clearly having trouble containing his excitement. As he waits for the small scrum of reporters to get ready, he adjusts his light-purple tie. He smooths his shock of white hair. He suppresses a smile.
Stuckey is Bruce Ratner’s right-hand man, the executive vice-president for Forest City Ratner Companies, and leader of the charge to build the $4.2 billion, 22-acre, Frank Gehry–designed collection of residential towers and office buildings and a basketball arena known as the Atlantic Yards. For his efforts, Stuckey, 52, has been loudly abused in community-board meetings and vilified by opponents appalled by the idea of adding sixteen towers and 15,000 new people to a Brooklyn neighborhood defined by four-story brownstones.
This morning, though, Ratner’s team racked up another win: The Empire State Development Corporation has just certified an environmental-impact report on the project and decreed that its benefits are worth the inevitable increases in traffic, noise, and shadow. The certification was never in doubt—ESDC chairman Charles Gargano, one of Governor George Pataki’s most powerful lieutenants, has been a cheerleader for Atlantic Yards from the start—but it is nevertheless immensely satisfying to Stuckey, one more item checked off the list before ground can be broken.
“This is a great day for thousands of people who desperately need affordable housing,” he announces, standing outside the ESDC offices on Third Avenue. Atlantic Yards’ 2,250 subsidized apartments are among its strongest selling points, a seemingly apple-pie benefit trotted out in every press conference and direct-mail flyer. Stuckey, doggedly on-message, manages to use the phrase “affordable housing” five times in two minutes. Not once does he mention the 4,610 market-rate (unaffordable?) apartments and condos to be built.
There are, of course, those who don’t believe the hype. Just two days earlier, thousands of protesters gathered on the asphalt of Grand Army Plaza, under a broiling sun, to hear Steve Buscemi, local councilwoman Tish James, and the fiery leader of the Harlem Tenants Council, Nellie Hester Bailey, decry Atlantic Yards as undemocratic and grotesquely out of scale with brownstone Brooklyn.
What about the opposition? Stuckey is asked. “That’s partly some people close in who don’t like tall buildings,” he says dismissively.
I’ve never met the man; he doesn’t know what I think of Atlantic Yards. Neither do I, really. For a long time, I’ve shrugged off the complaints of Atlantic Yards opponents as shrill and reflexively obstructionist. More housing is good; more jobs are good. But there’s something about Stuckey’s tone—arrogant, contemptuous—that invalidates the press pass around my neck and my reporter’s semi-objectivity and turns me into a civilian. One who’s about to have sixteen apartment towers ranging from 19 to 58 stories dropped on his doorstep.
I have tried to avoid this story. Some, including my employer, might consider that irresponsible. I cover politics for the magazine, and Atlantic Yards is an epic New York tale of money, influence, social policy, race relations, and real estate. But mostly, my avoidance came from trying to be extra-responsible. Living in Fort Greene, two and a half blocks from the site, meant that anything I wrote needed to be dispassionate and purely fact-based; I might decide I didn’t like Atlantic Yards, but I wasn’t going to write any nimby screed. So for months, I tried to resist any personal reaction to the project by focusing on a professional take: In his push to make Atlantic Yards a reality, Bruce Ratner has crafted the most sophisticated political campaign the city has seen in a very long time, better than any professional politician has mounted to win elective office, complete with gag orders and aggressive polling. And even if Atlantic Yards was wildly disproportionate to the surrounding neighborhoods, its pillars seemed laudable (the subsidized housing) and potentially cool (Gehry; having the NBA’s Nets nearby). The developer, Ratner, seemed downright enlightened: a commissioner of consumer affairs under Ed Koch who’d gone out of his way to hire women and minorities to build his other projects.
The release of the environmental-impact statement, however, forced me to confront just what Atlantic Yards is going to mean—not just for my neighbors in Park Slope, Prospect Heights, Boerum Hill, and Downtown Brooklyn but also for the city as a whole. In 1,400 numbing pages of charts and bureaucratic jargon are the details of a traffic, noise, and cultural nightmare on the horizon: Colossal shadows sweeping across 50 square blocks. Some 60 intersections choked with traffic. More kids than the local schools can possibly handle.
Still, forming a clear-cut opinion isn’t easy. Ratner is building subsidized housing in a city where there’s a cruel 3 percent vacancy rate. He’s forecasting $1.5 billion in new tax revenues for the city and 3,800 new permanent jobs. Most of the site for the proposed project, the Long Island Rail Road yards, is quite literally a hole in the ground, flanked by a number of decaying buildings. So am I with the visionaries? The naysayers? The big thinkers? The little guy? The sports fans? The community gardeners? Whose side am I on?
The story of Atlantic Yards starts back in 1957, when the Dodgers left for Los Angeles, breaking the heart of a 12-year-old Marty Markowitz. It took a while, but he got the chance to do something about it in 2002, when he noticed that the New Jersey Nets were for sale. Markowitz, Brooklyn’s borough president and corniest booster, began hounding Bruce Ratner, telling him that he was the perfect guy to bring big-league sports back to Brooklyn. Finally, as much to get Marty off his back as to enter the ranks of NBA ownership, Ratner launched a bid, bought the team for $300 million, and then set about figuring out what to do with his new prize.
At least that’s the story both men have told. It’s always struck me as a convenient creation myth, akin to Abner Doubleday’s inventing baseball in pastoral Cooperstown. Ratner didn’t get to be a multimillionaire by operating on whims. He’d long been aware of the gaping space stretching east beyond the intersection of Flatbush and Atlantic Avenues. He built two large projects overlooking that congested hub and the LIRR yards: Atlantic Center mall, in 1996, and Atlantic Terminal mall, in 2004.
Ratner, 61, doesn’t have the biography of a greedy developer. His father founded Forest City in 1921 and turned it into one of Cleveland’s biggest companies. Bruce’s siblings are all confirmed lefties: His brother, Michael, runs the Center for Constitutional Rights, and his sister, Ellen, created the Talk Radio News syndicate and is one of Fox TV’s token liberals; she’s also openly gay. Even Bruce had such a zeal for public service that, after graduating from Harvard and then Columbia Law, he was touted as “the next Ralph Nader” during his four years as head of consumer affairs under Koch. But in 1982, Ratner decided he needed to make more money than his $52,000 civil-service salary, and he joined the family business, eventually running the New York chapter, Forest City Ratner. To this point, FCR’s biggest New York project has been Metrotech, 6.4 million square feet of office and retail space between the Brooklyn and Manhattan bridges, opened in 1990, before Brooklyn’s boom began.
Ratner himself lives in Manhattan, on East 78th Street, in a $2.6 million townhouse. He owned a five-bedroom house in East Hampton, which he sold around the time his first marriage ended in 1999, and now has a 194-acre estate in Ulster County. His longtime girlfriend, Pamela Lipkin, is a Park Avenue plastic surgeon. And Ratner has two daughters, Lizzy, a reporter for the New York Observer, and Rebecca, an actress.
Ratner declines almost all interview requests and usually appears only at staged promotional events. He’s described himself as “an old lefty.” But old lefties in middle age are often the most voracious capitalists. For all his devotion to progressive causes, Ratner can play rough. He’ll sue when he thinks he’s been wronged, and he explained the forbidding design of Atlantic Center in harsh terms: “Look, you’re in an urban area, you’re next to projects, you’ve got tough kids.”
With Atlantic Yards, Ratner envisioned lifting those kids up instead of keeping them out—doing good and making money. According to his aides, Ratner directed that the project be structured according to seven social goals, including increasing minority employment and boosting the borough’s supply of mixed-income housing. Giving Brooklyn a new architectural icon was on the agenda as well, perhaps to atone for the design of his previous buildings, and so he turned to Gehry, the reigning king of statement architecture, who would appeal to Brooklyn’s growing aesthetic class (though Gehry’s few public appearances on behalf of Atlantic Yards have not gone well: At a press conference in May, he blasted the project’s opponents, saying, “They should have been picketing Henry Ford”). The final list of goals and projections for Atlantic Yards is impressive: 15,000 union construction jobs, billions in tax revenues, upgraded transit infrastructure, and seven acres of publicly accessible open space.
Ratner is more astute politician than saint; he surely knew the do-gooder goals would help sell the project. He also has impeccable timing. While there was no public hint of Ratner’s interest in either the Nets or the Brooklyn rail-yards site until late July 2003, the developer had been meeting with Bloomberg nearly a year before that, according to Dan Doctoroff, the city’s economic-development czar. Bloomberg, a political novice but a billionaire businessman, had been elected largely on the hope he’d rescue the city’s economy. Doctoroff was orchestrating the campaign for the 2012 Olympics and to build a West Side stadium for the Jets, controversies that provided invaluable media cover for Atlantic Yards, percolating in the background. “We did not require a lot of convincing as to the conceptual merits of Bruce’s plan,” Doctoroff says. “We’ve been involved in it from almost day one. I was advising Bruce on his purchase of the Nets. Clearly, he was going to use it as a centerpiece for a significant development over the yards. The mayor was always very intrigued by the design. He’s in favor of big statements. What you’ve got now is an opportunity to have an independent economy in Brooklyn.”
The city and state are kicking in $100 million each in cash to help Ratner; tax breaks could push the public bill to anywhere from $500 million to $1.5 billion. Doctoroff says he drove a hard bargain: “They wanted a lot more money.” Still, this is a major point of contention for Ratner’s critics, who want to know exactly how much Ratner will profit in his quest to help Brooklyn. Despite the Ratner team’s claims of transparency—“I don’t know, other than to have people sitting in my office, how you could make it any more transparent!” Stuckey says—FCR refuses to discuss how much it expects to clear, saying it’s a public company and can’t risk accusations it’s manipulating the stock price. The only public documentation of profit appears to be a nearly illegible one-page form filed with the MTA labeled pro-forma cash-flow statement. It seems to show Ratner with a profit of $1 billion. Real-estate expert Jeffrey Jackson ran all the available Atlantic Yards numbers and came to the same rough conclusion. “It’s difficult to quantify the profitability of the arena,” Jackson says, “and the return will be impacted by the final mix of financing. But Ratner should make around $700 million to $1 billion—about a 25 percent return. That’s pretty good.”
Across the street from the office of State Assemblyman Roger Green are the blank rear walls of Ratner’s Atlantic Center. That proximity is a constant reminder to Green that when Ratner built Atlantic Center, Green and local activists were too slow to take to the streets and protest and got little out of the deal for the district. This time, when talk of Ratner and the Nets started circulating, Green vowed that things would be different. “In the past, we, particularly African-American leadership—we’d sit back and throw bricks, we’d march and demonstrate. Then the ribbons were cut anyhow,” Green says. “I would abdicate my responsibilities if I didn’t sit down with Mr. Ratner. We needed to get to the table as soon as possible. Not so much to capitulate but to at least negotiate.”
Green had helped launch a group called BUILD, Brooklyn United for Innovative Local Development, which became one of the most enthusiastic signers of a Community Benefits Agreement in which Ratner promises to create public services and distribute jobs to local residents. The eight community groups that signed the document have a predominantly black membership, which set the stage for the racial subtext in the battle over Atlantic Yards. “If this thing doesn’t come out in favor of Ratner,” BUILD’s president, James Caldwell, said last year, “it would be a conspiracy against blacks.”
Green isn’t quite so blunt, but he sees the divide over Atlantic Yards almost as starkly. “Here’s the question: If we were building an 18,000-seat opera house, would we get as much resistance? I don’t think so,” he says. “Basketball is like a secular religion for most Brooklynites. The opposition to the arena is actually coming from people who are new to Brooklyn, who lived in Manhattan, mostly. And who have a culture of opposing projects of this nature. People who opposed the West Side Highway project; people who opposed the Jets stadium; people who opposed a host of other things. Some of those families now live in Brooklyn. That’s the reality. There’s a class of people who are going to the opera. And there’s another class of folks who will go to a basketball game and get a cup of beer.”
Green has assisted in more than just framing the debate. He says that even before State Assembly Speaker Sheldon Silver played a decisive role in killing the Jets’ West Side stadium, he realized that Silver was determined to minimize new office-space development that might compete with the rebuilding of ground zero, which is in Silver’s district. Green relayed those concerns to Ratner, who scaled back his plans for Atlantic Yards office space. Silver controls one of the last remaining approvals needed by Ratner.
For their efforts on Ratner’s behalf, Green and other community representatives received terrific and creative commitments in the Community Benefits Agreement, minority job training and below-market housing chief among them. Other benefits are more troubling. BUILD, the organization Green helped found, was tapped to help recruit minority construction trainees for Atlantic Yards, even though it has no experience in the field. At first Ratner and BUILD denied a financial relationship. Then the Daily News discovered an IRS filing in which BUILD said it expected to receive $5 million from Ratner. At least four organizations that signed the CBA have received some form of payment from Ratner, totaling more than half a million dollars. The tactics, say critics, mean that Ratner purchased the “community” with which he negotiated.
Most of the time, though, Ratner plays a much smoother political game, and he clearly understood that Atlantic Yards would be as much sales project as real-estate deal. Ratner employs some of New York’s most prominent lobbying firms and has Dan Klores Communications, one of the city’s best-connected PR firms, on retainer. Forest City Ratner commissioned a study from the leading critic of stadium deals, Andrew Zimbalist—and, surprise, this time Zimbalist liked what he saw. But it’s Ratner’s deep in-house team that’s particularly valuable. The key players are Scott Cantone, who was Mayor Rudy Giuliani’s director of legislative affairs; Stuckey, who ran the city’s Public Development Corporation in the eighties; and Bruce Bender, a longtime aide to former City Council speaker Peter Vallone.
Bender, 49, is a curly-haired, fast-talking imp and, like his colleagues, a highly skilled salesman. He can spin the project’s economic benefits or play to old Brooklyn’s inferiority complex. “Can you imagine what it’s going to mean one day when we’re sitting home watching a game on ESPN and the blimp’s gonna be overhead and you’re gonna see the aquarium and your gonna see Grand Army Plaza and you’re gonna see the communities from Bushwick to Sunset Park to Fort Greene to Clinton Hill to the brownstone belt?” he asks. “The whole nation is gonna be seeing our borough!”
Bender has deployed his charms relentlessly on city and state legislators, many of whom he shares longtime bonds with. “I know him from the City Council, with Peter Vallone,” says State Assemblywoman Joan Millman, who represents parts of Carroll Gardens and Park Slope. “And Bruce is a constituent—he lives in my district, and his wife is co-chair of the PTA at P.S. 321. We have a lot of friends in common.” Concerned about Brooklyn’s rapid growth and increasing congestion, Millman has come out against Atlantic Yards. Not for lack of trying by Ratner’s team. “They called and asked if there were two school libraries in my district that I would like to see get an infusion of library books, something like $1,500 apiece,” Millman says. “My response was, ‘All the school libraries in my district are equally deserving; you pick them.’ I’ve made it a policy not to take money from developers.” She couldn’t help notice, though, when Ratner’s gifts turned up elsewhere.
While he wasn’t able to win over Millman—or Tish James, who represents the City Council district where Atlantic Yards would be built—Ratner has still been deft at portraying the “real” community as being on his side. He’s flipped the debate upside down, depicting the old-timers as open to progress and casting as the enemy the white, gentrifying, brownstone-owning, white-collar, semi-recent arrivals to the neighborhood. In other words, me.
My wife and I are a cliché. We lived in a Manhattan one-bedroom in the early nineties, had a child, wanted more space, moved to Brooklyn, bought a brownstone. It’s a pretty house on an unlovely street. There’s a big shady magnolia in the backyard, but two lanes of constant traffic out front.
To us, the house was plenty expensive, and we borrowed every dime we could. The place is now worth triple what we paid, at least in theory. Appreciation is nice, but it’s just dumb luck; we bought the house to make a home. And the neighborhood seemed ideal for that: Fort Greene was a bold mix of young and old, black, white, and Latino, fairly well off and just getting by, with quirky small stores and a convenient public park. Things have certainly changed in nine years—beloved, useful spots like Octagon Hardware couldn’t handle the rising rents; a cluster of French bistros suddenly appeared. But the essential feel of the neighborhood is the same. The residents remain a mix of tie-wearing Bishop Loughlin high schoolers and too-cool Pratt students, buppies, yuppies, ankle-tattooed hipsters and floral-hatted church ladies. People chat over the backyard fence.
The first sign of trouble came a couple of years ago: A frizzy-haired woman in a grocery store on Flatbush Avenue was ranting about a looming disaster called Atlantic Yards. I grew up upstate, in the people’s republic of Ithaca during the seventies, when a day didn’t go by without an anti-nuke or a Free Leonard Peltier rally. Even when the protesters were right, their self-righteousness was hard to take. So I ignored the frizzy-haired woman—who I later learned was Patti Hagan, former New Yorker fact-checker and leader of the Prospect Heights Action Coalition—and bought my gallon of milk.
But a guy named Daniel Goldstein, a graphic designer who had bought a condo in a building on Pacific Street overlooking the rail yards, was alarmed when he saw one of Hagan’s THIS NEIGHBORHOOD IS CONDEMNED posters slapped on a lamppost. He tracked her down and learned that his building was right in Ratner’s path. Gradually, Goldstein became the spokesman for Develop Don’t Destroy Brooklyn, the group that’s sprung up over the past three years to coordinate opposition to Atlantic Yards. DDDB comprises 21 community groups, hundreds of active volunteers, and thousands of disparate, petition-signing, money-donating supporters.
Today Goldstein, 36, is at Freddy’s, a bar at the corner of Dean Street and Sixth Avenue, in the footprint of the Atlantic Yards project. The location, coupled with the independent spirit of Freddy’s regulars, has made the bar the clubhouse of the Ratner resistance. This afternoon, Freddy’s is the set for the taping of interviews with Bill Batson and Chris Owens, the two local candidates who’ve taken the strongest anti–Atlantic Yards stands. Batson is running for the State Assembly seat being vacated by Roger Green, who’s running for Congress; Owens is running for Congress in another district, to succeed his father, Major Owens. As the candidates sit at a small table answering questions from the host of a Brooklyn cable-TV show, jokey soft-core porn plays on two TV sets hanging from the ceiling.
Goldstein stands to one side, wearing a yellow DEVELOP DON'T DESTROY BROOKLYN T-shirt, shorts, and a battered straw hat. At first, Goldstein seemed to snugly fit the obstructionist stereotype. He’s frequently antagonized people who could have helped his cause, haranguing reporters and elected officials. The son of an investment fund manager, Goldstein took the bait when a build member taunted him at a public meeting as a “trust-fund baby”; Goldstein wheeled around and cursed the woman. In June, he shot off a hyperbolic e-mail to Daily News columnist Ben Smith accusing black Atlantic Yards supporters of merely following orders from their “white masters.”
“Initially, he was extremely abrasive,” says Joan Millman, who’s had multiple meetings with Goldstein. “He’s toned down some. And the opponents have learned to play the game better.” Lately, DDDB has been upgrading its tactics. The opposition, fragmented by geography and motivation, was been slow to gain traction or media motility. But after three years of small gatherings in living rooms and church basements, the anger and activism are gaining momentum. In part that’s come through the obvious public-relations tactic of recruiting celebrity spokesmen—from Heath Ledger, of Brokeback Mountain and Boerum Hill, to Rosie Perez, lifelong Brooklynite and member of the Spike Lee ensemble—which has given the anti-Ratner campaign a not-always-helpful tinge of radical chic. But Dan Zanes is no Lenny Bernstein, and the core of the opposition remains a wildly diverse, mostly anonymous mob of regular folks, from Bed-Stuy ministers to Prospect Heights senior citizens. The turnout at the Grand Army Plaza rally, in mid-July in 90-degree heat, was impressive in head count—somewhere between 2,000 and 4,000—and composition: teens, retirees, yuppies, bohos, young mothers, and old lefties.
What’s galvanizing the protesters is an issue that reaches far beyond Brooklyn: Every vacant lot in the city suddenly seems to have become a construction site, with developers in a frenzy to erect out-of-scale apartment towers and office buildings before the economy tanks or the zoning tightens. Atlantic Yards is becoming the magnet for the growing rage against overdevelopment, and the emotion is likely to peak at the August 23 public hearing on the project’s environmental-impact statement. It’s hard to imagine, though, that one night of yelling and guerrilla theater can compete with four years of Ratner’s savvy, spare-no-expense political spadework. Just the opposite is more likely, proving the perverse genius of the campaign to build Atlantic Yards: The New York ritual of howling locals, especially if they’re white, will only help Ratner’s spin that he’s the real populist.
Goldstein may be no match for Ratner in terms of political strategizing, but he does have one important thing that Ratner wants: his address. Since February 2005, Goldstein and his girlfriend, Shabnam Merchant, have been the sole residents of their apartment building on Pacific Street. The other residents were bought out by Ratner for $850 per square foot, roughly twice what most of them paid. Last summer, he was trapped in the building’s elevator for three hours in the middle of the night; the lift’s emergency phone was dead, and Goldstein thought he might be, too. “How pathetic is this?” he remembers thinking. “I’ll die, and they’ll go on with their development.” Goldstein pried the door open and got back to work. He’s inspired by Merchant’s mother, an activist in India who spent years leading the opposition to a mammoth industrial-port project that would have pushed poor residents out of a small coastal town. Tired of the delays, the corporate developers eventually walked away, giving the Indian activists a huge upset victory and proving that the impossible sometimes happens.
“I’m staying in this apartment to be a plaintiff,” says Goldstein, noting that the DDDB has hired eminent-domain lawyer Jeff Baker to fight on behalf of all 60 remaining footprint residents. “My home is gone. I’m staying because this project is wrong, our City Council has no say in it, I have more say in it, and I’m gonna use that.”
The opposition’s greatest resource hasn’t been Goldstein or the Hollywood stars but one unknown man working late at night in his Park Slope apartment. Norman Oder, 45, has a full-time day job as an editor for Library Journal, but for most of the past year, he has spent at least 25 hours a week dissecting the details of the Atlantic Yards plans and posting his analysis at atlanticyards report.blogspot.com. Oder is a skeptic in the tradition of I. F. Stone, proving how much can be accomplished with a URL and an obsession.
Struck by what he considered the weakness of the Atlantic Yards coverage in the Times (which is partnering with Forest City Ratner to build its new headquarters in midtown Manhattan), Oder set out to write one piece of media criticism. But as that essay grew into 160 pages, Oder kept finding more Atlantic Yards issues that sparked his curiosity.
His blog breaks down every arcane detail related to Atlantic Yards and specializes in untangling eye-catching Ratner claims: for instance, that the promise of 15,000 Atlantic Yards construction jobs comes from counting 1,500 people working for ten years. Or how the developer’s recent much-hyped 5 percent “scale back” of the project was really a bait and switch. The Atlantic Yards plan started with 4,500 units of housing in 2003, grew to 7,300 units in 2005, and then “scaled back” to 6,860 units this year. But Oder’s biggest contribution has been shining a light on two crucial aspects of the project: its affordable housing and its astounding residential density.
The project is planned to have 2,250 affordable apartments—50 percent of the rental units. Affordable is one of the great weasel words of modern marketing, however, and the eligibility tiers that Ratner drew up with ACORN, the low-income-housing activist group, leave just 900 units for a family of four with an annual income of $35,000 or less. Although 900 below-market apartments are far better than nothing, just as many spaces are reserved for families earning $70,000 to $113,000.
And Atlantic Yards’ inhabitants, renters and owners alike, could be occupying the densest residential space in the United States. Working with an average of 2.5 people per apartment, Oder points out that Atlantic Yards will have a population density of nearly 500,000 people per square mile. For comparison, the current population-density champ, a census tract in West Harlem, contains 230,000 people per square mile. Manhattan, which popular imagination ranks as the densest place in the city, averages 67,000 people per square mile. It will mean bulky buildings for the project’s residents and also a major strain on the area’s streets, sidewalks, and the already crowded Atlantic Avenue subway hub.
During nine years of living in Brooklyn I’ve gone out of my way to stay out of the Atlantic Avenue station, especially at rush hour. Ten subway lines, plus the LIRR, converge there, and the stairways are a claustrophobic multilevel tangle, congested at any hour, as are the trains that stop there. But here’s what the state environmental-impact report on the expected effects of Atlantic Yards says: “All subway routes through Downtown Brooklyn are expected to operate below their practical capacity in the peak direction in the 8–9 A.M. and 5–6 P.M. commuter peak periods … at completion of the proposed project in 2016.”
Perhaps I’ve been unlucky; certainly my experience with the station has been unscientific. So on a sweaty Thursday morning I went to check it out and found myself standing on the platform, wedged between a pole and six other passengers, waiting for a Manhattan-bound 4. It’s not clear how the state study defines “practical capacity.” But it apparently doesn’t include me boarding the overloaded train that finally arrived. Waiting for another 4, I tried to picture what the station will look like when 15,000 more people live directly overhead.
The section on the Atlantic Avenue subway station merely strains credulity. What the report spells out, once you unpack the charts and the “v/c ratios,” is a tidal wave reshaping the daily life of the surrounding neighborhoods. In the winter, sunset will come to my street at 2:30 in the afternoon, thanks to the shadows stretching from the high-rises lined up like a gargantuan picket fence along the northern border of Atlantic Yards. But I get off relatively easy: The residents of the Atlantic Terminal public-housing complex, across the street from two 40-plus-story Gehry towers, will be in shadow virtually all day much of the year.
The environmental report’s section on traffic predicts that 68 of 93 intersections around Atlantic Yards would be “significantly adversely impacted,” many permanently. That sounds unpleasant enough. But what’s “significant adverse impact”? The study defines it a couple of ways: “saturated conditions with queuing” and delays “greater than 80 seconds per vehicle.” Stand alongside an already busy intersection anywhere in the city; count how long a random car stands still—ten, perhaps twenty seconds—and watch what results: drivers piling up behind the stationary car, blowing their horns, yelling, as the line gets longer. Now picture cars delayed for 80 seconds, for hours on end, in front of your building.
Public schools? They’re already crowded. The study dutifully admits that “if all school-aged children introduced by the proposed project were to attend the public schools within 1/2 mile of the project site, the elementary and intermediate schools would be over capacity and could not accommodate the increased student population, resulting in a significant adverse impact.” One suggested “mitigation”? The thousands of new kids should scatter across school districts 13 and 15. But there’s no discussion of what that actually means, in human terms: Thousands of parents and kids competing for school slots outside their neighborhood, then trekking by subway, bus, or car each morning and afternoon to reach their far-flung destination, maybe in Sunset Park, where they’ll be bumping the teacher-to-student ratios ever higher.
You get to know your neighbors when you live in a place for nine years. But I was surprised, as I pushed past the public faces of the Atlantic Yards opposition, that the anti-Ratner troops were not only not crazy, but they were my mild-mannered friends. Eric Reschke, the president of DDDB, is a youth-soccer acquaintance. I’ve interviewed Dan Zanes, the rocker turned kiddie-music balladeer. On the DDDB Website, under BOARD OF ADVISERS, I find Jennifer Egan, novelist, fellow journalist, and neighbor, as well as Chris Doyle, architect and one of my wife’s oldest friends. Doyle, it turns out, was recruited for the opposition by his friend Jonathan Lethem, whose most recent novel, The Fortress of Solitude, is set on the Dean Street of his youth. One pivotal location in the book is the Underberg Building, an old warehouse at the corner of Flatbush and Fifth Avenue; in March, the Underberg was torn down by Ratner.
“Because I have written so sentimentally about areas that border this project, a lot of people were sort of expecting me to have very strong feelings about this,” Lethem says. “And I had a contrary reaction: No, no, no, I’m not gonna take the bait. I don’t have a strong feeling. I’m sort of a sports fan, I’m sort of weary of political struggles over changes in cities, which is mostly an ecological process that happens apart from anyone’s idealistic yearnings.” Then a writer friend, Sean Elder, nagged Lethem to do some research. “I started to feel the resentment of having been tricked,” Lethem says. “This wasn’t about a basketball arena and a Gehry building. And the opposition is not about a given building being torn down or fetishizing some particular half-ruined part of the city. I want to be the first to say that there ought to be development on the rail yards.”
Maybe it’s just that I have a shallow social circle, and that’s why all my actively anti-Ratner friends and acquaintances are white. Or maybe critics like Bertha Lewis are right about the opposition after all.
For fourteen years, Lewis has led the New York chapter of ACORN, the feistiest activist group for low-income housing in the city; she once chased a Giuliani welfare commissioner out of a community meeting and into the street. When Ratner built Atlantic Center, Lewis picketed, then stormed his office, demanding that the retail tenants pay their employees a “living wage.” This time around, Lewis approached Ratner much earlier and much more quietly. “He was proposing 4,500 units of luxury housing,” Lewis says. “We don’t think so. If any housing is coming to Downtown Brooklyn, we need to talk. There was no affordable housing in their original plan. None.”
Striking a deal made sense for both sides: Ratner gained the appearance of local support and took a skilled protester off the table; Lewis got the promise of low- and middle- income housing. Lewis’s public endorsement of Atlantic Yards was crucial, and brilliant, stagecraft. It came in the middle of the 2005 mayoral campaign. After Lewis, Ratner, and Bloomberg announced the subsidized-housing deal at a press conference, she planted melodramatic kisses on each man, making for invaluable photographs.
Lewis has devoted her life to making grudging gains for ACORN’s membership, and she sincerely believes she’s scored a major victory for them with the Atlantic Yards housing deal. Any suggestion that money played a role enrages her. What’s of greater value to acorn and Lewis is that after all the years of scuffling, the Atlantic Yards deal certified them as serious political players. “For years, we fought, we squatted, we did whatever it took to get to the table to sit down and say, ‘Let’s make something happen,’ ” Lewis says. “There are activists who talk about how it ‘should be.’ But, dammit, at some point somebody has got to actually do it. We’re developers now.”
That’s part of why Lewis is so ferocious in denouncing the Atlantic Yards opposition. “You want to talk to me about traffic, you want to talk to me about density, you go right ahead,” she says, implying she considers it all a pretext. “Talk to me about what your resolution is to the resegregation of Brooklyn. Black and brown folks have been driven out of central Brooklyn!” Lewis ladles on the “street” theatrics as she warms up, shimmying in her chair and dropping her g’s. “We’re looking at the gentrification—I don’t see a lot of black and brown folks in the wave runnin’ up in here! The overwhelming folks who are opposed are white people and wealthier people and more secure people and people who just arrived. Come on! This is about the power dynamic of who in fact is going to be living in Downtown and central Brooklyn and where the power really is going to be. And we’re down to get it on! We’re tired of being pushed out. If we can stop one iota of gentrification, we’re gonna do it!”
One recent morning, walking out my front door, I bumped into my next-door neighbors, Tino Ellis. He’s a public-school teacher. He also happens, as the saying goes, to be black. “I’m disgusted,” he says when I mention Atlantic Yards. “All the disruption, the giant buildings, the tax giveaways. And the rent on those ‘affordable’ apartments could be over $2,000!”
Later I talk to Lynn Nottage, a 41-year-old playwright who still lives in the house on Dean Street where she grew up. “Here’s what I’d say to Ratner: He says there will be ‘significant adverse impacts’ on schools, on cultural resources, on shadows, on traffic, on transit, on noise. I ask you, as a person of color, will we not be equally impacted by that? And I honestly don’t believe the people who are going to be living in those luxury high-rises are going to be black and Latino.” Nottage has an 8-year-old daughter, and she tries to picture what the neighborhood will be like when she’s an adult. “I see Dunkin’ Donuts and Subway and a sports bar, even a strip club,” she says. “I don’t see the antique shops and the clothing shops of Atlantic Avenue.”
Maybe, to Lewis, my neighbors are the wrong kinds of black folks. Not that there will be a referendum on Atlantic Yards along racial or any other lines. Ratner has skirted normal city zoning approvals because the project is centered on state-owned land. But the thousands of people who made their own little choices to move to Brooklyn already voted, in a sense. In the mid-nineties, when crime was still high and the public schools a mess, we knew plenty of families who fled for New Jersey, Long Island, and the northern suburbs. We voted to stay. Call us gentrifiers if you want, but we’re part of a group connected by a belief in tumultuous, polyglot city life more than any bond of age or income or race.
On the third floor of Atlantic Center mall, down a hallway with a picture-window view of the rail yards, next to an office of the Empire State Development Corporation where framed photos of Governor Pataki and Charles Gargano beam down on the lobby, are a pair of unmarked beige doors. Behind them is the future of the neighborhood, in miniature.
Jim Stuckey leads me on a tour of the Atlantic Yards models, pointing out how the latest version pushes the biggest buildings back from the street line, “to blend better with the existing neighborhood.” Gehry’s buildings, in Plexiglas and aluminum form, are impressive. But I can’t help being drawn to the blank little cardboard boxes that are dwarfed by the proposed development: the brownstones and five-story walk-ups of Prospect Heights and Fort Greene.
Stuckey goes on about the housing and the seven acres of green space and the wastewater-treatment system that is supposed to help clean up the Gowanus Canal. All good. But why—living where I do, looking at ten years’ worth of construction trucks chugging down my block, followed by increases in traffic, noise, school crowding, and buildings that will blot out the sun, not to mention 15,000 new neighbors—should I like Atlantic Yards?
Stuckey is brief. “If you define your existence just based on what’s good for you today,” he says, “I can’t help you.’ ”
I care plenty about tomorrow, for myself and for the city. And no matter how I look at it, in the end I can only conclude that Atlantic Yards is a bad deal.
The financial projections are debatable; I’m not convinced Atlantic Yards will be an unambiguous economic boon. But I’ll never be able to prove my case on a purely statistical basis, and neither can Ratner; until the buildings are built, the numbers are all informed guesswork. And even if Ratner’s economic crystal ball turns out to be perfect, there’s a level at which the facts really don’t matter.
As a political reporter, I know that money and spin usually win. But in looking at Atlantic Yards up close, it’s outrageous to see the absolute absence of democratic process. There’s been no point in the past four years at which the public has been given a meaningful chance to decide whether something this big and transformative should be built on public property. Instead, race, basketball, and Frank Gehry have been tossed out as distractions to steer attention away from the real issue, money. Ratner’s team has mounted an elaborate road show before community boards and local groups, at which people have been allowed to ask questions and vent, and the developer has made a grand show of listening, then tinkering around the edges. But the fundamentals of the project—an arena plus massive residential and commercial buildings—has never been up for discussion. Ratner, with Gehry’s aid, has built a titanium-clad, irregularly angled tank and driven it relentlessly through a gauntlet of neighborhood slingshots. And Bloomberg and Pataki—our only elected representatives with the power to force a real debate about Atlantic Yards—instead jumped aboard early and fastened their seat belts. What at first seemed to me impressive on a clinical level—a developer’s savvy use of state-of-the-art political tactics—ends up being, on closer inspection, truly chilling.
Every time I begin to buy into the lyrical people-have-the-power rhetoric of the opposition, to fantasize that Goldstein’s impending eminent-domain lawsuit has a prayer of succeeding, or to get revved up about the density trivia, someone smacks me back into reality. Most recently, it was a prominent Democrat. “In some cases, an army of Davids could take down Goliath,” he said. “But not this one. It’s a fait accompli.”
Brooklyn is vast, so it would be arrogant and silly to say how Atlantic Yards will change the borough. Maybe they won’t feel a thing in Sheepshead Bay and Greenpoint and East New York and Crown Heights. Atlantic Yards, though, would send ripples of gigantism far and wide. I’m no Spaldeen-and-egg-cream nostalgist, but Brooklyn has always been different and better because it’s been closer to the ground. That’s a significant thing to lose. And “in close,” to use Jim Stuckey’s dismissive description of Prospect Heights, Fort Greene, Clinton Hill, and Boerum Hill, we’ll feel the impact like a punch to the head. The small, warm neighborhoods around Atlantic Yards will become moons orbiting a cold planet. Shadows and noise can be modeled on computers, but their emotional effects can’t.
Brooklyn is changing every day, all the time; I wouldn’t want to live here if it didn’t. I don’t kid myself that all the changes are “organic” or even desirable. But it’s an evolution instead of a cataclysm imposed from above. The opposition to Ratnerville is sometimes vitriolic, unsympathetic, irrational.
Additional reporting by Meghann Farnsworth.
By Chris Smith
New York Magazine, August 14, 2006
Manipulative developers, shrill protesters, and a sixteen-tower glass-and-steel monster marching inexorably forward. What the battle for the soul of Brooklyn looks like—from right next door.
Jim Stuckey is clearly having trouble containing his excitement. As he waits for the small scrum of reporters to get ready, he adjusts his light-purple tie. He smooths his shock of white hair. He suppresses a smile.
Stuckey is Bruce Ratner’s right-hand man, the executive vice-president for Forest City Ratner Companies, and leader of the charge to build the $4.2 billion, 22-acre, Frank Gehry–designed collection of residential towers and office buildings and a basketball arena known as the Atlantic Yards. For his efforts, Stuckey, 52, has been loudly abused in community-board meetings and vilified by opponents appalled by the idea of adding sixteen towers and 15,000 new people to a Brooklyn neighborhood defined by four-story brownstones.
This morning, though, Ratner’s team racked up another win: The Empire State Development Corporation has just certified an environmental-impact report on the project and decreed that its benefits are worth the inevitable increases in traffic, noise, and shadow. The certification was never in doubt—ESDC chairman Charles Gargano, one of Governor George Pataki’s most powerful lieutenants, has been a cheerleader for Atlantic Yards from the start—but it is nevertheless immensely satisfying to Stuckey, one more item checked off the list before ground can be broken.
“This is a great day for thousands of people who desperately need affordable housing,” he announces, standing outside the ESDC offices on Third Avenue. Atlantic Yards’ 2,250 subsidized apartments are among its strongest selling points, a seemingly apple-pie benefit trotted out in every press conference and direct-mail flyer. Stuckey, doggedly on-message, manages to use the phrase “affordable housing” five times in two minutes. Not once does he mention the 4,610 market-rate (unaffordable?) apartments and condos to be built.
There are, of course, those who don’t believe the hype. Just two days earlier, thousands of protesters gathered on the asphalt of Grand Army Plaza, under a broiling sun, to hear Steve Buscemi, local councilwoman Tish James, and the fiery leader of the Harlem Tenants Council, Nellie Hester Bailey, decry Atlantic Yards as undemocratic and grotesquely out of scale with brownstone Brooklyn.
What about the opposition? Stuckey is asked. “That’s partly some people close in who don’t like tall buildings,” he says dismissively.
I’ve never met the man; he doesn’t know what I think of Atlantic Yards. Neither do I, really. For a long time, I’ve shrugged off the complaints of Atlantic Yards opponents as shrill and reflexively obstructionist. More housing is good; more jobs are good. But there’s something about Stuckey’s tone—arrogant, contemptuous—that invalidates the press pass around my neck and my reporter’s semi-objectivity and turns me into a civilian. One who’s about to have sixteen apartment towers ranging from 19 to 58 stories dropped on his doorstep.
I have tried to avoid this story. Some, including my employer, might consider that irresponsible. I cover politics for the magazine, and Atlantic Yards is an epic New York tale of money, influence, social policy, race relations, and real estate. But mostly, my avoidance came from trying to be extra-responsible. Living in Fort Greene, two and a half blocks from the site, meant that anything I wrote needed to be dispassionate and purely fact-based; I might decide I didn’t like Atlantic Yards, but I wasn’t going to write any nimby screed. So for months, I tried to resist any personal reaction to the project by focusing on a professional take: In his push to make Atlantic Yards a reality, Bruce Ratner has crafted the most sophisticated political campaign the city has seen in a very long time, better than any professional politician has mounted to win elective office, complete with gag orders and aggressive polling. And even if Atlantic Yards was wildly disproportionate to the surrounding neighborhoods, its pillars seemed laudable (the subsidized housing) and potentially cool (Gehry; having the NBA’s Nets nearby). The developer, Ratner, seemed downright enlightened: a commissioner of consumer affairs under Ed Koch who’d gone out of his way to hire women and minorities to build his other projects.
The release of the environmental-impact statement, however, forced me to confront just what Atlantic Yards is going to mean—not just for my neighbors in Park Slope, Prospect Heights, Boerum Hill, and Downtown Brooklyn but also for the city as a whole. In 1,400 numbing pages of charts and bureaucratic jargon are the details of a traffic, noise, and cultural nightmare on the horizon: Colossal shadows sweeping across 50 square blocks. Some 60 intersections choked with traffic. More kids than the local schools can possibly handle.
Still, forming a clear-cut opinion isn’t easy. Ratner is building subsidized housing in a city where there’s a cruel 3 percent vacancy rate. He’s forecasting $1.5 billion in new tax revenues for the city and 3,800 new permanent jobs. Most of the site for the proposed project, the Long Island Rail Road yards, is quite literally a hole in the ground, flanked by a number of decaying buildings. So am I with the visionaries? The naysayers? The big thinkers? The little guy? The sports fans? The community gardeners? Whose side am I on?
The story of Atlantic Yards starts back in 1957, when the Dodgers left for Los Angeles, breaking the heart of a 12-year-old Marty Markowitz. It took a while, but he got the chance to do something about it in 2002, when he noticed that the New Jersey Nets were for sale. Markowitz, Brooklyn’s borough president and corniest booster, began hounding Bruce Ratner, telling him that he was the perfect guy to bring big-league sports back to Brooklyn. Finally, as much to get Marty off his back as to enter the ranks of NBA ownership, Ratner launched a bid, bought the team for $300 million, and then set about figuring out what to do with his new prize.
At least that’s the story both men have told. It’s always struck me as a convenient creation myth, akin to Abner Doubleday’s inventing baseball in pastoral Cooperstown. Ratner didn’t get to be a multimillionaire by operating on whims. He’d long been aware of the gaping space stretching east beyond the intersection of Flatbush and Atlantic Avenues. He built two large projects overlooking that congested hub and the LIRR yards: Atlantic Center mall, in 1996, and Atlantic Terminal mall, in 2004.
Ratner, 61, doesn’t have the biography of a greedy developer. His father founded Forest City in 1921 and turned it into one of Cleveland’s biggest companies. Bruce’s siblings are all confirmed lefties: His brother, Michael, runs the Center for Constitutional Rights, and his sister, Ellen, created the Talk Radio News syndicate and is one of Fox TV’s token liberals; she’s also openly gay. Even Bruce had such a zeal for public service that, after graduating from Harvard and then Columbia Law, he was touted as “the next Ralph Nader” during his four years as head of consumer affairs under Koch. But in 1982, Ratner decided he needed to make more money than his $52,000 civil-service salary, and he joined the family business, eventually running the New York chapter, Forest City Ratner. To this point, FCR’s biggest New York project has been Metrotech, 6.4 million square feet of office and retail space between the Brooklyn and Manhattan bridges, opened in 1990, before Brooklyn’s boom began.
Ratner himself lives in Manhattan, on East 78th Street, in a $2.6 million townhouse. He owned a five-bedroom house in East Hampton, which he sold around the time his first marriage ended in 1999, and now has a 194-acre estate in Ulster County. His longtime girlfriend, Pamela Lipkin, is a Park Avenue plastic surgeon. And Ratner has two daughters, Lizzy, a reporter for the New York Observer, and Rebecca, an actress.
Ratner declines almost all interview requests and usually appears only at staged promotional events. He’s described himself as “an old lefty.” But old lefties in middle age are often the most voracious capitalists. For all his devotion to progressive causes, Ratner can play rough. He’ll sue when he thinks he’s been wronged, and he explained the forbidding design of Atlantic Center in harsh terms: “Look, you’re in an urban area, you’re next to projects, you’ve got tough kids.”
With Atlantic Yards, Ratner envisioned lifting those kids up instead of keeping them out—doing good and making money. According to his aides, Ratner directed that the project be structured according to seven social goals, including increasing minority employment and boosting the borough’s supply of mixed-income housing. Giving Brooklyn a new architectural icon was on the agenda as well, perhaps to atone for the design of his previous buildings, and so he turned to Gehry, the reigning king of statement architecture, who would appeal to Brooklyn’s growing aesthetic class (though Gehry’s few public appearances on behalf of Atlantic Yards have not gone well: At a press conference in May, he blasted the project’s opponents, saying, “They should have been picketing Henry Ford”). The final list of goals and projections for Atlantic Yards is impressive: 15,000 union construction jobs, billions in tax revenues, upgraded transit infrastructure, and seven acres of publicly accessible open space.
Ratner is more astute politician than saint; he surely knew the do-gooder goals would help sell the project. He also has impeccable timing. While there was no public hint of Ratner’s interest in either the Nets or the Brooklyn rail-yards site until late July 2003, the developer had been meeting with Bloomberg nearly a year before that, according to Dan Doctoroff, the city’s economic-development czar. Bloomberg, a political novice but a billionaire businessman, had been elected largely on the hope he’d rescue the city’s economy. Doctoroff was orchestrating the campaign for the 2012 Olympics and to build a West Side stadium for the Jets, controversies that provided invaluable media cover for Atlantic Yards, percolating in the background. “We did not require a lot of convincing as to the conceptual merits of Bruce’s plan,” Doctoroff says. “We’ve been involved in it from almost day one. I was advising Bruce on his purchase of the Nets. Clearly, he was going to use it as a centerpiece for a significant development over the yards. The mayor was always very intrigued by the design. He’s in favor of big statements. What you’ve got now is an opportunity to have an independent economy in Brooklyn.”
The city and state are kicking in $100 million each in cash to help Ratner; tax breaks could push the public bill to anywhere from $500 million to $1.5 billion. Doctoroff says he drove a hard bargain: “They wanted a lot more money.” Still, this is a major point of contention for Ratner’s critics, who want to know exactly how much Ratner will profit in his quest to help Brooklyn. Despite the Ratner team’s claims of transparency—“I don’t know, other than to have people sitting in my office, how you could make it any more transparent!” Stuckey says—FCR refuses to discuss how much it expects to clear, saying it’s a public company and can’t risk accusations it’s manipulating the stock price. The only public documentation of profit appears to be a nearly illegible one-page form filed with the MTA labeled pro-forma cash-flow statement. It seems to show Ratner with a profit of $1 billion. Real-estate expert Jeffrey Jackson ran all the available Atlantic Yards numbers and came to the same rough conclusion. “It’s difficult to quantify the profitability of the arena,” Jackson says, “and the return will be impacted by the final mix of financing. But Ratner should make around $700 million to $1 billion—about a 25 percent return. That’s pretty good.”
Across the street from the office of State Assemblyman Roger Green are the blank rear walls of Ratner’s Atlantic Center. That proximity is a constant reminder to Green that when Ratner built Atlantic Center, Green and local activists were too slow to take to the streets and protest and got little out of the deal for the district. This time, when talk of Ratner and the Nets started circulating, Green vowed that things would be different. “In the past, we, particularly African-American leadership—we’d sit back and throw bricks, we’d march and demonstrate. Then the ribbons were cut anyhow,” Green says. “I would abdicate my responsibilities if I didn’t sit down with Mr. Ratner. We needed to get to the table as soon as possible. Not so much to capitulate but to at least negotiate.”
Green had helped launch a group called BUILD, Brooklyn United for Innovative Local Development, which became one of the most enthusiastic signers of a Community Benefits Agreement in which Ratner promises to create public services and distribute jobs to local residents. The eight community groups that signed the document have a predominantly black membership, which set the stage for the racial subtext in the battle over Atlantic Yards. “If this thing doesn’t come out in favor of Ratner,” BUILD’s president, James Caldwell, said last year, “it would be a conspiracy against blacks.”
Green isn’t quite so blunt, but he sees the divide over Atlantic Yards almost as starkly. “Here’s the question: If we were building an 18,000-seat opera house, would we get as much resistance? I don’t think so,” he says. “Basketball is like a secular religion for most Brooklynites. The opposition to the arena is actually coming from people who are new to Brooklyn, who lived in Manhattan, mostly. And who have a culture of opposing projects of this nature. People who opposed the West Side Highway project; people who opposed the Jets stadium; people who opposed a host of other things. Some of those families now live in Brooklyn. That’s the reality. There’s a class of people who are going to the opera. And there’s another class of folks who will go to a basketball game and get a cup of beer.”
Green has assisted in more than just framing the debate. He says that even before State Assembly Speaker Sheldon Silver played a decisive role in killing the Jets’ West Side stadium, he realized that Silver was determined to minimize new office-space development that might compete with the rebuilding of ground zero, which is in Silver’s district. Green relayed those concerns to Ratner, who scaled back his plans for Atlantic Yards office space. Silver controls one of the last remaining approvals needed by Ratner.
For their efforts on Ratner’s behalf, Green and other community representatives received terrific and creative commitments in the Community Benefits Agreement, minority job training and below-market housing chief among them. Other benefits are more troubling. BUILD, the organization Green helped found, was tapped to help recruit minority construction trainees for Atlantic Yards, even though it has no experience in the field. At first Ratner and BUILD denied a financial relationship. Then the Daily News discovered an IRS filing in which BUILD said it expected to receive $5 million from Ratner. At least four organizations that signed the CBA have received some form of payment from Ratner, totaling more than half a million dollars. The tactics, say critics, mean that Ratner purchased the “community” with which he negotiated.
Most of the time, though, Ratner plays a much smoother political game, and he clearly understood that Atlantic Yards would be as much sales project as real-estate deal. Ratner employs some of New York’s most prominent lobbying firms and has Dan Klores Communications, one of the city’s best-connected PR firms, on retainer. Forest City Ratner commissioned a study from the leading critic of stadium deals, Andrew Zimbalist—and, surprise, this time Zimbalist liked what he saw. But it’s Ratner’s deep in-house team that’s particularly valuable. The key players are Scott Cantone, who was Mayor Rudy Giuliani’s director of legislative affairs; Stuckey, who ran the city’s Public Development Corporation in the eighties; and Bruce Bender, a longtime aide to former City Council speaker Peter Vallone.
Bender, 49, is a curly-haired, fast-talking imp and, like his colleagues, a highly skilled salesman. He can spin the project’s economic benefits or play to old Brooklyn’s inferiority complex. “Can you imagine what it’s going to mean one day when we’re sitting home watching a game on ESPN and the blimp’s gonna be overhead and you’re gonna see the aquarium and your gonna see Grand Army Plaza and you’re gonna see the communities from Bushwick to Sunset Park to Fort Greene to Clinton Hill to the brownstone belt?” he asks. “The whole nation is gonna be seeing our borough!”
Bender has deployed his charms relentlessly on city and state legislators, many of whom he shares longtime bonds with. “I know him from the City Council, with Peter Vallone,” says State Assemblywoman Joan Millman, who represents parts of Carroll Gardens and Park Slope. “And Bruce is a constituent—he lives in my district, and his wife is co-chair of the PTA at P.S. 321. We have a lot of friends in common.” Concerned about Brooklyn’s rapid growth and increasing congestion, Millman has come out against Atlantic Yards. Not for lack of trying by Ratner’s team. “They called and asked if there were two school libraries in my district that I would like to see get an infusion of library books, something like $1,500 apiece,” Millman says. “My response was, ‘All the school libraries in my district are equally deserving; you pick them.’ I’ve made it a policy not to take money from developers.” She couldn’t help notice, though, when Ratner’s gifts turned up elsewhere.
While he wasn’t able to win over Millman—or Tish James, who represents the City Council district where Atlantic Yards would be built—Ratner has still been deft at portraying the “real” community as being on his side. He’s flipped the debate upside down, depicting the old-timers as open to progress and casting as the enemy the white, gentrifying, brownstone-owning, white-collar, semi-recent arrivals to the neighborhood. In other words, me.
My wife and I are a cliché. We lived in a Manhattan one-bedroom in the early nineties, had a child, wanted more space, moved to Brooklyn, bought a brownstone. It’s a pretty house on an unlovely street. There’s a big shady magnolia in the backyard, but two lanes of constant traffic out front.
To us, the house was plenty expensive, and we borrowed every dime we could. The place is now worth triple what we paid, at least in theory. Appreciation is nice, but it’s just dumb luck; we bought the house to make a home. And the neighborhood seemed ideal for that: Fort Greene was a bold mix of young and old, black, white, and Latino, fairly well off and just getting by, with quirky small stores and a convenient public park. Things have certainly changed in nine years—beloved, useful spots like Octagon Hardware couldn’t handle the rising rents; a cluster of French bistros suddenly appeared. But the essential feel of the neighborhood is the same. The residents remain a mix of tie-wearing Bishop Loughlin high schoolers and too-cool Pratt students, buppies, yuppies, ankle-tattooed hipsters and floral-hatted church ladies. People chat over the backyard fence.
The first sign of trouble came a couple of years ago: A frizzy-haired woman in a grocery store on Flatbush Avenue was ranting about a looming disaster called Atlantic Yards. I grew up upstate, in the people’s republic of Ithaca during the seventies, when a day didn’t go by without an anti-nuke or a Free Leonard Peltier rally. Even when the protesters were right, their self-righteousness was hard to take. So I ignored the frizzy-haired woman—who I later learned was Patti Hagan, former New Yorker fact-checker and leader of the Prospect Heights Action Coalition—and bought my gallon of milk.
But a guy named Daniel Goldstein, a graphic designer who had bought a condo in a building on Pacific Street overlooking the rail yards, was alarmed when he saw one of Hagan’s THIS NEIGHBORHOOD IS CONDEMNED posters slapped on a lamppost. He tracked her down and learned that his building was right in Ratner’s path. Gradually, Goldstein became the spokesman for Develop Don’t Destroy Brooklyn, the group that’s sprung up over the past three years to coordinate opposition to Atlantic Yards. DDDB comprises 21 community groups, hundreds of active volunteers, and thousands of disparate, petition-signing, money-donating supporters.
Today Goldstein, 36, is at Freddy’s, a bar at the corner of Dean Street and Sixth Avenue, in the footprint of the Atlantic Yards project. The location, coupled with the independent spirit of Freddy’s regulars, has made the bar the clubhouse of the Ratner resistance. This afternoon, Freddy’s is the set for the taping of interviews with Bill Batson and Chris Owens, the two local candidates who’ve taken the strongest anti–Atlantic Yards stands. Batson is running for the State Assembly seat being vacated by Roger Green, who’s running for Congress; Owens is running for Congress in another district, to succeed his father, Major Owens. As the candidates sit at a small table answering questions from the host of a Brooklyn cable-TV show, jokey soft-core porn plays on two TV sets hanging from the ceiling.
Goldstein stands to one side, wearing a yellow DEVELOP DON'T DESTROY BROOKLYN T-shirt, shorts, and a battered straw hat. At first, Goldstein seemed to snugly fit the obstructionist stereotype. He’s frequently antagonized people who could have helped his cause, haranguing reporters and elected officials. The son of an investment fund manager, Goldstein took the bait when a build member taunted him at a public meeting as a “trust-fund baby”; Goldstein wheeled around and cursed the woman. In June, he shot off a hyperbolic e-mail to Daily News columnist Ben Smith accusing black Atlantic Yards supporters of merely following orders from their “white masters.”
“Initially, he was extremely abrasive,” says Joan Millman, who’s had multiple meetings with Goldstein. “He’s toned down some. And the opponents have learned to play the game better.” Lately, DDDB has been upgrading its tactics. The opposition, fragmented by geography and motivation, was been slow to gain traction or media motility. But after three years of small gatherings in living rooms and church basements, the anger and activism are gaining momentum. In part that’s come through the obvious public-relations tactic of recruiting celebrity spokesmen—from Heath Ledger, of Brokeback Mountain and Boerum Hill, to Rosie Perez, lifelong Brooklynite and member of the Spike Lee ensemble—which has given the anti-Ratner campaign a not-always-helpful tinge of radical chic. But Dan Zanes is no Lenny Bernstein, and the core of the opposition remains a wildly diverse, mostly anonymous mob of regular folks, from Bed-Stuy ministers to Prospect Heights senior citizens. The turnout at the Grand Army Plaza rally, in mid-July in 90-degree heat, was impressive in head count—somewhere between 2,000 and 4,000—and composition: teens, retirees, yuppies, bohos, young mothers, and old lefties.
What’s galvanizing the protesters is an issue that reaches far beyond Brooklyn: Every vacant lot in the city suddenly seems to have become a construction site, with developers in a frenzy to erect out-of-scale apartment towers and office buildings before the economy tanks or the zoning tightens. Atlantic Yards is becoming the magnet for the growing rage against overdevelopment, and the emotion is likely to peak at the August 23 public hearing on the project’s environmental-impact statement. It’s hard to imagine, though, that one night of yelling and guerrilla theater can compete with four years of Ratner’s savvy, spare-no-expense political spadework. Just the opposite is more likely, proving the perverse genius of the campaign to build Atlantic Yards: The New York ritual of howling locals, especially if they’re white, will only help Ratner’s spin that he’s the real populist.
Goldstein may be no match for Ratner in terms of political strategizing, but he does have one important thing that Ratner wants: his address. Since February 2005, Goldstein and his girlfriend, Shabnam Merchant, have been the sole residents of their apartment building on Pacific Street. The other residents were bought out by Ratner for $850 per square foot, roughly twice what most of them paid. Last summer, he was trapped in the building’s elevator for three hours in the middle of the night; the lift’s emergency phone was dead, and Goldstein thought he might be, too. “How pathetic is this?” he remembers thinking. “I’ll die, and they’ll go on with their development.” Goldstein pried the door open and got back to work. He’s inspired by Merchant’s mother, an activist in India who spent years leading the opposition to a mammoth industrial-port project that would have pushed poor residents out of a small coastal town. Tired of the delays, the corporate developers eventually walked away, giving the Indian activists a huge upset victory and proving that the impossible sometimes happens.
“I’m staying in this apartment to be a plaintiff,” says Goldstein, noting that the DDDB has hired eminent-domain lawyer Jeff Baker to fight on behalf of all 60 remaining footprint residents. “My home is gone. I’m staying because this project is wrong, our City Council has no say in it, I have more say in it, and I’m gonna use that.”
The opposition’s greatest resource hasn’t been Goldstein or the Hollywood stars but one unknown man working late at night in his Park Slope apartment. Norman Oder, 45, has a full-time day job as an editor for Library Journal, but for most of the past year, he has spent at least 25 hours a week dissecting the details of the Atlantic Yards plans and posting his analysis at atlanticyards report.blogspot.com. Oder is a skeptic in the tradition of I. F. Stone, proving how much can be accomplished with a URL and an obsession.
Struck by what he considered the weakness of the Atlantic Yards coverage in the Times (which is partnering with Forest City Ratner to build its new headquarters in midtown Manhattan), Oder set out to write one piece of media criticism. But as that essay grew into 160 pages, Oder kept finding more Atlantic Yards issues that sparked his curiosity.
His blog breaks down every arcane detail related to Atlantic Yards and specializes in untangling eye-catching Ratner claims: for instance, that the promise of 15,000 Atlantic Yards construction jobs comes from counting 1,500 people working for ten years. Or how the developer’s recent much-hyped 5 percent “scale back” of the project was really a bait and switch. The Atlantic Yards plan started with 4,500 units of housing in 2003, grew to 7,300 units in 2005, and then “scaled back” to 6,860 units this year. But Oder’s biggest contribution has been shining a light on two crucial aspects of the project: its affordable housing and its astounding residential density.
The project is planned to have 2,250 affordable apartments—50 percent of the rental units. Affordable is one of the great weasel words of modern marketing, however, and the eligibility tiers that Ratner drew up with ACORN, the low-income-housing activist group, leave just 900 units for a family of four with an annual income of $35,000 or less. Although 900 below-market apartments are far better than nothing, just as many spaces are reserved for families earning $70,000 to $113,000.
And Atlantic Yards’ inhabitants, renters and owners alike, could be occupying the densest residential space in the United States. Working with an average of 2.5 people per apartment, Oder points out that Atlantic Yards will have a population density of nearly 500,000 people per square mile. For comparison, the current population-density champ, a census tract in West Harlem, contains 230,000 people per square mile. Manhattan, which popular imagination ranks as the densest place in the city, averages 67,000 people per square mile. It will mean bulky buildings for the project’s residents and also a major strain on the area’s streets, sidewalks, and the already crowded Atlantic Avenue subway hub.
During nine years of living in Brooklyn I’ve gone out of my way to stay out of the Atlantic Avenue station, especially at rush hour. Ten subway lines, plus the LIRR, converge there, and the stairways are a claustrophobic multilevel tangle, congested at any hour, as are the trains that stop there. But here’s what the state environmental-impact report on the expected effects of Atlantic Yards says: “All subway routes through Downtown Brooklyn are expected to operate below their practical capacity in the peak direction in the 8–9 A.M. and 5–6 P.M. commuter peak periods … at completion of the proposed project in 2016.”
Perhaps I’ve been unlucky; certainly my experience with the station has been unscientific. So on a sweaty Thursday morning I went to check it out and found myself standing on the platform, wedged between a pole and six other passengers, waiting for a Manhattan-bound 4. It’s not clear how the state study defines “practical capacity.” But it apparently doesn’t include me boarding the overloaded train that finally arrived. Waiting for another 4, I tried to picture what the station will look like when 15,000 more people live directly overhead.
The section on the Atlantic Avenue subway station merely strains credulity. What the report spells out, once you unpack the charts and the “v/c ratios,” is a tidal wave reshaping the daily life of the surrounding neighborhoods. In the winter, sunset will come to my street at 2:30 in the afternoon, thanks to the shadows stretching from the high-rises lined up like a gargantuan picket fence along the northern border of Atlantic Yards. But I get off relatively easy: The residents of the Atlantic Terminal public-housing complex, across the street from two 40-plus-story Gehry towers, will be in shadow virtually all day much of the year.
The environmental report’s section on traffic predicts that 68 of 93 intersections around Atlantic Yards would be “significantly adversely impacted,” many permanently. That sounds unpleasant enough. But what’s “significant adverse impact”? The study defines it a couple of ways: “saturated conditions with queuing” and delays “greater than 80 seconds per vehicle.” Stand alongside an already busy intersection anywhere in the city; count how long a random car stands still—ten, perhaps twenty seconds—and watch what results: drivers piling up behind the stationary car, blowing their horns, yelling, as the line gets longer. Now picture cars delayed for 80 seconds, for hours on end, in front of your building.
Public schools? They’re already crowded. The study dutifully admits that “if all school-aged children introduced by the proposed project were to attend the public schools within 1/2 mile of the project site, the elementary and intermediate schools would be over capacity and could not accommodate the increased student population, resulting in a significant adverse impact.” One suggested “mitigation”? The thousands of new kids should scatter across school districts 13 and 15. But there’s no discussion of what that actually means, in human terms: Thousands of parents and kids competing for school slots outside their neighborhood, then trekking by subway, bus, or car each morning and afternoon to reach their far-flung destination, maybe in Sunset Park, where they’ll be bumping the teacher-to-student ratios ever higher.
You get to know your neighbors when you live in a place for nine years. But I was surprised, as I pushed past the public faces of the Atlantic Yards opposition, that the anti-Ratner troops were not only not crazy, but they were my mild-mannered friends. Eric Reschke, the president of DDDB, is a youth-soccer acquaintance. I’ve interviewed Dan Zanes, the rocker turned kiddie-music balladeer. On the DDDB Website, under BOARD OF ADVISERS, I find Jennifer Egan, novelist, fellow journalist, and neighbor, as well as Chris Doyle, architect and one of my wife’s oldest friends. Doyle, it turns out, was recruited for the opposition by his friend Jonathan Lethem, whose most recent novel, The Fortress of Solitude, is set on the Dean Street of his youth. One pivotal location in the book is the Underberg Building, an old warehouse at the corner of Flatbush and Fifth Avenue; in March, the Underberg was torn down by Ratner.
“Because I have written so sentimentally about areas that border this project, a lot of people were sort of expecting me to have very strong feelings about this,” Lethem says. “And I had a contrary reaction: No, no, no, I’m not gonna take the bait. I don’t have a strong feeling. I’m sort of a sports fan, I’m sort of weary of political struggles over changes in cities, which is mostly an ecological process that happens apart from anyone’s idealistic yearnings.” Then a writer friend, Sean Elder, nagged Lethem to do some research. “I started to feel the resentment of having been tricked,” Lethem says. “This wasn’t about a basketball arena and a Gehry building. And the opposition is not about a given building being torn down or fetishizing some particular half-ruined part of the city. I want to be the first to say that there ought to be development on the rail yards.”
Maybe it’s just that I have a shallow social circle, and that’s why all my actively anti-Ratner friends and acquaintances are white. Or maybe critics like Bertha Lewis are right about the opposition after all.
For fourteen years, Lewis has led the New York chapter of ACORN, the feistiest activist group for low-income housing in the city; she once chased a Giuliani welfare commissioner out of a community meeting and into the street. When Ratner built Atlantic Center, Lewis picketed, then stormed his office, demanding that the retail tenants pay their employees a “living wage.” This time around, Lewis approached Ratner much earlier and much more quietly. “He was proposing 4,500 units of luxury housing,” Lewis says. “We don’t think so. If any housing is coming to Downtown Brooklyn, we need to talk. There was no affordable housing in their original plan. None.”
Striking a deal made sense for both sides: Ratner gained the appearance of local support and took a skilled protester off the table; Lewis got the promise of low- and middle- income housing. Lewis’s public endorsement of Atlantic Yards was crucial, and brilliant, stagecraft. It came in the middle of the 2005 mayoral campaign. After Lewis, Ratner, and Bloomberg announced the subsidized-housing deal at a press conference, she planted melodramatic kisses on each man, making for invaluable photographs.
Lewis has devoted her life to making grudging gains for ACORN’s membership, and she sincerely believes she’s scored a major victory for them with the Atlantic Yards housing deal. Any suggestion that money played a role enrages her. What’s of greater value to acorn and Lewis is that after all the years of scuffling, the Atlantic Yards deal certified them as serious political players. “For years, we fought, we squatted, we did whatever it took to get to the table to sit down and say, ‘Let’s make something happen,’ ” Lewis says. “There are activists who talk about how it ‘should be.’ But, dammit, at some point somebody has got to actually do it. We’re developers now.”
That’s part of why Lewis is so ferocious in denouncing the Atlantic Yards opposition. “You want to talk to me about traffic, you want to talk to me about density, you go right ahead,” she says, implying she considers it all a pretext. “Talk to me about what your resolution is to the resegregation of Brooklyn. Black and brown folks have been driven out of central Brooklyn!” Lewis ladles on the “street” theatrics as she warms up, shimmying in her chair and dropping her g’s. “We’re looking at the gentrification—I don’t see a lot of black and brown folks in the wave runnin’ up in here! The overwhelming folks who are opposed are white people and wealthier people and more secure people and people who just arrived. Come on! This is about the power dynamic of who in fact is going to be living in Downtown and central Brooklyn and where the power really is going to be. And we’re down to get it on! We’re tired of being pushed out. If we can stop one iota of gentrification, we’re gonna do it!”
One recent morning, walking out my front door, I bumped into my next-door neighbors, Tino Ellis. He’s a public-school teacher. He also happens, as the saying goes, to be black. “I’m disgusted,” he says when I mention Atlantic Yards. “All the disruption, the giant buildings, the tax giveaways. And the rent on those ‘affordable’ apartments could be over $2,000!”
Later I talk to Lynn Nottage, a 41-year-old playwright who still lives in the house on Dean Street where she grew up. “Here’s what I’d say to Ratner: He says there will be ‘significant adverse impacts’ on schools, on cultural resources, on shadows, on traffic, on transit, on noise. I ask you, as a person of color, will we not be equally impacted by that? And I honestly don’t believe the people who are going to be living in those luxury high-rises are going to be black and Latino.” Nottage has an 8-year-old daughter, and she tries to picture what the neighborhood will be like when she’s an adult. “I see Dunkin’ Donuts and Subway and a sports bar, even a strip club,” she says. “I don’t see the antique shops and the clothing shops of Atlantic Avenue.”
Maybe, to Lewis, my neighbors are the wrong kinds of black folks. Not that there will be a referendum on Atlantic Yards along racial or any other lines. Ratner has skirted normal city zoning approvals because the project is centered on state-owned land. But the thousands of people who made their own little choices to move to Brooklyn already voted, in a sense. In the mid-nineties, when crime was still high and the public schools a mess, we knew plenty of families who fled for New Jersey, Long Island, and the northern suburbs. We voted to stay. Call us gentrifiers if you want, but we’re part of a group connected by a belief in tumultuous, polyglot city life more than any bond of age or income or race.
On the third floor of Atlantic Center mall, down a hallway with a picture-window view of the rail yards, next to an office of the Empire State Development Corporation where framed photos of Governor Pataki and Charles Gargano beam down on the lobby, are a pair of unmarked beige doors. Behind them is the future of the neighborhood, in miniature.
Jim Stuckey leads me on a tour of the Atlantic Yards models, pointing out how the latest version pushes the biggest buildings back from the street line, “to blend better with the existing neighborhood.” Gehry’s buildings, in Plexiglas and aluminum form, are impressive. But I can’t help being drawn to the blank little cardboard boxes that are dwarfed by the proposed development: the brownstones and five-story walk-ups of Prospect Heights and Fort Greene.
Stuckey goes on about the housing and the seven acres of green space and the wastewater-treatment system that is supposed to help clean up the Gowanus Canal. All good. But why—living where I do, looking at ten years’ worth of construction trucks chugging down my block, followed by increases in traffic, noise, school crowding, and buildings that will blot out the sun, not to mention 15,000 new neighbors—should I like Atlantic Yards?
Stuckey is brief. “If you define your existence just based on what’s good for you today,” he says, “I can’t help you.’ ”
I care plenty about tomorrow, for myself and for the city. And no matter how I look at it, in the end I can only conclude that Atlantic Yards is a bad deal.
The financial projections are debatable; I’m not convinced Atlantic Yards will be an unambiguous economic boon. But I’ll never be able to prove my case on a purely statistical basis, and neither can Ratner; until the buildings are built, the numbers are all informed guesswork. And even if Ratner’s economic crystal ball turns out to be perfect, there’s a level at which the facts really don’t matter.
As a political reporter, I know that money and spin usually win. But in looking at Atlantic Yards up close, it’s outrageous to see the absolute absence of democratic process. There’s been no point in the past four years at which the public has been given a meaningful chance to decide whether something this big and transformative should be built on public property. Instead, race, basketball, and Frank Gehry have been tossed out as distractions to steer attention away from the real issue, money. Ratner’s team has mounted an elaborate road show before community boards and local groups, at which people have been allowed to ask questions and vent, and the developer has made a grand show of listening, then tinkering around the edges. But the fundamentals of the project—an arena plus massive residential and commercial buildings—has never been up for discussion. Ratner, with Gehry’s aid, has built a titanium-clad, irregularly angled tank and driven it relentlessly through a gauntlet of neighborhood slingshots. And Bloomberg and Pataki—our only elected representatives with the power to force a real debate about Atlantic Yards—instead jumped aboard early and fastened their seat belts. What at first seemed to me impressive on a clinical level—a developer’s savvy use of state-of-the-art political tactics—ends up being, on closer inspection, truly chilling.
Every time I begin to buy into the lyrical people-have-the-power rhetoric of the opposition, to fantasize that Goldstein’s impending eminent-domain lawsuit has a prayer of succeeding, or to get revved up about the density trivia, someone smacks me back into reality. Most recently, it was a prominent Democrat. “In some cases, an army of Davids could take down Goliath,” he said. “But not this one. It’s a fait accompli.”
Brooklyn is vast, so it would be arrogant and silly to say how Atlantic Yards will change the borough. Maybe they won’t feel a thing in Sheepshead Bay and Greenpoint and East New York and Crown Heights. Atlantic Yards, though, would send ripples of gigantism far and wide. I’m no Spaldeen-and-egg-cream nostalgist, but Brooklyn has always been different and better because it’s been closer to the ground. That’s a significant thing to lose. And “in close,” to use Jim Stuckey’s dismissive description of Prospect Heights, Fort Greene, Clinton Hill, and Boerum Hill, we’ll feel the impact like a punch to the head. The small, warm neighborhoods around Atlantic Yards will become moons orbiting a cold planet. Shadows and noise can be modeled on computers, but their emotional effects can’t.
Brooklyn is changing every day, all the time; I wouldn’t want to live here if it didn’t. I don’t kid myself that all the changes are “organic” or even desirable. But it’s an evolution instead of a cataclysm imposed from above. The opposition to Ratnerville is sometimes vitriolic, unsympathetic, irrational.
Additional reporting by Meghann Farnsworth.
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