Opinion

Felix Salmon

Why is NYU building?

By Felix Salmon
July 9, 2012

On Thursday, I looked at the way in which cultural institutions tend to spend a huge amount of money on architecture, even if they would be better off spending that money more directly on their missions. In response, I got a fascinating email from a professor at NYU, asking me about its plan to spend some $6 billion on a hugely ambitious construction project — one which is fiercely opposed by local residents and NYU faculty.

The opposition is predictable, of course: Greenwich Village is as Nimbyish as communities get, and the professors who are railing against the plan are precisely the people who are going to suffer the most from endless construction work and ultimately the disappearance of the views and light many of them currently enjoy. But that doesn’t mean they’re wrong to oppose the plan. As we saw at Cooper Union, ambitious construction projects can be hugely damaging to colleges — especially ones which don’t have a large endowment to fall back on.

At Harvard, the empire-building of Larry Summers resulted in a disaster — but at least the endowment is huge enough that if Harvard loses $1.8 billion, it’s not the end of the world. At NYU, by contrast, the size of the endowment is significantly smaller than the budget for the university’s expansion. And as a result, the whole project is significantly riskier. If NYU ends up having to dip into its endowment to fund losses on this project, then that could be hugely damaging for an institution which is already under-endowed by the standards of most top-tier US colleges.

The situation at NYU Is, I think, the flipside of the saga we just saw at the University of Virginia. There, a popular president found herself at odds with trustees who had been successful in the private sector; at NYU, the faculty is similarly opposed to the plans of the trustees, but in this case the president is very much aligned with what the trustees want.

In both cases, it seems, the faculty seems pretty happy with the state and status of the university as it stands, and are looking for low-risk stewardship. The trustees, by contrast, are much more aggressive, and are looking for growth and full-bore engagement in the higher-education arms race known as Bowen’s Rule. Here’s how Howard Bowen put his five-point rule in 1980:

  1. The dominant goals of institutions are educational excellence, prestige, and influence.
  2. In quest of excellence, prestige, and influence, there is virtually no limit to the amount of money an institution could spend for seemingly fruitful educational needs.
  3. Each institution raises all the money it can.
  4. Each institution spends all it raises.
  5. The cumulative effect of the preceding four laws is toward ever increasing expenditure.

On top of that, there are many New York-specific idiosyncrasies involved in the NYU plan. NYU is nestled in the heart of downtown New York, on some of the most valuable land in the world. That makes expansion insanely expensive, of course — but it also raises opportunities for a higher-education form of regulatory arbitrage.

New York has strict and recondite zoning laws, which are largely responsible for the value of any given plot of land. Take a site in Greenwich Village: if all you’re allowed to build there is a few townhouses, it’s going to be worth a fraction of its value if you’re allowed to erect a 40-story hotel. Every so often, zoning is changed, normally in the direction of allowing more development. When that happens, the people lucky enough to own the land in question make windfall profits.

This dynamic helps explain the way in which property developers are deeply enmeshed in city politics — and it also, I think, helps explain a lot of NYU’s behavior. NYU, quite aside from being an educational non-profit, is also the largest property developer in downtown New York. And with this plan, it’s trying to change the zoning for a lot of the Washington Square area in a way that will, if all goes according to plan, essentially drop a huge pile of money in the university’s lap. Hence the proposals for things like hotels and retail: they’re not allowed right now, and if they do become allowed, NYU fully intends to build such things and make substantial profits from them.

This isn’t a stupid plan. It makes sense, if you don’t have a $30 billion endowment throwing off huge amounts of cash every year, then you look for income in other places.

On the other hand, when a university turns property developer that’s decided mission creep — and it’s mission creep accompanied by billions of dollars in debt. Property magnates generally do really well for themselves — until they don’t. And here’s where you can see the cleavage between NYU’s trustees and its faculty. The trustees tend to be successful businesspeople — people who have had the requisite combination of risk appetite and luck that’s necessary to make lots of money. And rich people have another characteristic, too: they nearly always overestimate the amount of skill and underestimate the amount of luck which went into their success. Plus, they think that success is somehow infectious: if they’ve made their millions through levering up, then that’s probably a good strategy for the non-profits whose board they’re on, too.

On top of that, the president-and-trustee class of people has a natural tendency to want to build monuments to themselves, as well as a certain emotional detachment when it comes to empathy with other people. They’ve seen the plans: the architects have shown them glossy pictures of what Greenwich Village is going to look like in 2031, but they don’t really feel the amount of noise and pain involved in getting there from here. They don’t live in Washington Square Village.

And most importantly, they don’t need to rack up enormous student loans just to attend NYU in the first place. Here’s the chart, from the NYT’s excellent infographic on university tuition and student debt:

You can see from this chart that while there are lots of colleges which charge NYU-level tuition fees, NYU is among the very worst of them in terms of the amount of debt its students are burdened with upon graduation. That’s partly because it has a relatively small endowment, and therefore can’t offer the level of financial aid that, say, Princeton can; it’s also, of course, a function of the fact that New York is an incredibly expensive place for a student to live. But either way, if NYU cared about its students as much as it cares about its reputation, it would be searching hard for ways to decrease the debt they’re graduating with.

Instead, NYU is embarking on a building plan which will almost certainly, in one way or another, feed through into higher tuition fees and higher levels of student debt at graduation. After all, tuition fees are a hugely important source of income for NYU, and NYU is going to need all the income it can lay its hands on if it’s going to be able to pay off the loans it takes out to construct all these new buildings.

I’m no preservationist stick-in-the-mud: I think that cities need to evolve over time, and that if Greenwich Village had a bit more density, New York would cope just fine. I also carry no torch for things like “the acclaimed Sasaki Garden”, which turns out to be a bunch of concrete planters which are all but inaccessible to real New Yorkers. If NYU wants to replace that garden with something better, I’m all ears.

But I do think it’s worth asking some pointed questions about who exactly all this construction is supposed to benefit. It’s certainly not the current students, who will be long gone by the time it even gets started. It’s not the current faculty, whose lives will be disrupted and who are almost unanimously opposed. And there’s a strong case that it’s not future students, either, who will see even higher tuition fees and I’m sure won’t welcome the extra student loans they’re going to have to take out.

Universities will always have plans to expand — and indeed NYU already has campuses in no fewer than four different countries. Before embracing this particular plan, then, it might be worth looking at the history of previous university expansion projects, and asking whether they actually delivered on the promises they made at this point in the process. Because the costs of this particular project seem a lot more obvious than the benefits do.

Comments
23 comments so far | RSS Comments RSS

Maybe some of the trustees hope to build the buildings using public/Other People’s money to then make a bundle buying up the assets when NYU is forced to sell them off?

Posted by Foppe | Report as abusive
 

Bowen’s “rule” only works when sufficiently many of the players are neoliberals, though. I read a nice book about this a few years back called ‘Academic capitalism’; the authors of which used resource dependence theory to explain why introduction of only a few ‘market thinkers’ among the higher faculty quickly led to cascade adoption of the same mentality. The reason why it’s not a rule, though, is because it only started to work this way once state and federal governments started to a. pull back from funding it, and b. distribute money via a competitive grant system (supposed to encourage ‘excellence’, but really rewarding those with the best presentation skills and ‘valorization’ sense).

Posted by Foppe | Report as abusive
 

If you’re going to take on a lot of debt, isn’t now a good time to do it?

Posted by Zdneal | Report as abusive
 

Greenwich Village saw massive expansion of St Vincent’s Hospital some years ago. St V and Queens’ St John’s Hosp were shut after ripping up their neighborhoods and their sponsors provide fewer essential services that are their mission. Keeping the eye on the goal, particularly education and health care, may be more important than building pyramids to honor the non-profits’ trustees.

Posted by StuartG | Report as abusive
 

this is pretty spot on, except you missed one key piece. NYU uses its real estate assets more intensively than just about any other university in the world. those classrooms are in use from 8 am to 10 pm every day, year round. they have a huge evening and summer continuing ed program that is a cash cow. NYU’s ability to meet demand is severely constrained by its current facilities. there is an honest low-risk business case here. the things you identify are just icing on the cake.

Posted by AnthonyTownsend | Report as abusive
 

“On the other hand, when a university turns property developer that’s decided mission creep — and it’s mission creep accompanied by billions of dollars in debt. Property magnates generally do really well for themselves — until they don’t.”

This, worryingly, reminds me of the financial disaster a few years ago that engulfed UQAM, a Montreal university, when its adventure as a property developer went bust. The university only survived because it is public and taxpayers ended up footing the bill. Beware, NYU folks, beware…

Posted by Nic22 | Report as abusive
 

NYU has big tax advantages. Buy a rental building for faculty housing, it’s now exempt from property taxes. Rent it to staff at a below-market rate, the difference between the rent and market rate is tax-free income to the staffer.

Posted by streeteye | Report as abusive
 

“if all goes according to plan, essentially drop a huge pile of money in the university’s lap. Hence the proposals for things like hotels and retail”

Did you read the plan? The hotel has been cut and retail space has been reduced to a trivial amount (3%) = the biggest uses will be instructional space (65%) and faculty housing (10%) – the rest is support services and space for a public school.

In fact, a major objection from the faculty is that school can’t afford the expansion and won’t be able to service the debt.

So I don’t see where the “pile of money” is going to come from. If you can’t identify it, I suggest you revise your post.

Posted by Blox | Report as abusive
 

@Foppe: That doesn’t sound neoliberal to me. I’m not sure I understand what you’re saying.

@Felix 1: “when a university turns property developer that’s decided mission creep” — I would submit that most of this mission creep has taken place when a university acquires an endowment that it tries to manage in an active way. Once you’ve decided that the university should have a stockpile of wealth invested in assets that earn liquidity premiums, especially for an urban university, owning Rockefeller Center or other large commercial plazas makes as much sense as anything. (Levering up to do it makes no more sense than it would to buy any other illiquid asset.)

@Felix 2: If this won’t benefit current students, exactly, it could be reasonable (though not mandatory) to expect it to benefit future alumni, if it does help enhance NYU’s prestige.

Posted by dWj | Report as abusive
 

@dWj, regarding your Felix2, perhaps (probably) I travel in the wrong circles, but after my first job, no one has ever asked me where my degrees were from. I don’t see the benefit to future alumni. For the vast majority of us, it’s our performance, not our pedigree, that defines our value. This isn’t England.

Posted by Curmudgeon | Report as abusive
 

Almost all publicly traded businesses are run by managers that want to increase their compensation and perceived standing in society, which they do by growing their empires. Universities are no different. While they are effectively owned by the public, and the dividends they pay aren’t measured in dollars, but in useful graduates, their managers want to grow their empires and increase their compensation.

Whether Manhattan needs more capacity for educations that cost a quarter million dollars is debatable, but that is apparently of no concern to the trustees. Like outsiders that are hired to run a publicly traded business once the founders depart, the trustees and executives of NYU have different motivations than the founders of NYU. They want to borrow money, because they think the market for $60K/yr educations is big enough to justify the gamble. I think they are too close to Wall Street.

Posted by KenG_CA | Report as abusive
 

Felix,
I live in the immediate NYU neighborhood, and I can assure you that opposition is not simply knee-jerk NIMBYism. John Sexton is a meglomaniac, and NYU’s construction plans are completely out of proportion with its Greenwich Village neighborhood. Fortunately, it appears that the City Councilman for the area, Ms. Chin, is also of this view, and her voice will almost certainly be heeded in the City Council when the final reckoning is given on this project. (Or at least final until the inevitable lawsuits are decided.)
Also, the upzoning was given the kibosh by the City Planning Commission (headed by Amanda Burden) owing to it being nothing more than a money-grab (as you state) rather than having anything to do with NYU’s “educational mission”. The odds of it being resurrected in the City Council would appear to be slim.

Posted by jsnyc | Report as abusive
 

@ Anthony Townsend: This $6 billion expansion cannot be justified based on need for classroom space.

1) During the first 10 years of construction, only 40 classrooms will be added, according to the Plan. That’s a drop in the bucket. NYU recently purchased the Forbes Building, which could certainly contain 40 classrooms — no extra building needed.

2) NYU does not use its classroom space efficiently. Currently, there are few lectures held on Fridays on campus. By adding Friday lectures, the university could effectively increase its number of classrooms. In fact, a set of NYU profs have just released an open letter to President Sexton, asking him to consider this more efficient, less costly approach.

Posted by NYUProf | Report as abusive
 

@Blox: why do you think that NYU is asking for upzoning, if isn’t in order to make $$$$?

As Felix points out, if the zoning change goes through, this will effectively transfer billions of dollars to NYU. That doesn’t seem right, since we’re a private university. We don’t pay taxes. And … not mentioned in Felix’s piece: the proposal also asks that public land be transferred to this private entity.

My university is not only asking to have billions transferred to it; it is also asking for the public to make sacrifices so that can happen.

Doesn’t seem right.

Posted by NYUProf | Report as abusive
 

@Blox: why do you think that NYU is asking for upzoning, if isn’t in order to make $$$$?

As Felix points out, if the zoning change goes through, this will effectively transfer billions of dollars to NYU. That doesn’t seem right, since we’re a private university. We don’t pay taxes. And … not mentioned in Felix’s piece: the proposal also asks that public land be transferred to this private entity.

My university is not only asking to have billions transferred to it; it is also asking for the public to make sacrifices so that can happen.

Doesn’t seem right.

Posted by NYUProf | Report as abusive
 

@Curmudgeon Good point, actually; I did have a non-first job where the name on a diploma seems to have helped get me an interview, but it was a change of careers. (Even then, connections from my first career helped get the interview, too.)

Posted by dWj | Report as abusive
 

@Zdneal Now could be a bad time to take on debt if the debt to be taken is maximised for current interest rates; if however the affordability takes into account long term interest rates, less debt would be the result. Sadly, people always try to maximise their borrowings, so it could mean that when interest rates rise again, costs of supporting the interest rates becomes unsupportable. This would be particularly true if the education market took a downturn as well; just because things are going well now doesn’t mean they will be in 15 years time.

Personally I think they should find a way to lower fees, then select more tightly on ability and raise the Institutions standards that way. If demand exceeds supply, you don’t *have to* increase supply; you can increase quality too.

If debt is taken on though, it might be interesting to create some form of “tuition bonds” whereby students can buy the debt in exchange for a discount on their fees instead of paying a coupon. They used some similar kind of arrangement when Arsenal AFC built it’s new Emirates Stadium in London, and gave incentives to season ticket holders and to purchasers of the apartments in the new stadium.

The problem with having business people on a non-profit board is they don’t know how not to make profits!

Posted by FifthDecade | Report as abusive
 

Competitiveness, prestige: two words so often used by the NYU administration in defending its behemoth of a plan. And yet, in the educational context, this fugitive and precious thing, prestige, has nothing to do with ever-larger dorms and square footage but instead has everything to do with the quality, the intrepidness and the commitment of a university’s faculty and students. That is to say, the lifeblood of any academic institution and the true measure of its excellence. Pres. Sexton’s plan, in contradistinction, will put even greater strain (if that is possible, in NYU’s case) on already-financially strapped students in the form of mounting debt, given the annual rise in tuition – and the increasing need for more and more students to provide an influx of revenue to balance all of the money going out for new building campaigns, from Washington Square to Shanghai and Abu Dhabi. The plan likewise will adversely affect faculty retention, to say nothing of recruitment (how attractive a selling point is an interminable, dust-chocked and ear-splitting construction zone?). As for NYU’s youngest academic stars? These disaffected faculty members are likely to defect in droves, to institutions that genuinely care about faculty governance and the well-being of their faculty (their quality of life, their families, their sense of community). These scholars will be poached by rival institutions in the blink of an eye, one other New York institution that I can think of most certainly among them.

And I say all of this as a member of NYU’s own faculty – and a member of one of the now-36 Schools, Centers and Departments at our University to have passed a resolution against this massively dense, academically unjustified and costly expansion. The rising number and intensity of faculty voices against the overwhelming aggressiveness of this expansion, one that originally included a university hotel in its first iteration, is something absolutely extraordinary, by any measure. And the volume will only grow, if the administration does not step away from the precipice and remembers its original academic mission.
The pivotal question here – as it always has been, for the faculty and our increasingly-indebted students – is the plan’s entirely murky academic rationale. For what has precipitated this sudden need for space? First and most, our acceptance numbers have spun out of control. Unfortunately, the horse is already out of the barn; the student explosion ALREADY occurred in this past decade. Now the administration seems to be scrambling like mad to accommodate everyone — and it doesn’t seem to matter much if it’s on Washington Square or abroad. Anywhere … but, in listening to Pres. Sexton, if it IS to be in New York, it better be a minute from the Square! God forbid that twenty year olds take the subway a few stops from downtown or ride a bike to their first class. Bottom line: NYU has gotten far too big, far too fast. And the incoming freshman class promises to be bigger still, thanks to a historic over-yield of 10-15%.

Is it any surprise, then, that the administration is now beginning to feel the strain on its resources? How could it not, given its voracious appetite for more and more students (that is, more and more tuition, at $55,000 a head for tuition, room and board, in part to finance all of the new buildings, both here and abroad)? It’s a vicious cycle – a case of crisis management but in an academic context. Sadly for our graduates, when we admit well over a third of all applicants, it ultimately devalues their degree. On average — to compare — the Ivies admit 10-11% of all applicants. UPenn admits the most, I believe — yet it’s still only 18%. And the student bodies in the institutions in questions – boasting endowments that eclipse our comparatively modest $2.8 billion, possibly half of the price tag the present expansion would run — are but a fraction of ours, allowing for much better student-faculty ratios. And our administration dares to talk about prestige? On one recent occasion, Pres. Sexton brought up the fact that we don’t have a football team. There’s no football stadium to serve as a gathering place, he argued. This is the leader of our academic institution saying this. And speaking of football schools … Councilmember Jessica Lappin was sadly correct when she noted, at the City Council’s public hearing, that, in its unchecked growth, NYU is no longer the peer institution of the likes of Columbia. In enrollment, NYU’s peer institutions are now Big Ten Schools the likes of Michigan and Wisconsin.

You know, I’ve yet to hear of a single student who decided to pass up on NYU because it didn’t have a football stadium. Or any pizza joints or frozen yogurt places in the middle of Washington Square Village, in place of the award-winning Sasaki Garden! Edward Hopper and Jackson Pollock, Edgar Allan Poe (whose former house on W. 3rd St. NYU defaced in its “creative reconstruction”), Henry James, Mark Twain, Jack Kerouac, Allen Ginsberg and the Beat Poets, Buddy Holly, Bob Dylan, Joey Ramone – and of course Jane Jacobs. Now, THESE are some of the reasons that our students (as well as the faculty, like myself) cross states, if not oceans, to join and experience Greenwich Village. My University now threatens to destroy its own host.

Finally, on the matter of student housing, specifically … Councilmember Margaret Chin in fact has invited NYU – courted it, on a number of occasions, and done so publicly — to build any necessary new dorms in the Financial District … no more than about a 10-15 minute subway ride away. NYU is a commuter city after all, is it not? Always has been, always will be. NYU has just launched the CUSP initiative (The Center for Urban Science and Progress) on Jay St. in Brooklyn, for crying out loud. Then there’s NYU Hospital and Medical School on 1st Avenue and E. 26th. Bottom line: the only space that absolutely must be on Washington Square and its immediate environs are academic spaces. And yet what percentage of the present plan is destined for instructional academic space? Not dorms or commercial space, but instructional space? No more than 18% or approximately 40 classrooms. So, who profits? It sure isn’t the dismayed faculty. Nor is it our students, many of whom are working not two but three jobs (waitressing, bartending, catering among them) so as to afford tuition and at least try to avoid punishing student debt.

Make no mistake: If this is about academics — that’s to say, the only grounds that any educator could possibly take this Napoleonic plan seriously — it’s indefensible. An open line of credit, in the lifting of longstanding zoning laws, turning public land over to a “private university in the public service,” to do with this property as it wishes, when it wishes? Low interest rates for new construction, its purpose-as-yet-to-be-decided? If so, this is a definition of competitiveness and prestige of which we, the faculty, want no part.

Posted by Truth_To_Power | Report as abusive
 

I attended NYU at its University Heights campus. Never heard of that location? They had to sell it to pay for the Loeb Library when that project busted the budget back in the early 70s.

Posted by NYUMark | Report as abusive
 

So what building (or campuses) will NYU sell off when the 2031 Plan goes bust?

And which lucky NYU Board of Trustees real estate developer will have first dibs to swoop in to buy this prime real estate at distressed prices?

Posted by everdeen | Report as abusive
 

The only area I will disagree with the writer is Sasaki Gardens. This is inaccessible and closed off because of NYU! NYU put the fence around Sasaki Gardens and completely closed off the area when they added retail on LaGuardia. I also would like to know why the playground and sitting area in front of Coles has been closed for years? NYU is the one who developed these items in 1981. Lastly, the fence in front of Silver Towers lawn (put by NYU) makes it closed off as well. I believe all of these items are either NYU’s fault or at least justified by NYU to say the area has a closed off feel. It’s actually primarily NYU’s fault!!!

My main issue with the proposed expansion though is the fact that President Sexton’s administration will not disclose the financial plan. I can only imagine this is because his administration does not want it publically known that tuition will have to rise further to cover this building cost. Surely, taking out the profit making hotel and limiting retail will mean that most income will have to come from new students and growing the student body. Growing the student body will eliminate President Sexton’s justification that classroom per student will actually decrease significantly in the coming years. Remember, there are only 40- proposed new classrooms and NYU is planning on adding thousands of additional students over the coming years. The math is simple….

Having attended NYU, I don’t believe NYU students desire a traditional clustered campus. One of the unique and valued things about NYU, is that it is part of New York rather than an isolated campus with walls. Now, that study abroad and online learning are surely going to become major learning tools at universities it should make even less sense why NYU has to create a Midtown like campus in Greenwich Village.

Posted by OceanDrive | Report as abusive
 

NYU is “building” because giant brick-and-mortar projects become monuments to the unquestionable authority of the NYU leaders. IOW, it’s marketing on a grand scale, there being no functional reason to build one more damn school building in the US.

Posted by Eugene5000 | Report as abusive
 

The author makes a lot of good points (as do the 2 NYU profs and OceanDrive re: the Sasaki Gardens.) All you really need to know about the wisdom of NYU2031 is that NYU’s business school, which is no bastion of liberalism nor is it anti-development, voted 52 to 3 against the plan!

Most importantly (and impressively), Mr. Salmon has his finger on the key issue: Whom would or would not benefit from NYU2031? He also has the right answer: Almost no one would benefit from this outrageous grab for personal benefit at the expense of public good except NYU’s president (anyone want to bet whose name graces the project?), NYU’s trustees, who undoubtedly lead the companies that would construct, finance, lawyer and design the project, plus the legions hired by that president and those trustees to promote and support it in every way.

Consider this fact. I sat through the entire 9 hour NY City Council meeting on NYU2031 June 29th (which wasn’t fun), and I estimate that about 75 people testified in FAVOR of the project (as opposed to about double that number AGAINST.) Of those 75 supporters, maybe 8 were well meaning undergrads who see that NYU has inadequate space (never mind that NYU CREATED that problem itself by knowingly admitting more students than it had space for), and want “enhanced prestige” for their future alma mater. Another 5 or so (again, my estimate) fall into the category of “fringe opinions,” including 1 architectural “expert” whom I’ve noticed supporting, well, just about every development project out there. The remaining 60+ people who testified in FAVOR of NYU2031 were either paid directly by NYU to support the project (NYU administration employees), hope to profit personally from it (outside advisors hired by NYU’s administration), or general business support groups of which NYU is undoubtedly a major supporter. In contrast, I couldn’t pick out even a single person who testified AGAINST the project who would benefit financially from killing it. Instead, all of those people would be harmed personally, and severely in many cases, if NYU2031 goes through (anyone want to live in a 20 year construction zone? Or pick up and move your life because someone else insisted on inflicting that on you?)

So, there you have what’s most importantly at stake with NYU2031: it’s personal profit for a (private) minority at the expense of widespread social cost for the (public) majority. If that wasn’t the case, then why doesn’t NYU construct in a commercially zoned area that wants it, like the financial district? Or better yet, lease space there? Duh!

Posted by JustTheFactsMan | Report as abusive
 

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