Felix Salmon

I have a review in Architect magazine of the Foreclosed show at MoMA — the exhibition which seeks architectural solutions to the suburban foreclosure crisis; I also talked to a couple of the architects involved in the exhibition at the press preview in February.

My main beef with the show is that it’s far too utopian and impractical. That’s par for the course when it comes to museum architecture shows, but I was hoping for more realistic proposals in this particular case, just because the foreclosure crisis is so real and urgent.

Anybody who visits the exhibit can see that nothing remotely along the lines of the buildings being proposed is ever going to be realized — Orange, New Jersey, for instance, is not going to replace its roads with long strips of narrow housing. But what’s less obvious is the way in which all of these projects are also a huge financial stretch. They were charged with coming up with innovative forms of home finance, but all those innovative solutions tend to boil down to the same basic idea: get the local municipal government to borrow hundreds of millions of dollars and then spend that money on a massive housing development which will, somehow, generate the income needed to service the debt.

Such ideas have a tendency to work much better in theory than they do in practice; they’re fragile things, at risk from dozens of different directions at the same time, and if I were a local bank, I’d stay well away from funding them. And I certainly would never advise small and unsophisticated suburbs like these ones to get into bed with the sharks peddling municipal bonds and associated interest-rate derivatives.

Michael Bell, in the video above, makes the very good point that architecture and architects are largely absent from the suburbs. But I guess that I was really looking for something much lower-cost than the mega projects that the teams in the MoMA show came up with. Certainly lower in up-front cost, anyway. The foreclosure crisis was caused by people borrowing enormous sums of money and then finding themselves unable to pay it back. The last thing we want to do is risk repeating that all over again.

Charles Bagli has an interesting take on the news that UBS is considering moving back to Manhattan from Greenwich Stamford:

The move would be the latest sign that New York has regained its allure as a caldron for the young and creative.

Are investment bankers really “young and creative”? And if so, is that a good thing? My feeling is that they should be old and boring.

Still, even if Greenwich Stamford is more appealing to the old-and-boring set while Lower Manhattan is better for the young and creative, it makes all the sense in the world for UBS to be in Manhattan — and especially in Richard Rogers’s Tower 3 of the World Trade Center, the most architecturally interesting tower on the site.

For one thing, UBS will be closer to its clients, and the there’s also an “out of sight, out of mind” aspect to UBS. When I run down my mental list of big investment banks, I start downtown, with Goldman, Deutsche, and Citi, and then mentally move to midtown, with Morgan Stanley, Bank of America, JP Morgan, and Barclays. I often forget about UBS, just because it’s so far away; if I do remember it, it’s only because of its small outpost on Park Avenue.

I actually really like the UBS trading floor in Greenwich, a huge column-free space with soaring white ceilings and none of the claustrophobia one finds on other trading floors in New York. But there’s a good reason why every other major investment bank is in Manhattan. If UBS’s investment bank is to be taken seriously, especially if it’s an independent entity, it needs to be here too.

Many congratulations to the Port Authority of New York and New Jersey, which is about to snare the most glamorous and high-profile anchor tenant possible for its flagship 1 World Trade Center property. But the Port Authority is getting more than just the whiff of high fashion here. Charles Bagli reports that Condé Nast is going to pay “an estimated $2 billion over 25 years” for 1 million square feet in the building: that’s a lot of money.

$2 billion for 1 million square feet is $2,000 per square foot. That’s an impressive average price of $80 per square foot per year. And even from day one, Condé’s getting no bargain here:

The publisher is expected to move about 5,000 employees to Floors 20 through 41 at 1 World Trade Center sometime in 2014, when its annual rent will start at a little more than $60 per square foot, or roughly the same amount it is paying today at 4 Times Square…

Its rent is somewhat higher than those in recent deals at 7 World Trade Center or the World Financial Center, according to real estate brokers.

It seems that Condé is agreeing to 2% annual rent increases here: you need an initial rent of $62.44 per foot in order to get to $2,000 over 25 years. That’s a good 20% over what Moody’s agreed to pay to anchor 7 World Trade Center next door, back in August 2007 before the financial crisis really hit.

It looks as though Condé is getting the bottom 22 floors of the building; one assumes that the 1.6 million square feet of office space in the 48 floors above Condé will go for even more, especially now that they come with added essence of Condé. And that means, in turn, that rents from 1 World Trade should pretty easily cover its $3.3 billion in construction costs.

What about the high maintenance and security costs for the building? Back in September, Joe Nocera wrote that the Port Authority would need to “charge $130 a square foot to break even on the building” — a number that the Port Authority itself said was far too high, and which didn’t make much sense to me, either. It’s unclear how much of the security costs are going to be borne by the Port Authority rather than the NYPD. But either way, there’s no reason to make Condé pay them.

I’m looking forward, then, to the World Trade Center site becoming a vibrant and exciting neighborhood, anchored by a buzzing skyscraper at its northwest corner — just across the street from Goldman Sachs — and by a beautiful transit hub a little further east. It’s taken far too long to get there from here. But better late than never, especially if the redevelopment is now starting to pay for itself.

Many thanks to Joe Nocera for raising the issue of One World Trade Center’s finances. It’s by far the tallest and most expensive building that New York has ever seen, and it’s no thing of beauty, either. Plus, there’s not nearly enough demand for new top-grade office space to justify building so much of it at this location and at this time. So what exactly is the Port Authority thinking?

All that said, the issue is much more complicated than Nocera makes out. For one thing, the 1,776-foot tower is really the last vestige of the once-lauded Daniel Libeskind master plan for the World Trade Center site; for another, the deal that gave it to the Port Authority was a highly complex one, done with developer Larry Silverstein, and so it’s a little bit simplistic to try to view One World Trade in a vacuum, as Nocera does.

Plus, Nocera’s very vague about sourcing his numbers: he says only that “my real estate sources say they believe that the Port Authority will need to charge $130 a square foot to break even on the building”, and then adds a pro-forma Port Authority denial.

It would be very useful to learn where that number comes from. Looking at the figures in the piece, the cost of the building is $3.3 billion, with $1 billion of that coming from insurance proceeds. I’m not sure exactly what Nocera means by “break even”, but he does talk earlier on in the piece about “any shortfall between the building’s annual rental income and its carrying costs”, so let’s think about it that way.

The building will end up with 2.6 million square feet; if the breakeven rate is $130 a square foot, then that implies its carrying costs will be $338 million a year. But it doesn’t cost anything like that for the Port Authority to borrow $2.3 billion. After all, the last time the Port Authority issued bonds, it paid an average interest rate of less than 4.5%. And 4.5% of $2.3 billion is barely more than $100 million a year — less than a third of the number implied by Nocera.

Or think about it in terms of a standard residential mortgage. Let’s say you wanted to take out a 30-year fixed-rate loan on a $3.3 billion home, putting $1 billion down. Right now, mortgage rates are 4.5%, which implies a monthly repayment of $11.65 million per month, or $140 million a year. OK, you’re not going to be able to borrow that kind of money from your local credit union, and I’m pretty sure that the note would be non-conforming in the eyes of Fannie and Freddie. But still, if you want to get $140 million a year from renting out a 2.6 million square foot building, then you only need to charge $54 a square foot: a far cry from Nocera’s $130 figure.

Yes, there will be high maintenance costs, especially given all the extra security. But at the same time, the Port Authority owns the land underneath the building outright, so there are no costs associated with that. And in the early years of the project, when the building isn’t fully rented out, the Port Authority will have to carry some of the costs of the empty space.

On the other hand, there are less quantifiable costs to having empty space in that part of the New York skyline which used to be home to the Twin Towers. One World Trade Center might never be as iconic as they were, but it will still be an instant landmark, and a vast improvement on the gaping hole that we’ve been living with these past nine years. If Nocera wants to make the case that its costs will end up being borne by commuters crossing the George Washington Bridge, he’s going to have to be a lot more specific about exactly how he’s calculating them.

David Galbraith, looking at a floor of Le Corbusier’s Villa Stein on the market for €1,080,000, concludes that either “architecture is vastly under valued or painting prices are almost entirely irrational”.

I hope he’s right: architecturally-important residences should sell at a premium. It’s by far the best way to prevent them from being demolished. But it’s hardly irrational that they don’t.

The apartment in the Villa Stein, for instance, is in Garches, an undistinguished western suburb of Paris which, in the words of one website, is “mostly known for the Raymond Poincaré Hospital, which is specialized in medical treatment of road accident victims”. Not the kind of place that a rich art lover would really want to live. What’s more, it’s only 105 square meters, or 1,130 square feet: decidedly cramped if you’re the kind of person who is likely to drop millions of dollars on an artwork.

A great piece of architecture in a desirable location can sell at a premium, and a great piece of architecture which can be packed up into six containers and reconstructed anywhere in the world will sell for even more. But in general people looking to buy important architecture only want to do so if there’s a reasonable chance of them actually living in the house in question — at least for some of the year. If such people don’t want to live in Garches, then the seller of the Villa Stein flat is out of luck.

I am ultimately bearish about the prospects for collectible architecture — while it’s possible to imagine a world where it exists, it seems impossible to get there from here. But that doesn’t mean that the entire art market — a market where people get to buy unique and portable objects to savor and enjoy at their leisure — is irrational. It just means that architecture doesn’t behave in the same manner.

A few weeks ago I noticed an armed private security guard outside the new Bank of America tower on 42nd Street; today there were two, both sporting Wackenhut logos on their shoulders. These aren’t some paramilitary Hercules team sporting machine guns, they’re just guys with sidearms patrolling the sidewalk in front of a bank. Which might be normal in Charlotte, I don’t know, but is certainly not something I ever remember seeing in NYC. Any idea what purpose these guys are meant to be serving? And are they going to be there permanently?

Depressing news from Christina Lewis today: we’re entering yet another round of unhelpful bickering between the Port Authority and Larry Silverstein over the future of the World Trade Center site. What we desperately need is a strong New York governor willing to knock heads together — but we didn’t have that in George Pataki, and we certainly don’t have it in David Paterson.

Silverstein seems to think that the Port Authority should provide financing for him to build millions of square feet of empty office space at the site, even after it took responsibility for financing the Freedom Tower (now called 1 World Trade Center) off his hands. The Port Authority’s response is spot-on:

Officials note the agency finances major infrastructure projects throughout the region. They say backing Mr. Silverstein’s projects would prevent the agency from fulfilling its core mission.

“It’s not for the public sector to be financing speculative buildings,” said Christopher Ward, the agency’s executive director.

I hope that the Port Authority does manage to force Silverstein to scale back his ambitions: as a New York taxpayer, I have no particular interest in providing this particular property speculator with low-cost funding which gives him all the upside and leaves me with most of the downside.

On the other hand, we do seem to be moving to a world where the only two towers to be built on the site for the foreseeable future will be the boringly gigantic Freedom Tower by David Childs, and the dully minimalist 4 World Trade Center by Fumihiko Maki. The two interesting buildings, from an architectural standpoint — the Norman Foster and Richard Rogers towers — look set to exist on paper only.

Also, two questions for the WSJ. First, where did they get the idea that Ground Zero is “the most popular tourist attraction in Manhattan”? And second, why does the sidebar open up in PDF format? Most peculiar.