Felix Salmon

Why is NYU building?

Felix Salmon
Jul 9, 2012 05:22 UTC

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.


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!

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Why arts organizations love new buildings

Felix Salmon
Jul 5, 2012 22:21 UTC

In 2002, Richard Florida published The Rise of the Creative Class, and created a whole cottage industry of people — himself foremost among them — flying around the country and the world, telling cities how to attract creative people and thereby thrive. In truth, however, these cities didn’t need much persuading. Between 1998 and 2001, expenditure on creative-industry construction projects — theaters, museums, performing arts centers — quadrupled, from a little over $400 million per year to almost $1.8 billion. Here’s the chart, from Set in Stone, a major new research project from the University of Chicago’s Cultural Policy Center:


Clearly, around the turn of the century, cities decided that building new cultural centers was a great idea: in total, American cities spent some $16 billion on cultural construction projects between 1994 and 2008. But was spending those billions good for the creative class, for cities, or for creativity? That’s far from obvious. For one thing, the more money you spend on construction, the less money you spend on people:

Our survey evidence suggests that as a result of investing in projects during this period, many organizations also had to cut staff sizes significantly. The negative relationship between the number of cultural managers and per capita investment may just suggest that capital and labor act as substitutes, thus an organization that invests more in physical capital invests less in labor.

One case study can stand for many, here:

In Roanoke, Virginia, the art museum embarks on the facility planning process with the humble goal of expanding its gallery space, but over time, and partially inspired by the Guggenheim Bilbao, it decides to build a sprawling $68 million architectural landmark so as to redefine the city’s identity and boost economic development. The post-modernist design proves controversial as well as more expensive than originally anticipated. Once the new Taubman Museum of Art opens, attendance is far below estimates, while the cost of operating the new facility is far above them. To balance its books, the museum is forced into multiple rounds of layoffs and drastic increases in its admission charges.

Here in New York, I’ve been following the sad saga of Cooper Union, whose massively expensive new academic building seems to have been the final nail in the venerable institution’s coffin. Essentially, the college took out a monster mortgage to build the project, but projected no extra income that would allow it to make its mortgage payments.

And when I was in Aspen last week, I talked to two different museum directors, both of whom have very shiny brand-new buildings, about the whys and wherefores of embarking on such massive projects. One of them, in particular, admitted to me that the amount of money and effort that was poured into architecture was difficult to justify when looked at from the perspective of his institution’s mission. But he said that raising money for a new building was vastly easier, always, than raising money for an endowment, or for general operating expenses.

Which is not to say that it’s easy. “In our sample,” says the report, “the number of leadership transitions that occurred from the time the project was initially proposed to when it opened its doors to the public was striking”.

This is not surprising. Big architecture tends to be accompanied by big egos — the architects, the board members writing the big checks, the museum directors with outsize ambitions, the municipal burghers wanting to make their mark, and so on and so forth. Missions are easily subsumed to a general feeling that if something new and shiny enough is built, massive crowds and critical acclaim will automagically appear.

Buildings have names slapped on them, and you can see the money in a way that you can’t if you’re spending on things like curatorial staff or acquisitions or touring budgets or insurance. Most other forms of arts spending feel ephemeral, in a way that putting up some huge edifice doesn’t. Even if the money spent on that edifice would much better serve the mission of the institution in some other way.

What’s more, there’s something naturally ponderous about non-profit institutions housed in some kind of Big Architecture. Here in New York, for instance, consider Zankel Hall, the $72 million project to create a more intimate sibling for Carnegie Hall, which was designed to attract a younger, cooler, crowd. And then compare it to Le Poisson Rouge, a minimally-redesigned nightclub downtown, which manages to put on equally exciting programming at no higher prices, all while being run on a for-profit basis. All too often, if you build something expensive, all you really create is new layers of administrative headaches and bureaucracy.

That said, there are few major civic institutions which don’t live in grand buildings. Constructing something showy is a statement of ambition and intent — one which doesn’t always work out as planned, but which is probably a necessary precondition if you want to lay the foundations for a major arts organization which will last for many decades and which will have a national or international reputation. Maybe we should look at all this construction much as a portfolio manager might: there will be winners and there will be losers, but overall it has surely been a benefit to the nation. And frankly, $16 billion over 15 years is a pretty low sum — less than a dollar per US household per month, most of which was donated by rich philanthropists who would otherwise have given much less.

That’s the real reason that cultural institutions build, I think: directors reckon — rightly — that a large part of the money is additional to what they would otherwise receive, and that if they don’t build, they’ll never get it. When the philanthropically-inclined rich decide that mission-building is more important than edifice-building, that will change. I’m not holding my breath.

(HT: Badger)

The Shard as metaphor for London

Felix Salmon
Jun 26, 2012 19:16 UTC

Aditya Chakrabortty doesn’t like the Shard, the huge new skyscraper nearing completion next to London Bridge station, across the river from the City of London. It’s certainly a monument to the 0.01%: owned by the government of Qatar, and featuring Michelin-starred restaurants catering to guests at the five-star hotel; the hedge-fund managers who will rent out the office space; and of course the plutocrats in the 10 monster apartments (for sale at prices starting at $47 million or so).

Aditya’s not happy about this at all: the Shard, he says, “both encapsulates and extends the ways in which London is becoming more unequal and dangerously dependent on hot money”. The inequality point is inarguable, but it’s also inevitable, in any global financial center. And as for the dangerous dependence on hot money, that I’m less sure about.

Aditya cites “Who owns the City?“, a report from the University of Cambridge which shows that 52% of the City of London is now owned by foreigners, up from 10% in 1980. That’s a trend, not a hot-money capital flow: after all, the trend survived the financial crisis unscathed, even as property values plunged. He writes:

As the Cambridge team point out, the giddy combination of overseas cash and heavy borrowing leaves London in a very precarious position. Another credit crunch, or a meltdown elsewhere in the world, would now almost certainly have big knock-on effects in the capital.

I’ve read the Cambridge report, and I don’t really see them saying that at all. The closest they come is this:

For global financial office markets such as the City of London, functional specialisation not just in financial services but in internationally‐oriented financial services lock the fortunes of the occupier market to the state of the global capital markets; while growing international ownership and specialist global financial and real estate investment vehicles help to lock the investment and occupier markets together in a way that increases both upside and downside risk…

The locking together of occupier, investment, development and financing markets both within the City and across financial centres contributes to an inherent, systemic risk.

The point being made here, in less than crystal-clear language, is that the owners of the City are the same as the occupiers of the buildings in the City. Which means that if there’s a big bust in the world of international finance, the owners won’t just want to sell, they might well move out, as well — causing a double whammy to London office prices.*

But a reduction in London office prices is what Aditya wants! It would reduce inequality, and more generally it would provide a dividend of glossy and expensive real estate to a population which could never have afforded it on its own. That was Dan Gross’s point in Pop — while bubbles are bad for the people who invest in them, they’re generally good for the economy as a whole, which sees a lot of investment which would otherwise not have been made.

London’s a financial center, and like all other financial centers, it gets a lot of tax revenue from the financial industry. Come another credit crunch, that tax revenue will fall. But for the time being it makes sense to welcome the revenue, and the infrastructure improvements which international financiers are happy to pay top dollar for.

The fact is that new skyscrapers always cause an outbreak of nimbyish bellyaching. Here in New York, Christine Quinn, our probable next mayor, is refusing to come out and endorse a relatively modest addition to Chelsea Market, because although it makes sense from a city-wide perspective, the locals don’t like it. They never do.

But cities need density, and if they’re not going to degenerate into anachronism, they need big, expensive, modern skyscrapers. Especially if they aspire to being a financial center. Some of the criticisms of the Shard are just silly: the idea, for instance, that it somehow ruins the view of the Tower of London. What view of the Tower of London? You certainly couldn’t ever see it from London Bridge station, and in general the Tower is famous for being the least recognizable major landmark in London. I used to work as one of those tour guides on top of open-topped double-decker buses, for a summer, and I can assure you that long before the Shard was built, there was really nowhere you could get a good view of the Tower. Your best bet was to drive north across Tower Bridge, but even then the Tower itself just kind of shrinks into the riverbank, and a lot of tourists had no idea what they were meant to be looking at.

London is a city of large buildings on narrow streets (try finding the entrance to investment bank NM Rothschild one day), and the Shard is just the latest extension of that idea. I, for one, welcome it to the London skyline, even if I never set foot inside the place. It’s certainly a lot more interesting — and adds a lot more value to the city — than the bland mid-rise office buildings which Washington is doomed to, given its strict height zoning. Aditya’s right that the Shard hasn’t — yet — improved the lot of its immediate neighbors, but building nothing on that spot would hardly have been better for them.

I suspect that over time, the Shard will attract more money and gentrification to London Bridge in general, which is great news if your worry, like Aditya’s, is the area’s “deprivation and unemployment”. Cities are living things, and the construction of the Shard is proof that London’s still very much alive. And that, as Woody Allen would say, is definitely better than the alternative.

*Update: Colin Lizieri of Cambridge University writes to add that he was making another point, too: that diversification into office space in different financial centers is not really diversification at all, since the owners and occupiers of all that property are increasingly the exact same businesses, or at least very highly correlated ones.


“… the author is actually a local too,…” (JustinC)

Umm … well … if you say so.

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Financing suburban architecture

Felix Salmon
Mar 14, 2012 05:20 UTC
YouTube Preview Image

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.


There’s the publishing world of architecture – propagated by academics and starchitects – and then there’s the people with offices in almost every town doing the best they can. The former develop illustrious careers, building reputations instead of structures. The latter do the best they can, which is rarely enough.

Some architects (including me) want to be artists, and you don’t get into a show at MoMA by proposing moderate, affordable, pragmatic solutions to housing problems. And despite prevailing sterotypes, architects don’t really have that much control over the final outcome. It takes good taste and good money to create good buildings, and since the first two are in short supply these days, so is the third.

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Why UBS should return to Manhattan

Felix Salmon
Jun 8, 2011 16:07 UTC

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.


I find it no coincidence that the UBS story is concurrent with this one:

http://www.nytimes.com/2011/06/08/nyregi on/democratic-rule-remakes-connecticuts- legislative-face.html

It is a historical fact that a major chunk of high finance decamped to Connecticut to escape a perceived unfavorable business climate. Connecticut is apparently removing its advantage.

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The Port Authority’s good deal with Condé Nast

Felix Salmon
May 18, 2011 13:17 UTC

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.


something else that wasn’t mentioned in comments or the quotes pulled by Felix, Port Authority had to (per the article), “agreeing to assume the last four or five years of the company’s current lease in Times Square. “

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The economics of One World Trade Center

Felix Salmon
Sep 19, 2010 17:59 UTC

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.


24 minutes ago Freedom tower is much better than twin towers,because there are four towers

,also Freedom tower is taller than twin towers.People should be excited.


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Why architecture isn’t collectible

Felix Salmon
Jun 29, 2009 21:46 UTC

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.


You shouldn’t downplay the lack of a secondary market that has self-interest as a motive of establishing and increasing value. Even a modest home by an architect (well know or not) is difficult to value or to finance (regardless of the RE market). So the traditional secondary market is unstable. If galleries bought and sold actual structures (which, given the pricing, isn’t unreasonable — Gagosian or Saatchi could quite easily afford a number of notable home, even speculatively) instead of drawings, then the market would probably increase. This might encourage museums to do the same, though problems of access would arise. The Lowell House in LA was for sale (maybe still is? I think you covered this a while back) and being marketed as a collectible of sorts, but there is next to no public access. You can’t even see it (at least you can walk down the street in Silver Lake and see a collection of three Neutra houses with some degree of satisfaction) from the street, let alone appreciate the complexity of the plan. The best you can get is watching L.A. Confidential.

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Men with guns

Felix Salmon
Jun 4, 2009 13:26 UTC

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?


I worked middle management in the Custom Protection Officer division and was also a Trainer for the B.P.O(bank protection officer)What a joke bank of America is.
These ofiicers are basicallly,as one off duty cop put it-”Cigar store indian”.TheBPO is not allowed in the bank except to go to the bath-room and must stand in the same spot for 8 hrs.When the would be robber walks past the BPO in to the bank and commences to rob said bank,the BPO has no way of knowing what is going inside,as there is no direct commo with anyone inside.The BPO’s post orders state he is not to get inviolved in ANY altercation,just call 911-that is if he even knows whats going on.If the said robber walks in inconspicuously and exits the same way,more than likely the BPO will not even know the bank was being robbed until after the thief has tipped his hat on the way out !!!

Posted by Greg Norton | Report as abusive