How Manhattan Became a Rich Ghost Town | Hacker News Reader

How Manhattan Became a Rich Ghost Town

theatlantic.com

139 pointsninkendo149 comments

I live in manhattan and I feel this story is a bit exaggerated, or at least I don't see the author's reality. (Him quoting a Real Estate firm, which is interested in activity, doesn't give credence to the data).

The turnaround of restaurants and bars here is amazingly fast. When one fails, another one springs up. The same street will have very different storefronts each year. I once asked a restaurant owner, on how is this possible. He told me: Rent is expensive, and if you open a restaurant that is not doing well (attracting the clientele to afford staying afloat), is it much better to shut it down otherwise it becomes a huge money pit. What often happens is this: One person signs a long term lease for some kind of business (retail, food, whatever). The business is not doing well, he decided to shut it down and sub-lease the space. (this is easier when the market rates have risen). The second guy does give a try to his dream bar/restaurant/retail. If it doesn't work, he is forced to shut it down as well, rinse and repeat until you have a business that has the right winning formula and sticks around. This is 'creative destruction' on steroids.

What I have seen in manhattan since I moved here in 2013: More hipster style coffee shops. More pizza places. Less "cheap" retail, and more luxury good stores.

So, he is right, that cheap retail is generally pushed out because of the amazon effect, but in the other hand things like "thrift / second hand clothes" stores, are doing well.

What is replacing those 'cheap' stores is generally things in the food business: Cupcake stores, Ice Scream Parlors, Yogurt bars, and yes nail saloons as well.

But my success story (at least for my part), are coffee places. Birch Coffee, Tobby's Estate, Greggory's Coffee, etc.... all started in NYC, and they are striving and opening in countless locations.

Right, cause coffee is so hard to make yourself.

I guess I'll never understand the point of hipster coffee shops. I'm all for cozy cafes, but all the hipster style coffee places, like 9th st. espresso, are the opposite of that: more catering to the trendy, minimalist, i3-gaps ikea aesthetics of the mainstream of /r/unixporn.

They provide a place to sit and use free WiFi...

This was always the case. Coffee shops are more about hanging out and finding a casual environment to work than about the coffee.

You could replace the coffee with an hourly charge and it would probably have the same effect, except people are not really used to paying for a place to sit, so coffee becomes the way to extract the money.

At least that’s how I, as someone who doesn’t drink coffee but finds himself in coffee shops all the time, perceive it.

Back in the day before WiFi became ubiquitous Internet cafes were pretty common in a lot of cities. We still have them but we pretend they're coffee shops and subsidize seats with coffee purchases and assume the economics work out in the end.

You are missing the point. If coffee places, cupcake stores, and bodegas (which are not luxury good sellers) can thrive and expand, then it is not necessary the story of: "rents pushing great businesses away", more of: Not so great Business that are not solving the right needs at the right price are dying.

Creative destruction on steroids....

I don't usually carry an espresso machine with me as I walk around the city, so, actually, yes, if I want to drink an espresso while I'm out, then I'll probably need to buy it from a coffee shop.

As if half the customers aren't ordering iced coffee.

Do you carry an ice bucket when walking around town?

If it's not obvious to you that you can replace "espresso" with literally any beverage on the planet, then you didn't get my point.

> The turnaround of restaurants and bars here is amazingly fast. When one fails, another one springs up. The same street will have very different storefronts each year.

Is that supposed to be a positive thing? Sounds pretty unstable and a terrible detriment to developing an actual neighbourhood.

Not generally. The good stuff will stick around. The stuff that isn’t as good wont.

Most cities are about change, and while nostalgia is great, cities that look the same as they did 20 years previously usually are not successful cities.

The reason is simple. Cities tend to attract younger folks. As the generation of people they attract changes, the tastes they need to cater to also changes.

Timespan matters. If businesses repeatedly don't do well, yes you get your 'fun' upper middle class variety, but the people trying to get a foothold and start businesses will fail and, with the lack of a real safety net, likely not open up further businesses. If that becomes the majority of small business owners in an area, wave goodbye to your 'fun' variety, small businesses, and hello to becoming Cleveland.

I'm lucky that when my family came to America, it was still possible (and, more importantly, probable) to open a small business and build enough up to send your kids to college, expand your business, etc. Now, in order to be successful, you have to buy the property your shop is in too as a hedge against a downturn in business (more important in places with seasons when foot traffic declines), which reduces opportunity to entrepreneurs with fewer resources.

> The stuff that isn’t as good wont

Tons of good stuff closes in Manhattan.

San Francisco too. Three of my favorite restaurants closed in the last year.

> Not generally. The good stuff will stick around. The stuff that isn’t as good wont.

Only to the extent that good and profitable overlap.

+1. And not only businesses, people are also changing apartments all the time.

So long as there is someplace to eat it is a good thing: you get more variety without having to go far. The neighborhood doesn't need any specific restaurant or bar, it just needs some

I lived there for years and loved it. It makes for an incredibly vibrant neighborhood feel. Everytime you go for a walk there's someplace new to stop.

Yes, lots of places don't make it, but lots of places do make it and stick around for awhile.

What are some stores, companies, or brands that seem to survive and thrive?

Depends on neighborhood, but generally: Duane Reade, CVS, Chase Bank, Starbucks, Kennedy Fried Chicken, Dunkin Donuts.

I just looked and here are some of my ex-regular haunts from ~16 years ago that are still kicking:

https://www.yelp.com/biz/japonica-new-york-2 https://www.yelp.com/biz/irving-farm-coffee-roasters-new-yor... https://www.yelp.com/biz/musical-box-new-york https://www.yelp.com/biz/venieros-new-york-2 https://www.yelp.com/biz/cafe-mogador-new-york

:: shrug ::

>Is that supposed to be a positive thing? Sounds pretty unstable and a terrible detriment to developing an actual neighbourhood.

Nationwide, 90 to 95% of restaurants fail in the first year. Not to say NYC isn't worse, but it's more noticeable when it's that dense.

I've noticed a lot of nail salons, barber shops, cheap takeout places, and similar somehow managing to stay afloat despite being located in low-income areas with little foot traffic (in Manhattan). They're also usually empty.

Is there some common situation where store owners can enjoy extremely low rent? Or is it common for people to inherit commercial space? Or perhaps these places are changing owners behind the scenes.

*The author does claim these businesses thrive because "you won’t find their services on Amazon", but he's probably referring to the shops with customers.

>I've noticed a lot of nail salons, barber shops, cheap takeout places, and similar somehow managing to stay afloat despite being located in low-income areas with little foot traffic (in Manhattan). They're also usually empty.

A lot of seemingly "empty" restaurants do a brisk delivery business, especially now that Grubhub can make it so they don't have to hire delivery drivers.

Are their profit margins (even with high prices) paper thin? Maybe the people making money are the one selling franchises? (Pardon for my lack of understanding of the retail NYC market.)

If there are no vacancies, all the profit is going to the landlords (monopolists)

You're missing a critical element of this scenario: key money. When business A fails, the owner does not sublet to business B - they sell their lease, and they charge a hefty fee. So business B has to pay for the privilege of paying already exorbitant rent.

Also, with respect if you moved to NYC in 2013 you've never actually experienced what came before hyper-gentrification.

> When business A fails, the owner does not sublet to business B - they sell their lease, and they charge a hefty fee. So business B has to pay for the privilege of paying already exorbitant rent.

If business A can sell the lease for a premium then the market rate for that lease is higher than originally signed. Even if they broke the lease, the owner would likely charge the higher rate to business B. The owner won't just automatically just give the new lessee the same terms

Commercial retail leases in NYC make specific provisions for key money. It's completely above-board and does not break the lease.

I don't think it's that exaggerated. The author is totally correct on West Village, for example. I don't live in NYC anymore but each time I visit it the mix of store noticeably changes (so yes, a lot of turnover) and at least 1 in 4 storefronts are closed/for lease.

Ironically the ones with staying power are those sketchy cheap jewelry stores that are of course not money laundering operations.

As an FYI, Toby’s Estate started in Australia.

It seems to me like in big cities, as this article describes what eventually will happen is the rich will buy up the property because nobody else can afford it, service workers won't be able to actually live within a reasonable distance in order to work there, and the city will exist mainly for 1) wealthy professionals, 2) people who use real estate to park their money, and 3) tourists. Regular working-class folk disappear.

When one visits the city in the daytime, it seems like it has activity because of the tourists, but it has no real indigenous activity.

Perhaps that's the steady state, because there are enough tourists to keep the city going economically.

Completely agree.

Anecdotally, that doesn't really seem to be the problem with New York and definitely not the problem the article is talking about.

Ground-level stores don't seem to be suffering from staffing issues, largely because in New York it's not uncommon to work in Manhattan but live in Staten Island or Jersey.

Instead, ground-level stores seem to be disappearing because commercial lease agreements are just insanely expensive and onerous. Landlords refuse to reduce rents (for several purported reasons) in an increasingly buyer-friendly real estate market.

Yep. Walk down Bleecker St where my parents used to hang out in the 80s and it's a ghost town. Apparently the historic neighborhood designation means it takes over 10 months for any lease application to close, as it needs to be approved by the historic neighborhood board. Once approved, it often requires a significant amount of capital to build the proposed establishment in a compliant way. Businesses don't even bother trying.

And, this feels like an issue that will naturally fix itself over time, as landlords realize what they're asking for isn't reasonable.

> And, this feels like an issue that will naturally fix itself over time, as landlords realize what they're asking for isn't reasonable.

Except it won't, exactly because landlords are rational actors. Let's say the upkeep for a space is $400/mo, and the rental for that same space is 3000/mo. A storefront could be vacant for 2 years and a landlord would still turn a hefty profit if they were able to get someone to sign a one-year lease after the 2 years of vacancy.

NYC is a big place- for every 30000 people that think that the rent is unreasonable, there's 1 person who thinks that it is, and landlords only need that 1 person. Renters have no leverage here.

This is why property and land taxes are good. Land is, as they say, the only thing they're not making any more of. If you're owning it and not putting it towards any productive use you ought to pay back into the commons for the lost utility.

In this case property tax (the non-land component of it) only exacerbates the problem though.

But what about the landlords mortgage?

"Hefty profit"? I don't see how that is good investing -- properties sell based on yield. If someone buys a prime property and it generates 3 or 4% per year.. then they're not going to let it sit empty for two years.

Renters do have leverage here. You're not going to get it for $1000, but you might for $2500 or $2200.

I don't have a super great understanding of real estate, so my example might be over simplistic and flat-out wrong. This article has better explanations for why vacant spaces remain vacant in NYC (although it applies more to commercial than residential):

https://www.brickunderground.com/rent/why-landlords-leave-ap...

Trust me, as a resident, this phenomenon is real. There are a number of stores in my neighborhood that have been vacant for literally the entire time I've lived in the area (~ 2 years).

As a general rule of thumb, renters (both commercial and residential) really don't have much leverage in NYC, except under extremely rare circumstances. It's hard to understand unless you actually live here, but the rule governing real estate elsewhere in the USA don't really apply here.

This idea presupposes that owners are looking to be landlords.

There is so much cash floating around the high end of the economy, thanks to QE and tax dodging and everything you've heard about, that RE is purchased simply as a way to diversify holdings beyond stocks & bonds. It never has to be used.

Those have to be really big cities, because in cities with reasonable public transport you can hop on a train or a bus from basically anywhere within city limits and reach the expensive center in less than half an hour.

>cities with reasonable public transport

Does NYC qualify? I think you can still hit theoretical under-half hour times if you manage to get the subway right as your train comes in and don't have to walk too far from the stations to the doors. But if you live in New York the psychological barrier of dealing with that crap is big enough that people tend not to do it outside of commuting. It's a chore to get someone in Brooklyn to come into the city to hang out unless it's right after work. And vice versa.

NYC has some of the best, if not the best, public transport in the US.

> It's a chore to get someone in Brooklyn to come into the city to hang out unless it's right after work. And vice versa.

The issue, I think, is that young professionals have largely been priced out of Manhattan, and the East River acts as a psychological boundary. Even if it's just a short trip, you're still leaving/entering "the city".

As a side anecdote, the club Maxwell's in Hoboken closed a few years ago; the reason given was that most of the bands that played there were willing to cross one river to play a gig, but only a small fraction were willing to cross both, even though the trip wasn't substantially longer.

>NYC has some of the best, if not the best, public transport in the US.

This seems like damning with faint praise to anyone whose been to a developed city in East Asia or Western Europe.

A look at the financial district in NYC reveals this. During the day the place is very active, but during the night the whole thing dies out.

But the Financial District was much emptier at night historically than it is now, so I'm not sure this is closely linked to the article's claims.

It is still recovering from 9/11.

See my comment ITT regarding Lake Tahoe - this has already happened there.

This is exactly what happens to the historic centres of some European cities. But the life of the city just moves to the outskirts for the most part.

This is exactly what is happening in Vancouver. The rich have parked their money in downtown real estate, so the working class is being pushed further and further out of the downtown district.

If you want to see a ghost town - Tahoe City Ca is decimated by AirBnB+Money.

I grew up there, and I was there last weekend for my Dad's memorial service.... I hadnt been back to Tahoe City for some time - and man, its freaking depressingly bad.

The "mall" -- the Boat Works, has basically 4 shops any longer, the retail spaces near Tahoe City Golf is boarded up and has weeds - many retail spaces are empty, the freaking BANK had to close, restaurants arent doing well according to several people I know who have worked in them for ~35 years (at SunnySide, for example)....

and all my Dad's freinds/contemporaries blame SV Money + AirBnB -- in that there are no places for anyone to live. Houses arent being rented to people who would want to live there - both seasonally or long-term.

All the cheaper houses were bought up over the last decades and rebuilt with $1MM++ homes in their place (This happened to one area which was the "ghetto" in the 80s when I was a kid - where all the houses were replaced with >$1MM homes and became one of the most expensive zipcodes in the country - whereas it was where all the "poor" kids lived in the 80s)

I think a lot of economic models severely underrate the extent to which overheated real-estate markets eat economic vitality alive. It's because most of the costs they impose (initially) aren't that easy to quantify, but you're basically grinding your seed corn by making it impossible for working people to be able to afford to live and making it impossible for small businesses that aren't bars or restaurants to have a viable business model. Where's your next generation of innovation going to come from when you've done that? What happens to the community that lives in a place when the people with all the land and political power have no stake in the community itself?

It's sad to see long term residents getting priced out of a community, and the city/neighborhood turning into playground/home of mostly rich.

Same thing is happening near Silicon Beach in southern California, that is coastal cities near where Youtube/Google/snapchat have HQ or satellite offices.

Santa Monica housing price has long ago gone Manhattan, NY like. Just use google map and realty websites, and check house price history in cities adjacent to Santa Monica.

It's gone up 100% or more in last 5 years or so. It is not uncommon to see a 50+ year old house with little land get sold for nearly a million dollars, and be razed/remodeled into an easily 2 million or more house.

Some retiree who sold the old small house certainly made bank.

But who has 2 - 3 million dollars or the ability to take on a debt of that magnitude?

I lived in NYC from 2009 to 2017 and can affirm the author's feeling. Over the span of those years, and mostly as of late, I saw many of my favorite brick and mortars (Rare books, sporting goods shops, record stores, etc.) all be replaced by coffee shops or juice places.

Granted each of the above mentioned places have challenges with their respective industry but the feeling still stands.

Having been born in North Texas, I can also affirm the changing topography of America due to traditional brick and mortars being ousted. My hometown was once called the "Little Austin". It's now overrun with mini-mall strips that hold duplicates of things set up on the other side of town. (How many mattress stores and Sonics does a town of 100,000 need?)

The recent bankruptcy of Sears is another example where we will likely see large buildings across the country left empty and whose re-purposing will be contingent on state/city zoning laws (Texas doesn't have any) and rent. That is, why should I pay to reuse Sears's old building when the state/city will let me build a brand new building right down the highway?

"How many mattress stores and Sonics does a town of 100,000 need?"

http://freakonomics.com/podcast/mattress-store-bubble/

https://www.wsj.com/articles/mattress-firm-files-for-chapter...

Short answer: fewer.

I'm pretty sure that, just as you pay to reuse Sears' old building, you also pay to build a new one. If the Sears building is cheap enough to be worth the remodel (plus the awkwardness of using a building that isn't custom-built for what you have in mind), well, then you reuse the Sears one.

Well now I'm curious. Which town in North Texas used to be called "Little Austin"? Denton??

> Denton is known as “Little Austin.” It is the birthplace of the Rocky Horror Picture Show and therefore respectably weird itself.

https://www.texasstandard.org/stories/how-many-of-these-texa...

To be clear, TX doesn’t do state-level zoning but city-level zoning is ubiquitous. Counties also generally regulate development with zoning or other regulations that are similar.

It's not just Amazon. The next generation is far less materialistic than generations of the past. No one can blame them for not wanting to spend 500$ on a Gucci gucci bag or 400$ on overpriced jeans, especially when they've got all that student debt. Workplace clothes are changing as well. Less people are opting for the fancy suits. Retail needs to keep up with the changes and start offering something people actually want, like: coffee bars, museums, libraries, book exchanges, 2nd hand stores, places that offer experiences (like sculpting classes, etc). Or here's a crazy idea: let's actually start using some of the 2nd floor+ space for housing/residential and maybe the place won't be such a ghost town when more people can afford to live there.

> The next generation is far less materialistic than generations of the past.

Ehhhh, I dunno that I'd go that far. It's just different shit. I think we all know plenty of people lined up the second a new iPhone or Pixel is announced.

Materialism probably isn't the word, but conspicuous consumption of consumer goods (say that 5 times fast) is definitely less of a thing among the urban set than it used to be in the 80s and 90s. I wouldn't categorize smartphones as conspicuous consumption per se, because even when blinged out in gold they still tend to be pretty understated in comparison the the dinner-plate sized Breitlings that finance bros used to wear.

The culture at one point used to be REALLY insistent on showing off that you drink only the finest wines, eat the fanciest steaks, and so on. Trump is basically like, a distilled down and exaggerated throwback to this sort of tendency to buy stuff more to announce "I'M RICH BITCH!" than to actually enjoy the thing itself.

Insofar as millennials are still materialistic, I'd categorize it more as conspicuous consumption of "experiences." So rather than buying fancy things to announce how rich you are, you just post instagram pics of yourself in fancy places. If not for the carbon emissions from jet fuel, it would probably be a way more environmentally friendly way of being a status-whore all things considered.

> I wouldn't categorize smartphones as conspicuous consumption per se, because even when blinged out in gold they still tend to be pretty understated in comparison the the dinner-plate sized Breitlings that finance bros used to wear.

Trust me, "finance bros" still have plenty of insanely expensive items that are largely meant as signals to the people they work with (other people in finance).

Further, just because it's more understated doesn't mean it's not primarily meant as a status symbol or signal to other people. Remember when the rose gold iPhone was more expensive than the other colors, and it sold out immediately?

> So rather than buying fancy things to announce how rich you are, you just post instagram pics of yourself in fancy places.

Is that really better? Maybe it's not materialism in the strictest sense of the word, but the underlying desire (to signal status to others) is the same. The only thing that's changed is the artifact of that desire.

>Insofar as millennials are still materialistic, I'd categorize it more as conspicuous consumption of "experiences." So rather than buying fancy things to announce how rich you are, you just post instagram pics of yourself in fancy places

Agreed. Drinking the fairest trade coffee and the most micro brew beer has replaced having a massive TV and high end clothes.

That's the claim (experiences over stuff). Though I just got back from London and walked down Oxford Street (one of the main shopping streets) a couple times and you almost couldn't move for all the people with their shopping bags stuffed with goods from all manner of stores. London may well be an exceptional case but there was certainly no shortage of shoppers.

That's trivial compared to the expectation of buying a new car, a $40k wedding, and getting a mortgage immediately after undergrad.

All of the things you mentioned have become far more expensive relative to wage growth in the last 3 decades (cars not as much as the other 2, admittedly).

Yup, there's lots of data recently on how millennials prefer to spend money on experiences over possessions.

Let's recap the author's main points:

- Retail revenues are not rising as fast as rent

- Hence, shopping/merchandise stores are being replaced by bars/restaurants/coffee-shops etc

Ie, businesses that sell stuff are being replaced by businesses that sell experiences.

Great!

Consumerism and materialism is a black hole for your soul. What I really care about are vibrant experiences. Interesting bars/restaurants where my friends and I can hang out. Great live theater where I can watch the arts. And yes, even stimulating coffee shops where I can spend the day reading and writing.

Want to go shopping for goods? Go online where you can shop to your heart's content. I'm glad the city's valuable real estate is being taken over by businesses that are more focused on human interactions.

For the record, I've lived in Manhattan for many years in recent times, and it has never once felt like a ghost town. I've heard many complaints about the city, but I've literally never heard anyone else complain about it feeling like a ghost town, or anything even similar. Living in suburbia though...

Paying for experiences like this is still consumerism.

On a technical level: depends on how you're defining consumerism. See:

https://www.merriam-webster.com/dictionary/consumerism

https://www.investopedia.com/terms/c/consumer-goods.asp

At a deeper level: research has shown that spending money on experiences enriches your life far more than spending money on "things". That's what I'm referring to.

https://www.bloomberg.com/news/features/2017-02-28/why-you-s...

"Consume" literally means "eat". So eating out is definitely consumerism.

By your definition, I guess any caveman who didn't go on a hunger strike, was living up the consumerist lifestyle

I've lived and grew up in NYC for almost 30 years and I agree with the author.

Manhattan has become an unaffordable ghost town. Walk down West Village, Union Sq, Flatiron, etc.., you see rows of closed stores that have gone vacant for a very long time now. In contrast, I was in London recently and that city was thriving compared to Manhattan, it was lively and beautiful.

In addition, NYC Subway and transportation is a disgrace. It is on its way to becoming a third-world country equivalent. This was due to mismanagement and corruption. You won't notice how Manhattan has deteriorated until you leave the U.S. and visit other cities in Europe and especially Asia. Even Thailand's subway system is a hell of a lot better than the NYC subway.

I travel frequently through all sorts of parts of Asia for work and am always so jealous of the subways over there. I speak all of 4 words of mandarin, but have never gotten lost or had difficulty navigating. I wish I could say the same for Bart, which I'm embarrassed to admit still frequently gets the better of me.

I find London to have the same problems in terms of being full of chain stores and losing the kinds of character that the author describes.

The thing I find craziest about Union Square is the number of drugstores. Just along the south end of the square, you've got Walgreen's (a national brand) and Duane Reade (which used to be independent, but is now a local brand for Walgreen's) 600ft. or so apart from each other. How in any way is that sustainable?

Across the street from my apartment on 14th and 1st there is a Duane Reade and CVS literally attached to each other. It’s pretty crazy. The CVS is old and grungy, Duane Reade newer and larger (3 floors). I suspect those differences, plus possibly prople’s dependence on a certain pharmacy brand (thanks to their health insurance) is what allows them both to stay open.

Here's my opinion on what will happen on a longer time scale:

Eventually the tourists will stop coming, because there are other parts of town with more atmosphere. Businesses will start moving out to other parts of town because of the cost of rent and lack of customers (due to no residents or tourists), and eventually the "city center" will defacto move. The only people who will lose out are the people who used it to park their money!

I think this is sort of happening in NYC: The center of gravity is sort of moving to Brooklyn since it's cheaper, there's more space, it's more interesting, etc. And depending where you are, Manhattan is still very accessible.

Obviously the key NYC tourist targets aren't moving, but anecdotally I am seeing an uptick of tourists in my 'hood. For what it's worth.

Interesting that you mention the shift of the center of gravity. I would add that there are multiple competing shifts. Flushing, for example, has now become a viable, small city within New York City.

There's tons of towns within towns in NYC. I will not name them here. Everyone please go visit Manhattan.

I haven't been in Brooklyn for getting on 10 years. Can you elaborate on what popular tourist friendly areas are now about? (I'm in NYC in March '19)

Williamsburg, Dumbo, Park Slope, downtown Brooklyn, just to name a few.

I'll spare Brooklyn residents the pain of ratting out their less well-known haunts.

Sign up for the New York Road Runners NYC Half (March 17th - St Patricks Day!) As of 2018 the new course starts in Grand Army Plaza Brooklyn, down Flatbush Avenue and run across the (closed to traffic) Manhattan Bridge, along the FDR, through Times Square and finish in Central Park (lottery and charity only though).

Spend a half day around Brooklyn Bridge Park, Dumbo and the Brooklyn Heights Promenade - especially the latter given the area is about to go through a major upheaval as the BQE cantilevered section is due to go through some major renovations lasting 6+ years.

A half day in Brooklyn Museum, Brooklyn, Botanical Gardens, Prospect Park.

Checkout the breweries and coffee shops of Gowanus and Carroll Gardens.

Do the Made in Red Hook tour and check out some really interesting local makers. [1]

Visit one of the oldest buildings in the city [2]

Take a Brooklyn Pizza / Chocolate / Neighborhood tour [3]

[1] http://www.madeinbrooklyntours.com [2] https://wyckoffmuseum.org [3] https://www.asliceofbrooklyn.com/

Thank you very very much for the detailed reply, i'll do my best to see a few of these spots during my visit =))

Brooklyn has always been "up and coming".

I doubt it, tourists are fine with packaged experiences and seeing the sights, they'll keep coming, and those in the tourist industry will continue to provide what they seek.

In Boston, there was a debate recently about 50 empty ground-level retail spaces on Newbury Street, an old street in the center of town long considered a place for luxury boutiques/salons/etc. But others questioned the data:

https://www.universalhub.com/2018/lot-empty-storefronts-newb...

I live in that neighborhood, and as the article says it looked like it was mostly a ton of turnover. There's a lot of it on Newbury, which is a problem in its own right, and the places that remain are largely regional and national chains. The costs are also driving people to move to other neighborhood and towns, with Eastie, Somerville, and Southie growing much more than the traditionally desirable neighborhoods in Boston.

Anecdotally, the company my wife works for has a presence on Newbury, they're a large national chain, and the store (a flagship) has one of the lower sales volumes in the entire region, despite being one of the most expensive rents the company holds. The problem is manifold here - rising business rents pushing businesses out, rising residential rents pushing people that aren't tourists out, and likely more that I'm less familiar with.

I had read a bunch of these stories before going to NYC as a tourist a few weeks ago. I didn't see a single block that was full of empty storefronts and the whole city was packed and vibrant as usual. Bought some clothes at temporary popups as well.

I think it’s more of a result of absentee landlords building a real estate portfolio that they don’t really give a fuck about as building managers. They’re flipping these buildings just like houses were being flipped before the financial crisis. Having renters in there just complicates things.

There’s a metro stop out here in northern Virginia that has a beautiful office building on top of it designed by a top architect and it’s _empty_. For at least a year now. And they’re building two more office buildings in the same location. They’re probably just all going to end up being managed by WeWork.

The whole thing reeks of a bubble to me.

Is there some legal issue at play here that the article isn't drawing attention to? Why is it a better idea to leave a property vacant than to have a short-term tenant?

Probably something to do with contract lengths? I can't imagine many businesses wanting to rent a place for less than 2 years (to the point that there may be legal requirements for longer contracts?) and landlords might turn down offers for leases that long that are below what they perceive the value of the place being.

I thought the problem was almost the opposite of what the article discussed. I thought that commercial real estate almost always used long term leases and that owners are reluctant to sign them in a fast rising market. If your building is vacant, there is the possibility of selling to a developer with plans for a big development in the short term.

That would argue for being pretty happy about short-term leases, since they maintain that flexibility. But I don't really know much about this, I'd like to understand it better.

> in a fast rising market

Everything I've read about New York real estate has suggested that it's slowing down considerably and pretty buyer-friendly right now.

Granted that's mostly about residential real estate, but I wouldn't be surprised if it's the same with commercial as well, and would certainly explain the reluctance to sign short-term leases.

It's hard to do short term commerical leases.

One the build out costs lots of money and if the owner doesn't renew you've lost $60,000.

Two if you end up with a successful coffee shop/bar/etc the owner can squeeze you out of every dime of profit because it's disastrous to most of these establishments to move.

It means that there's just not a lot of demand for short term commerical leases. Exceptions are seasonal stores like a Halloween or Christmas store who are happy to sign a short term lease, usually at a discount.

"If you are a hedge fund manager running a portfolio you leave it empty and take a write-off.”

https://www.theguardian.com/business/2017/dec/24/new-york-re...

I'd say it's like a gambler's addiction. They want to hold the property open because "Someday <SomeBigCo> is going to call me and say they need 30,000 sq ft of retail space by next Tuesday, and I can't afford to lose that deal because there's a Halloween store using 500 sq ft this week and a Christmas tree shop in the parking lot next month"

If a commercial space is owned by the landlord free and clear, then the landlords have zero incentive to rent it to collect smaller than desired revenue unless property taxes are so high that the landlord must lease the space to at least cover the property taxes. If course that means that the rents skyrocket for all properties as the property taxes now eat majority of the rent.

If the landlord has a fairly regular commercial mortgage, it is probably IO + balloon in 10-15 years. The landlord's bet is that the property would appreciate enough that the landlord can refinance it for the next IO + balloon, kicking the can down the road for another 8-10 years. Pretty much no one operates commercial buildings with the idea of paying off the loans on them, which is why as long as the real estate continues to go up in a long term it is makes sense not to engage with small time tenants. The only time landlord has to engage with small time tenants is if appreciation of the property won't create enough equity to refinance the balloon payment.

That makes me feel sick. As a society we really shouldn't be operating based on expecting property to constantly appreciate, it's going to do us in.

We were about to re-learn that lesson during the previous crash but decided that it was better to kick the can down the road.

The thing that I cannot wrap my head around is how we can at the same time believe that real estate goes up over the long term and allow it to be depreciated on financial statements.

I'm not an expert, but I don't think there are a ton of qualified short term tenants out there. Cutting the rent to have some fly by night operation in and then not being able to sign a long term lease with someone else seems not that smart.

Put another way, any business that only wants a very short term lease is probably not a business you want to lease to.

Looking at Vienna, it feels like the value of real-estate grows faster than what you'd earn by renting. E.g. you'd probably earn 3,000€ netto per year from a 200,000€ property, but it's value also rises by 4,000€ in the same time frame. Why renting it out for a little cash, and probably having to pay a landlord to manage it, when you're already earning more than that by simply sitting on it.

I've just made some numbers up now but last time I went through renting and buying decisions, this is what it kind felt like.

yeah but in order to get access to that money you'd have to sell or cash out refi, or take a loan against the property.

So your kind of making money but if prices go down your in a much trickier spot.

You often (depending on region and property) have to pay some kind of ground rent and/or non-trivial tax that you can transfer to the occupant. Also they can pay for maintenance and also point out big problems (water leaks - yes they do happen and be very unwelcome even if you have insurance). Overall, the net gain is low but that's better than 3 or 4 years of a minor accumulating net loss. Also the management fee is say 10% to keep your place in shape, so actually quite cheap in reality if your own time is in any way expensive.

[Edit: multiply the costs if you have a portfolio of properties and you then realise that you can easily have a dent in your cash flow while your property is accumulating in value]

Landlords can take tax write-offs for empty properties, so they’re incentivized to sit on empty storefronts until the perfect long-term lease comes along rather than rent to a less ideal shorter-term tenant.

This may be it. Lets take away this write-off option.

A tax write off is going to be worth, at best, ~35% of the value gained from actually leasing the property. That makes it considerably worse to hold on to.

Waiting is a risk that may pay off, so that 35% write off still changes the math.

Suppose you are going to make a coin flip bet. On heads you win 1$ cents tails you win 0$. That's worth ~50 cents. Now, suddenly on tails you get 35 cents. By reducing the downside risk it's more worth it to make the bet (67.5 cents).

Its far more complicated than that. Most of the owners of these properties are institutional, not individuals or small groups. They are far more concerned about the valuation of the real estate than it's cash flow. The cashflow side has issues too, but from a valuation perspective, once you sign a rent at a lower rate, then that will trigger a shift from the inflated, unrealized rent in the valuation model, to the actual rent in the lease. It's entirely likely that the dip in value from the signed lease is more impactful than the actual cashflow from that lease. It doesn't matter that you couldn't get the rent in the model today, since pushing out the assumption results in less of a hit in value than signing an actual lease would. This all gets billed as "the market will bounce back".

Remember there are a lot of upfront costs for the land lord as well. They put in a lot of money upfront for buildouts/base building work, and it may be 2-3 years before they actually break even on the money they put into the space. If you're not sure that the business model is going to last that long then it absolutely makes sense to sit on the vacancy.

Source: worked at a nationally invested REIT that had a good number of properties that have this same issue.

Tenants are a pain in the ass. Buildout (for which tenants often expect you to pay) is expensive. Unless you're leveraged to the hilt, you can afford a few quarters of loan payments on an already-built building. That being the case, signing up a marginal tenant is throwing good money after bad.

If the market has changed in permanent ways, and you're never going to see another good tenant, you want to learn that as soon as you can, and then get out. This is why our great leader always structured his deals so the company could declare bankruptcy and he could skate away with the previous profits.

Right? I thought the golden economic theory we all subscribe to is that if demand is low the price must lower to meet it? Or have we been lied to and there is another hidden principle yet to be named at work for those who have capital and can just sit on it.

Owning commercial real estate allows one to depreciate it regardless of it collecting rent or not.

It is not possible to close this loophole because 322 Prince St, LLC does not have to rent the space to Joe's Boutique for $7,000 a month rather than Starbucks for $17,000 a month - it can rent that space to "JP772 Holding, Inc" out of Nevada for $10/day which would be owned by the members of 322 Price St, LLC which would satisfy the rental requirement and keep the place unoccupied until someone offers $17,000/mo in rent.

I thought that technically the LL then owes the IRS in imputed income? (Income based on market-rate rental values)?

Imputed income is not taxable in the United States, according to Wikipedia.

i think it may have to do with the type. I won a free yearlong gym-membership in a contest, from a govt workplace and was told I would have to pay imputed taxes on it. Needless to say, I turned it down.

That's because it was a gift of a fixed value that gym declared. If gym ran it as a promotional sale for $1.00 then you would have needed to pay taxes on a $1.00.

It is similar to person A borrows from a person B $10,000. B pays back $100. Person B decides that A is a deadbeat and declares $9,900 a loss. Since B no longer needs to repay $9,900 the $9,900 becomes income to A. B sticks A with a 1099 for $9,900. Now A needs to pay taxes to the IRS on $9,900 that he got from B.

Not in the United States.

I wonder if a vacant parcel tax would help here. Vancouver did this with varying success[1], and Oakland has this on the November ballot[2] If real-estate owners want to "wait" for a better deal, they should pay for the resulting blight (and speculation)

[1]: https://vancouver.ca/home-property-development/why-an-empty-...

[2]: https://www.kqed.org/news/11689739/oakland-wants-to-tax-vaca...

Not a legal issue but a financing one. For commercial landlords it’s often better to let a building sit empty at a high posted rent than to lower the rent, since the building value (for financing purposes) is determined by the posted rent not the actual revenue, and lowering the rent may put the building “underwater,” hurting both the landlord and the bank.

https://www.strongtowns.org/journal/2017/11/27/the-paradox-o...

I actually think that we no longer live in a capitalistic system. A lot of firms continue to behave in ways that capitalism should punish, but doesn’t. My current running theory is that our economy is more based around rent extraction, largely from land and companies that wield effective monopolies or oligopolies, rather than competition. This explains why we keep seeing things that make no sense from a capitalist point of view.

Sounds like you're discovering Marx independently?

Probably. I’ve only read parts of Capital, it’s too dense for me to make good headway on.

I’m also heavily informed by the Anarchist Sociologist David Graeber’s book of “Bullshit Jobs, a Theory”. He points out that a significant percentage of jobs—he estimated 40%—don’t even serve an economic purpose, let alone a moral or social one. This is something that capitalism in theory should not allow, which is why I think we’re trending to somewhere else.

Recommend reading Bakunin if you are interested in 'anarchist socialism' https://en.wikipedia.org/wiki/Mikhail_Bakunin Marx was a pied piper to nowhere IMO and in league with the oligarchs and bankers of his era

Sounds more like Luigi Zingales, who is about as far from Marx as you can get.

Debt based capitalism. Print money and everything flips upside down.

You are confusing capitalism with competitive markets. Capitalists want to make money off their capital, they don't care it's through competition or rent extraction. Having a monopoly is much less work than competing so that's probably the preferred way to make money. Capitalists also historically didn't care about democracy, dictatorship or corruption as long there was money to be made.

This is one macro-narrative on the current economic system: Neoliberalism as Creative Destruction [1].

> In this article, the author contends that neoliberalism is above all a project to restore class dominance to sectors that saw their fortunes threatened by the ascent of social democratic endeavors in the aftermath of the Second World War. Although neoliberalism has had limited effectiveness as an engine for economic growth, it has succeeded in channeling wealth from subordinate classes to dominant ones and from poorer to richer countries. This process has entailed the dismantling of institutions and narratives that promoted more egalitarian distributive measures in the preceding era.

[1] http://cult320sp15.onmason.com/files/2015/01/Harvey.Neoliber...

Gentrification of the wealthy?

Paying rent is for suckers.

Or, you know, for people who can't afford to buy.

If you can't afford to buy, then you doubly can't afford to rent. Money spent on rent is essentially burned. Do everything you can to avoid it.

I live in Manhattan and the cost of rents and housing has been increasing primarily through rent-seeking behavior which limits housing density creating an artificial scarcity in land leading to a high cost of living. Simply fixing the zoning density restrictions would reduce the rent-seeking or "market failure" and would lower the cost of living in NYC. See Harvard Economist Edward Glaeser's work for more details.

Build Big, Bill http://www.nydailynews.com/opinion/build-big-bill-article-1....

There is a NY State mandated minimum wage law that has been hurting many stores and has increased the cost of food in grocery stores, for instance.

It was mandated to $11 / hr to $13 (today, I think) to $15.

Thus, the real issue is the market failures in housing caused by politicians who limit the zoning density. The State, addressing the high cost of housing not by fixing the rent-seeking instead decided to increase minimum wage to a level that many independent establishments can no longer afford to stay in business.

It became a ghost town because of the elites and their supporters like theatlantic.

Manhattan now is just a place where people from the outer boroughs, nj, connecticut, etc come to work and then go home.

For a city that pretends to "never sleep", it is just a dead city at night.

Queens, brooklyn, etc is more lively and other cities around the world like prague, barcelona, seoul, tokyo, osaka, etc are far more vibrant.

Manhattan is just a hellhole now for the world's wealthy and annoying tourists who are too stupid to realize that sbarro's isn't real ny pizza and all the worthless trinkets they buy are trash. But at least there is a bank every other corner.

The sad part is manhattan is a blueprint other cities love to copy so in 10 or 20 years, most cities around the world will be boring tourist traps like manhattan.

We are seeing the same pressures and bland out in San Francisco

I hear LA ( downtown ) is turning into manhattan as well.

The earth is turning into a world of boring stale cookie cutter cities full of starbucks and mcdonalds.

LA’s downtown barely existed at all 20 years ago, and now it’s bustling and vibrant.

lol SF never had 1/10 the vibrancy NY had, or has.

True. Very different culture and not a late night city...

The population of Manhattan is higher by over two hundred thousand people since 1980. Your narrative isn't supported by facts.

Do you actually live in Manhattan? There have been some losses in nightlife, it's generally too expensive to have big nightclub spaces. But the situation is very, very far from what you describe.

You're conflating the financial district / midtown with the entire island. Trust me, up here in Northern Manhattan (which is like, you know, almost half of the island) there's a pulse.

It’s still as lively as ever at night here in the east village.

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