Friday, October 23, 2009


New York's a fairly liberal city, but there's a thriving market here for a kind of steely-eyed-rocket-man hero porn -- breathless articles about titans of business, particularly the real-estate business (which is an absurdly large part of the local economy).

So The New York Observer, which used to be a rather Salon-like weekly but is now literally half real-estate porn, is responding to a real-estate story with words such as "apocalypse" and "seismic." What's going on? This might be a bit confusing for you non-New Yorkers, but here goes:

Speyers Dealt Tremendous Hit as Court Rules for Tenants at Stuy Town

In a decision with seismic implications for Stuyvesant Town and property owners throughout the city, the state's top court has ruled against real estate giant Tishman Speyer on a far-reaching rent regulation lawsuit, declaring the landlord had no right to deregulate some 4,440 apartments.

In a 4-2 decision, the Court of Appeals upheld an appellate ruling that said Tishman Speyer was not allowed to take apartments out of the rent stabilization program at the 11,000-unit complex because it was accepting a tax incentive meant to encourage renovations. The ruling is a sharp reversal of the way the law has been interpreted for years, and even the New York State government previously advised landlords who accepted the tax incentive, called J-51, that they were permitted to deregulate apartments....

So: we have a law here that allows people to stay in apartments they've rented at regulated rates -- but at a certain point, if those tenants leave (or are legally forced out), the rents can rise to (strikingly high) market rates. This court ruling says that if you take the J-51 tax abatement, you can't deregulate. You have to keep the rents at rates that are still preposterously high by national standards, but are a pittance by local standards.

So that's the "apocalypse" -- something bad has actually happened to really rich real estate moguls.

How rich? Jerry Speyer of Tishman Speyer is worth $1.5 billion, according to Forbes. (Ah, but he was worth $2 billion two years ago! Weep for him!)

Oh, and he and Rob, his son and partner, don't even have much skin in this game, and have already cashed in to some extent, according to the Observer:

According to a person familiar with the financing structure, Tishman Speyer and its affiliates put only $112 million of equity into the deal. They also have taken an untold amount in fees for managing the property, likely worth tens of millions.

And Tishman Speyer did not mortgage any of their other holdings for the deal. That means their empire, which includes Rockefeller Center and the Chrysler Building, seems safe.

Still, the Speyer name is certain to be scarred.

Oh, boo hoo!

Apparently the Speyer name is going to be scarred by this apocalyptic, seismic ruling in favor of tenants -- not by the Speyers' own lousy deal-making. You see, they and their partners bought the building at the top of the market for $5.4 billion; even before this ruling, it was being valued at less than $2 billion. It's not just the recession -- they thought they could put legal pressure on rent-regulated tenants, drive a lot of them out, and cash in on a pile of now-unregulated apartments ... but, alas for them, tenants know the law, and know how to hire lawyers of their own, and not nearly enough tenants were evicted to make this deal worthwhile for the owners.

What an apocalypse.

So we're supposed to weep for the Speyers and their partners. Some of them, to be sure, may actually be on the hook for a lot of money. That's tragic because, see, even though these titans are the manly, risk-taking heroes of our age, and have been ever since Reagan walked the earth, they're never actually supposed to fail.

The New York Times is, at least for half a sentence, even more breathless in its assessment of what this all means:

Real estate moguls feared the news would cripple their industry....

Oh, please. The big money in residential real estate is in co-ops, not rentals -- and sales (here in Manhattan, at least) went up between 46% and 69% in the third quarter of 2009. Prices are still down, but they're a wee bit high even yet:

Studio apartment prices fell 6 percent from a year earlier to a median of $399,000.... One-bedrooms dropped 11 percent to $645,000; two-bedrooms fell 23 percent to $1.18 million and three-bedrooms dropped 41 percent to $2.25 million.

Yes, folks, those are the median prices. And, of course, with Wall Streeters on track to take in record earnings in 2009, these numbers have nowhere to go but up. (Wall Street and real estate largely drive the local economy.)

Elsewhere, the Times story adds words like "devastating" and "potentially crippling" to describe how this affects the wheeler-dealers behind this deal.

Later in the story, a tenant is quoted by the Times who until this ruling was facing a 26% rent increase; he might have found that devastating, especially in this economy, but the word is never used in New York in reference to jacked-up rents -- that's just business as usual.

Reason's blog uses this story as an opportunity to take a libertarian swipe at the city's rent law:

The real bad part is the lack of freedom it gives to the building owners--and the lack of incentive to provide apartments for all future New Yorkers that will create widespread aggravation and shortages down the line.

Dude, have you been here lately? Or ever? There's a tremendous amount of building going on (although somewhat less now -- hey, but that's a response to the conditions of the marketplace.) The real-estate industry can't stop building; the only thing it can't seem to provide is housing that's affordable.

And yes, I know even some liberals (e.g., Atrios) dislike rent stabilization. They say it's a horrible system -- people pay wildly disproportionate rents for similar apartments. Well, yes, it's the worst possible system ... except for all the others. It's what's kept at least some middle-class people in town, where we can do the scut work that keeps wealthy people wealthy. Overturn the rent laws and there'd be a mass middle-class exodus from the city. Libertarian pipe dreams aside, nothing's going to motivate the moguls to build affordable housing. A lousy solution to that problem is better than none.

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