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March 31, 2009
What’s Stalling New York’s Skyscrapers?
Economix [NY Times blog]
by Edward L. Glaeser
A Harvard economist strives to figure out what's keeping big buildings from being built in NYC. [Hint: not lawsuits.]
The most high-profile pauses are associated with Frank Gehry and the developer Forest City Ratner. Their massive Atlantic Yards project in Brooklyn is experiencing delays, and they are “conducting a study to assess costs, risks and overall timing” on the stunning 76-story Beekman Tower, which was to be Manhattan’s tallest residential building. If you look at curbed.com’s collection of construction-related rumors, you would think that Manhattan was covered with half-finished skyscrapers.
At first glance, those stalled structures don’t seem puzzling. Nothing seems more normal than projects left unfinished in a recession. After all, America has gone from building two million new housing units a year during the heated frenzy of the bubble to building fewer than 600,000, according to the latest housing permits data.
Atlantic Yards isn't technically stalled, since actual construction has yet to begin.
But Manhattan prices have supposedly fallen only 15 percent, which should leave them high enough to cover the construction costs of almost any building. Why are developers, with land and permits in hand, not developing?
Glaeser puts forth several hypotheses, this being the last:
Hypothesis #4: Developers are facing their own liquidity crisis and are having trouble obtaining financing to finish projects that can easily cover their construction costs. After all, developers don’t typically bet their own money. If no one is willing to extend them credit, then projects will come to a halt, and some stalled projects have acknowledged financing troubles.
Conclusion:
Given the problems with the other hypotheses, I’m betting on No. 4. My guess is that buildings are still worth more to buyers than the cost of constructing them, but that lack of financing is stopping that from happening.
NoLandGrab: Since Forest City reportedly has all the financing in place for the Beekman Tower, we may need hypothesis #5. Anyone?
Posted by eric at March 31, 2009 11:58 AM