Gentrification Hangover

to me the empty lots and shells that still remain are more of a surprise than the condo hangover. would a new bubble eventually clean that up?

msoul,

Good article.

Agreed, good article. And any hipsters crazy enough to pay $600 psf in Williamsburg - hey it's more than 30% down from the original asking price! - or $400 psf in Bushwick, excuse me, East Williamsburg, is gonna be in a world of hurt in a few years. Guess they're not old enough to remember the last bubble 20 years ago and how long it took for prices to shake out.

Looking to 2010 -- A large number of mortgage brokers and bankers who will be rendered homeless by market forces will all be given these high end condos to live in as part of a deal brokered by the city. Poetic justice, or purposeful collusion?

What about that rumored "lack of land" in Manhattan?

boricua21,

Agreed :o).

Check out "There goes the neighborhood" by Lance Freeman, 2003 for some interesting data/research on what has actually happened with gentrification of neighborhoods vs what we all assume happens.

btw, the "lack of land" really isn't true in a real sense.

First off, the boundaries of the manhattan a yuppie can live in has grown CONSIDERABLY. Not to mention, so have the yuppie-liveable areas of Brooklyn. If you look where somebody out of a decent school who got a job in manhattan could live without worry 20 years ago, versus now, you might be talking, what, double? Triple?

It doesn't matter if you like the yuppies or not, if the folks with the apartment $$$$ have ample substitutes, this AOTHBE means prices being pressured lower.

QUOTE OF THE DAY!

"If you look where somebody out of a decent school who got a job in manhattan could live without worry 20 years ago, versus now, you might be talking, what, double? Triple?"

So if the children of those yuppies leave for prep school from their parents' Bed-Stuy brownstone, slap the corner locals some skin, can they say they're officially from the 'hood?

Well, it IS their "hood" too ...

Where you're from and where you live are two (2) different locations.

You could say that about every person living in New York City.

What gives the "corner locals" more of an ownership stake (particularly if they're RENTERS) in Bed-Stuy than the yuppie kids?

NYCMatt

Not really but you can say that only if it applies.

What do you mean by "corner locals"?

Everybody can't be chiefs.

somewhereelse: very cool, I haven't heard "yuppie" since early Clinton, late Reagan. Where do the "hippies" live now?

The article isn't talking about gentrification - gentrification is when lower-income people are supplanted by slightly higher-income people attracted by lower rents, in turn driven out by higher rents and replaced with ever-higher-income people. The article discusses failed speculative investments in anticipation of something like gentrification, people of high incomes being driven out of high income neighborhoods and paying high rents in low-income neighborhoods, which anticipation goes unfulfilled.

I disagree about it being reminiscent of the '70s. It is much scarier. The deterioration of the Bronx in the '70s was not due to speculative overpayment. This might be uglier, and then again, maybe not.

lowery,

Thnx for that definition.

"I disagree about it being reminiscent of the '70s. It is much scarier."

You're right.

Starbucks, Victoria's Secret, and Baby Gap taking over Manhattan is MUCH scarier than being the murder capital of the world, daily muggings in broad daylight, and a police force so overwhelmed by crime that New Yorkers' favorite pasttime was patrolling the neighborhood watch.

spinnaker1: South Street, South Street (where the dancing is elite)

Okay, Matt, I have always said that most people have no idea what "bad" could be when they warn the '70s are coming back. But the fear articulated in that article about buildings deteriorating until they become black, windowless, burned-out hulks is that equity funds' overpayment could lead to the abandonment people associate with Harlem, South Bx, etc. in the '70s. Those buildings that went that route didn't start the decline from a point at which landlords paid the equivalent of 3x last sale for comparable apartments. Middle-income housing in the Bronx (and higher-than-middle) took in lower income tenants to replace people moving to the suburbs. That's not the situation described in that article. So if the last buyers of a multifamily projected 20% rent increases over the next few years in order to break even, and instead rents can't go up, I don't know, isn't that pretty scarey?

"So if the last buyers of a multifamily projected 20% rent increases over the next few years in order to break even, and instead rents can't go up, I don't know, isn't that pretty scarey?"

According to the finger-waggers on this board, if they required 20% rent increases just to break even, they were ***IRRESPONSIBLE*** in buying the property in the first place.

http://baselinescenario.com/2010/01/08/the-costs-of-extend-and-pretend/

For months now, Calculated Risk has been criticizing the policy of “extend and pretend”–the practice of pretending that real estate loans are still worth their full value, making modifications so that borrowers can avoid going into default, so that banks don’t have to recognize losses on their assets. Here’s one story about “zombie buildings”–office buildings, in this case.

Alyssa Katz has a great article in The American Prospect about extend and pretend when it comes to multi-unit residential buildings, focusing on New York City. Expensive condo towers are now “see-through” buildings (so named because you see through the glass walls right through the empty floors–a phenomenon I first saw in 2001, after the Internet bust, along Highway 101 on the San Francisco Peninsula). Another problem is apartment complexes that were bought by private equity firms and flipped to developers during the boom with plans to evict the low-rent tenants and replace them with high-rent tenants; the high-rent tenants never arrived, the developers can’t make their loan payments, and no one is maintaining the buildings for the remaining tenants. (And no one is saying that property developers have a moral obligation to pay their debts rather than turn their properties over the bank.)

One of the underlying problems is that developers (or the banks that inherited their properties) have an incentive to hang on and hope for a return to prosperity that will deliver the promised condo buyers or high-rent tenants–in other words, betting on another boom. The alternative is selling the properties to someone who will convert or restore them to the type of housing that there is actually demand for–affordable rental units–but that means that someone has to take a loss, because an affordable building is simply worth less than one stuffed with investment bankers. Unfortunately, as Katz says, “With so many lenders at the brink of insolvency, the Treasury Department and the Federal Deposit Insurance Corporation (FDIC) appear to be in no rush to cause them further pain.” The lack of urgency was unwittingly confirmed by a Treasury spokesperson, who said, “The commercial real-estate market is something we’re watching closely, but it’s premature to discuss solutions.”

matt, whether it's irresponsibility, greed, stupidity, bad luck or whatever, the scarey thing is the buildings may have services discontinued, which could hasten the ole '70s spiral some people talk about