Times Square: 'we told you so.' (comments about the delay in restoration work at Times Square subway station, reprinted from the open editorial page of New York Newsday)
The delay or abandonment of government sponsored plans for rebuilding Times Square was not, as many commentators have suggested, due primarily to the city's weakened real estate market. The underlying cause of the failure of 42nd Street's economic renewal was government's invasion of and interference with the market system.
Condemnation procedures represent the government's most direct method of stifling the market economy and discouraging entrepreneurs from investing. Unfortunately, this was precisely the procedure the 42nd Street project employed. Under the threat of governmental condemnation and acquisition, who would invest in building up a business, or leasing or altering a store or a loft? Is it any wonder that conditions on 42nd Street have grown worse? The threat of condemnation has blighted the area for almost two decades.
The southeast corner of Broadway and 42nd Street was the only corner of Times Square not included in the condemnation proceedings under all the various renewal plans. It's no coincidence that the former hotel on this site underwent an expensive alteration. Despite the deterioration surrounding the building, the 12 upper floors soon became fully tenanted by apparel showrooms, now there's a waiting list, and an elaborate Gap store moved into the ground floor.
Several years ago, my family's real estate firm warned not only that the 42nd Street renewal project could not succeed, but, worse, that it would achieve the opposite and contribute to a serious decline in the area. Our warnings were ignored, disparaged or attacked. A New York Times op-ed article by the project's president attacked me under the headline, "42nd Street landlords: Greed, Inc." We (and the 42nd Street district) fared no better when we tried a lighter approach, including brief front-page advertisements:
"INSTEAD OF CREATING NEW OFFICE BLDGS in Times Square, how about building a factory for Edsels?"
"NEW YORK CUTS BACK ON EDUCATION, HOSPITALS, Social Service; but subsidizes 4 million square feet of needless office space in Times Square."
Are office buildings economically viable on 42nd Street? Certainly, if they're grounded in reasoned judgment. But not if government simply declares a sudden need for four huge office towers. If the 42nd Street project's developers had proceeded with construction of 4-million square feet of office space, their next chapter would have been 11.
Oddly enough, other governmental incursions into the economic marketplace are largely responsible for the recent decision to "postpone" 42nd Street's office buildings, and for the excessive level of vacant office space in new towers in the general vicinity.
How did these surplus towers come into being? The city government exerted enormous economic influence along Broadway: Real estate taxes for new buildings were reduced for 10 years, and the city increased the permitted zoning density on the west side of midtown. When this zoning change was about to be withdrawn, developers proceeded to build quickly -- perhaps contrary to their considered judgement -- rather than lose their investment.
On a national level, people were building and buying to win enormously expanded income-tax depreciation deductions; meanwhile, regulatory changes resulted in banks and savings & loans flooding the market with excessive lending. The result was extensive office-building construction based less on economic than on political considerations.
One new Broadway tower was sold recently for about half its $250-million mortgage. The economic damage was not only to the lending institution but to other office buildings and to the city's tax base, which is hurt by declining market values.
In explaining the decision to delay construction of the 42nd Street office structures, Gov. Mario Cuomo said, with his usual eloquence, that to proceed now would be an act of economic self-mutilation. The phrase accurately describes most governmental forays into the economic marketplace.
When former Federal Reserve chairman Patti Volker was asked by a senate committee what to do about housing, he said, "Get the government out." This excellent advice should also be applied to all aspects of the market economy. Until this is accomplished, we should not attempt to advise the Eastern European countries struggling to establish free market economies.
The democratic form of government is viable only in connection with such an economy. Lured by the excitement of marketplace, government bureaucracy moves to participate in the economy, and the equilibrium of democratic government and the equilibrium of the economy both suffer. The 42nd Street experience should bring about a reversal of the unfortunate trend of government inroads into the economy.
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|Publication:||Real Estate Weekly|
|Date:||Sep 2, 1992|
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