By Bria Bailey ’15 and Pablo Redondo ’16
Moderator: Steven Spinola, Real Estate Board of New York Panelists: Marty Burger, Silverstein Properties Adam Weinstein, Phipps Houses Patrick Foye, The Port Authority of New York and New Jersey
Steven Spinola, of the Real Estate Board of New York, led the panel “New York: At the Very Center of Business” by framing the discussion around key market drivers: population, job growth, and transportation. Mr. Spinola stated that New York City will gain one million more residents by 2050. This could have significant metropolitan effects with New Jersey and Connecticut experiencing up to 20% population growth and Long Island experiencing 18% population growth. Mr. Spinola further shaped the conversation when he asked the panelists about the major challenges the city faces at this time of demographic and economic expansion.
Patrick Foye opened the conversation explaining one key theme; transportation. He emphasized that on a national basis, the infrastructure under-investment is measured in the trillions of dollars and that under-investment issue is present with respect to effectively transporting people between New Jersey and New York. Mr. Foye saw two solutions for the under-investment issue: tax increment financing and public-private partnerships. These financing solutions will help solve operational challenges as well as fund projects that would increase regional population mobility. The Port Authority is building a new Goethals Bridge in a $1.5 billion public private partnership. At LaGuardia Airport, the Port Authority is pursuing a public private partnership for a new Central Terminal Building involving an investment of $3.5 billion. For example, the Lincoln Tunnel and Port Authority Bus Station represent the parts of the public transportation system that are operating at full capacity and should be upgraded or enlarged. As a potential solution to the saturation of Lincoln Tunnel, Mr. Spinola mentioned the potential expansion of the 7 subway line to Secaucus. This type of project would require the aforementioned financing solutions.
A member of the audience inquired if affordable transportation could replace affordable housing by transporting increased portions of the population from outer regions to Manhattan. Mr. Foye responded that public transportation in New York is affordable for most residents; pointing out that 50% of the cost of a subway ride is effectively subsidized. This furthermore emphasizes the need for alternative financing solutions to improve the city’s transportation modes.
The other main theme was affordable housing even for those that are two times the area median income (AMI). Marty Burger emphasized the need to increase the number of housing units available, and not only in Manhattan, but also in the other boroughs. Along the same lines, Adam Weinstein asserted that there must be sufficient affordable housing supply for the increased population. He emphasized that a large percentage of the population increase will be due to the increase of new white-collar jobs. However, all three panelists agreed, that rising land prices are the largest obstacle to supply affordable housing. The increased land prices are not just affecting Manhattan but also the other boroughs. To illustrate this point, Mr. Weinstein mentioned that the greatest risk is that New York “becomes Aspen, Colorado”.
Picking on that point, a member of the audience asked whether the panelists see New York following the steps of London in terms of increasing its supply of ultra-high-end residential products for non-resident millionaires. Another member of the audience asked whether city hall would do anything to curb that trend. Mr. Spinola replied to the latter question, pointing out that he does not foresee legislation preventing millionaires from such investments because this is generating economic activity and tax revenue. Mr. Burger stated that he is not sure that ultra-high-end demand is sustainable, suggesting that some of the ongoing development projects in Manhattan may have been underwritten with overly optimistic exit values, so that the trend might not be sustainable over time.
Building on the subject of housing supply, Mr. Weinstein and Mr. Burger discussed how tax incentives remain the major driver for affordable housing development. They also declared some of the incentives for building large projects have been reduced since the 1980s, and that in the future affordable units will be placed in the market residential market. This will only further constrain the already limited supply.
Following a question from the audience, the panelists also discussed the trend towards greener office buildings. Mr. Burger cited Goldman Sachs Headquarters, World Trade Center 1, and Bank of America Tower as examples of the increasing standard in environmentally friendly buildings. This is something that is becoming the new norm that current and future projects will continue to incorporate and explore areas of innovation.
In conclusion, the panelists were generally in agreement that the New York City will have to develop new formulae to house its increasing population. Furthermore, the forecasted population growth will continue to put pressure on the metropolitan transportation system. However, the demographic growth will ensure long-term development no matter city hall’s policies. As long as there is flexibility in the policies that can adapt to changes in the macro economy, New York will continue to be a top real estate market.
Bria Bailey ’15 was a real estate research analyst for a shopping center and a mixed-use developer in Philadelphia and Washington, D.C. This past summer, she was a Summer Market Associate with Northwestern Mutual Real Estate Investments with the loan and equity production groups. Pablo Redondo ’16 is AVP of International for the Real Estate Association at Columbia Business School. He was an underwriting analyst at a Hipoges Iberia - special servicer in Spain - prior to school.
The 7th annual Real Estate Symposium took place on December 15, 2014, at the Columbia University Club of New York. Mortimer B. Zuckerman, Executive Chairman, Boston Properties, Chairman and Editor-in-Chief of U.S. News & World Report, Chairman and Publisher of the New York Daily News, delivered the keynote address. Please visit the event page for more details and reports on other speakers. Hosted by the Paul Milstein Center for Real Estate and the Real Estate Circle of Columbia Business School, the Real Estate Symposium is an annual educational forum that brings together accomplished Columbia Business School alumni and top industry leaders for a broad-based discussion of topical issues, high-profile transactions, trends, and challenges facing the real estate industry.