Photo by: Herb Bar-David.
The city took a step toward sustaining historic Coney Island this summer when it put a roadblock in front of a $1.5 billion plan by Thor Equities to turn the legendary area into a resort enclave. As New Yorkers warmed up on Coney’s beaches, the administration threw cold water on the proposal to speed up the rides and bring in hotels and time-shares. Thor’s scaled-back plan, which included a glass-enclosed water park, three hotels and 400 time-share units, restaurants, movie theaters and high-tech arcades, was a bit much even for a city administration that likes to think big.
Now the question is whether the city can come up with an alternative that helps to sustain and build up what is left of the storied amusement area. Will they be able to do it without a mega-developer like Thor? And will the city continue to react to the schemes put forth by private developers rather than coming up with ideas of its own?
As incongruous as it might seem, Coney Island, with its honky-tonk image, could become a model of sustainable development. If the city wants that to happen, it could look to some key decisions already made at Coney.
New York City’s long-range sustainability plan, PlaNYC2030, says little about unique areas like Coney Island, which don’t fit in the category of residential neighborhood or an average business district. However, Coney Island redevelopment could play an important role in meeting the plan’s objectives of insuring that all New Yorkers live within a 10-minute walk of open space, cleaning up the city’s waterways, improving mass transit and air quality and reducing global warning.
If the past is any indication, the way to accomplish these objectives is through carefully thought-out small steps over a long period of time instead of giant commercial adventures and “big ideas.” For example, long before PlaNYC2030, the Metropolitan Transportation Authority renovated the Stillwell Avenue subway station, making it the greenest, most energy-efficient subway station in the city. Completed in 2006, the station has photovoltaic panels that provide solar energy and an open design that maximizes the use of natural sunlight. This example of smart design and public policy has given a small boost to the private amusement area and to many nearby public facilities.
Previously, the city preserved the Cyclone, Coney Island’s famed roller coaster that opened in 1927. It became a city landmark in 1988 and a federal landmark in 1991. This mostly wooden structure remains an icon of the amusement area, marking its identity as distinct from the kind of high-tech, high-priced theme parks epitomized by Six Flags.
The corporate amusement giants also cannot replicate the non-profit, Coney Island USA, a focal point for many unique cultural and civic groups that have helped keep the historic area alive. And in yet another small step, the city government and the Coney Island Development Corporationnow plan to develop Steeplechase Plaza, a public park that would feature a restored B&B Carousel.
So it may be smarter for the city to think smaller and move one step at a time. The popularity of the relatively tiny Nellie Bly Amusement Park, only a couple of miles from Coney Island near Bensonhurst’s waterfront, suggests that many small parks might work better than one big one.
In an earlier effort to spark development at Coney Island, the city encouraged the building of Keyspan Park, where the Brooklyn Cyclones minor league baseball team plays. This was a questionable addition to Coney Island’s waterfront when it was built during the Giuliani administration. The minor league field broke the classical Coney Island model that combined amusement park, beach and boardwalk. Stadiums for professional teams and leagues are great for team owners and the health and welfare of the small number of athletes who play in the stadiums, but do little more than encourage the sedentary lifestyle and junk food binging that contribute to the city’s epidemics of obesity and diabetes.
Still, compared to the monster Shea and Yankee Stadiums, Keyspan Park has opened the door to a different kind of professional sports. Much smaller than the baseball behemoths, Keyspan is only a stone’s throw from the boardwalk, beach and the Abe Stark skating rink and within walking distance of the amusement park. With affordable ticket prices and easy access via mass transit, it attracts families with limited recreational options in their neighborhoods and works as part of a daily outing. On the other hand, Shea and Yankee stadiums function as enclosed enclaves, attracting a large fan base that drives to the games, and they funnel people in and out as quickly as possible.
And why not put the arena for the Nets basketball team in Coney Island, as planner Simon Bertrang proposes? Two previous studies recommended Coney Island as a location for a professional arena, and until recently that view was held by Brooklyn’s political establishment. Wouldn’t the 18,000 seat arena that the basketball team’s owner, Forest City Ratner, now proposes to cram in between the Prospect Heights and Fort Greene neighborhoods make more sense nested in Coney Island’s amusement area?
If this were to happen – the Nets could lose $35 million every year the Atlantic Yards projectis delayed -- a Coney Island arena should not go the way of the New York Aquarium, which is isolated from the amusement park. Nor should it be dropped in next to Keyspan Park, thereby creating a big enclave of professional facilities. But if properly designed, the home court for the Nets could be physically integrated with Coney Island’s recreational facilities.
The heart of Coney’s surviving amusement area, Astroland Amusement Park, closed for the season on September 9. The owner of the land, Thor Equities, may very well decide not to renew Astroland’s lease for next year’s season, although a petition campaign is underway to prevent this from happening.
Lacking the kind of public or private commitment given to the Cyclone and B&B Carousel, no amusement park can survive and keep prices affordable to average New Yorkers. Thor wants public subsidies to support any amusements it puts on the site.
In light of this, it is hard to imagine any steps at Coney Island going forward until the administration takes a more direct role in development. Planes to rezone the area are simply not enough. Zoning leaves the door open for development but can’t make it happen, nor does it guarantee preservation.
For a number of reasons, Coney Island cries out for an active city role. If we look to the year 2030 and beyond, Coney Island will probably be one of the most vulnerable areas to rising sea levels. While Coney’s 60,000 residents may be willing to risk flooding and evacuation, it certainly makes no sense to encourage more permanent housing there. Millions of dollars in public subsidies already go to maintain Coney Island’s beach and protect it from erosion. When will the cost of such efforts exceed the public benefit?
Beyond this, a strong public role is imperative if Coney Island is to remain affordable to New Yorkers, both as a place to live and a place to play. Today the park and recreation areas are a boon for New Yorkers with limited incomes and for Brooklynites. Preserving affordability on what was once known as America’s playground is as important as saving the Cyclone and is consistent with PlaNYC2030’s aim of preserving affordable housing.
See: Coney Island’s Summer of Reckoning and With Pizza, Pinball and Panache, Boardwalk Vendors Face Changes
Tom Angotti is Professor of Urban Affairs and Planning at Hunter College, City University of NY, editor of Progressive Planning Magazine, and a member of the Task Force on Community-based Planning.Â
The current crisis in the sub-prime mortgage market has pundits wondering what the effect of the turmoil in the financial markets could be. Will it result in a recession, a crisis in consumer confidence or the failure of a major financial institution? While the future is uncertain, effects will certainly appear within a few months. And one vulnerable spot is likely to be the real estate market, even in previously immune Manhattan.
The immediate problem has been created by homeowners taking out mortgages that were ill-suited for their needs. Many were adjustable with sweet interest rates for the first several years - designed to entice homebuyers with low rates - that adjust higher in the future. A number of the banks creating those mortgages sold them to Wall Street firms that packaged them as bonds and resold them to investors.
Since interest rates fell sharply in the early 2000s, the Federal Reserve has raised them. Investment bankers doing the packaging have reaped enormous rewards from all of the activity. Those rewards have benefited the economy in the major financial centers around the country, especially New York City.
Now, though, more and more homeowners cannot meet their higher monthly payments. Adding to the problem, many of those mortgages were awarded to individuals with less than decent credit. Compounding the misery, lenders doled out incentives not normally available to those with even good credit ratings. The result is what is currently called the sub-prime mortgage crisis – mortgages are going into arrears in record numbers with no end in sight. This has caused a glut of houses waiting to be sold and falling prices. But the problem extends beyond those with sub-prime mortgages.
The major danger in plummeting real estate prices is what economists refer to as "negative equity." A drop in prices means that the current market price of a home is less than the mortgaged amount, suggesting that the homeowner cannot pay off the mortgage even if the home is sold. This situation has occurred rarely, if ever, in the United States, but the current mortgage market crisis suggests that it is beginning now. The situation is ideal for the potential buyer willing to pay higher interest rates than those that prevailed over the last five years. It is, however, a potential disaster for many sellers.
The New York property market has remained aloof to troubles in the rest of the country. A limited amount of housing, especially in Manhattan, has kept prices stable while the boom on Wall Street has propelled the market forward in more desirable residential areas. But even a limited supply of housing does not explain the $1.5 million two-bedroom co-op or condo. Wall Street salaries and record bonuses have contributed to the dizzying levels witnessed over the last five years. The spillover has affected all levels of housing in the metropolitan area, most severely in Manhattan.
A similar effect has occurred in London, where the financial services industry has triggered a record boom, sending property values to levels that make Manhattan actually seem sensible. But the run-ups can only be sustained if Wall Street earnings continue to increase at record levels. The current market crisis suggests that the boom is over.
Wall Street salaries and bonuses are only part of the story behind the giddy housing market. Many brokers and bankers benefit from generous mortgage packages provided by their employers. While those packages differ, they need to continue if the market is to remain robust. Without them, trouble will appear quickly.
And the spillover effect here should not be underestimated. Wall Street traditionally contributes about 20 to 25 percent of New York City’s economic output. (No wonder Mayor Michael Bloomberg worried about the U.S. markets losing business to London and other overseas markets.) Jobs are at stake, and less employment on Wall Street has consequences for the city.
The phenomenon has happened before. After the 1987 stock market rout, the market for one and two bedroom condos and co-ops in Manhattan was hard hit, with prices falling significantly. It took several years before they recovered and began an upward spiral fueled by low mortgage rates. Apartments of that size were frequently bought by younger traders and investment bankers - the first casualties of securities firms feeling the pinch of losses and lower revenues. That market problem also caused many securities firms to trim back their staffs, contributing to the recession that followed.
The problem lasted a few years and was felt across the board in the real estate market. The popular joke circulating at the time was that pigeons were leaving the only deposit on BMWs in Manhattan. Today the problem is a bit more complicated, just like the markets themselves.
So far, the major damage has been in the market for sub-prime mortgages and all of those who make a living from it - from investment bankers to securities lawyers and accountants. The junk bond market has also felt the pain as investors who once bought every new security in sight quickly readjust their risk tolerances. These bonds have been among the most profitable lines of business on Wall Street over the last five years. It is no coincidence that during the same period the amount of mortgage debt outstanding in the U.S. has exploded exponentially as well.
Recent government statistics show that Wall Street and Fairfield, Connecticut, have income levels 10 times the national average. A week or two's salary in those places can easily equal a year’s salary in other parts of the country where people do not work in the financial services industry. That multiple is about to fall due to the current crisis, and the real estate market undoubtedly will feel the pinch. Whether the higher end of the market is affected remains to be seen, because its values are attainable by only relatively few investment bankers, traders and hedge fund managers.
After the 1929 crash, a photo of a Wall Streeter trying to sell a car with a sign requesting $20 has become an enduring memory. Real estate brokers tend to be a bit subtler, but the fire sale prices will soon start appearing in Manhattan as the fall in prices whipsaws on many who helped create the problem in the first place.
Charles Geisst is a professor of finance at Manhattan College and an author of several books about Wall Street, including the New York Times Business Bestseller, "Wall Street: A History."
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The idea that the sub-prime market “walloped Manhattan with a vengeance” this summer, as the New York Post put it, has lead to a kind of hysteria and confusion. To back up the reports of impending doom, the paper cites figures from Realty Trac, an industry group. In issuing such pronouncements, though, the reports conflate some very important, and different, issues and so provide a misleading picture.
First, take the discussion of foreclosures in general. The Post account does not differentiate between foreclosures on sub-prime loans, those made to risky borrowers, versus those on more conventional loans. A difference is strongly suggested, but never specified.
To illustrate, foreclosures in Manhattan changed by only a small amount from July 2006 to July 2007. They increased from 225 to 253, a difference of 28. It's true that the foreclosures rose by 12 percent but the number of foreclosures was small to begin with.
A huge amount of apartments have been bought and sold over the past year. Everyone would agree that the housing market has not slowed in Manhattan, and more transactions means more foreclosures. To find out if a growing problem exists, it would be useful to know the number of housing units bought and sold and the average foreclosure rate – the percentage of transactions that lead to a foreclosure – over time.
Staten Island actually recorded a decline in foreclosures of 5.7 percent for the year - dropping from 244 to 230 cases.
The number of foreclosures for Manhattan and Staten Island are nearly equal. However, since more homes are sold in Manhattan than in Staten Island, Staten Island actually has a higher foreclosure rate than Manhattan.
As for Queens: Foreclosures there have increased to 882 from 390. That is a huge change. The borough has seen a robust increase in housing sales, but foreclosures have increased by a far greater percentage.
This could be explained by a greater number of sub-prime borrowers in Queens than in Manhattan. The Queens changes are consistent with the changes in the sub-prime market. The sub-prime mortgage borrower has relatively poor credit, took out a loan of 90 percent or more of the purchase price of the property and has a "riskier" loan. This could be, for example, an 80/10/10, which involves a 10 percent down payment, a mortgage for 80 percent of the price and a 10 percent home equity loan for the rest. It could be an ARM (adjustable rate mortgage) that features lower interest rate payments at the beginning of loan. Some borrowers may find it difficult to make payments as monthly rates rise when the adjustable rate is reset to an annual percentage rate, based on the prime lending rate plus some additional payment.
The Queens case raises some interesting questions:
-- Were there a handful of "predatory" sub-prime lenders in the area, leading to concentration of foreclosures by certain lenders?
-- Are there concentrations of foreclosures by neighborhood?
-- Where will the people affected by the foreclosures go to live? Rental markets are tight, and the sub-prime population, the group most in need of credit, will be the least likely to have access to it.
Lenders are tightening credit standards across the board. This is why: Typically the mortgage lender or bank has been able to make the loans to Joe Smith on Main Street then sell them to an intermediary. This provides the lender with more money to make more loans and also allows it to transfer the risk, meaning the bank no longer has the loans "on its books.” The intermediary then packages these loans to sell to the secondary market or Wall Street. But if Wall Street isn't buying, then the intermediary isn't buying, and if the intermediary isn't buying, then the loan originator (the bank) has less money to lend and less incentive to loan money to anyone - sub-prime or not.
This is especially true for the jumbo loans, that is, those greater than $417,000. Given current housing costs, people in Manhattan and parts of Queens and Brooklyn typically require such loans. Loans for less than this amount are secured by the government-sponsored entities, Fannie Mae and Freddie Mac. So, when the banks make loans of up to $417,000 they can sell them to Fannie Mae/Freddie Mac. In return, the bank receives money to make more loans. Meanwhile, Fannie Mae and Freddie Mac issue securities backed by this pool of loans and sell them to Wall Street.
Jumbo loans offer no such guarantee. The intermediaries purchasing these larger loans from the original lender are insurance companies, private equity firms, hedge funds and other banks. The intermediary buys these loans, divides them up according to risk profile (the likelihood that borrowers will pay back the loan) and then issues securities. As sub-prime borrowers default on their payments, Wall Street doesn’t want securities backed by sub-prime loans. And if Wall Street doesn’t want securities backed by sub-prime loans, then the intermediaries cannot sell their loans to Wall Street. If the intermediaries cannot sell their loans to Wall Street, then they cannot buy new loans. And if they cannot buy new loans, then loan originators will not be able to sell their loans to the intermediaries and receive funds to make new ones. Hence, the so-called credit crunch.
So even though it doesn't seem "rational" to decline to grant a loan to a person with a high income and decent credit score, it doesn't matter. The market may be acting "irrationally" but in doing so it is avoiding perceived housing/mortgage risk.
So far New York City has largely avoided the housing slump and will likely be hit later than other parts of the country and less severely. One factor driving the hearty housing market in New York City is the infamous Wall Street bonus. But that bonus is contingent on the performance of the stock market. If the stock market is down for an extended period of time, bonuses will go down. If bonuses are down, especially for a few years in a row, then people will likely sell and there may be less demand for housing. That could lead prices to decrease.
That said Manhattan could still have some level of protection. If sales slow in Manhattan and prices decline, the number of foreign purchasers of property could increase because of the weak dollar. Manhattan is still a "bargain" to those outside the U.S. Using London as an indication, a sizeable number of people from the Middle East and Asia will want property here.
So what’s the bottom line? In terms of a foreclosure crisis, Queens is the real story here. Manhattan is not.
Rebecca Jones is a credit risk analyst based in New York City.Â