Real estate as investment vs. real estate as city-building

CC image from John M.

Fundrise is one of the most hyped developments in real estate in recent years. Is it a major shift in real estate investment? Maybe, maybe not. If nothing else, Fundrise and the surrounding hype/criticism exposes the dual nature of real estate as both an investment and the critical element of how we build our cities.

In last week’s Washington Post, Jonathan O’Connell sought to burst the bubble by soliciting the opinions of various real estate and financial experts on the terms and conditions that Fundrise offers to potential investors:

“I would never recommend this kind of investment for my clients,” said Russell McAlmond, president of Evergreen Capital Management. “It has almost every kind of risk imaginable that one may have with commercial real estate. If it works and they find a tenant, you may receive some kind of return, but by taking huge risks.”

Said Derek Tharp, of Mote Wealth Management: “They may have noble intentions and it may work, but if anybody does do this, this should be money they could otherwise just flush down the toilet.”

The problem with the evaluation of these experts is that the mis-diagnose the purpose of an investment in a Fundrise offering. Emily Badger responds in Atlantic Cities: 

Crowdfunded real estate isn’t an important idea because it may enable the lady next door to make it big like a real-estate developer. It’s an important idea because it changes the trajectory of neighborhoods. The crowdfunding mechanism changes what gets built. O’Connell’s query with wealth investors – who have no reason to be interested in this question – misses this point.

This isn’t to say that the wealth managers aren’t correct; investing all of one’s savings into Fundrise would not be a wise investment. But they approach Fundrise with a fundamentally different mindset than one does if they think of it as Kickstarter for cities. It’s not as if donors (perhaps a more useful term in this case than ‘investors’) are rigorously investigating the potential returns of such investments – Gawker raised more than $200,000 to buy a video of Toronto Mayor Rob Ford allegedly smoking crack, after all.

The combination of common purpose, a large base of donors/investors allows for individuals to risk little individually (some Fundrise shares are as small as $100) while potentially pooling resources at a sufficient scale to have an impact. I suppose one of the wealth managers could make the case that the $100 share would be better invested in an IRA, but that likely misunderstands why someone would buy such a share (or why someone gives money to a Kickstarter campaign, or to a political candidate).

So, will it work? That is, will it deliver quality projects while satisfying the demands of investors (whatever those demands may be – if they exist at all) so that people will still give up their money for new projects? Matt Yglesias is skeptical (for a variety of legal and technical reasons), but notes that if it works, it could do so by slaying neighborhood opposition to new development:

Still, the main reason I want to believe isn’t because I hope for a huge return, it’s about politics. Specifically the toxic local politics that too often loads the dice against change and new businesses. Here in Washington, even a proposal as innocuous as replacing a vacant storefront with a functioning restaurant attracts politically potent complaints about noise and traffic…

The real promise of Fundrise is that it gives pro-growth members of the community a way to become literally and figuratively invested in the success of a project. A building owned by hundreds of local people, rather than owned as part of a pooled investment vehicle marketed to pension funds, is one that’s much more likely to get a sympathetic hearing from local authorities. It’s also one that’s much more likely to inspire people to show up to meetings and hearings and make the case for development and expansion. As George Mason University Law School’s David Schleicher has observed, despite the stereotype of politically powerful real-estate developers, in practice most cities’ legal framework “creates a peculiar procedure that privileges the intense preferences of local residents opposed to new building.”

The other potential benefit isn’t just in cutting through local politics, but in better aligning the dual roles of real estate investment and city building. In a profile of Fundrise in the New York Times, founder Ben Miller put it this way:

They realized that who the investors are and where the money comes from determine what gets built: distant private equity backers who see a deal as simply an investment vehicle tend to put up cookie-cutter projects and strip malls anchored by chain stores — hardly what the community may want or need.

“Who your money is affects what you build, but no one ever thinks about that,” said Benjamin Miller, who also co-founded a site called Popularise that lets developers solicit input from the community. “We’re taking an institutional asset and changing who gets to invest in it.”

In other words, a great deal of real estate development simply follows the path of least resistance. If Fundrise really takes off, it will do so by changing that path on the finance side. The Fundrise management team is also selling themselves, as they are essentially asking for silent partners for these projects. If their investors are to help smooth over an approvals process, they’ll need to feel involved enough in the concept to lend their support – in addition to their cash.

They are selling the chance to help shape the city more than they are selling the chance to invest in it.

Housing demand and the regulatory path of least resistance: Seattle and microapartments

Seattle Space Needle. Photo by author.

The feature piece in The Stranger last month delved deeply into Seattle’s trend of micro-apartments. Dominic Holden offers an in-depth look at not just the development trends, but the politics of the policy and planning conversation around development in an expanding city.

A few things popped out:

Room for rent: The article describes Seattle’s micro-apartments like this:

But inside each town house, the developer was building up to eight tiny units (about 150 to 250 square feet each, roughly the size of a carport) to be rented out separately. The tenants would each have a private bathroom and kitchenette, with a sink and microwave, but they would share one full kitchen for every eight residents. The rent would be cheap—starting at $500 a month, including all utilities and Wi-Fi—making this essentially affordable housing in the heart of the city.

If that sounds familiar, it should – it’s a situation similar to what already happens in big cities – renting a room in a group house. For a fraction of cost of a studio or 1-bedroom apartment, you can instead rent a room in a shared house. Considering that comparison, there is clearly a market for these kinds of spaces, and it’s not exactly new.

It ain’t much, but it’s home: While the rise of micro apartments is in the news in Seattle, it’s not a new thing for cities. Single-room occupancy (SRO) apartments have a long history in cities. The Blues Brothers highlighted this housing typology in their 1980 homage to the city of Chicago (“how often does the train go by?” – “so often you won’t even notice it.”).

Chicago’s WBEZ documented the dwindling numbers of SROs in the city, noting how this particular form of affordable housing has served a different market of individuals than the kinds of tenants mentioned in Seattle:

The Chateau is among the city’s shrinking pool of single-room occupancy hotels (map below), which offer an important housing option for people with low- and fixed-incomes. SROs also serve clients with troubled credit or criminal histories. The North Side has long been an SRO hub, but in recent years many such buildings have been purchased by developers and closed, only to reopen as more expensive housing — often beyond the means of prior tenants. Some SRO residents and community organizers worry the Chateau Hotel might be the next building in this trend.

The key difference is in the level of maintenance, and thus the target market. Nonetheless, it’s not hard to see how micro-apartments like likes in Chicago or the new construction in Seattle would appeal to a number of potential markets. None other than The Stranger’s own Dan Savage makes note that he lived in an SRO when first moving to Seattle, and “I wasn’t sketchy then, I’m not sketchy now.”

As a part of re-evaluating the SRO’s sketchy reputation, Next City focused on the role this type of housing can have in the future of our cities.

Meeting housing demand: As Holden notes, a dynamic and expanding city like Seattle needs room to grow, and needs opportunities for a wide range of incomes. He also makes note of the only sure-fire way American cities have to meet growing demand post-WWII – sprawl. “Accommodating our growing population by shipping workers into the low-density sprawl of the exurbs is not the way a city should operate.”

This isn’t unique to Seattle. Other cities (including New York and DC) are struggling to meet the demand for housing, and are considering micro apartments as one potential solution.

The politics of neighborhood opposition: Holden’s Stranger article offers a fascinating dive into the politics of those opposed to these projects. Holden examines the stated objections to these projects (which include everything but the kitchen sink – or, in the case of complaints about shared kitchens, why not bring it up?) and finds most opponents to be “dramatically exaggerating”  the impacts. “Tick through the neighborhood groups’ complaints,” he writes, “and they don’t add up to a logical argument.”

The two issues in opposition that Holden deems to have legs deal with a tax break loophole for these developments and an exemption from the city’s normal design review process (more on this later). The principal objection is that the apartments count as many units for the purposes of a tax break, but few units to avoid the threshold for additional design review scrutiny.

Holden’s article goes into substantial detail about his interactions with some of the individuals and groups in opposition, highlighting a kind of fanaticism. Even without the crazy elements, the strength of the opposition and relative lack of proponents involved in the discussion shows the kind of game theory challenge for urban development regulations – opposition is strong, but only in a narrow segment of the population; support is broad, but few individuals feel the need to organize in favor of developments like micro apartments. The existing legal procedures favor the organized, and therefore give organized groups leverage in discussions.

The limits of design review: While a procedural loophole exempts micro-apartments in Seattle from design review (and Holden flags this as a legitimate complaint from opponents), there are limits to what such reviews can accomplish. Holden notes that such reviews in Seattle are largely administrative. He also ferrets out the intentions of those pushing for design review: “What public reviews will do is give activists a chance to obstruct microhousing by quibbling with the appearance.”

Holden understands the importance of process, and the cost it can impose on any new development. Since developers must (at a minimum) cover their costs to even entertain a proposed project, any increase in procedural time and costs means those costs must eventually be baked into the cost of the final product.

If the city pursues design and environmental reviews—which could improve the aesthetics and aren’t inherently flawed processes—they should be administrative reviews. They should be conducted by city staff who notify the public but limit input to letters in writing. They shouldn’t involve neighborhood meetings that are easily sidetracked, shouldn’t require multiple revisions to the architecture, and shouldn’t allow appeals.

If the public is allowed to obstruct these projects—and their arguments thus far have been specious—the results will be predictable: Every time developers must redesign the buildings to satisfy the neighbors, every time the project is delayed for further review, every time a spurious appeal is filed, the more it costs to build that project. And that has one predictable outcome: It will make them more expensive to rent, i.e., fewer people will be able to afford them. In other words, whether deliberate or not, the effect of neighborhood advocacy and its input on development projects will make living in these places more expensive and push out workers with less money. That would seem like a terrible mistake—unless pushing out poor people is the actual goal.

Development following the path of least resistance: Given the increasing costs of compliance with the regulations and procedures, it’s not hard to understand why so much real estate development seeks to follow the path of least resistance.

Leaving aside the question of whether micro-apartments are a worthy policy for cities to pursue (as opposed to other expansions of zoning allowances), it does show the catch-22 inherent in things like design review: the additional regulatory review is required because the outcome those reviews shape is a desirable policy goal – but the very cost of the review makes achieving those desired outcomes less likely.

The ideal would be a case where the desired outcome is prioritized, given the path of least resistance. Holden’s discussion of keeping reviews administrative and not subject to lengthy public hearings and appeals is an example. I suspect that (with the exception of some special cases), changing the outcomes from the path of least resistance cannot be accomplished through de-regulation alone.

However, the larger question looms in the background: what agreement is there about the most desired outcomes?

 

Shifting DC’s mode share – Sustainable DC’s complimentary policies of population growth and increasing non-auto transportation

Last month, the Washington Post’s Dr. Gridlock column profiled DC’s various new transportation investments might change transportation in the District. However, Dr. Gridlock used some odd phrasing to frame the city’s varied goals:

“In the Sustainable D.C. plan we released earlier this year,” the mayor said at the crosswalk event, “we set an aggressive-but-realistic goal of increasing the use of public transit, biking and walking to comprise 75 percent of all commuter trips in the District in the next 20 years.”

In other words, Gray told me afterward, the future of city travel is about sharing routes safely. Look for more bus routes, streetcars, bike lanes and devices such as the pedestrian signal, which can make walking safer and more popular without infringing on people’s ability to drive autos.

But for any city, getting three of four commuter trips done without cars is a major shift in people’s behavior. Why set the target so high?

“We’re looking at adding 250,000 people over 20 years,” Gray said. “If everyone drives, that’s unsustainable.”

Is the Sustainable DC goal really setting the bar ‘so high?’

First things first, the Mayor is absolutely right: adding 250,000 new residents would not be sustainable if everyone drove. The good news, however, is that adding that many new people to the city is entirely complimentary to increasing the use of non-auto transport modes. There is no ‘if,’ those 250,000 new residents will not all drive.

What about that goal of 75% of trips by non-auto modes (with 25% of trips by bike or on foot)? First, let’s consider where we are today. On Page 80 of the full plan document:

The data is commute mode share from the 2010 Census for DC. That is, residents of DC who work (and therefore commute to work). The usual limitations apply; this data is for commute trips only, it only counts the primary mode for the commute (if I walk to a bikeshare staiton, bike to a Metro station, then ride a train, and walk to work – you wouldn’t know it from these stats), and it only applies to DC residents, not to all commuters into DC.

Looking at that 2010 data, the goal is a strong one, but hardly unreachable. Contrary to Dr. Gridlock’s focus on commuters from outside the city, basing the data on DC residents shows how close to the goal we already are. If you look at the 75% goal through the lens of the region (where 15.4% commute via transit), it indeed looks like a high bar. From the view of the city, however, the non-auto share keeps growing.

Not only are non-auto modes growing in their share of the commute, but the city is growing in population. Given DC’s fixed boundaries (no annexation of our neighboring states here), any growth in population, by definition, means an increase in DC’s population density. This growth is complimentary to the goals of increasing use of non-auto modes. Infill development, focused around transit, and built with walkability in mind all adds up to a city where non-auto modes are easier for more trips; therefore they are the ones used by the public.

As a point of comparison (with the caveat that some of the statistics might not be exact apples-to-apples comparisons) to other places and other commutes. In Paris, France: 60% walking, 27% transit, 4% bike, 7% by car. Note that this appears to be all trips, not just commute trips. Also note that 60% of Parisians do not own a car. Add in the macro-level trends concerning the drop in vehicle-miles traveled, particularly among younger Americans.

For American cities, compare the state of the DC’s non-auto mode share to other American cities in the 2012 State of Downtown report from the Downtown Business Improvement District:

The difference between DC residents commuting and people commuting to DC is significant, but not as large as the difference between DC and the region as a whole – such are the benefits of ruling out most of the auto-dominant suburb-to-suburb commutes.

Likewise, the total non-auto share for DC residents stands at 55%. Getting to 75% is a good target, but certainly not unreasonable given the starting point. Brooklyn, for example, currently has a 75% non-auto mode share (60.8 transit; 8.7 walk, 3.9 work from home, 2.1 other = 75.5%).

Making up that 20-point gap is realistic; adding 250,000 new residents is similarly realistic. These goals are complimentary to one another.

Frager’s Hardware

Yesterday evening, Frager’s Hardware went up in flames in a four-alarm blaze. The iconic neighborhood institution has been in operation since 1920.

It’s the kind of neighborhood store many would love to have. At the same time, the store represents more than just a hardware store. While it can’t compete with the big box stores on price, it can offer a wider range of services and the local, personalized touch you won’t be able to find elsewhere. That kind of personal touch sells more than just hardware, it also sells t-shirts.

I happen to live nearby, and was able to snag a few photos from the roof.

6/5, 7:00 pm – full response underway:

6/5, 8:17 pm – more trucks and firefighters on the scene:

6/5, 10:59 pm – DCFD has the fire contained:

6/6, 8:34 am – daylight comes, the morning after:

6/6, 6:13 pm – traffic returns to Pennsylvania Ave, workers begin to board up the storefronts:

While the store appears to be a total loss, the owner vows to rebuild.

On restaurants, retail, and clustering – agglomeration economies and urban retail trends

A few intersecting stories regarding retail and restaurants:

In DC, a group of activists are pushing a moratorium on new liquor licenses for 14th and U and environs. There has been substantial pushback to the idea of a moratorium, yet proponents insist the dominance of bars and restaurants are crowding out brick-and-mortar retail establishments. From Jessica Sidman’s summary in the Washington City Paper:

Joan Sterling of the Shaw Dupont Citizens Alliance, the group that proposed the moratorium, kicked things off by reading from a written statement in which she talked about the negative impact the proliferation of bars and restaurants has had on neighborhood noise, parking, and rat problems.

Sterling also talked about the need for a better balance of businesses. Who wouldn’t want grocery stores, hardware stores, movie theaters, galleries, and retailers like Urban Outfitters, Container Store, or an Apple store, she asked? “These are all businesses that will improve the daytime foot traffic and strengthen the neighborhood more than strip after strip of taverns,” she said. (The moratorium would not, of course, mandate that any of those other retailers come in, nor does the status quo ban them.)

Two obvious problems arise from Sterling’s desire for a greater diversity of retail offerings. Sure, who wouldn’t want more shopping? The problem is that there’s no such thing as a neighborhood Container Store. You might have a Container Store in your neighborhood, but retail of that nature requires a much larger audience to survive than just one neighborhood (The Container Store, for example, has only four locations in the entire Metro DC area – Tenleytown, Clarendon, Tysons Corner, and Rockville – with a fifth location in Reston on the way).

Richard Layman consistently comes back to this point in his blogging. Not only does retail require a wider area to draw from, it also likes to cluster together into districts: “with transportation costs being relatively equal, people choose to shop in the retail district with the  greatest variety of stores and the most appealing choices.” Not every retail district will be full of the regionally significant stores. However, many of them can be filled with a cluster of neighborhood-based bars and restaurants.

The other problem is mistaking the symptom and the cause: the old adage holds that retail follows rooftops. The real-life decisions are obviously more complex, but additional stores are likely to feed off daytime traffic more than drive it.

Retail shops are but one form of aggolmeration. In last week’s City Paper, Jessica Sidman writes about the growing cluster of restaurants in part of the proposed moratorium zone. 14th Street, H St NE, 8th St SE, and others – in addition to the city’s already established dining zones. Payton Chung takes note of the trend – that retail is restaurants. Payton cites Terranomics: “There is only one segment of the market where we are seeing aggressive growth plans from inline users and that is the restaurant sector.” Payton adds:

Yes, we’d all love to be able to walk to the corner and buy some bolts from a corner hardware store, or socks from an apparel shop, but let’s face it: not enough of us do that often enough to sustain very many such businesses, particularly in areas that don’t have enough foot traffic to guarantee significant cross-shopping. Such uses will increasingly congregate within metropolitan subcenters — probably focused on today’s fortress malls or midtown destinations — so there will be winners and losers among retail nodes. At least everyone will have someplace to eat, though.

(BTW, connectivity to those subcenters will be necessary from ever-wider catchment areas. This will require rapid transit, not just walk accelerators like streetcars or bikeshare, in order to connect neighborhoods to retail focal points.)

Hard to fight the trend, particularly when additional restaurants can add value to neighborhoods – particularly when they cluster together. Payton’s point about the rising importance of regional transit to link these regionally significant centers together is a good one, as well – the pattern of transit-oriented development around transit stations can be a positive feedback loop for additional transit ridership and development. Regional significance can mean that a place achieves that critical mass where the retail draw is indeed pushing daytime traffic – but those kinds of centers will be limited to a few key parts of each region.

 

The future of Penn Station, part II: additional resources, renderings, and video of the architectural presentations

Penn Station platforms. CC image from Harvey Yau.

More links in relation to yesterday’s post on the future of Penn Station in New York:

In the videos from MAS, particularly in the panel discussion segment of the event moderated by Michael Kimmelman, it is heartening to hear many of the issues I raised in yesterday’s post (written without the aid of hearing the presentations) acknowledged, if not satisfactorily resolved. The SHoP team in particular at least addressed the more practical concerns of cost, safety, and infrastructure. Reactions amongst transit advocates were skeptical, but open.

Unfortunately for SHoP (and for the credibility of the entire process as something more substantial than a hypothetical design exercise), these pragmatic and practical realities were dismissed as problems for policy wonks to solve, implying they are beneath the work of the designers – all while joking that the one team at least acknowledging these realities was not a ‘designer.’

The future of New York’s Penn Station

Phase 1 of Moynihan Station. Image from Moynihan Station Development Corporation

Phase 1 of Moynihan Station. Image from Moynihan Station Development Corporation

Today, New York’s Municipal Arts Society revealed the results of their recent design challenge to re-envision New York’s claustrophobic Penn Station. The reveal of the concepts comes on the heels of a vote by the city’s Planning Commission to extend the operating permit for the station’s upstairs neighbor, Madison Square Garden, for another 15 years. The fate of the arena and the station are inexorably linked, but the discussion around re-envisioning the station dances around the real concerns of on-site interests and avoids the question of more pragmatic improvements to the underlying infrastructure.

Penn Station is easy to diss. It’s certainly not a grand space, nor a particularly functional one. Michael Kimmelman, architecture critic for the New York Times makes a habit of denigrating the station regularly. Given the regular beatings in the press, it’s hard not to feel sorry for the place. The challenges to improving the space are large and complex (and that’s a big reason why they haven’t been tackled yet).

Several issues pop up in my mind:

Transportation infrastructure: Penn Station has a capacity issue; the two big components are train capacity and passenger capacity. In terms of train capacity, the solution involves new tunnels under the Hudson in some shape or form.

For passengers, the solution is only partly about the ‘station’ as we commonly conceive it, the historic edifice preservationists mourn. That Penn is long gone; but the operational guts of the station never left. Penn Station today, from the concourses down, is essentially the same as it was on opening day. Improving passenger capacity could involve a number of improvements, from the relatively modest expansion of platform access points through Moynihan Station (a project that only addresses a minority of Penn Station’s passengers and did not have the support of previous Amtrak leadership) to more radical changes such as widening platforms at the expense of several platform tracks.

In DC, the recently revealed plan to re-make the back-end of Union Station involves a complete re-configuration and re-build of the entire rail yard in order to widen platforms prior to the construction of air rights development over the tracks. The lesson there is to get your platform arrangement right before you start fixing columns in place (the concept involves the demolition of the existing parking garage over the tracks because the column placement is not ideal for Amtrak’s goals). At Penn Station, however, a lot of those columns are fixed. Even if you demolish MSG above, you’re not going to re-arrange every bit of the original infrastructure. The path dependence of many of those column locations is just too great.

Aesthetic improvements vs. functional improvements: From a great deal of the media critiques of Penn Station, you wouldn’t get a hint of the transportation problems listed above. Instead, the biggest objection is aesthetic. Across town, the magnificent Grand Central Terminal is celebrating its centennial, and the comparison is too juicy to ignore for Here and Now on WBUR.

Kimmelman makes the social case for great design and emphasizing the equity and democratic power that well-designed public space can have. However, design is not destiny. Even while Here and Now gushes over the greatness of Grand Central, they gloss over the fact that it, too faced neglect, deferred maintenance, and the threat of demolition. Kimmelman seemingly glosses over that erroneous causality.

Beware PATH: Kimmelman likewise criticizes Calatrava’s World Trade Center PATH hub as an “architectural foll[y]”, now excessively over budget. At the same time, it’s hard to see the difference between the trajectory of both projects (at least, as envisioned in this design challenge) – both involve avant garde re-designs with little to say about the actual transportation infrastructure. Steven Smith’s accounting of the spiraling PATH project could be a prescient description for Penn Station:

The architecture critics were smitten. The design, The New York Times’s architecture critic Herbert Muschamp wrote, “should satisfy those who believe that buildings planned for ground zero must aspire to a spiritual dimension,” and he hoped that New Yorkers would detect the “metaphysical element” in Mr. Calatrava’s work. His design was supposed to spur development throughout the neighborhood and lead lower Manhattan, still reeling from the attacks, out of its malaise. To the extent that the critics were worried, it was about how it would fit in with the architectural context of the site, not its cost.

Mr. Calatrava would eventually become to be remembered with regret among those in his hometown of Valencia, where his City of Arts and Sciences ended up costing more than three times its initial $400 million budget. But at the time, Mr. Calatrava could do no wrong.

In New York, his starting point was far higher than it had been in Valencia. The Federal Transit Administration pledged $1.9 billion [ed. – now officially at $3.74 billion] for the project early on, and the Port Authority would throw in another few hundred million—a number that would climb much higher.

The lesson from ground zero is that projects like this are exceedingly complex. As Smith’s article shows, the PATH project involves complicated jurisdictional issues and a tremendous number of infrastructure challenges; the hub (with deep pockets backing the project) ended up absorbing most of those common costs.

Madison Square Garden: Penn Station has every bit of the complexity that the PATH hub does, and no element shows this more than Madison Square Garden.

All of the submissions to the Municipal Arts Society’s design challenge assume the re-location of the arena, and apparently did so without talking to the owners of MSG:

A spokesman from the Madison Square Garden Company replied, in part:

“It’s curious to see that there are so many ideas on how to tear down a privately owned building that is a thriving New York icon, supports thousands of jobs and is currently completing a $1 billion transformation. These pie-in-the-sky drawings completely ignore the fact that no viable plans or funding to rebuild Penn Station and relocate MSG actually exist. Not that long ago, MSG spent millions of dollars and three years exploring a move to the Farley building as part of the new vision for Moynihan Station. That plan collapsed for a number of reasons that did not involve MSG, but did involve many of the same people now pressuring MSG to move, including The Municipal Art Society, which created enormous obstacles to achieving the relocation.”

Indeed, MSG was once a willing partner in moving from their current site in exchange for a new arena. As the MSG spokesman indicates, the arena company decided to stay and renovate their current arena due to the slow pace of the complicated deal. The city has some leverage with the operating permit’s expiration date, but otherwise the air rights the arena occupies are privately owned, and the projected cost to buy them out in 2008 was close to $2 billion.

Now that MSG has invested an additional billion dollars into their renovation, not only has the cost of a buyout increased, but those advocating for moving the arena missed the most obvious window to strike a deal. Prior to the renovation, MSG’s aging facilities aligned interests. Now, MSG has little incentive to move, particularly when some of the proposed sites range the original short hop across 8th Avenue in the Farley Building Annex to the distant to Javits Center site along the Hudson (and far from the centrality, connectivity, and value of Penn Station).

The designs miss the art of the deal and ignore the reality that MSG will be, by necessity, a partner in any changes to the site. Ignoring this reality seems to only set the stage for disappointment in implementation. Matt Chaban in Crain’s writes:

The many—architects and urban designers—welcomed the latest push to undo the destruction of Penn, but planners and real estate bosses expressed grave reservations over the plans, which were drawn up at the behest of the Municipal Art Society.

“I don’t know how you do this without telling the people sitting on top of the station what you’re doing,” said Steven Spinola, president of the Real Estate Board, referring to Madison Square Garden.

Incremental improvements: Even without these visions, incremental improvements are possible. While the full scope of Moynihan Station might be ill-advised, the more limited phase 1, consisting essentially of an additional exit concourse providing additional platform access, is a reasonable investment. Additional investments across 8th Avenue could also clear out the maze of back-office and railroad support functions contained within the existing Penn Station facility (things like baggage handling, employee break rooms, a commissary for long distance trains, etc).

This diagram from New York State shows both the phase 1 concourse as well as the mess of rooms and corridors in the existing station. Clearing out those support functions from Penn Station allows for re-allocation of that space for additional passenger facilities and more coherent circulation.

To improve the feeling of the concourses, add an element of spaciousness, and potentially some natural light, there are options without removing the arena. As this section of MSG shows (see also this old cut-away from Popular Science), the arena floor is located on the 5th floor of the structure. The primary use of the lower floors is for MSG’s 5000 seat Theater/Forum. Relocating just the theater, combined with the removal of support functions from the lower levels, would provide a great deal of space to work with to create a more inviting passenger space.

This ‘plan B’ isn’t a new idea. Vornado Realty owns a great deal in and around the Penn Station complex and has a vested interest in improving on the station. Vornado’s CEO Steve Roth suggested as much in 2008 (The more incremental, pragmatic idea even had support from Senator Chuck Schumer):

Despite a push by Vornado and co-developer Related Companies to keep the larger-scale project alive via government support, Mr. Roth indicated he considers that scenario unlikely.

“[We] basically feel that something good is going to happen,” he said. “Either that the governments are going to get their acts together, which they probably will not, or … we have with Madison Square Garden a Plan B, which is they stay where they are, we take out the theater, we—underneath the seating bowl of the arena—put a new grand entrance to Eighth Avenue and a new grand entrance to the station on Seventh Avenue, and what that will do is create a grand train station. Not quite as grand as moving it, but pretty nice. Actually, spectacularly nice.”

Sticker shock: There’s also the matter of cost. SHoP architects estimated their proposal at a mere $9.48 billion:

All the architects insisted their plans were workable, and Vishaan Chakrabarti, a partner at SHoP, even presented a plan using air rights sales and payments-in-lieu-of-taxes to cover the costs of the project, which he pegged at $9.48 billion. “And that’s with a factor of 30% cost overruns,” he said, as though it were a selling point.

Steve Roth emphasized that the value to the private development in the area can be realized with a less expensive station:

Mr. Roth said that the “Plan B” would add just as much value to Vornado’s property as if the original plan went forward.

“Our company’s principal interest in what happens with this Moynihan, Madison Square Garden, et cetera deal is to improve the value and increase the value of our adjacent eight million feet, which we believe we can do equally as well with Plan A or Plan B,” he said.

In that case, perhaps those air rights sales and PILOTs could be directed towards the other infrastructure costs facing the station.

A path forward? Combine new station entrances using that freed space, new concourses with space freed from relocated support functions, incremental improvements at the platform level, operational changes to the operating plans for the railroad tenants at the station, and investments in new rail tunnels under the Hudson – and now we’re talking about a realistic path forward.

The Planning Commission’s new, 15-year operating permit for MSG is a step in that direction, both in terms of identifying realistic improvements as well as syncing the timeframe for the larger discussions about the site. As Matt Chaban notes, the only realistic outcome of the MAS’s re-visioning process is “the kickoff of a renewed debate about the future of the West Side.” And, based on other examples, a decade-and-a-half timeframe would seem to be about right.

Development costs and housing affordability

Vancouver towers along False Creek. Photo by author.

Two competing narratives often emerge when talking about policy responses to housing costs. One asserts that lowering the costs of construction and development will allow those savings to be passed on to eventual users of the real estate; the other asserts that markets set prices, and lowering the cost of development would yield pure profit to developers who will charge what the market will bear. So, which is it? The Vancouver Sun has a series of articles on housing affordability in Vancouver, BC. One of these articles focuses on development impact fees(among other causes) and their role in affordability. The two basic narratives are on display:

“The significant cost premiums of building new homes in Vancouver, compared to Surrey, leads to two observable results,” said Anne McMullin, president and CEO of the Urban Development Institute. “Either the increased costs will inevitably be passed on to homebuyers or the viability of building new market housing will be suppressed. Regardless, the end game is a more unaffordable and less socially sustainable city.”

She says the most obvious way to address affordability is to look at the costs and supply of housing.

“Costs affect supply — if it’s too expensive to build, you’re going to limit the supply. But we still have the demand. There’s always going to be a demand — there are buyers who can afford it.”

But Brian Jackson, the City of Vancouver’s general manager of planning, says market demand drives the price of housing much more than the costs of development.

“If we took $1,000 off the cost of the CACs or we took $1,000 off the cost of the DCLs,” Jackson said, referring to two types of city development fees, “is the developer going to take $1,000 off the cost of selling the house? I don’t think they would – they’re going to get the highest price that they could.”

These two narratives aren’t necessarily at odds with one another. In the short run, a small decrease in development fees (thereby lowering the cost of development) wouldn’t likely lower costs. However, the total fee amounts per unit in Vancouver are substantial – on the order of $76,000 per unit, according to the Sun’s figures. That’s roughly equivalent to the cost of an underground parking space. If you were to remove the fees, would developers merely pocket the difference as extra profit? Recall research on the liberalization of parking space requirements in Los Angeles: removal of these requirements lowered the cost of development in Downtown LA, but the results were not merely additional profit for developers. Instead, the lower development costs allowed developers the flexibility to build for a wider variety of sub-markets and price points.

Instead of the high-cost regulations forcing them to build Cadillacs, lower costs allow them to build a wider variety of products to meet a wider range of price points. If the costs are too high, developers have little choice but to aim for the luxury submarkets.

Markets do indeed set prices; and in the short term, developers won’t necessarily lower their prices. However, the markets are deeper and more complex in the longer run and allowing flexibility to build to those submarkets will produce a wider range of products, not just catering to the luxury set. As that housing ages, it can filter to lower-priced submarkets. Filtering isn’t a set policy so much as it is a description of  how housing markets work.

Note that some of these Vancouver fees might only apply to units in re-zoned developments. However, that raises the question of if there is enough by-right development capacity not just within a city or political jurisdiction, but in areas with demand for market-rate development. Also note that in many places, by-right development is increasingly rare, subject to negotiation and incentives as a part of the approvals process. A profile of New York’s Amanda Burden in last year’s New York Times noted that “there really doesn’t seem to be any true as-of-right development anymore.”

Those development fees aren’t just collected for fun, however. They’re paying for something. However, as is the case with parking, is collecting these fees the best way to accomplish the goals? Over at Human Transit, Jarrett Walker notes some of the perverse incentives baked into development fees, and the unintended consequences therein. Jarrett cites this post from the Pembina Institute, looking at the often-perverse incentives packaged into these fees:

Developers continue to build in sprawling greenfields because it is often cheaper and easier than building developments in walkable, transit-oriented neighbourhoods. Lack of supply means homebuyers are priced out of these locations and are literally “driven” to the urban and suburban fringes, where long and stressful auto commutes are required — and this only leads to more congestion.

Building transit is only one half of the solution. Toronto also needs to make sure we get the right mix of development in the right places to support and use transit infrastructure. Perhaps this current process of examining revenue tools will create an opportunity to do so.

As noted previously, a great deal of development will follow the path of least resistance. These kinds of fees might provide an easy way to fund new infrastructure, but they also add to the overall cost of development. Other tools for capturing that value and channeling it to the needed projects might offer fewer unintended consequences. One such unintended consequence is to push development into outlying areas, or force development to only serve the luxury submarket.

Graphic standards on the Subway – a lesson for Metro as it evaluates the future of ‘Metro Brown’

Today, Second Ave Sagas linked to a digitized copy of Massimo Vignelli’s 1970 graphics standards manual for the New York City Subway. The photographed pages of the manual describe, in exacting detail, the graphic look and feel and philosophy of wayfinding signage for the Subway. While Vignelli’s schematic map (a scan of the map can be found here; discussion of the map’s legacy here and here; and for more from Vignelli himself, see this outtake from Helvetica) didn’t make it out of the 70s, his graphic legacy lives on through the system’s signage.

Henry Grabar wrote about the digital version of the manual in Atlantic Cities in March, adding some history to the conversation. One such change was the inversion of the standards from black text on a white background to the system’s current white text on a black background as a measure to discourage graffiti, though there are claims that white on black is more legible. On a temporary basis, some black-on-white signs have returned.

One of the more interesting pages from the manual shows how signs showing options should only appear at decision points along the way to a train – not before, and not after:

The text at the top of the page reads (out of the frame of the screen capture above, view the full page with magnification to read the text):

This diagram explains the sequence of information to the subway rider. It is a branching system that will lead him to his destination as directly as possible. The basic concept of this branching system is that the subway rider should be given only information at the point of decision. Never before. Never after.

All of the discussion about the manual emphasizes the power of standards. For a detailed history of New York’s struggle with diverse signage, see Paul Shaw’s online work, based on his book. The history of New York’s signage is understandably turbulent, but the level of coherency that comes through for users given the scale of the system is remarkable.

This puts Metro’s recent discussions about moving away from ‘Metro Brown’ into context. If any of New York’s standards look familiar, it is because Vignelli worked on both systems. Vignelli was a consultant to Harry Weese (architect), along with Lance Wyman (map designer), and reportedly was the one to coin the name ‘Metro’ and create the ‘M’ logo. Given the efforts in New York to standardize wayfinding signage, why move in the opposite direction now?

What’s wrong with ‘Metro Brown?’

Last week, the Washington Post featured a lengthy profile of WMATA’s head architect, the man behind the concepts in Metro’s recently unveiled ‘station of the future‘ concept. The article offers some insight into the thinking behind the proposed re-design of the Bethesda station, as well as some of the pushback Metro has received already from the Commission on Fine Arts (among others).

Some changes seem sensible, like higher-output light fixtures to replace current fixtures, with the goal of increased light levels while staying true to Harry Weese’s indirect lighting scheme. These seem more like mechanical or operational challenges for the most part, the kind of behind-the-scenes stuff that won’t make such a huge difference in the appearance of stations.

Other proposals seem like change for the sake of change: replacing bronze with stainless steel, for example:

Karadimov acknowledges bronze as a central element of the “original palate” of Metro. But operationally, it is not ideal. Bronze needs polishing, not just cleaning, and the grime on the railing in Bethesda easily comes off to the touch. In the NoMa-Gallaudet and Largo stations, some of the system’s newest, there are already stainless steel railings that Karadimov says are less expensive to clean (though he did not have a cost estimate) and lighter in color. Same for the first group of five Silver Line stations under construction and the canopies that cover some Metro entrances.

Karadimov proposed replacing the bronze railings and escalator panels throughout the Bethesda station with stainless steel; after criticism over the idea of stripping out so much bronze, however, he retreated, agreeing not to replace the bronze with stainless steel or any concrete parapets with glass. Instead he says Metro will keep all its bronze railings. But he says the escalator panels are a less central element that needs replacing. “That is one thing that we are going to have to have a further conversation about,” he said.

While stainless steel might require less maintenance, that doesn’t make it maintenance-free. Plenty of Metro’s entrance canopies are already showing their age, along with accumulated dirt and grime. Likewise, I can’t see any objection to the use of stainless steel features in new stations, but fail to see why this is such a critical element for the improvement of existing stations. If an escalator replacement opens the door for a stainless steel enclosure instead of a bronze one, so be it – this would hardly be Metro’s first stainless escalator. However, that reasoning doesn’t apply to bronze railings that are not in need of replacement.

Stainless steel station elements at NoMa-Gallaudet U Station. Photo by author.

Aside from bronze, the other element of Metro’s aesthetic under attack is the color brown:

But if the stations are to get brighter, Karadimov said, brown cannot continue to be the dominant color. “We’re not going to keep any brown,” he said. “We believe that having a lighter color will help make the station more bright.”

Like the bronze, brown unquestionably contributes to the placid feeling of the stations, but Karadimov said it contributes just as strongly to views that the stations appear dated. Whether the agency will have to retreat on the color brown as it did on bronze has not been decided.

Karadimov also has not formally proposed a color to replace it. He talks about light gray and silver, which he said would make signage easier to read, but without stainless steel to pair it with he may have to reconsider.

As ubiquitous as brown is within the Metro system, it is by no means the dominant color inside stations. The complaint that bronze is too dark seems to ring hollow, as well. Concrete and the red tiles are far more dominant in the palate than either brown or bronze.

Brown elements are limited to accent pieces and signage. The shade of brown itself is so dark that it doesn’t readily register as a brown at all, but almost a black-brown. Contrary to the assertion from Metro, this dark background provides a great deal of contrast for white lettering, making signage easy to read. White text on dark backgrounds is hardly unique to DC in terms of mass transit signage, either.

Combination of stainless steel, painted steel, and brown signage elements at NoMa-Gallaudet U Station. Photo by author.

Even in Metro’s newer stations (those not a part of the originally planned system), Metro’s white-text-on-brown-background signage standard remained intact. Why change it now and disrupt the uniformity across the system?

The addition of gray elements to Metro’s signage scheme is not new, either. Gallery Place, WMATA’s designated ‘test’ station for new signage, has seen lots of designs over the years, including different background colors and fonts and backlit signage, and the use of gray backgrounds for directional arrows – but none abandon Metro Brown.