Back during the 2008 financial crisis, JP Morgan Chase took over Bear Stearns. When asked how he knew what to “pay” for BS, CEO Jamie Dimon of JPMC said something along the lines of “How do you value a house? Now how do you value that house when it’s on fire?”
Right now, NYC is that house on fire…
Last week, Moody’s Investor Service downgraded New York City.
What does that mean?
Simply, it will cost NYC more to borrow money…
But you know, it’s never good to be downgraded…
I did a simple research experiment yesterday when I walked to the supermarket. I walked down the west side of Second Avenue, between 24th and 25th St. There are seven entrances on that little strip of land. Three stores are in business. Three stores are for rent. One building is a methadone clinic.
From living around here, I know that they’ve been trying to relocate the meth clinic for years. Rent too high, building too gross.
Now let’s think about the 50% occupancy rate. How do you think something is doing when it’s only half full?
Let’s think about the life expectancy of the businesses that are still there: Subway sandwich shop, Cell phone provider, dry cleaner.
What are the chances that any, or all of these businesses survive?
Subway shops are a franchise and individually owned. This particular location was closed from March to July. I walk by there often and I rarely see anyone in there. It comes down to how much money does the owner want to use to keep this location afloat.
Cell phone provider? How many physical cell phone stores do we actually need now that we can get 24 hour shipping on a new phone?
Dry cleaner. Pre pandemic, having a cleaners was a pretty good business. There are at least 6 dry cleaners within a five minute walk of this place, including one directly across the street. On a personal level, I have not dropped off anything at the cleaners since early March. Do you think the majority are like me or not?
What is my prediction for these stores? One will be out of business by December 31. One will be out of business by March 1.
What does all this mean? Extrapolate. If every little cross section of the city were to have a 50% occupancy rate, with greater than average chance of it hitting 75%, How do you think things will work out?
I know you glass half full people are all saying: “But what about the blocks with 75% occupancy?” To which I answer…”What about the ones with 25%? What about the ones with 0?”
Empty storefronts with no hope of reopening are a bad thing…
FYI: According the the NY Restaurant Association, 9 out of 10 NYC restaurants did not make rent in August. And now they’re working at 25% capacity unless they are blessed with a great outdoor set up and pleasant weather. Even then….will it work?
So now that you get an idea about all the businesses that won’t be paying rent and taxes…
Let’s get to the meat of NYC…office space.
Right now there is still a 25% occupancy rule for NYC buildings. That aside, maybe there’s actually 15-20% of employees showing up to physical office locations. Maybe. When my husband goes into the office he can count on two hands how many people are on the floor…
You must begin to question whether or not most businesses need office space.
If you’re an employer, do you want to pay rent and taxes on locations that you really don’t need? Isn’t everyone always looking for a way to cut costs?
Do organizations need physical space?
If the answer is “No” then what do you do with all the office space?
I know that some of you are going to say: “Make them into shelters for the homeless. Or the elderly.”
Ok. Let’s think about that. For the time being we will forget the pesky little issues of rezoning, renovating, loss of rent, loss of tax revenue, and upkeep. We’ll make believe that unicorns fly over rainbows and these things don’t matter…
Do you have any idea how much office space is in Manhattan alone?
My Husband normally works in a 59 story office building that houses at least 1000 people a floor- and I’d say that’s a very conservative number…
That’s one building…
Do you know how many buildings there are?
Buildings that could go to 20% occupancy as leases run out?
Let’s take a peak at residents.
My apartment building has 17 floors of residents. Assume there are fifteen residents per floor. Now assume that half of those people got out of dodge back in March. If you could leave NYC you did…
Presently there are over 15,000 unoccupied apartments in NYC. That is a record high number of empty places. That number is only going to go up as people’s leases run out and the moving trucks come by.
But what does all this really mean?
Less people means less people spending money here, both on taxes and actual goods and services…
Taxes will go up. Services will be cut. We already know that it’s already become more expensive to borrow money because NYC is becoming a very risky investment…
Middle class people, anyone with an alternate opportunity, will start to move out…
What will be left?
Broadway- closed till at least June 2021. Philharmonic. Carnegie Hall. Madison Square Garden…empty…
Every week I show you pictures of the things that I love about my city. I do this because this is how I like to look at it. But there are other pictures I could send you, the other things I see on a daily basis…
Some of you won’t care if NYC falls. Some will actually be glad. I get that. We’re an arrogant bunch of assholes out here…
But before we completely rewrite history, think back to the 70’s…the last time NYC fell…how did the late 70’s work out for all of you?
One of our friends asked if it was a good time to invest in NYC, you know, buy low sell high. I mean, NYC does always bounce back…doesn’t matter…we just pick ourselves up, dust off and keep on keeping on.
But this time, if people don’t see a need to actually do things here, work or play or whatever…
what exactly would you be investing in?