Crisis Grows in Brooklyn- Orgy of Luxury Housing Construction Will Lead to Bank Failures and Abandonment
Dr Mark Naison
Anyone wanting to understand why America's banks are still in trouble need only spend a day driving or walking through the North Brooklyn neighborhoods of Park Slope, Dumbo, Fort Greene, Clinton Hill, Williamsburgh, Greenpoint and Bushwick.
In these now upscale neighborhoods, which less than twenty years ago were considered "marginal" or even blighted, every available inch of vacant land is being filled with luxury condominium towers, most between four and ten stories high, some rising as high as thirty stories above the surrounding landscape.
i am not talking about ten or fifteen buildings. I am talking about hundreds and hundreds of intrusive boxlike structures, some of them astonishing in their ugliness, some of them still in the form of half completed building skeletons, all of them using some form of snob appeal to market themselves to the presumably limitless supply of twenty and thirty something New Yorkers. An advertisement atop one building, pretentiously named "The Azure," located on Classon Avenue, once one of Brooklyn's toughest streets, captures the atmosphere of this new development blitz "Join the Brooklyn Explosion."
No urban planner, or at least no urban planner in his or her right mind, could have imagined the scale or intrusiveness of this orgy of construction. The worst examples, at least to my mind, are on a stretch of 4th Avenue between 25 Street and St Marks Place where at least thirty new building have been put up in the last three years, and in the streets adjoining McCarran Park in Greenpoint, where ten new structures have gone up. These buildings tower above everything surrounding them in what were once struggling working class, immigrant neighborhoods, proclaiming the arrogance and the power, of the city's developers, and the incredible wealth of the city's young professionals whose patronage these developers were courting
But none of these buildings, only about two thirds of which are completed, less than half of which are occupied, could have been built without financing from area banks. Hundreds of billions of dollars of credit were extended to developers on the assumption that the economy would keep expanding and that these developers could recoup a tidy profit on their investment
In the current economic crisis, however, what appeared to be shrewd investments are now but the visual markers a coming collapse.
Given the layoffs and bonus reductions that have already occurred on Wall Street, soon to be followed by layoffs and wage freezes other sectors of the city's economy, few of these apartments can be sold at what once were market rates. Many can't be sold at all except at a huge loss.. Faced with pressure of loans they took out in flush times, developers will have to rent out their apartments, but there is no guarantee the rental income will be enough to keep them from defaulting on their loans
Within the following two or three years, we can expect the following to happen
First, the banks who lend this money will now have billions and billions of dollars of new not performing assets on their books, which added to the others they accumulated by investing in home mortgages, will require new government bailouts to prevent them from going under
And second, the Brooklyn neighborhoods which are the site of this new construction will find themselves with
hundreds of partially filled, or even abandoned, residential structures, with un rented commercial spaces on their ground floors, which are prime targets for vandalism and criminal activity.
The Obama administration, understanding that the coming crisis in commercial real estate will be at least as severe as the one in residential construction and home mortgages, is preparing for a new round of bank rescues that could extend into the trillions, but I see no evidence that elected officials in Brooklyn, or in the Mayor's office, are preparing the coming plague of abandoned, unoccupied luxury properties
At a time when the market for that housing has disappeared, city officials need to start preparing to convert many of them into mixed income developments that provide affordable housing for needy families
and to encourage community groups to create youth programs and arts programs in abandoned store fronts.
But we can't leave this to the politicians to figure out for themselves. Converting abandoned or partially occupied luxury housing to socially constructive use must be immediately put on the agenda of political activists, planning departments in area universities, community planning boards, tenant organizations, and community development groups.
We have a chance to turn tragedy into opportunity and perhaps begin to reverse to gentrification of
North Brooklyn neighborhoods, but only if we move quickly and create an agenda for change before the
Because hit it will. There are no longer enough rich young New Yorkers to fill all these building, so lets make sure these properties don't go to waste!
February 12, 2009