TRAPPED IN THE TWO TREES BOX: COMMENTATORS CONTINUE TO MISS THE BIG PICTURE AND FAIL TO CRITICALLY ANALYZE TWO TREES’ PLANS
Recent celebratory articles and editorials (http://www.metropolismag.com/story/20130509/dumbo-principle ; http://untappedcities.com/2013/05/09/behind-the-scenes-at-domino-sugar-factory-construction-with-two-trees/ among others) on Two Trees’ plan demand a thorough response.
As a planner and a resident of the area, I am increasingly dismayed with each new celebratory article on Two Trees’ plan that fails to properly consider the impact of extreme density or consider any kind of alternative to Battery Park City-style residential tower development. Commentators that are usually intelligent are allowing themselves to be boxed into Two Trees’ public relations framework of this project as a triumphant improvement on the “bland” poorly designed developments that have been built (or are soon to be built) elsewhere on the Williamsburg-Greenpoint waterfront.
Of course a mixed-use project with commercial space and a commitment to independent business is superior to towers of condominiums with Duane Reades and bank branches! Is this really the bar we are setting for what constitutes sound urban planning?
In my view, the history of this project in its prior and current form stands as a perfect example of everything that is wrong with planning and development in New York City. We cannot forget the recent history of this site prior to Two Trees. During the 2005 rezoning, city officials pledged that the Domino site would remain industrial despite the closing of the sugar factory. Let’s not forget that the 2005 rezoning itself — the policy that permitted the “homogeneity” of high-rise residential development you complain about — was in stark contradiction to the 197-a community plan that was approved by the City Council in 2002. The community plan called for contextual, mixed light industrial and residential development to complement the existing economic and social diversity of the neighborhood. The community plan was cast aside in 2005 and again cast aside when the City allowed the Community Preservation Corporation to rezone Domino in 2010. CPC and partner Isaac Katan bought the site for only $55 million and were allowed to push through a rezoning allowed for 3 million square feet of high-rise residential development with the potential to generate hundreds of millions in profits. Little effort was made to understand and prepare for the impact of this density on the surrounding low-rise mixed-use community of the Southside. The promised public benefit of 30% affordable housing — 660 units of which only 100 would have been actually affordable to a majority of community residents – was not even legally required in the new zoning but instead memorialized in a now-useless memorandum of understanding.
In hindsight, it is abundantly clear that by the time the plan went through ULURP in 2010, CPC did not intend to actually build their plan. By this time, the organization’s finances were already falling apart due to misguided luxury developments across the tri-state region. The Community Preservation Corporation blatantly lied to the public throughout the process, but it didn’t matter since sufficient political support was already locked in before the ULURP even started through various quid-pro-quos with local officials and non-profit organizations.
CPC bailed out their failing organization with a $135 million profit after selling to Two Trees. Although $185 million sounds like a high price to pay, it comes out to only $55 per buildable square foot in the Two Trees Plan. TerraCRG reports that the average cost for residential zoned land in Williamsburg in 2012 is $160 per buildable square foot. Two Trees now stands to profit immensely off the deception of the Community Preservation Corporation and the fecklessness of the Department of City Planning and public officials.
Two Trees is effectively using the 2010 CPC zoning as a gun to the community’s head – “We already have the right to build 3 million square feet. Give us 400,000 more square feet and we’ll do some things you like – adding mixed-use and local retail – or else we will just build the CPC plan or sell it to someone who will.”
Two Trees will not condone consideration of anything less than their proposed 3.4 million square feet. Let’s be very clear about just how large this is in context. According to the Department of City Planning’s PLUTO data, the entire surrounding area of the twenty city blocks bounded by Kent Avenue, Grand Street, Driggs Avenue, and South 5th Street, has less built square footage (3.28 million) than what Two Trees is proposing for Domino. And with 2,284 proposed apartments, Two Trees’ Domino will more than double the population of this area (with 5,388 residents according to Census 2010). The closest subway stations are more than half a mile from Domino and all the streets in the area are narrow one-way streets that were not designed to handle the proposed level of density.
This Battery Park City model of waterfront development dominated by luxury residential is killing the dynamic mixed-use, mixed-income, mixed-ethnicity character of Williamsburg. Industrial jobs in the 11211 zip code have decline by more than 60% since 2000 and the Hispanic population in Community Board 1 has declined by 23.6%, — a decline that is undoubtedly connected both to the loss of blue-collar jobs and the loss of nearly 16,000 affordable apartments (at rates less than $1,000 a month) during this same period.
Imagine the many creative alternatives for the Domino site that would find synergy with the existing local economy and community…an industrial/creative business incubator, a new university branch (there’s clearly demand – see the Roosevelt Island tech campus), a combination of such developments with 1,000 units of mixed-income housing – the possibilities are limitless.
Unfortunately the opportunities were constrained by the 2010 rezoning gifted to CPC and the new $185 million price paid for the land by Walentas and Two Trees. But even so…does Two Trees need to build 3.4 million square feet in order for the deal to work? A simple financial analysis reveals the answer:
- In a meeting with myself and Megan Sperry last month, Jed Walentas claimed that construction would cost $350 per square foot. But average costs of construction for class A office space in 2011 was $290 per square foot. (http://www.crainsnewyork.com/article/20110926/REAL_ESTATE/110929914).
- Let’s say $300 a square foot for construction costs is a generous estimate. The cost of building the 2,994,212 built square feet (gross minus open space minus community space – which Two Trees’ history shows they will get a subsidy for) in the Two Trees plan at this rate would be roughly $900 million ($898,236,600)
- Mr. Walentas claims he’s paying 5% interest on his acquisition loan (a $94 million loan from M&T Bank), which would be $4.7 million in interest annually.
- Mr. Walentas claims “maintenance” of the complex will be $12 a square foot a year. This would be $35.93 million per year in maintenance.
- Overall in terms of cost of the proposed development, we are looking at $900 million construction cost followed by roughly $40 million a year in maintenance and interest.
- Now to consider projected revenues and profits:
- Let’s say 70% of the proposed 2,283,744 residential square feet will be market rate. This would be 1,598,621 square feet. At $50 a square foot a year (the price Walentas has estimated in public) this would be: $79.9 million in annual revenue from market-rate apartments.
- 631,240 square feet of office space at $25/square foot would be: $15.8 million in annual revenue from commercial.
- 79,250 of retail space. Retail space on Bedford Ave is $80-100 per square foot but let’s guess he will subsidize some of this, so let’s say $70 a square foot for retail: $5.5 million in annual revenue from retail
- 660 units of affordable housing – discussed to be at 60 to 80% AMI. So let’s use 70% as our rough figure. 70% AMI for family of four is $56,140, which would produce an “affordable” rent of $1,403 a month. $1,403 X 12 months = $16,836 X 660 units = $11.1 million in annual revenue from “affordable housing” rent
- According to this rough math, annual revenue from the market rate residential, commercial, and retail will be roughly $112.3 million
- Subtract the $40 million a year in maintenance and interest and we arrive at a figure of $72.3 million in annual profit. This does not include subsidies Two Trees will receive for affordable housing, waterfront infrastructure, which will likely amount to over $100 million in total considering what other waterfront developments have received.)
- It appears that Two Trees will be able to recoup their construction costs within 8 to 12 years and be fully in profit going forward after that, with much higher annual revenues as the projected rents continue to rise with time.
- Using these same $/square foot estimates, what would the financials on a project with 2.4 million total built square feet (1 million less than proposed), slightly less commercial space (500,000 square feet), and 660 units comprising 40% affordable housing at an average of 50% AMI look like?
- $720 million for construction (2.4 million square feet X $300 per square foot)
- $28.8 million annually for maintenance (2.4 million square feet X $12 per square foot)
- $4.7 million annually for interest (loan stays the same)
- 1,680,750 residential square feet. If 70% of the residential square footage is market rate, this amounts to 1,008,450 square feet and $50.4 million in annual revenue from roughly 1,008 market rate apartments.
- 500,000 square feet of commercial space at $25/square foot would be $12.5 million in revenue from commercial
- The same $5.5 million in annual revenue from 79,250 square feet of retail
- Affordable housing: 660 units at an average of 50% AMI ($40,100) an “affordable” rent of $1,002 a month, = $12,024 a year X 660 = $7.9 million from affordable housing
- This project would produce $76.3 million in annual revenue. Subtract maintenance and interest and you are left with roughly $44 million in profit. Again, this does not include subsidies Two Trees will receive for affordable housing, waterfront infrastructure, etc. which will likely amount to over $100 million in total considering what other waterfront developments have received.
- Considering that the projected rents will undoubtedly rise over time, Two Trees would be able to recoup construction costs within roughly 10 to 14 years and be fully in profit going forward after that, with much higher annual revenues as the projected rents continue to rise with time.
So we see that a project of much less overwhelming density and much greater public benefit is indeed financially feasible and an extremely profitable long term investment for Two Trees. Just less profitable than the proposed development.
Of course Two Trees does not need to build so big to turn a healthy profit. And of course Two Trees could provide more public benefit. But in the public-private partnership model we’ve seen on the waterfront and elsewhere in the City under the leadership of Mayor Bloomberg, the public is always the junior partner and the greater public good is constantly sacrificed for the developer’s profits.
Although it is an improvement from the pathetically low bar set by developments like Northside Piers and the Edge, Two Trees’ proposed development continues to follow the same basic model – high-rise development dominated by luxury residential that will spur a new wave of displacement in the surrounding area. Mr. Walentas is well aware of this and has already sent canvassers to the surrounding blocks seeking to purchase additional development sites to further the creation of his luxury-techie-Dubai vision of the Southside.
Local “leadership” cheerfully signs-off on Two Trees’ complete takeover of the neighborhood without scrutiny, and abdicates any role in determining its future. Commentators cheer that we’ll have something better than just towers and Duane Reades. The chance at creating something truly innovative and beneficial to the neighborhood and greater New York City public begins to slip away.