The de Blasio administration plans to give away to real estate developers 2.6 acres of public property in Lower Manhattan that may be worth more than a quarter of a billion dollars. The public space being privatized consists of arcades, the columned porticos at the ground level of 19 buildings along Water Street, between Whitehall and Fulton Streets. The building owners who receive this largesse will not be required to pay anything, but instead are promising to renovate adjacent plazas (also owned by the taxpayers), in a manner that will belatedly live up to promises made decades ago. Both the plazas and the arcades were created in a series of deals that allowed the developers to build each of these skyscrapers taller and with more space on each floor than would otherwise have been legally permitted. Once privatized, the arcades are expected to be converted into retail space. After the property has been deeded over the building owners, it will be legally impossible to undo the transfer.
A rendering by the Department of City Planning of what the public space at One New York Plaza will look like once the arcades have been privatized and converted to retail.
The measure under consideration by the de Blasio administration’s Department of City Planning (DCP) is called the “Water Street Upgrades Zoning Text Amendment,” and it would allow 113,054 square feet of these arcades to be absorbed and enclosed by the buildings they surround, for conversion into stores that could be rented to commercial tenants. This quantity of square footage translates into 2.595 acres.
The legal protocol for ratifying such a measure calls for it first to be considered by the local community board. During its February 23 monthly meeting, Community Board 1 (CB1) first reviewed the proposal. Planning Committee chair Patrick Kennell began the presentation to the full board, saying, “this has been in the making for almost seven years, in response to community concerns about lack of retail and general unpleasantness of the Water Street corridor. The arcade spaces are largely unused and certainly underperforming. The amendment will allow more than 100,000 square feet of underperforming arcade space to be in-filled. Essentially, they would be enclosed and retail space would be allowed to be put in there. The owners, obviously, will realize a great gain by doing this.”
CB1’s Roger Byrom: “Many of us think that
this administration is rather favorable to developers. If we got something back, I could understand that, but there is no trade here.”
Roger Byrom, the chair of CB1’s Landmarks Committee, “this is a really, in my opinion, outrageous development grab. All these arcades were negotiated, generally, for height increases. We should be saying we want more open space, not less.”
Richard Suarez, DCP’s senior planner for Lower Manhattan, replied, “the arcades are dark, unused, and hard to see. We want public spaces to be useable. Putting retail spaces within the arcades will increase activity on Water Street and make it feel like a New York City street.”
Bruce Ehrmann, co-chair of CB1’s Landmarks Committee, retorted that, “arcades have been dark and empty since the Roman Empire. This is the definition of an arcade.”
Megan McHugh, a member of the Landmarks Committee, observed, “when these public spaces are promised, in exchange to build higher, they are purposely made to not be desirable. It’s an empty promise. This is rewarding that.”
Tom Berton, who sits on CB1’s Seaport/Civic Center Committee, asked, “what does underperforming mean? Who decides? That’s a very loaded word. Those arcades are great places to take your daughter skating or to teach her how to ride a bicycle.”
CB1’s Alice Blank:
“It’s extraordinary that the community board is considering something that is giving up public property for this completely private retail, larger Duane Reade-type use. I don’t get it. I have to say that I hope everyone is really considering the significance of this resolution. I am appalled.”
Alice Blank, an architect who serves in CB1’s Tribeca and Landmarks Committees, said, “you’re basically giving away the public space to private enterprise,” to which Mr. Suarez replied, “that’s the intention, to give away 100,000 square feet of retail space, with great value to the owners.”
Jason Friedman, who sits on the Landmarks and Planning Committees, said, “the arcades give a lot of character to Water Street. There’s plenty of retail there. You don’t have a master plan.”
Ms. Blank added, “I think it’s extraordinary that the community board is considering something that is giving up public property for this completely private retail, larger Duane Reade-type use. I don’t get it. I have to say that I hope everyone is really considering the significance of this resolution. I am appalled.”
When a vote was called, the CB1 resolution supporting the Water Street text amendment was defeated by a margin of 21 (15 opposed, along six abstentions, with count as “no” votes) to 16 “yes” votes. In an unusual move, the measure was then referred back to CB1’s Planning Committee, so that it could be modified and brought up for another vote at the Board’s March meeting.
During the March 22 monthly meeting, Ms. Blank led the charge against the measure, saying, “this is wrong for the community, wrong for the City and a poor model of public policy. The City should not give away the public space without assurance of equivalently valued compensation to the public. Many of the arcades and plazas are already successful public spaces and claims that all these spaces are under-utilized, underperforming and poorly designed are simply misleading and inaccurate.”
CB1’s Joe Lerner: “I resent giving public property over to businesses without getting anything in return. It’s terrible policy.”
CB1 member Joe Lerner said, “I live in that area. I use the arcade and plaza at 200 Water Street all the time. I resent giving public property over to businesses without getting anything in return. It’s terrible policy.”
Mr. Byrom said, I agree with Joe — the plazas and arcades are not perfect, but it’s outdoor space and I can sit down there.” He also reflected that, “many of us think that this administration is rather favorable to developers. I feel that in the 16-plus years that I’ve been on this board, that we are being steamrolled more than we have for a long, long time. If we got something back, I could understand that, but there is no trade here.”
The arcades at Seven Hanover Square contain 12,800 square feet of public space that City Hall wants to transfer to building owners, free of charge. Based on comparable sales data, this space could be expected to fetch $27,916,800 if sold, rather than given away.
CB1’s Tammy Meltzer: “The quid pro quo is that we give the developers this, and they’ll give us what they should have done all along.”
Tammy Meltzer, who sits on the Planning and Battery Park City committees, said, “the quid pro quo is that we give the developers this, and they’ll give us what they should have done all along,” in a reference to the promise to upgrade the public plazas adjacent to the arcades. “We don’t know if there are other ways to improve a public plaza. Is there something the Parks Department could do? What proposals other than this, if any, have been reviewed? This could be very dangerous.”
When the discussion ended and the vote was called, CB1’s resolution supporting the Water Street text amendment was passed by a margin of one vote: 19 in favor, with 11 opposed and seven abstentions.
Curiously absent from both discussions, and never mentioned by those who supported or opposed the measure, was any consideration of what the space being given away is actually worth. Because the transfer of property most closely resembles a sale (although no price is being paid for it), the Broadsheet researched recent transactions in which retail space in Lower Manhattan was sold, rather than rented. (Such “commercial condominiums” are often bought from developers by investors, who then act as landlords to retail tenants.)
One New York Plaza contain 11,180 square feet of public space. Based on comparable rental data, this space can be expected to generate annual income of $4,729,140 for the building owner to whom the City plans to transfer it, free of charge.
The Broadsheet found ten comparable examples of retail space being sold in Lower Manhattan from 2014, 2015, and 2016. The properties were as large as 300,000 square feet and as small as 1,600 square feet. The prices fetched by these retail spaces were as high as $115 million and as low as $4 million. The average price for all the retail space that was sold in Lower Manhattan during this period was $2,181 per square foot.
Using this average as a benchmark, the approximate value of the space that the de Blasio administration plans to give away to building owners in the Wall Street corridor can be gauged at $246,571,733. (This figure was obtained by multiplying 113,054.44 square feet by the average price for local retail condominium sales of $2,181 per square foot.)
Another way to estimate the value of the property that the de Blasio administration plans to gift to developers is to determine how much income it would likely generate per year, if rented, rather than sold. According to Cushman & Wakefield’s MarketBeat Retail Snapshot report for the fourth quarter of 2015, the current, “annual asking rent” for ground-floor retail space in Lower Manhattan is $423 per square foot. This means that the space City Hall wants to give away to Water Street building owners could be expected to generate annual rental income of $47,822,028.
But both sets of figures are misleadingly small, because neither the sales nor the rental income calculations take into account the value added to each of these structures when the developers were allowed to build wider and taller in exchange for their agreement to incorporate arcades and plazas into their plans in the first place.
The DCP’s web page devoted to the Water Street text amendment says that, “within this area are 20 buildings with a total of approximately 225,000 square feet of public plazas and 110,000 square feet of arcades that generated more than 2.5 million square feet of bonus floor area.” To estimate the value of this windfall, it is necessary to calculate based on the value of office (rather than retail) space.
According to the Downtown Office Research Report for the first quarter of 2016, published by Colliers International, the current average sale price for office buildings in Lower Manhattan is $527 per square foot. This translates into additional value for the owners of buildings in the Water Street corridor of $1,317,500,000, a figure obtained by multiplying 2.5 million square feet additional square feet by the sale price $527 per square foot. That converts into a corresponding bonanza in additional rental income. According to the same report from Colliers International, the average rental income for Lower Manhattan office space recently reached as new record: $57.77 per square foot. This yields an annual bonus in rents for the owners of buildings that will benefit from the arcade giveaway of $144,425,000. (This figure was obtained by multiplying 2.5 million square feet by $57.77 per square foot.) Moreover, this figure is only for the current year. (The additional annual rent for this square footage in all the years since these various buildings were erected is beyond the ability of the Broadsheet to calculate.)
The arcades at 32 Old Slip contain 12,000 square feet of public space that the de Blasio administration plans to private by turning over the real estate developers for conversion into retail stores.
At least one of the buildings that will be eligible for this giveaway, 110 Wall Street, has been the focus of recent controversy. The building is owned by Rudin Management and largely occupied by the co-working space firm, WeWork. Together, these companies plan to convert 110 Wall Street into “co-living” spaces under the new brand, WeLive. This conversion plan requires City approval, which was obtained while executives from both firms contributed lavishly to Mayor Bill de Blasio’s planned 2017 campaign for reelection. WeWork vice president Arana Hankin tops the list of contribution “bundlers” to Mr. de Blasio, having given a combined total of $68,750 over just three days in January. Rudin Management chief executive Bill Rudin assembled $25,150 for Mr. de Blasio during the same period, which places him fifth in the ranking of the campaign’s bundlers.
The size of the arcade space at 110 Wall Street that will be eligible for conversion to retail storefronts is 3,163 square feet. This puts its sale value as a commercial condominium at $6,898,503, and the annual rental income it could be expect to generate at $1,337,949, based on the assumptions outlined above. Both of these figures, needless to say, dwarf the combined total of $93,900 that Ms. Hankin and Mr. Rudin have contributed to Mr. de Blasio’s upcoming campaign.
After CB1’s endorsement of the Water Street text amendment on March 22, the City Planning Commission held a public hearing on March 30, and then approved the measure on April 25.
The next, and final hurdle, before the proposal is legally authorized, is consideration by the City Council. This is slated for tomorrow (Wednesday, May 4) at 9:30 am, when the Council’s Subcommittee on Zoning and Franchises will discuss the measure. This meeting, which will take place in the Committee Room, in City Hall, is open to the public.