410. High Buildings, High Markets, High Debt. How Soon the Bust?

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High Buildings, High Markets, High Debt.
How Soon the Bust?  

         I have expressed my admiration in the past for the towering high-rise 53W53 at, appropriately, 53 West 53^rd Street in Manhattan, where its tapering glass pinnacle soars into light high above the Museum of Modern Art.  A self-proclaimed architectural wonder designed by the renowned French architect Jean Nouvel, it offers residential condominiums starting at $6.2 million, with the first cloud-loving residents presumably now in occupancy in light-filled residences high above the city’s hurly-burly.  Originally named the Tower Verre (verre = “glass” in French) – a name that I much prefer – it sends its flanks marked with crisscrosses and slanting beams skyward in a dazzling display of steel and glass design.  No friend of the bulky boxlike high-rises cluttering the New York skyline, I view this wonder in awe.

53W53 in June 2018, going up, up, up.
Griss.Jr

         And it is not alone.  Megatowers are taking over the city.  Across the street from legendary and distinctly low-rise Carnegie Hall, One57, a 1,005-foot luxury condo dubbed the “Billionaire Building,” jabs upward, flanked by other colossi giving this stretch of 57^th Street the name “Billionaires Row.”  And right there at 225 West 57^th Street is the supertall Central Park Tower, a 1,550-foot mixed-use commercial / residential building whose 95 floors now make it the tallest building in the city (if one excludes spires), and some say, the world.  All these architectural titans offer sweeping views of Central Park (unless your condo’s windows face south), and are priced for billionaire residents.

The Central Park Tower in March 2019, still under construction.
Griss.Jr

         So the city’s skyline, the most breathtaking in the world, especially if viewed at night, is going up, up, up.  Where else can it go, if go it must, since developers and residents alike are squeezed in on the narrow, cigar-shaped island of Manhattan, congested in the extreme and unwilling to grasp the daring and controversial new idea of controlled growth, or even no growth at all.  Such a concept is hateful to a city where growth is a tradition, a seeming need, a dream, and a compulsion.

At night there is magic.  Manhattan seen from Governors Island, 2017.
King of Hearts

         To my eye, the Central Park Tower and many other self-proclaimed wonders are just uninspired supertall boxes jutting cloudward.  But 53W53 is not the only one showing imagination.  111 at 111 Murray Street in Tribeca is a curious glass wrap-around of a cylinder gracing that part of town, which, like most neighborhoods, is deemed by designers to merit, in fact desperately need, more luxury condos.  Though offering a mere 64 floors, its crystalline façade emphasizes the curved or rounded form, declares that “modernism lives in Tribeca,” and claims to be visually striking from both inside and outside the building.  Original it certainly is, and the views of the city magnificent.

         Even Brooklyn has succumbed to the construction craze.  The Greenpoint at 21 India Street is a two-building residential complex near the East River waterfront in the Greenpoint section.  Soaring above a 5-story block-long building with rentals, the 400-foot tower offers a multifaceted glass façade that escapes the boxlike look and houses luxury condos with superb views of Manhattan.  The rents?  Starting at $2,383 a month for studios.  And the condos?  Since this is only Brooklyn, a mere $989,000 – under one million! – for a one-roomer.  Of course it’s the condos, starting at the tower’s 28^th floor, that offer the spectacular views.  But the lowly renters at least get the Brooklyn waterfront.

         And who are the residents of these soaring, amenity-rich palaces?  Ah, that’s a well-kept secret.  But not for nothing are there references to the “Billionaire Building” on 57^th Street’s “Billionaires Row.”  You get the idea.  As for the luxury residences themselves, perched high above the shabby neighborhoods of the less affluent, what are they like?  The glossy special sections of the giant realtor Brown Harris Stevens (“Bold Honest Smart”), often inserted in the Sunday New York Times, give us a glance.  Devoid of humanity, the living spaces shown are flooded with light and arranged impeccably, with plump, sterile sofas adorned with cushions, shelves of unread books, polished floors, and atrocious modern art on the walls.  There is a lack of the warmth and messiness of lived-in quarters; prevailing is the cold, rigid beauty of design. 

         Hopefully, even the affluent drop tissues, mess up upholstery, and befoul gleaming surfaces with telltale rings of wine glasses and brandy snifters.  But a March 24 front-page editorial of the New York Times, which so often features these glossy ads, suggests that the absentee residents of these condos, taking advantage of the city’s services as they so airily do, should be subject to a pied-à-terre tax to better fund the city’s schools, subways, and affordable housing.  The editorial notes that hedge-fund magnate Kenneth C. Griffin paid an unprecedented $238 million for a penthouse on Central Park South, when he has another penthouse in Chicago, a condo in Miami, and a mansion in London, each of them worth millions.

Midtown Manhattan, looking north from the Empire State Building, 2005.
And plenty more has happened since.
Jleon of En.Wiki

         But the city’s surging skyline reaps more criticism than this.  Putting up clusters of megatowers, some soreheads observe, contributes to gentrification, inflates real estate prices, and overburdens public services like schools, police and fire departments, and transportation.  Current zoning laws limit buildings not by height but by floor area, and have loopholes that clever developers exploit.  Yet these complaints have failed to impress the Department of Buildings, so developers insist that all is hotsy-totsy, and the craze continues up, up, up.

         Hotsy-totsy?  Certainly, to the infinite glee of our President, the economy is booming, and the stock market, after a nasty little correction last December, is going – you guessed it – up, up, up.  The averages have not quite topped the highs of last September, but they are close.  Tech stocks are the darlings of the moment, and Apple, a company valued at close to $1 trillion, or more than the economies of some entire nations, has seen its stock soar, then dip, then again soar to dizzying heights.

         As many a New York business person knows too well, commercial rents in the city have gone up, up, up, though signs announcing “retail space available” can be seen.  Likewise, consumer confidence, after hitting an 18-year peak in October 2018, has dipped and risen again, and is expected to remain up, up, up.  And consumer debt hit an all-time high of $4 trillion in February 2019, and most Americans are not paying off all their monthly credit card debt, but accumulating more at high interest, so here again is up, up, up.

         But better than any statistics in dramatizing up, up, up is an aerial view of those midtown supertalls.  A glance at just one of those pencil-thin structures soaring skyward, dwarfing all its neighbors, is enough to scare you.  Should buildings be so thin and so tall?  Is such engineering possible, or does it suggest, even scream, hubris?  How can you not think of the Tower of Babel in the book of Genesis (11: 1-9), where presumptuous humans built a tower to reach heaven and threaten You Know Who.  Not to be outdone, the Big I Am caused them to suddenly speak different languages; in the resulting confusion they abandoned the tower and were scattered over the earth.  His Nibs shattered not the tower itself, but the presumption it represented. 

The Tower of Babel, Lucas van Valckenborch, 1594.

         An even more troubling story, strictly historical, concerns the builders of the Gothic cathedrals of Europe, who were able to enclose vast amounts of space and thrust their towers higher.  In the thirteenth century the vaulting of the cathedral of Beauvais in France rose to 157 feet, the tallest in Europe, until in 1284 some of it collapsed.  Interrupted by the Hundred Years’ War with England, work resumed in the sixteenth century, and the central tower, soaring to 502 feet, made the structure the tallest in the world.  And in 1573 the tower collapsed.  What more need be said?

Beauvais cathedral, the high choir.
Txllxt TxllxT

         And could the markets topple as well?  In September 2018 a trader working from his seaside home in Norway made a bad bet trading futures contracts and couldn’t cover a shortfall of tens of millions of dollars.  This provoked a crisis in Nasdaq Clearing, a financial institution that supposedly guarded against any of its members failing.  Since the clearing house lacked the funds needed to cover the shortfall, the trader was declared in default.  It was the first time a Nasdaq Clearing member had defaulted; a crisis threatened.  The situation was contained only when other members pitched in to replenish the default fund.  So one man sitting in front of his computer in a little village in Norway provoked a crisis that shook the world’s financial system.  Nasdaq Clearing has since adopted measures to prevent another such crisis, but one can well wonder how stable the whole system is.

         Recently a book was published relevant to the situation.  Firefighting: The Financial Crisis and Its Lessons (Penguin Books, 2019) has three authors: Ben S. Bernanke, former chairman of the Federal Reserve Board; Timothy F. Geithner, former president of the Federal Reserve Bank of New York; and Henry M. Paulson, Jr., George W. Bush’s Secretary of the Treasury.  These men held the three most influential financial positions in the country, when the financial crisis of 2008-2009 convulsed the entire U.S. financial system, and that of foreign nations as well.  The authors accept a tiny bit of blame for not foreseeing the crisis, and expect a bit of praise for confining it.  Then, having told their story, they assert that we have learned the wrong lessons from the crisis, which means that the next crisis will be worse than the last one.  And who should know, if not this savvy trio?

         Finally, my own two cents on the subject, in a debate with myself.

·      Is up, up, up at some point going to turn into down, down, down?  --  Of course.

·      What does that mean?  Tumbling markets, toppling towers, the public stricken with debt?  --  Don’t know.  Maybe all of that, maybe some.

·      Are the banks still too big to fail?  --  Absolutely.

·      Isn’t there more government oversight than in 2008?  --  Yes, though not enough.  And what there is is being undermined by the Trump administration.

·      How do you know all this?  --  I see what’s happening and reach a conclusion.  It’s just hunches, seasoned with a smidgen of history.

·      Isn’t that presumptuous on your part?  --  It sure is.

·      So you think you’re a market guru, a financial expert, a prophet preaching doom to the masses!  --  No, just a fool among fools voicing what’s on my mind and in my bones.

·      Okay, fool, when will this crisis come?  --  No idea.

·      But you’ll gloat when it does.  You’ll shout, “I told you so!”  --  I won’t gloat.  People will get hurt, lots of them, and not the ones most responsible.

·      And you’re so sure of yourself!  --  Not really.  I hope I’m wrong.

·      So what final advice do you give to the masses?  --  None.  They  haven’t heard of me.  This blog has a small audience.

·      Well, then, what advice would you give your audience?  --  None, unless they ask.  I’m not their financial adviser.

·      Okay, what advice to a close friend who asks?  --  Sell, don’t buy.  If you have a sound long-term financial plan, sit tight and wait this out.  But for God’s sake, shrink your debt.

·      Anything else?  --  Pray.

The collapsed tower of Fonthill Abbey in Wiltshire, England.  It happened three times 

from the 1790s until the early 20th century.  A reminder that towers do collapse.

Coming soon:  Gold.

©  2019  Clifford Browder