Moneymaking Machines #2: New York by Gehry
This post is the first of a new series about the seamy underbelly of architectural delight – where architect Tinseltown meets developer Chinatown. Expect sordid tales of greed, ambition, power, influence and betrayal. And that’s just the architects.
Property developers are one of the two significant species of client not yet extinct. Clients with money, property and a desire to build are the basis for all building activity. Architects naturally want a piece of the action. It’s time to shine some light on their marriage of convenience and see what’s in it for whom.
• • •
Before I go further, let me say I’ve no problem with the concept of housing as moneymaking machines for living in. Property developers don’t either – they develop property. It’s what they do. They don’t care if it’s residential, commercial or retail.
The architect’s job is to add value to that property and they don’t care either whether it’s residential, commercial or retail property. My only problem – and it’s a sign of The Great Dysfunctionalism – is that they won’t, can’t admit to either of these things.
My choice of Gehry’s not-so-early* Santa Monica Place shopping mall prettification to illustrate this point is no accident. (* the Big G was 51 in 1980) I’m talking about this dysfunctional building.
8 Spruce Street, originally known as Beekman Tower and currently marketed as New York by Gehry contains only rental apartments.
“The 898 apartments range from 500 square feet (46 m2) to 1,600 square feet (150 m2), and consist of studios, one-, two- and three-bedroom units. All units are priced at market-rate, with no low or moderate income-restricted apartments. It does not contain any units for purchase.“
Let’s have a close-up.
M0A is on Renthop already for $2,815 per month.
You’ll always have company in The Big City, never feel alone – but this is what I was really looking for.
A penthouse will set you back 60,000 clams a month. In The Economics of The Ideal Penthouse, I suggested these “luxury penthouses” are loss leaders that add “prestige” and (thus) further value to the lesser apartments below. Once price per square foot becomes inversely proportional to size, IT’S SHOWTIME! – it makes perfect property development sense to build small, and for rental. Building small gives you a greater density of profit. Building for rental means you never cash in your chips unless the exchange is in your favour.
“The 76th floor Penthouses at New York by Gehry – the highest residences within the tallest residential building in North America – are among the only individual homes designed by Frank Gehry, aside from his personal residence.* These rare spaces offer a once in a lifetime experience above the New York skyline in the most acclaimed building of recent times. Each of the three Penthouse residences occupies its own wing with every detail designed to cater to the most privileged lifestyle by the master himself, Frank Gehry.”
* Really? There’s more at http://www.ncmodernist.org/gehry.htm Thank you ncmodernist, for helping us remember it wasn’t always like what we’re being told it is. People forget that architecture is like pop music – people never just “burst onto the scene”. There’s years of hard graft before their various treks to stardom.
In New York by Gehry, I reckon the first studio apartment (a few galleries back now) has a gross floor area of 350 sq.ft. If the living area is 16′ across, then the 15’3″ vertical dimension is to the window glass, not the wall! (Oh those property developers are such rascally scamps!) What we’re looking at here folks, is micro-dwellings.
To be fair, New York by Gehry wasn’t always going to be rental. According to re-review, the developer, Forest City Ratner, decided to switch from condominiums for sale to apartments for rent. This meant a change in the floor-to-floor height. Those ceilings aren’t looking terrifically high here. A one foot height reduction over 76 floors would, hmmm, give another six, seven floors of apartments.
Other than the penthouses and this apartment, we’ve never been given the opportunity to think too much about what goes on inside of this piece of architecture. (And who is this person in red* with five friends? Did she receive that sofa and the Arco Floor Lamp by Achille and Pier Giacomo Castiglioni for being first to move in?) Just so the residents don’t for a single day ever forget what they’re paying for, all apartments feature Gehry-designed door handles. [* see comments]
Fishy furniture aside, there’s lots of useful history about the planning process and the building here on the website of the Urban Land Institute – they’re thorough! These are the bits I find interesting.
- The 899 apartments range from 500 to 2,500 square feet and include 191 studios, 504 one-bedroom units, 164 two-bedroom units, 23 three-bedroom units, four penthouse units, and 13 units of various sizes that have terraces.
- Approximately one year after leasing began, the building was 78 percent leased, and as of September 2014 the building was 99 percent leased.
- Rents during the first year of leasing averaged about $78 per square foot, which was at the upper end of the range for Manhattan at the time. Most of these initial leases were on the lower floors of the building, because the upper floors were not yet finished.
- Rents have continued to [“]improve[“] each year. As of August 2014 two studio units were available for $3,070 and $3,690 per month. One-bedroom units were available in the $3,990 to $5,585 range, and two-bedroom units were being offered in the $6,090 to $9,490 range.
- The developers also found that as they were completing the project the market was strengthening for larger, high-end units on the penthouse floor, so they redesigned this floor, enlarging the units and reducing the number of units from eight to three.[These became the penthouses we saw above.]
“The first five floors of the 76-story tower house the new Public School 397… By building the school, the developer, Forest City Ratner Companies, was able to secure $203.9 million in tax-exempt Liberty Bonds to finance construction.”
AND NOW FOR THE MONEYMAKING BITS!
- At the time the property was being offered for sale in 2012, effective gross income for the property was projected to be around $54 million in 2013, and this income was projected to rise to about $65 million by 2016.
- After operating expenses, the net operating income was expected to be $41.3 million in 2013, and net cash flow after debt service was projected to be around $25 million. This level of performance exceeds the pro forma estimates.
- Rents have increased on average about $15 per square foot since 2011.
- Concessions are also down considerably from 2011.
- The building is now one of the top-performing buildings in the Forest City Ratner portfolio.
The developer made a series of good decisions.
- The financial crisis of 2008–2009 presented numerous problems for Forest City Ratner. The developer could have put the project on hold or considered reducing the size of the project. Forest City Ratner decided to move forward with the original vision.
- Promptly resolving issues with setbacks and view corridors at the start of the project proved more important than anyone could have known at the time. If litigation had delayed the project at the outset even by a month, the project may have been impossible to finance once the financial crisis took hold.
- Although famous architects have a reputation for being difficult to work with and creating impractical designs, the developers have only positive things to say about working with Frank Gehry, who created a practical, efficient, and manageable building. [SSSH!]
- Because the project was successfully financed just before the financial crisis, the developer was able to renegotiate and lower the development costs during the recession. As a result, the project came online with little competition at a time when the market was recovering.
- The project benefitted from Gehry’s world-class design, which raised the profile of the building and with it the Forest City Ratner brand.
It’s only natural then, that Forest City Ratner should re-name the building New York by Gehry by way of thanks. The Bilbao Guggenheim could be renamed Bilbao by Gehry, OPUS in Hong Kong Hong Kong by Gehry, etc. But this will obviously work best with residential buildings. Now Gehry has outed himself to Forest City Ratner as an architect who delivers practical, efficient and manageable buildings, the team and the formula are in place to roll out a succession of like buildings across North America and, then the world. What are the odds on Miami by Gehry?
I don’t how Gehry could square the commercial lucrativeness of such a venture with the artistic cred needed to sustain it, but he’s managed so far. This is his true genius.