Yuan to buy American housing? Part 2, A high price for the honor

February 2, 2016 | Apartments, Capital control, Capital markets, China, Exchange rates, Finance, Global news, Housing, Investment, Monetary policy, Rental, Speculation, US News | No comments 155 views

By: David A. Smith

[Continued from yesterday’s Part 1.]

In politics, never retreat, never retract, never admit a mistake.

Napoleon Bonaparte

As we saw in yesterday’s Part 1, judging by the report in Bloomberg Business (January 14, 2016) and a similar article and editorial in the Economist’s January 16 issue, something is badly awry in Chinese fiscal and monetary policy, and while such news doesn’t capture headlines or trigger reactions the way building artificial islands does, economics and finance matter, because the nation that cannot fund its industry and its citizens will be wracked with many more problems than just its international posture.

bloomberg_chinas_capital_flight

More important than poll numbers, because they can vote with their feet and their money

As I wrote in September, 2014:

Among the many benefits of capitalism, workforce mobility is too little remarked, perhaps because when Marx was writing, workforces had to go to factories rather than the reverse; but in an information economy, where value chains can be discorporated, talent goes where it maximizes its life quality, and that is a complex equation involving both economic and non-economic factors.  Controlled economies can sometimes produce huge quantities (real or reported) of tangible goods, but in this pursuit they sacrifice everything to do with quality of life.  This works as a starting point when people are extremely poor and tangible goods are directly beneficial in extending healthspan, but once a country achieves a large middle-class, they start demanding more than tractors and concrete blocks – and that a totalitarian country cannot deliver.

While China’s not totalitarian, it is autocratic, and it’s been trying both to harness the markets and dictate to them.

B.        A China that trades cannot sustain its ‘political trilemma’

China’s economy is in an awkward adolescence:

awkward_adolescent

I’ll grow up eventually … won’t I?

It’s a combination of:

·         An emerging-world country with a population that is aging, under-educated, poor, and culturally rural.

·         A developed-world industrial capacity that depends on (x) importing resources from foreigners and (y) exporting finished products to foreigners.

The awkwardness comes from China’s schizophrenia toward foreigners: charming and extroverted when it comes to commerce, fearful and introverted when anything touches society. 

extrovert_introvert

I can never agree with me

The contradiction can never be resolved so long as China holds to it insularity, because markets are places where people tell each other the truth, and that truth is expressed in the price not only of goods and services, but also of the currency with which they are traded.

financial_trilemma

Pick no more than two

What Xi is running up against is what international economists call the trilemma, or the impossible trinity. It says that a country can’t have all three of the following things at once:

1.     Flexible monetary policy

2.     Free flows of capital.

3.     Fixed exchange rate.

They fight one another.  

stooges_pie_fight

How dare you say I’m inflexible

The Eurozone likewise found out about these problems in the context of Greece, Cyprus, and other capital havens, where stapling a weak economy with lax fiscal controls and questionable collection practices resulted in investors piling in to Greek-issued Euro-denominated bonds, and running up the spreads on those bonds to heroic levels.  In fact, if one has fixed exchange rates, then one has only two choices to hold it up:

1.     Tight capital controls, a preferred approach of dictators.  (Which is why it’s one of the infallible leading indicators of a tyrant ruining his or her economy, such as the late Hugo Chavez did to Venezuela.)

venezuela_lining_up

January 29, 2016: Venezuelans queuing for groceries … of which there are scarcely any

2.     The Central Bank makes it a policy of sustaining the desired exchange rate by buying or selling contrary to the market.  This works only if the central bank has effectively infinite reserves of the foreign currency it will need to buy.

Most nations – Western ones, anyhow – have opted for the first two goals: free flows of capital and flexible monetary money.  They have done so because tight capital controls don’t work in a democracy, which Greece found out to its shock, and because they believe that economic growth follows from those two things, and also because when your currency floats in the global markets, your nation is constantly pricing and repricing its goods and services. 

AHI blog posts on China and on foreign investment in US housing

The ultimate in ‘this time it’s different, Jul 18, 2011: 2 parts, Monopoly SOEs

A little learning is a dangerous thing, October 27, 2011: 2 parts, Hukou system

Capital’s bolt hole, December 22, 2011:  Influx of money into New York residential

Old before rich? May 2, 2012, 2 parts: Economy like India, age pyramid like Japan

Ex-mittances, August 17, 2012: French capital buying Manhattan condo’s flats

A theory of China’s cities and housing, August 23, 2012: 7 parts.  Read this one first.

Just outrunning the currency bears, September 24, 2012: Dollar as ‘least bad’ currency

China’s whistling tea-kettle, November 9, 2012: Flight of private capital

Runaway money train, July 22, 2013, 4 parts: Monetary policy out of control

Urbanization, meet displacement, June 13, 2014: Chinese buying Australian homes

Where the money goes, the people will follow, September 19, 2014: 3 parts

Live-in safety deposit boxes, February 10, 2015: Using apartment as bolt holes

For that reason, global currencies in the IMF’s ‘reserve basket’ are members of a club, one that China was keen to join, and in October China did:

lagarde_xi

“Christine, does this mean I’m in the club?”

Xi seems to realize that he paid a high price for the honor of having the Chinese yuan included in the International Monetary Fund’s basket of reserve currencies along with the dollar, the euro, the yen, and the British pound.

Aside from dues and initiation fees, clubs have rules, and President XI is just now discovering what they mean:

To be included in the basket, China had to demonstrate that the yuan was “freely usable.” That forced it to lower some investment barriers—enabling the capital flight now bedeviling the leadership.  


Funny thing about club rules, isn’t it?

fight_club

You do not talk about capital controls, ever

They have consequences.

As soon as China started allowing free (or at least freer) flows of capital, it was inevitable that it would have to give up on one of the other two objectives.

If it wanted to keep the yuan from falling, it would have to raise interest rates higher than is good for the domestic economy, essentially giving up on setting an appropriate monetary policy.  

Or, if it wanted to set interest rates as it pleased, it would have to allow the yuan to sink.

poison_bottles

Choose one

For President Xi, reversing course to exit from the IMF basket of currencies would have been an unthinkable loss of face.  But the alternatives are … unpleasant.

gout_demon

[Continued tomorrow in Part 3.]

Yuan to buy American housing? Part 1, $550 billion in net outflows

February 1, 2016 | Apartments, Capital control, Capital markets, China, Exchange rates, Finance, Global news, Housing, Investment, Monetary policy, Rental, Speculation, US News | No comments 139 views

By: David A. Smith

An army marches on its stomach.

Napoleon Bonaparte

Cap rates for US real estate are at levels so low they haven’t been seen in half a century, and as I’ve discussed in previous posts, so great is the hunger of real estate yield that no one in the business is prepared to see we have seen the market top. 

shark_feeding_frenzy

Dollar-denominated equity yield!!

But when there is this much capital wind blowing in to America (New York, Miami, Los Angeles, San Francisco, even provincial Boston), there must be a great plume of financial steam rising, and as many of us have long suspended, the plume look sat lot like dragon’s breath, for reasons reported in Bloomberg Business (January 14, 2016) and echoed in a similar article and editorial in the Economist’s January 16 issue:

China’s Capital Flight

steam_borehole

Dragon below?

Any purely closed system is a black box – one cannot observe it directly, so one is left making deductions and inferences about the system’s inner workings solely by how it interacts with the outside world, and for the last four years, I’ve been tugging at China’s loose information strands, seeking to make sense of the place.

china_mystery

Insert coins and play the game

AHI blog posts on China and on foreign investment in US housing

The ultimate in ‘this time it’s different, Jul 18, 2011: 2 parts, Monopoly SOEs

A little learning is a dangerous thing, October 27, 2011: 2 parts, Hukou system

Capital’s bolt hole, December 22, 2011:  Influx of money into New York residential

Old before rich? May 2, 2012, 2 parts: Economy like India, age pyramid like Japan

Ex-mittances, August 17, 2012: French capital buying Manhattan condo’s flats

A theory of China’s cities and housing, August 23, 2012: 7 parts.  Read this one first.

Just outrunning the currency bears, September 24, 2012: Dollar as ‘least bad’ currency

China’s whistling tea-kettle, November 9, 2012: Flight of private capital

Runaway money train, July 22, 2013, 4 parts: Monetary policy out of control

Urbanization, meet displacement, June 13, 2014: Chinese buying Australian homes

Where the money goes, the people will follow, September 19, 2014: 3 parts

Live-in safety deposit boxes, February 10, 2015: Using apartment as bolt holes

When I started writing about China, I knew I didn’t know even what I didn’t know; now at least I know some of the things that I definitely don’t know, and I think there are some other things I might partially know:

three_china_premises_breakdown

The Three Laws of China’s Economics?

Starting with this one:

A.        Something is going haywire with China’s fiscal and monetary policy

gone_crazy

Stay calm!  Jobs is on the way!

You don’t need to be a finance expert to know that something’s wrong when an interest rate reaches almost 70%.

Even though that rate spike occurred only in the overnight markets, such a price terrifies trades (because it threatens total credit freeze, which could lead to instant cascading insolvency) and economists (because it means the central bank is turning all the dials to eleven right away.

up_to_11

Nothing higher than eleven

With the yuan suddenly scarce in Hong Kong, the annualized cost of borrowing it overnight there hit 66.82% on Jan. 12—more than 10 times the usual interest rate.

Even though for a single day’s borrowing the actual monetary cost would have been small (roughly 14 basis points, 66.82%/ 365), such an amount on daily borrowing would have felt like a sudden gastrointestinal pain

rock_gas_pain

That really, really hurts

It receded to 8% the next day.

Yes, but when you’ve once had a debilitating internal pain that you cannot anticipate nor alleviate, you move much more gingerly thereafter.

moving_house

I’m betting the house here, so let’s take it slowly

The People’s Bank of China effectively declared war on [money markets] in early January, directing state banks to buy large sums of the currency in Hong Kong to support its value and burn the short sellers.

yuan_to_dollar

“Make that line go up, not down”

A nation imprisons what it fears, and when it imprisons something that the broad populace wants, such as money and the freedom to spend it however one chooses, that nation is fiscally at war not just with the currency traders but also with its citizenry.

And what do they fear?

flying_away

What are we afraid is on that plane?

It’s worth taking a close look at what “capital flight” really means for China. Capital flows out of the country aren’t necessarily bad; they’re simply the mirror image of its trade surplus. Whenever China chooses to use a dollar, euro, pound, or ringgit earned from exports to buy a foreign asset, it’s sending capital abroad.

A country that runs a current account surplus should be buying foreign assets, and continuing to own them without repatriating them.  Real estate is one of the best such assets for expatriating capital because it can be bought in large quantities, it cannot be smuggled back into the country, and it holds its value against many forms of fiscal hysteria. 

coburn_hysteria

Many foreign acquisitions strengthen the country, economically and politically.

When it comes to buying foreign assets and keeping the money and the assets in a foreign location, governments cannot decide which they like less: our citizens using our money to buy something outside our taxing jurisdiction, or their citizens using their money to buy our national treasures.  

japan_business_invasion

How is this possible?  Whose fault is it?

Though such purchases are always seen as proof of our national decline, our global humiliation, many who buy do so at the peak, to their regret.  A wise government is thus happy to see its value-added enterprises and business sold to foreigners for cash; but what of the reverse? 

reversing

Which is better?

The problem now is that more money wants to get out of the country than wants to get in.  Here’s the math: Last year, the IIF estimates, China had a little more than $250 billion coming in from the surplus on its current account, the broadest measure of trade. It got an additional $70 billion or so in net capital from nonresidents, including Chinese companies’ overseas affiliates. But those inflows were swamped by a record $550 billion in net outflows by individuals and companies inside China.

swamped

Too many outflows

Whatever the government may be doing, people and their markets are trying to move vast sums out of China.

Who stashed all that money abroad? The Bank for International Settlements attempted to answer that question in its Quarterly Review in September using the example of a hypothetical Chinese multinational. During the boom years, BIS economist Robert McCauley wrote, such a company made money by borrowing at near-zero rates in the U.S. and Europe, converting the money to yuan, and investing in China at higher yields.  

mccauley_dollar_renminbi

Everybody likes borrowing in dollars

When it comes to borrowing versus investing, interest rates are the flip side of currency conversion ratios:

If you are borrowing in one currency at a rate cheaper than the yield you are making on investments in your own currency, then you should expect your own currency to depreciate by a similar amount faster than the currency in which you are borrowing.  We saw this before when Hungarian home buyers borrowed, at high leverage, from lenders who denominated their low-interest loans in Swiss francs, only to be shocked when the franc was pegged up against the Euro and they faced big ‘margin calls’ of required prepayments on their loans.  That experience, like others before it, led me to formulate a personal rule:

Never lend in foreign currency and never borrow in foreign currency.

– Smith’s rule of arbitrage risk

The point is simply this: Interest rates and currency exchange rates are dependent on decisions made by government and central bankers, and they aren’t going to be seeking to mitigate your risk.  If you play the currency-arbitrage game, you’re playing against the house, on their roulette wheel.

Which has to stop from time to time, as here in China, because even China, large as it is, cannot operate solely inside the Middle Kingdom.

all_under_heaven

We have a mandate from heaven to be at the center of the world

[Continued tomorrow in Part 2.]

Morality, economy, innumeracy, illogic: Part 8, Feeling and history

January 29, 2016 | Air rights, Apartments, Capital markets, Cities, Development, Gentrification, History, Housing, Land use economics, Morality, New York City, Nonprofits, Rental, Theology, Universities, Urbanization, Zoning | No comments 179 views

 [Continued from yesterday’s Part 7 and the preceding Part 1, Part 2, Part 3, Part 4, Part 5, and Part 6.]

By: David A. Smith

douglas_adams

“All opinions are not equal. Some are a very great deal more robust, sophisticated and well supported in logic and argument than others.”
Douglas Adams, The Salmon of Doubt

As we’ve seen in the previous parts of this post, it would have been interesting, in a different way to be sure, had the opponents of Union Theological Seminary’s proposed sale of air rights been able to muster any argument rooted in fact – but unless they have arguments which haven’t surfaced in the half-dozen stories on the subject, including The New York Times (December 11, 2015) and the Wall Street Journal (December 10, 2015; buff blue font), they in fact have none.

Sources used in this post

New York Times (February 16, 1987; Kelly green font)

Union’s Strategic Plan ‘Jubilee’, 2015-2020 (October 21, 2014, pdf; indigo font)

Gothamist (December 9, 2015; brick red font)

Wall Street Journal (December 10, 2015; buff blue font)

The New York Times (December 11, 2015)

Union’s statement (December 17, 2015; sandstone font)

Which raises the question: why were they given the column inches to present them?

feelings_morris

Because it felt like a good idea at the time

5. Feeling is not an argument

“You can gain the world and lose yourself,” said Hyun Kyung Chung, a professor of interfaith engagement, “and I worry that we are going to lose integrity.”

hyun_kyung_chung_map

Chung worries about others losing her integrity

Explain how your integrity will be lost. 

Please use facts.

cumberbatch_holmes

Inevitably one begins to twist facts to support theories, rather than theories to support facts

5a. Consider the alternative

As strongly implied by the previous posts, when it comes to the question of monetizing air rights, at stake for Union is nothing less than its future as an independent institution. 

future_depends

Wake, Stalingrad, Murmansk, Dieppe …

[Union president Rev. Dr. Serene] Jones said she and her board of directors had hired consultants with real-estate savvy who can help, in her words, to “make Union viable for another 75 years.”

That’s worth doing, isn’t it?

All of which, it could be said –

intrenet_cups

We quote only reliable sources

More passive-aggressive editorializing masquerading as journalism.  The reporter cannot find anyone to say what he wants said, nor is he willing to say it himself.  Instead he posits that someone (unidentified, possibly non-existent) could say something (not that this hypothetical source would say so), and on that basis he leaps to the conclusion he was evidently dying to write:

– has left the seminary in the awkward position of using the profane to save the sacred.

‘Profane,’ in this context, doesn’t mean profanity, though I’m tempted to deploy some to illustrate the difference.

ralphie_soap

Remember which one soap is for

It simply means secular, or more precisely, the profane is what we can perceive with our senses and that has real-world existence; the sacred are things that exist beyond that world.  Mr. Vanacore’s existence and his education are profane; his beliefs are sacred in that they are not subject to verification, refutation, or logic. 

The president of Union [in 1987], the Rev. Donald W. Shriver Jr., said he, too, had doubts. ”I think we are all uncertain right now that this is the best thing for Union or for the community,” he said. ”But we are certain that we must take steps to insure our long-range financial stability.”

Dr. Shriver chose not to take those steps, though whether out of doubt, political correctness, or of suddenly declining air rights values only his soul now knows.

donald-w_shriver

Shriver was not shriven

The school, which has roughly 300 students, has joint degrees with Columbia University but is financially independent.

Maybe, like Pagedale, it’s too small to be autonomous.  In 2010, Cambridge’s Episcopal Divinity School, which for many decades had been a small Anglican quadrangle in the nooks or West Cambridge that Harvard had not then colonized and annexed, finally surrendered to the fiscally inevitable and merged itself into another non-Harvard Cambridge academic institution, Lesley University (though, for tender spirits, it is presented as a ‘partnership’).

lesley_brattle_campus

Trading its real estate assets for operating funds: EDS’s dowry to Lesley, the “Brattle Campus”

EDS itself was formed in 1974, as the absorption by Cambridge’s Episcopal Theological School (founded 1867) with the Philadelphia Divinity School (founded 1857). 

ets_drake

ETS in the late nineteenth century

Like Union, ETS and PDS decided their role, to quote Wikipedia’s euphemisms:

PDS and ETS had both attempted to insulate themselves from affiliations with partisan factions within the church, [focusing] on broad social and academic matters rather than issues of churchmanship as such … EDS has continued in that tradition.

They were, in fact, temples of the Church of Linus:

doesnt_matter

Just make sure you’re sincere about the right things

Such a fate is likely in store for Union, unless it sells its air rights pronto, because it’s already fallen under the sway of its expansionist urban Ivy League hegemon:

columbia_expansion

What makes these buildings go up?

Money.

Columbia has so far shown no interest in helping the seminary, as many speculate it’s waiting for the seminary to become truly desperate before making an offer for its property.

Already Columbia has a 999 year lease for the seminary’s library, as well as shorter leases for other facilities.

Bit by bit Union, in a way that no one has objected to because no one noticed, has already traded away valuable real estate rights and circumscribed its freedom of action simply to buy time without rousing the students. 

Critics of the project have argued that they were kept in the dark about the plan until it reached its final stages, but Fred Davie, Union’s executive vice president, said officials brought it to the attention not only of the seminary’s community, but also to the neighborhood at large, approaching local leaders and community groups for approval and assistance.

The Gothamist refuted this foolish assertion even if the Times didn’t.

anatole_foolish

O you factual-normative oppressor, you

Davie attributes the student reaction to the proposal to the seminary’s “transient student population,” where the students who are now in their first and second years never had an opportunity to have a voice in the plans.  

In a commentary on either New York real estate or theological education, it took longer for the plans to mature than it does for an incoming student to get a degree.

“In the theological community,” said Dr. Jones, “we teach that there are no such things as decisions that take place in a perfect environment. I would much rather that someone gave me $125 million.”

Come to think of it, that’s a microcosm for the intellectual cycle of every student-led revolution: arriving late to the scene after long-building forces finally broke into public consciousness, decrying the current state of affairs and blaming those who came before, and then graduating to the next crisis after having stated what should be done without actually doing it.

daniel_cohn_bendit

In 1968, challenging the establishment with a bullhorn at the barricades …

cohn_bendit_today

In 2016, defending the federalization of Europe and its own past statements

He also insisted that the administration is looking into an affordable component for the condo proposal, but doesn’t believe it’s truly the responsibility for an institution like Union Seminary to solve the affordability crisis through its own real estate dealings.

And now, with Section 421-a off the books, that opportunity is temporarily gone.

“Part of what we teach here at Union is that by existing in this world, we are called to find our way through paradoxes. And through realism, and compromise, and the imperfect, impure world in which we live,” Davie said. “We do this when we wrestle with our endowment, when we take contributions from very wealthy people.”

But Union has run out of such things to trade.

“But we just kept working the numbers, and there was no other way of getting what we needed.”

cant_always_get

But if you try sometimes …

5b. Non-existence is not a strategy

“We’re a New York City institution,” Dr. Jones said, “and we have a New York City-sized problem. But fortunately we also have a New York City-sized answer. God is calling us to have another 100 years and air rights are the answer to that call.”

There is a choice.  There is always a choice.

The mere exploration of the idea, however, has already [1987] become a dominant topic on campus, with many students saying that the building of expensive housing is inconsistent with the Christian mission of the school.

Does UTS deserve to exist?

The school, which has roughly 300 students, has joint degrees with Columbia University but is financially independent.

It used to have more:

Operating deficits have been eating away at Union’s modest endowment in recent years. Last year, for example, the school had a $1.1 million deficit in its $8.6 million budget. Nearly all of its 400 students are on some form of scholarship.

In under three decades, Union Theological Seminary has shrunk its student body by one-quarter (‘nearly all of’ whom are on scholarship), has compromised its real estate optionality (a 999-year lease!), experienced ongoing operating deficits, and seen its capital backlog balloon to an amount equal to 1½ times its endowment.  Meanwhile, the loss or decision not to reinvest in its original core-customer profile (the Protestant capitalist) has led Union into a revenue model where the body spiritual (the curriculum) may be morally uplifting but the body temporal (physical campus) is withering away.

However moral some think that to be, fiscally it’s mismanagement, because sums, like physics, will not be fooled.

“All of us are thinking along those lines,” said the Rev. Dr. Amy Butler, senior minister of Riverside Church. “Those of us who have inherited the leadership of these important New York institutions bear the heavy responsibility for ensuring the stability of continued witness in the city.”

rev_dr_amy_butler

Seeking to assure the future of the job of witnessing

riverside_church_postcard

Conceived and financed with Rockefeller money

Begun in 1927, completed in 1930

“Union is a place where the social gospel and a commitment to the poor and the oppressed have always been our key educational model,” said Hyun Kyun Chung, a professor of interfaith engagement. “Now we’re building condominiums for rich people?”

To pay for the rooms you teach in, and the housing your colleagues and students need.

For Dr. Chung and Mr. Vanacore, there is an answer, suggested by WSJ commenter Robert Sartini: 5pts

Why not sell the campus entirely and build affordable housing with the money and a new campus in Buffalo!

It would return the seminary to its traditional location for the contemplation of humanity’s follies: the wilderness.

judean_monastery

High-value air rights here

Morality, economy, innumeracy, illogic: Part 7, Reasoning and choices

January 28, 2016 | Air rights, Apartments, Capital markets, Cities, Development, Gentrification, History, Housing, Land use economics, Morality, New York City, Nonprofits, Rental, Theology, Universities, Urbanization, Zoning | No comments 163 views

[Continued from last week’s Part 6 and the preceding Part 1, Part 2, Part 3, Part 4, and Part 5.]

By: David A. Smith

Technical difficulties addressed

Technical difficulties interrupted the completion of this; apologies for the interruption.  Thanks for your patience.   – Ed.

clinging_roots

Who cares whether my argument is solidly rooted?

Stubborn and ardent clinging to one’s opinion is the best proof of stupidity.

Michel de Montaigne

Though readers may have formed a different impression from the preceding parts of this post, when I began I truly expected to find a sound logical basis for the opposition to Union Theological Seminary’s decision to sell air rights to a corner of its (very small) campus. 

Union, said [President Rev. Dr. Serene Jones], would use the first eight stories of the building for staff housing –

More faculty and staff housing utterly rebuts the claim, advanced without evidence, that allowing development of the air rights and creating more non-Union housing would somehow exacerbate the cost of housing in Union’s neighborhood.

Sources used in this post

New York Times (February 16, 1987; Kelly green font)

Union’s Strategic Plan ‘Jubilee’, 2015-2020 (October 21, 2014, pdf; indigo font)

Gothamist (December 9, 2015; brick red font)

Wall Street Journal (December 10, 2015; buff blue font)

The New York Times (December 11, 2015)

Union’s statement (December 17, 2015; sandstone font)

Not only would the proposal add to Union’s on-campus housing, the university would use the resulting $150 million in proceeds(1½ times its entire endowment) to rejuvenate its campus in ways not seen for three-quarters of a century, to add faculty and student housing, and to beef up scholarships and hence expand the student body

– but the units on the remaining floors would be sold:

[A] To finance the campus renovation

[B] To create a series of modern “smart” classrooms

[C] To increase the seminary’s scholarship fund.

Today’s pulpit is the Web; tomorrow’s is the handheld stream.  Union needs both of it is to remain relevant.

looking_in_alderaan_places

As I say, I went in to this post looking for arguments against what to my profane bean-counter’s eyes sounded like a no-brainer. 

scarecrow_hypotenuse

If it’s bad, I’m sure there must be reasons against it

Instead I found that not only did the opponents have not even a rickety syllogism on their side, the deeper I went into the economics and alternatives, the more compelling became the case to seize the air rights before the market inverts and the money disappears.

4d. Other similarly situated institutions have found selling air rights desirable, and the results have not violated the neighborhood

In debate, I learned from a former friend who was an expert in it, an argument unrebutted is scored as a win for those who advance it. 

Nor is Union the only religious institution in New York City to leverage the value of its real estate.

It’s a pity that this is not so in journalism or the Twitterverse, because it makes discourse into an endless game of Squirrel!

doug_squirrel

trump_pointing

The wall!

U.S. Senator Bernie Sanders speaks at the Communication Workers of America (CWA) office in Washington December 17, 2015. REUTERS/Kevin Lamarque

U.S. Senator Bernie Sanders speaks at the Communication Workers of America (CWA) office in Washington December 17, 2015. REUTERS/Kevin Lamarque

Inequality!

If Union’s position is morally wrong, as asserted by the opponents (who are never numbered, by the way, except in reference to an online petition the cost to sign which is zero), why then have other similar institutions in New York City done precisely the same thing?

The General Theological Seminary in Chelsea, which is affiliated with the Episcopal Church, sold its own air rights for luxury development several years ago

gts_site

On this site in Lower Manhattan since 1826

Curiously, neither the New York Times nor any of the other journalists, and certainly not the development’s opponents, bothered to take five minutes to find via the Google just what happened when GTS did what UTS is considering doing.  Basically, GTS got a similar package to what UTS is pursuing, including a significantly improved campus with student and community amenities:

gts_geothermal_wells

Dean Ward Ewing at the spot where GTS later drilled geothermal wells

The new library with the condo above it, designed by the Polshek Partnership, is to be built on the footprint of Sherrill Hall, a blocky mid-20th-century building of about 75,000 square feet on Ninth Avenue.  Demolition is scheduled to start on Jan. 15 [2008].

It did, and development happened.

sherrill_hall

This (Sherrill Hall) went away …

chelsea_enclave

… and this appeared in its place: Chelsea Enclave

Of course, the development was tortuous and expensive:

It took 14 months and dealing with 12 city agencies for the seminary to gain approval for construction of retail space and market-rate housing above the 20,000-square-foot library.

Eventually, however, GTS completed its renovation and realized its gains, which it used in all the same ways Union is proposing to use.

– and then in 2012 sold a property that it had redeveloped to a company that turned it into the upscale High Line Hotel.

[By the way, in hindsight General Theological Seminary was really shrewd: 2007, with the financial meltdown twelve months in the future and the Great recession yet to come, was a great time to sell air rights, and a not-so-great time to buy them. – Ed.]

arnold_friend

Now is a good time to sell

AHI posts on development and ethics

March 16, 2006: Free as air?.  Introduction to New York City air rights.

September 21, 2007: Joined at the hip.  What is a non-profit?

June 8, 2009: Risks of soft equity; 2 parts.  Dynamics of monetizing air rights.

May 13, 2010: No representation without taxation; 3 parts.  Cost of town services.

May 9, 2011: The battle of charities’ taxation; 4 parts.  Localities chafe at tax exemptions.

March 5, 2012: What’s fair in non-profits’ property taxes?; 4 parts.

March 7, 2013: Cannot we consecrate?; 2 parts.  Contested sale of Scituate church.

March 25, 2015: There’s big money in charity; 5 parts.  Executive compensation.

November 9, 2015: Failure to communicate; 15 parts.  Expansion of university campus

4e. Despite claims that ‘there should be an alternative,’ in 28 years none has been brought forth

Equally remarkable, I found as I did the desk research for this post, is that whenever development opportunities come up in New York City, the opposition is entirely predictable and consistent, as in this from 1987:

Amid questions about its Christian mission and its role in the neighborhood, Union Theological Seminary is cautiously exploring whether to raise money by allowing a developer to build a luxury condominium tower on its Collegiate Gothic campus just north of Columbia University.

As my ultra-shrewd readers will undoubtedly have deduced, back then Union retreated from its development plan, though on the basis of memory I think the then-accelerating financial retrenchment (a byproduct of the 1986 Tax Reform Act) and the insolvency of many lenders (and what became the S&L bailout) had probably depressed the price of air rights so dramatically that Union decided not to transact.

The mere exploration of [selling air rights], however, has already become a dominant topic on campus, with many students saying that the building of expensive housing is inconsistent with the Christian mission of the school.

Twenty-eight years later, the same claims were asserted by opponents, even down to the same incorrect metaphors (Towel of Babel, anyone?),

Though she acknowledged the complaints from her faculty and students –

Dr. Jones is being diplomatic.  She acknowledges that some people criticized her and she declines to point out the absence of logic in their criticisms.

– she also said that the board had considered many options — such as moving the campus or letting it deteriorate — and that selling the air rights was the only feasible plan.

Letting the campus deteriorate?

Moving the campus?  Union did this twice, and each time it moved farther north up Manhattan, selling out of a high-cost and high-value neighborhood and moving in to a lower-cost and lower-value neighborhood where it could expand its footprint and build a new campus, paid for as established in earlier parts of this post) with new philanthropic donations from rich capitalist benefactors.

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Campus-style facility available: cheap!

Odd how no one asked Mr. Vanacore and his allies whether they would endorse moving Union farther away (say, to Ulster, where an architecturally notable building awaits, incredibly cheap, that could make an architecturally wonderful campus with fantastic public spaces).

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Your new chapel awaits

Earlier this year, neighboring Jewish Theological Seminary said it planned to sell development rights, in addition to property, to pay for a new building on its campus that will have a library, public meeting space and student housing.

jewish_theological_seminary

We found the money in the air

“All of us are thinking along those lines,” said the Rev. Dr. Amy Butler, senior minister of Riverside Church. “Those of us who have inherited the leadership of these important New York institutions bear the heavy responsibility for ensuring the stability of continued witness in the city.”

rev_dr_amy_butler

Doing the lord’s work on Riverside

4f. Quibbling about peripheral issues is tacit concession regarding the principle

When tracking an argument, I watch for which side first brings in new minor indictments, because that is a sure sign it is losing.  For instance, evoking the intangible legacy of those long gone as somehow a justification for not changing the physical place:

Another concern on campus is more rooted in emotion than esthetics. Knox Hall is where some of the giants of American Protestant theology have lived, among them Reinhold Niebuhr and Paul Tillich, both of whom taught at Union.

reinhold_niebuhr

God grant me the serenity to accept the things I cannot change … because I am long dead

Then there’s the oxymoron, It’s so capitalist it’ll lose money.

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It makes sense … eventually

Some students also questioned whether the project would be a money maker. ”What makes them think people are going to pay high prices to live on 122d Street?” asked Earl Kooperkamp, a student representative on the budget committee of the board of trustees.

But if richer people won’t want to live there, what is the worry about gentrification or displacement?

Then there’s the always-available indictment of the proposed development partner:

The student opposition has further criticized the company that Union hired to oversee the project, L & M Development Partners, which, they claim, has a history of wage theft, unsafe work conditions and using non-union labor.

When you drag in secondary arguments not about the what but about the how or who, that’s the infallible tell that you’re scraping for rationalizations for your prejudice.

mantegna_house_of_games

Oh, you’re a bad pony and I don’t want to bet on you any more

That’s the classic bait-=and-switch of NIMBYites, and the best example is parking.

Mr. Davie said he had looked into the claims and found them unsubstantiated. “We would not be this far along,” he said, “if we didn’t have absolute confidence in their abilities.”

Actually, I’m surprised the opponents haven’t invoked the other infinitely adaptable criticism of anything: parking.

no_stopping

It depends on the meaning of what ‘stop’ is

[Continued tomorrow in Part 8.]

Ten years a blogger: Part 17, Holmes and housing solutions

January 27, 2016 | Blogs, Capital markets, Cities, Essential posts, Evolution, Finance, Global news, Government, Holmes on housing, Mobile homes, Money, Slums, Theory, US News, Value chain | No comments 132 views

[Continued from yesterday’s Part 16 and the preceding Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8, Part 9, Part 10, Part 11, Part 12, Part 13, Part 14, and Part 15.]

By: David A. Smith

holmes_pipette_watson

‘You see, but you do not observe. The distinction is clear.”

Ten years a blogger, section by section

1.     What is a blog?

2.     What can a blog do?

3.     What are a blog’s literary antecedents?

4.     How is a blog post constructed?

5.     Over the ten years, how has this blog evolved?

6.     The laboratory of housing laws

7.     The ongoing study of housing as urban technology

8.     Slums as market response, asset class, and transitional urban adaptation

9.     Housing’s value chains: Supply side and demand side

10.  Affordable housing and the essential role of government

11.  Housing as evolving technology, not just construction

12.  Housing in the context of cities

13.  Housing tenures and urban land uses

14.  Housing and mobility, including mobile housing

15.  Sherlock Holmes on forms of housing capital

16.  Sherlock Holmes on principles of housing finance

17.  Sherlock Holmes on being the compleat practitioner

Section 17. Sherlock Holmes on being the compleat practitioner

“David will tell you what he thinks.  Sometimes that’s good, and sometimes that’s bad.”

– A former secretary of mine, explaining how to deal with me in an office setting, ~1982.

Holmes also was a keen student of the people who operate in capital and housing markets, on whom he commented from time to time, as in Sherlock Holmes, new urbanist (December, 2005):

“The pressure of public opinion can do in the town what the law cannot accomplish. There is no lane so vile that the scream of a tortured child, or the thud of a drunkard’s blow, does not beget sympathy and indignation among the neighbours, and then the whole machinery of justice is ever so close that a word of complaint can set it going, and there is but a step between the crime and the dock. But look at these lonely houses, each in its own fields, filled for the most part with poor ignorant folk who know little of the law. Think of the deeds of hellish cruelty, the hidden wickedness which may go on, year in, year out, in such places, and none the wiser.” 

 – The Adventure of the Copper Beeches, page 288

holmes_012  

Eyes on the street

Economic hostage: the problem of the noble benefactor (March, 2006):

Paul D. Wolfowitz, read the neat card on Holmes’ salver, Worldly Philosopher.  “Sir,” asked the Great Detective over his pince-nez, “how may I help you?”

 

holmes_013

Our guest was distinguished

 

 “I have the honor to administer a trust operated by a small philanthropic society, whose funds, raised by subscription, are deployed throughout the world to aid the suffering and encourage the enterprising.  My predecessor has placed me in a most untenable situation with an African potentate.  Our society, in concert with certain private investors, funded a major pipeline and refinery to extract the potential from a vast oil field that for decades had lain unused while its owners suffered.”

 

The Exxon-led consortium was willing to build the 665-mile pipeline from landlocked Chad to the sea only with the World Bank’s backing, said Rashad Kaldany, director of oil, gas and mining for the bank and its private investment agency, the International Finance Corporation. With Chad‘s history of civil war, ethnic strife and corruption, its oil lay untapped for decades because no one was willing to put capital at risk here.

 

“The potentate, who is both profligate and corrupt, had no capital to develop these rich natural resources, and was only too happy to sign appropriate covenants assuring that a portion of the royalties from his venture would be set aside to build schools, orphanages, and affordable homes.”

What makes a good consultant?: Part 1a, Part 1b, Part 1c, Part 2a Part 2b, Part 3a and Part 3b (December, 2009):

Holmes was true to his character, even if that meant taking risks to trap a criminal whom the law could not touch:

 

“My dear fellow, I suppose that you will admit that the action is morally justifiable, though technically criminal. To burgle his house is no more than to forcibly take his pocketbook–an action in which you were prepared to aid me.”

I turned it over in my mind.

“Yes,” I said, “it is morally justifiable so long as our object is to take no articles save those which are used for an illegal purpose.”

“Exactly. Since it is morally justifiable, I have only to consider the question of personal risk. Surely a gentleman should not lay much stress upon this, when a lady is in most desperate need of his help?”

“You will be in such a false position.”

The Adventure of Charles Augustus Milverton

 

holmes_014

Let us not be in a false position

 

A consultant should never do that which he believes to be wrong, no matter how earnest the client nor how high the fee.

 

Is constantly learning

 

“Education never ends, Watson. It is a series of lessons with the greatest for the last.”

The Red Circle

 

So is a blog.

holmes_red_circle_04

Another crime against housing?