Groundhog day at the Rent Guidelines Board: Part 1, “A historic Low”

July 15, 2014 | Affordability, Apartments, de Blasio, democracy, Housing, Markets, mobs, New York City, Politics, Rent control, Rent Guidelines Board, Rent Stabilization, Rental, Takings | No comments 161 views

By:David A. Smith

gd_00_opening

Phil: Well, it’s Groundhog Day… again… and that must mean that we’re up here at Gobbler’s Knob waiting for the forecast from the world’s most famous groundhog weatherman, Punxsutawney Phil, who’s just about to tell us how much more winter we can expect. 

– Groundhog Day

Walking into the wrong multiplex theater by mistake is an experience of disorientation, either with CGI explosions (action movie), tearful deathbed reconciliations (chick flick), or unkempt gazing through a bridge-crossing bus window (indie), all leaving you wondering, What just happened? And Haven’t I seen this somewhere before? 

gd_02_glum

Did I come in at the wrong time?

And it was with that feeling that, while trawling through the New York City papers as I always do, I came across a story in the New York Daily News (June 23, 2014; black font):

Ignoring Mayor de Blasio’s recommendation, the Rent Guidelines Board declined to enact a rent freeze Monday night and voted instead for modest hikes.

The nine-member board voted 5-4 to allow landlords of the city’s nearly 1 million stabilized units to increase rents by 1% for one-year leases and 2.75% on two-year leases. 

godsil_5_4

Annals of the one percent?  Board Chair Rachel Godsil announcing the decision

Three holdovers from the Bloomberg administration also voted for the modest hikes, as did Sara Williams Willard, a de Blasio appointee who is supposed to advocate for landlords’ interests.

Wiley Norvell, a spokesman for the mayor, said de Blasio was glad the increases weren’t too steep. “The administration is heartened to keep any increase at a historic low,” he said.

protest_sign

Tenants protest hikes on rent-stabilized units.

That amounts to a monthly increase of about $9 for the average one-year lease, and about $25 per month for the average two-year lease.

Nine bucks a month?  One would think this good news for tenants, wouldn’t one? 

The hikes, which apply to leases that begin Oct. 1 or later, are the lowest enacted in the board’s history, but the refusal to pass the first freeze ever infuriated hundreds of tenants who packed the Cooper Union meeting.

Infuriated?, I wondered. 

Angry tenants stormed the stage after the vote while landlords also fumed, saying the low hikes weren’t much better than a freeze.

protesters_gather

Protesters gather at the final vote during the rent guidelines hearing at the Great Hall at Cooper Union on Monday.

With that, I fell down a four-year, seventeen-source rabbit hole:

tenniel_02_rabbit_down

Oh my paws and whiskers, where will this end?

The further down the hole I went, the more I found myself in a maze of twisty little passages, all alike:

paris_catacombs_skulls

Enter the gates of D’Enfer and find the souls of former Rent Guidelines Board members

Sources for this post

The Indypendent (May 11, 2005; powder-blue font)

New York Post (June 24, 2009; brown font)

New York Times (June 24, 2010; violet font)

New York Times (June 27, 2011; yellow font)

The Real Deal (December, 2011; navy blue font)

Rent Stabilization Association blog post (October 11, 2013; sepia font)

New York Observer guest editorial (May 14, 2014; peach font)

New York Daily News (June 11, 2014; emerald font)

New York Daily News (June 13, 2014; blue font)

New York Daily News (June 17, 2014; olive font)

New York Daily News (June 23, 2014; black font)

New York Post (June 23, 2014; teal font)

New York Post (June 24, 2014; orange font)

Curbed New York (June 24, 2014; lavender font)

New York Post (June 25, 2014; gray font)

Rent Stabilization Association blog (June 26, 2014; red font)

Crain’s New York (July 9, 2014; magenta font)

I’ve compiled the articles into a list of sources (see above), so that the story of NYC’s unbelievably dysfunctional rent regulation system can be presented properly, by the issues, and not by the annual circus that the process has become.

1. Procedure without principles

Phil: Can I be serious with you with you for a minute?

Rita: I don’t know. Can you? 

– Groundhog Day

Once upon a time (1974, to be exact), New York City enacted Rent Stabilization as a kinder, gentler (and, I believe, intended to be less obviously Unconstitutional) form of 1947’s NYC rent control.

Rent control versus affordable housing

·         Affordable housing comes from voluntary incentive-based bargaining.  In affordable housing, the government, as an act of conscious policy, creates financial incentives to private sector participants (developers, builders, owners, managers) to induce them voluntarily to create, improve, operate, or preserve the housing as affordable for an interval of time (often decades).  The bargain is explicit: Money in exchange for Affordable Rents/ Costs and Regulatory Oversight.

·         Rent control is a judicial seizure of property rights.  In rent control (by any of its many names), the government uses its police power to seize economic value from private property owners by making it illegal for them to do things they might normally do, such as raise rents, refuse to renew a lease, remove the unit from the rental stock (e.g. move into it or convert it to condominiums).  The owner’s participation is involuntary, it is uncompensated.  And it can be never-ending.

Rent control proponents know all of this, but they recognize that nakedly admitting to taking property rights looks bad, so they obfuscate the seizure with homilies about public need, claims of temporary emergency, specious claims that regulation doesn’t reduce market rent or value, or disingenuous review and appeal procedures.

It is a logical contradiction to be for affordable housing and also for rent control, because they operate under two entirely different belief systems about the rights of private property owners, and they have two entirely different impacts on market behavior.

From that messy birth, the Rent Guidelines Board has always made an impossible mandate that guarantees it can be nothing but a chaotic, virtually anarchic process leading to results guaranteed only to make everyone angry.

[A cynic would suggest a public-choice theory for the Rent Guidelines Board: the Mayor, the City Council, tenant organizers, and un-deserving rent stabilization renters.  The Mayor appoints the board but can say he does not control them.  The City Councilors can grandstand without consequence.  The tenant organizers can vilify landlords and claim perpetual crisis.  In this public-choice theory, the losers are the owners (to be sure), the City of New York’s housing supply, and any semblance of justice or policy.  Over the upcoming parts, readers are invited to evaluate the theory for themselves.  – Ed.]

antishenes

As the antithesis of credulity, I wasn’t the first cynic, and I won’t be the last

1A. The Rent Guidelines Board has no clarity of purpose

The Rent Guidelines Board’s political disingenuity is established in its name.  It doesn’t set guidelines, it sets hard caps on rent increases according to the following (umber font):

The Rent Stabilization Law sets forth the factors that must be considered by the Board prior to the adoption of rent guidelines. These include:

1.     The economic condition of the residential real estate industry in N.Y.C. including such factors as the prevailing and projected (a) real estate taxes and sewer and water rates, (b) gross operating maintenance costs (including insurance rates, governmental fees, cost of fuel and labor costs), (c) costs and availability of financing (including effective rates of interest), and (d) over-all supply of housing accommodations and over-all vacancy rates,

2.     Relevant data from the current and projected cost of living indices for the affected area, and

3.     Such other data as may be made available to it.

Those these factors are intriguing, and can be quantified (and the Rent Guidelines Board commissions annual research on these topics, for instance income and expenses, housing supply), in fact they guarantee food fights, because:

1. There is no stated goal.  What is the purpose of collecting information?  What is the Rent Guidelines Board’s goal?  Is the RGB trying to approximate market rents, to have Net Operating Income (NOI) rise with inflation, to enable owners to maintain and upgrade their properties to market quality (most don’t, because they cannot afford to), to promote new affordable housing (as if anyone would be foolish enough to develop new Rent Stabilized housing).

clueless_as_if

You are a snob and a half!

2. Insofar as goals are implicit, they are contradictory.  The first set of data seems to want the ‘residential real estate industry’ to be healthy; the second seems to want residents to have affordable cost of living.

RGB chair Rachel Godsil [said] the RGB’s job was to prevent “unjust, unreasonable, and oppressive rents.”  

‘Oppressive’ is a value judgment that betrays its speaker’s prejudices.

rachel_godsil

Godsil believes that your biases are implicit, and she can find them for you

She added that it was their job to “protect tenants” and “ensure owners.”

3. Nothing is means-tested.  ‘Cost of living’ varies by who you are, where you live, how much you make, and what you like to spend it on.  How is this supposed to be evaluated?  Are the income-verification police going to be poking into renters’ finances?  (Under the system, they do not.)

[Continued tomorrow in Part 2.]

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International Law’s Tinkerbell moment: Part 2, The ones who had hissed

July 14, 2014 | Argentina, Bonds, cramdown, Finance, international law, Law, Markets, Politics, Recapitalization, Securities, Speculation, World Cup | No comments 105 views

[Continued from yesterday's Part 1.]

By: David A. Smith

tinkerbell_sleeping

Do you believe in bondholder rights?

“If you believe,” Peter shouted to the voices, “clap your hands; don’t let Tink die.”
Many clapped.
Peter Pan,
Chapter 13, Do you believe in fairies?

As we saw in yesterday’s post, like Tinkerbell international law must be believed in or it vanishes.  And belief in international law has to apply with force when a private entity seeks to hold a sovereign accountable:

Sources used in this post

CAC-handed (November 27, 2012; green font)

Epic CAC (November 13, 2012; brown font):

Dictatorship is uneconomic (February 19, 2013; violet font)

Economist (June 14, 2014)

Fortune (June 16, 2014; red font)

Accountability means that debts not paid are defaulted, and as we’ve seen in the context of municipal bankruptcy, default is sometimes the only option to bring discipline and economic feasibility to an overlevered enterprises.

Argentina's President Cristina Fernandez

The heck with that, it’s time to invade the Falklands again

A leaked memo from Argentina’s lawyers at Cleary Gottlieb Steen & Hamilton LLP, made public before today’s decision, said “The courts, however, have put [Argentina] in a terrible position. In a position that, save that the Supreme Court revises the issue, would seem to be obliging Argentina to fall in default, since no other option resolves the dilemma created by the courts when they gave each one of the hold-outs the power to interrupt the payment of the rest.”

Evidently, for $1,200 an hour, lawyers will cry crocodile tears on command.

huck_finn_king_weeping

Scalia wrote in his opinion that Argentina’s “argument founders at each stop,” noting that the country offered no suitable precedent for its claims.  

scalia_folded

I can destroy that argument in nine words

Whatever one may think of his politics, Justice Scalia’s legal reasoning is always crisp and swift: with a sharp blade, one can slice quickly through.

He adds that NML Capital must be allowed to discover what worldwide assets Argentina holds, and where they are, before it can be determined in court whether or not those assets are up for grabs when it comes to the country repaying its debt to the bondholders.

“To be sure, [NML Capital's] request is bound to turn up information about property that Argentina regards as immune,” Scalia writes in his opinion. “But NML may think the same property not immune.  In which case, Argentina’s self-serving legal assertion will not automatically prevail; the District Court will have to settle the matter.”

huck_finn_kings_money

But he said he was stony broke

It’s been clear for some time that Argentina is headed for yet another bankruptcy (the most recent, in 2001, giving rise to these cases), because as I wrote before, Dictatorship is uneconomic (February 19, 2013; violet font)

As far as I can tell, dictatorships end in only three ways: internal revolution, aggressive war, or economic collapse from hyperinflation, a theory we are close to testing in Argentina.

Markets are the ultimate in legal democracy; they operate only if there is acceptance of the freedom to trade, and the value of currency (or barter).  They are all about choice and information, and they self-correct because they are an ecosystem of decisions.

Because they can only command, not construct, dictators survive only as long as they can plunder a country’s resources (cf. Hugo Chavez); when there is no more to plunder, the dictator falls.  Dictators thus hate markets because markets speak a truth dictators cannot censor:

chavez_parrot

This is Incitatus, my consul!

Already, the Supreme Court’s decision has had a negative effect on Argentina’s markets. In Buenos Aires, the MERVAL index plummeted nearly 6.9% and 550 points within a couple of hours of the high court’s denial.

I root for such plunges because money is the best guerrilla weapon against guns and state-owned media:

Markets thus operate to strengthen liberal democracy (lower-case letters), and conversely the hurly-burly of democracy, a marketplace of ideas, operates to strengthen economic freedoms and economic activity.  That’s why so many political theorists believe that one cannot have a successful economy in a full-blown autocracy, and hence countries like Singapore and China are so much studied.

[Though Argentina's president Cristina Kirchner isn't a classical dictator (at least not yet), she followed in the tradition of Evita Peron by succeeding her husband as the country's elected president, and her recent actions, especially those by fiat, consistently suggest that if she is pursuing dictatorship if it can be taken incrementally.  So we'll consider her a dictator-in-training. – Ed.]

Thus the Supreme Court’s two rulings meaning it really is crunch time, for Argentina and for international law as it may apply to capital:

Its legal options exhausted, only unpleasant choices remain.

really_yucky

[1] Argentina could pay NML the $1.3 billion it demands. But that would also open it up to similar claims by other hold-out bondholders, who were not involved in the litigation but would surely like the same treatment.

Absolutely, and it should put Argentina at risk.  Every other bondholder, especially the crumplers, now feels a fool.

Argentina has estimated the value of these claims to be $15 billion; NML guesses they’re more like $6 billion.

This among others is why the creditors, led by NML, have to be able to investigate all of Argentina’s global assets.  The country famous for sheltering dictators (including selling blank passports) and declaring bankruptcy when convenient now cries poverty, but won’t let anybody test it.

huck_finn_king_duke_bed

As you can see, I’m wholly destitute

[2] Argentina could negotiate with NML. The investment fund has expressed its willingness to haggle, but Argentina has so far refused.

NML’s willingness to haggle drops with each legal victory.

The country has claimed that the Right Upon Future Offers (RUFO) clause included in the restructured bonds preclude it from offering the hold-outs a better deal than the one it extended to the bondholders who accepted the 2005 and 2010 debt exchanges.

rufo_clause

The RUFO language, via the Financial Times

In other words, We owe those whom we screwed already more fair treatment than we give those we were unable to screw.

huck_finn_king_duke_jawing

I have priority! No, I do!

NML rubbishes that argument. The RUFO clause only prohibits Argentina from “voluntarily” offering to exchange or purchase the hold-out bonds, it says. Since the New York courts have ordered Argentina to pay the hold-outs, even an extrajudicial settlement could be interpreted as involuntary.

NML adds that if Argentina truly believed the RUFO clause impeded negotiation, they could request that the holders of restructured bonds waive that provision in order to ensure a resolution and avert default.

Exactly – Argentina will default only if it won’t ask those who it screwed once to let bygones be bygones.

screwed_you_again

Past performance is no guarantee of future results

The problem with the negotiation option is political.

It’s not political at all, unless you call a dictator’s ego political.

President Cristina Fernandez de Kirchner and her lackeys have railed against NML, avowing never to pay or negotiate with them.  

Dictators always rail.  It’s what they do.

cristina_flat_hand

I’ll never pay … until I have to

Some didn’t.
A few beasts hissed.
Peter Pan,
Chapter 13, Do you believe in fairies?

Still, she probably has the fools in Argentina on her side, and ain’t that a big enough majority in Argentina?

Ms Fernandez’s political base seems to have shrunk to a core that will support her blindly, come what may.

But past form suggests she will find it hard to eat her words, even if negotiation seems the best option.

Past form suggests that Ms. Fernandez de Kirchner isn’t very smart, she’s just sexually and politically charming. 

cristina_cleavage

You wouldn’t hold me to those silly papers, would you?

Fortunately, charm counts for little in court.

Argentina’s next payment on its exchange bonds is due on June 30th.

huck_finn_king_confronts_huck

Did you get my money?

You mean, ‘my money’?

It didn’t happen, though Argentina still has a 30-day grace period before a default. 

Default would crush Argentina’s hopes of returning to international capital markets, however.

They knew the job was dangerous when they took it.

It would be best if Argentina could reach a settlement with the hold-outs. But Argentina does not always make the best choices.

From the Miami Herald (June 30, 2014):

“Argentina’s professed willingness to negotiate with its creditors has proven to be just another broken promise. NML is at the table, ready to talk, but Argentina has refused to negotiate any aspect of this dispute,” Elliott Management, which runs NML said in a statement.

“There are no negotiations underway, there have been no negotiations, and Argentina refuses to commit to negotiations in the future. Argentina’s government has chosen to put the country on the brink of default. We sincerely hope it reconsiders this dead-end path.”

Argentina will reconsider as long as the capital markets (including counterparty governments) believe in international law. 

Tink was saved.  First her voice grew strong, then she popped out of bed, then she was flashing through the room more merry and impudent than ever. She never thought of thanking those who believed, but she would have like to get at the ones who had hissed.

Peter Pan, Chapter 13, Do you believe in fairies?

tinkerbell_angry

I have a long memory, Cristina

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International Law’s Tinkerbell Moment: Part 1, What do you think?

July 11, 2014 | Argentina, Bonds, cramdown, Finance, international law, Law, Markets, Politics, Recapitalization, Securities, Speculation, World Cup | 1 comment 238 views

By: David A. Smith

Do you believe in international law?

Tinkerbell’s voice was so low that at first he could not make out what she said. Then he made it out.

Peter Pan, Chapter 13, Do you believe in fairies?

Though ‘international law’ does not exist (it presupposes a lawgiver with dominion over all), international markets indubitably do exist, and in markets can be a reckoning that acts as a financial law, as reported in the Economist (June 14, 2014) and Fortune (June 16, 2014; red font):

On June 16, the United States Supreme Court threw a large spanner in the works when it decided against Argentina in two separate cases related to the country’s “hold-out” bondholders.

Technical Problem

That took a conscious action

[The Financial Times calls the Argentina case “the trial of the century in sovereign debt restructuring” and provides a fantastic inventory of its articles on the subject, complete with erudite titular puns – Ed.]

Even the staid Economist succumbs to journalistic hyperbole: Technically, by declining to hear the appeal, the Supreme Court didn’t unthrow the spanners already thrown by lower court decisions.

Though a mere bystander, I count this as a personal victory.  If international law means anything to those who advocate it, it has to protect private entities against government tyranny, and unilaterally repudiating debts is a form of tyranny. 

huck_finn_bag_of_money

You give me the money, and I will make a careful reckoning of it

The Supreme Court declined to hear Argentina’s defence against NML Capital, a ‘vulture’ investor that bought up distressed bonds following Argentina’s 2001 default and has been chasing payment of full principal plus interest instead of accepting a debt exchange, as 93% of bondholders did in two restructurings in 2005 and 2010. Citing a clause in the original bond documentation called pari passu, NML argues that the holders of these restructured bonds should not be paid if they, the hold-outs, are not also remunerated. This view was supported by a district court in New York—the bonds were mostly issued under New York law–and then upheld by an appeals courts.

Though Argentina now cries poor, that’s rank hypocrisy.  Argentina didn’t have to come to New York to raise money; it chose to issue the bonds in the jurisdiction of a country internationally respected for the rule of law as it applies to capital instruments so that it could get a lower interest rate based on the capital markets’ expectation that actual law would apply to debt, instead of whatever Cristina Fernandez de Kirchner felt like paying on her nation’s credit card.

cristina_shoes

She manages to spend $100,000 on shoes

Now the Argentinians object to being held to the standard that they crossed mighty oceans to submit to. As I wrote initially on this subject, in Epic CAC (November 13, 2012; brown font):

You thought you had rights – and then you find they’re worthless, because they’re government obligations and the government is currently in the hands thieves and scoundrels, so you’re out of luck, aren’t you? 

Having screwed a previous round of investors (and, as it thought, gotten away with it), the Argentinians are now back at the same doors, claiming to be reformed:

Argentina has tried hard in the past few months to show it is ready to make its peace with international capital markets. It has belatedly recognised several decisions by the International Centre for Settlement of Investment Disputes (ICSID), an arbitration body; it agreed a compensation deal with Repsol, after the Spanish firm’s stake in YPF, an oil firm, was expropriated in 2012; and just last month it reached a deal on its outstanding debts to the Paris Club, a group of official creditors.

Like your sneaky little brother, who shouts ‘Ow! I give up!’ in rough-housing so that you’d release him to jump on you again, Argentina is betting that the capital markets will either be wilfully stupid or foolishly forgiving. 

She was saying that she thought she could get well again if children believed in fairies.

Peter Pan, Chapter 13, Do you believe in fairies?

Up to now, however, New York law has stood for something.  As I wrote in CAC-handed (November 27, 2012; green font)

Though virtue often has to be its own reward, every now and then standing up for principle and not knuckling under to sovereign coercion is sometimes acknowledged even if not rewarded, and that is rare enough to be celebrated even if it is only an interim victory, as reported recently in the Wall Street Journal (November 21, 2012).

[Snip]  As we saw a while back, Argentina strong-armed most of its creditors into acquiescing in having their bonds unilaterally cut 65%], but a few entities, most notably an American hedge fund, rejected the coerced settlement and have stuck to their guns.

texas_cloverleaf

You’ll take 35% of par, won’t you?

Capital bargains are exercises in trust and human ingratitude.  Trust me, says the applicant, I am worthy, I am honorable, I will repay your trust.  The cash is handed over, it is spent for the worthy purpose, time passes and circumstances change.  Month by month the capital holder must be repaid and the memory of that initial trust grows ever dimmer in the borrower’s mind, thanks giving way to resentment.

Because creditors accept that it’s human nature to be resented, they gradually become used to it and hence to tolerate it … but they cannot tolerate when resentment turns into open breach.  They also rely on no one but themselves, so they want protection in their bond documents.

The holdouts can do so because the bonds lack a ‘collective action clause’ (CAC) under which a supermajority of bondholders can bind all bondholders.  In the abstract, CACs make sense – if there is a restructuring that is overwhelmingly in the bondholders’ interest, one wants to nullify the ‘holdout problem’ where those who don’t consent exploit those who do.  Of course, CACs complicate life for a bond buyer, because that bond buyer must now evaluate whether its rights can be compromised by others (like public-government buyers or major local employers) who are subject to non-economic coercion. 

 

For that reason, CACs are much more dangerous when the issuer is a sovereign government, because when it cheats, its word is law, at least on its home turf – so the creditors are thrown back on extra-national courts, like those in the US, to compel the sovereign to pay attention.

Now you’re a bondholder, and Argentina defaults, so you expect to get your share of payment.  But your fellow bondholders are gutless, or they’re coerced/ extorted by the debtor – which is, after all, a government, and has many powers of coercion – so they crumple.  The debtor decides to reward them for crumpling, and to punish you for sticking to your principles.  So it pays the crumplers and stiffs you.

 

crumpled_can

We crumpled you, because we can

 

If those are the facts, it’s extremely hard to see how such behavior can comport with your bond documents, or anybody else’s bond documents.  It is, in short, an invented distinction.

All up the judicial analytical chain, the courts agreed with this view:

The Supreme Court’s rejection of the case today means that the original district-court order, which says that Argentina should pay NML the full $1.3 billion it claims, is likely to come into effect in the next few days. Argentina could technically ask the Supreme Court to rehear its case, but that is unlikely given that the court virtually never accepts such requests.

The discussion so far relates only to Argentina’s bilateral dealings with investors in the United States, so ‘international law’ is not yet invoked, but it was in the second decision:

Meanwhile, the Supreme Court also sided against Argentina in a related case dealing with the issue of whether or not the holdout creditors can force a pair of banks in New York to disclose information on Argentina’s non-U.S. assets to the debtors seeking repayment. 

Argentina had argued that it was protected under the Foreign Sovereign Immunities Act (FSIA) –

For the record, observe the bald-faced hypocrisy of Argentina traveling to New York to raise money which it then spent in Argentina, then objecting to New Yorkers looking globally for what Argentina might have done with that money.

The bondholders have said that Argentina is exaggerating its inability to pay and urged the Supreme Court to not review the previous decisions of a New York federal judge and the Second U.S. Court of Appeals because, the bondholders said, Argentina would likely ignore any ruling against it in the case anyway.

Because there is no supreme global lawgiver, sovereign nations are hard to bind: ‘international law’ is the catchphrase for a cluster of global international conventions to which independent sovereign nations have subscribed, seeking to create mutual sovereign-binding.

bound_together

This works if we all think it works

– but Justice Antonin Scalia [decided] in his majority opinion that the act does not preclude post-judgment discovery of Argentina’s worldwide assets.

In crying poverty, Argentina has adopted a classical trust-me-I-give-up trick: claiming it is broke and refusing to allow that claim to be proven:

Defaulting on all its bonds is Argentina’s final option. A leaked memo from its lawyers at Cleary Gottlieb Steen & Hamilton LLP, made public before today’s decision –

It’s a moral certainty that leak was deliberate, came from Argentina itself, and that the memo was written with the nudge-nudge expectation it would be leaked.

nudge_nudge_pint

Leaked, eh?  Con-fi-den­-shal?  Say no more!

– spelled out the logic as follows: “Argentina wants to continue paying its restructured debt –

tysiewicz_penitent_magdalene

I repent!  If you let me off the hook!

Oh, of course it does, but those meanies in America want to be paid what they are owed.

silly_rabbit

Silly bondholders, laws are for dictators

She fancied she heard answers in the affirmative, and then again she wasn’t sure.
“What do you think?” she asked Peter.
Peter Pan,
Chapter 13, Do you believe in fairies?

[Continued tomorrow in Part 2.]

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After release from Coventry: Part 2, On a proper submission

July 10, 2014 | Affordable Housing, Boston, BRA, Cities, Density, Development, Don Chiofaro, High-rise, Housing, Land use economics, Local issues, Urbanization, Zoning | No comments 230 views

[Continued from yesterday's Part 1.]

By:David A. Smith

As we saw in yesterday’s post, using an article from the Boston Globe (June 25, 2014), the new Walsh Administration has taken a strikingly different approach to real estate development than did the Menino administrative dictatorship, and while so far all the moves are symbolic, they suggest substance yet to come – and will be put immediately to the test, not personally but economically, because the proposed development is so large it will invite controversy:

In The History of the Rebellion and Civil Wars in England, by Edward Hyde, 1st Earl of Clarendon recounts how Royalist troops captured in Birmingham were taken prisoner to Coventry, a Parliamentarian stronghold.  They were not warmly received.  Wikipedia

edward_hyde

Developers must be both financially cavalier and economically round-headed

Chiofaro asserted that the Harbor Garage cannot be redeveloped unless tall buildings are permitted for the site. He said the buildings need to be of substantial size to produce enough income to offset the $155 million initial cost of the property and the $180 million it will take to move its parking spaces underground. Adding open spaces in and around the site would also be costly.

To a developer, everything is or can be converted into money, and the great trick of development external communications is how to talk finance and economics to an innumerate and deeply suspicious public with succumbing to the developer’s Tourette Syndrome of barking about profits.

cage_face_off

Prof-f-f-fits!

As I observed nearly nine years ago in the context of the Fan Pier (which even today is still only partially developed), too much value is a curse (akin to being an economic struldbrug) because it prevents any development other than one large enough to recover all the sunk cost, including the cost of the failed attempts to raise the earlier sunk costs.

The project must clear a number of hurdles before construction could begin. Although Chiofaro’s proposal drew considerable praise Wednesday, neighbors and members of the waterfront planning committee questioned the density of the development, impacts on traffic, and the shadows it would cast on surrounding property and the water.

While it’s easy to understand why people are concerned about losing the sunlight – we are both diurnal and heliotropic – shadow-prohibitive zoning is an invisible ceiling to a city’s growth, as San Francisco has proven.

Any new buildings would need to be approved by the BRA and state environmental officials who enforce requirements that waterfront developments devote half of the site to open space, among other rules.

So Mr. Chiofaro’s proposal for an atrium isn’t simply his heart’s goodness, it’s grounded in practicality.

Although Chiofaro’s proposal would increase open space on a site that now forms a barrier to the water, it is slightly short of the required 50% of open space. State regulations also require the public space be open to the sky, raising the question of whether his proposed retractable roof meets the technical definition of the rules.

gwb_1976

Does it meet the vision thing?

Rules are wonderful things, but no rule can cover all possible rules. 

kurt_godel

And all blog posts are incomplete too

That is why we have politics, and why politics involves perception.

5. In politics, reality is what people think it is, and that begins with what you say it will be

All developers sell the vision, and the most important selling is political:

During his presentation Wednesday, Chiofaro did not provide images of the tops of his buildings, saying he wants to gather more public reaction before completing the design.  Tower images are usually the most controversial aspect of any new building.

Of course, building tops are among the least consequential for development economics, but the most beloved by spendthrift architects – so Mr. Chiofaro’s deliberate withholding of a design decision about which he does not care one iota is a very shrewd move:

Theodore A. Oatis

Not many people call me ‘shrewd’ and live to tell about it

The absence of allowed him to focus on the improvements he intends to make on the ground floor. Those include shopping and dining options, along with new views of the water.

For Mr. Chiofaro, every square foot of ground floor area he surrenders is an economic loss, but if in the process he gains (say) three square feet like height allowance, then he wins.  As we saw before, to a developer, every architectural or visual feature is negotiable if it gets more verticality.  Mr. Chiofaro has learned his public-relations lessons well, for he now speaks the language of new urbanism:

“We will continue working from the ground up and describe how we think re-imagining a site with zero open space today can ultimately provide so many of the benefits contemplated” in the municipal harbor planning process, Chiofaro said.

Ironically, though I think Mr. Chiofaro is singing from a libretto, I also believe he means it; he’s an aggressive visionary for the technological city, and as a lifelong Bostonian he can appreciate how people come to love a city through their personal experience of its quirks whether cultural or historical.  All he is doing, I believe, is vocalizing what he thinks is so self-evident it needn’t be mentioned. 

chiofaro_arms_folded

Any idiot should know that

He emphasized his project would open up new views of the ocean from the adjacent Rose Fitzgerald Kennedy Greenway and would add more than 27,000 square feet of public open space where there is currently none.

Current_rings_fountain_140625

The current rings fountain outside Harbor Garage.

In this, he is absolutely right: the garage is a throwback to a bygone era when what is now the Greenway was the Central Artery, when Boston Harbor was polluted, and when the waterfront was undesirable and largely unreachable. 

Redevelopment_rings_fountain_140625

Chiofaro’s plan from the fountain’s location.

He said the 70-foot-wide public arcade on the ground floor would connect the Greenway to the harbor, creating more opportunities for waterfront dining, shopping, movies, and concerts. In spring and summer, it could have an open-air lawn and seasonal landscaping. In winter it could be used for an indoor skating rink about the size of the one at New York’s Rockefeller Center.

In tossing out these visions of reclaimed open space, Mr. Chiofaro is careful to use a conditional verb – it could be this, it could be that.  Nothing commits him to anything, and as the Atlantic Yards developers demonstrated, the longer a promised benefit is deferred, the less certain it is, and the easier for the developer to retrade when the spotlight is off.

Chiofaro and his architects — Kohn Pedersen Fox Associates of New York and ADD Inc. of Boston — said the project would become the eastern terminus of the city’s “high-spine” of buildings, the line of towers that runs from the Prudential Center in the Back Bay to the downtown waterfront.

That phrasing makes a virtue of necessity: the towers (if built) will be very tall, and there’s nothing to their east except water.  Plus it’s a stretch to call the barbell-clusters of high-rises a ‘spine’.

July 7, 2011, Boston, MA: (Photo by Michael Ivins/Boston Red Sox)

Hey, at least he’s in there pitching

They noted the complex would be surrounded by other tall buildings at Atlantic Wharf and in the Financial District.

For Mr. Chiofaro, it’s better to let the spokespeople do the speaking:

After his initial development effort failed, the typically outspoken Chiofaro has kept out of the media and redoubled efforts to work with community planners and improve the property’s ground floor. He has also floated his plans inside City Hall.

I sense some effective pre-announcement external-communications strategy by Mr. Chiofaro’s advisors, not just in City Hall but also with the Globe:

His $1 billion proposal would demolish the hulking Harbor Garage on Atlantic Avenue and move its 1,400 parking spaces underground.

Hulking?

ferrigno_hulk

Hulk smash garage

Evidently the Globe has decided to play onside with the developer, for it chooses to describe as a hulk a garage which is by now functionally invisible to the average Bostonian walking the Greenway.

Current_east_india_row_140625

Here’s the existing Harbor Garage from Atlantic Avenue and East India Row.

Redevelopment_east_india_row_140625

And here is the redevelopment concept from Atlantic Avenue and East India Row.

Still, the early pre-introduction served its purpose, of rehabilitating Mr. Chiofaro’s political persona and reopening City Hall for tall-structure development business:

“With its proximity to the Greenway and the waterfront, the Harbor Garage site has great potential to be an iconic destination,” said Nick Martin, a spokesman for the Boston Redevelopment Authority. “We look forward to reviewing Mr. Chiofaro’s latest proposal with fresh eyes.”

chloe_air_kiss

Blowing air kisses toward the proposal

6. Being released from Coventry is a far cry from being approved

“On a proper submission, the penitent is recalled, and welcomed by the mess, as just returned from a journey to Coventry.”  Wikipedia

Though Mr. Chiofaro has been allowed to return to court, there is a long way to go:

The harbor planning committee is charged with making recommendations to the Walsh administration about what should be built along the downtown waterfront between the North End and the Evelyn Moakley Bridge. The committee is reviewing plans to improve public spaces and private development sites.

Some who emerge from chastisement are humbled, and it might be well to appear so even if one is not so.  Others feel vindicated:

2010_angular_towers_140625

In 2010, Chiofaro unveiled plans for a pair of angular towers reaching 470 feet and 615 feet.

Wednesday’s meeting offered glimpses of Chiofaro’s previous combativeness. The 68-year-old developer jabbed a finger into the air as he asserted that the Harbor Garage cannot be redeveloped unless tall buildings are permitted for the site.

At the conclusion of his presentation, Chiofaro put in stark terms the choice that members of the waterfront planning committee — and the broader public — face.

“The reality is that this committee has the power to ensure that the [Harbor] garage remains in place for generations to come,” he said, “or, conversely, to open the door for the garage to come down and become a place that captures the imagination of Boston.”

Hey, dude, you overpaid for it. 

chiofaro_looking_up

But things are looking up

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After release from Coventry: Part 1, Not worthy the cognizance

July 9, 2014 | Affordable Housing, Boston, BRA, Cities, Density, Development, Don Chiofaro, High-rise, Housing, Land use economics, Local issues, Urbanization, Zoning | No comments 284 views

By:David A. Smith

To have been sent to Coventry is regarded as to be absent. It is often used to punish people. Wikipedia

As new Boston mayor Marty Walsh sets his imprint on Boston’s governance, the city’s real estate development must be and is a centerpiece of his emerging policy, as reported in the Boston Globe (June 25, 2014):

Plan for harbor towers wins fresh look at City Hall

take_another_look

Am I seeing what I think I’m seeing?

Revived plans to build a pair of skyscrapers along Boston Harbor are finding a newly receptive audience in City Hall –

Indeed, the Harbor Garage site story is about more than just one downtown parcel, it has policy and governance implications as well.

1. Regime change is a good time to release the ‘political prisoners’

– signaling a possible end to a long-running real estate feud that has for years stalled the redevelopment of prime waterfront.

‘Feud’ is the wrong word, though one can understand the Globe’s squeamishness about using the right word.  It implies continuous conflict, and also implies that conflict is legitimate.  As I’ve posted, and Mr. Chiofaro has for decades loudly maintained, Mayor Menino had a vendetta against Mr. Chiofaro:

To send someone to Coventry is a British idiom meaning to ostracize someone. Typically, this is done by not talking to them, avoiding their company and generally pretending that they no longer exist or are invisible.  Wikipedia

chiofaro_with_mike

Why can’t anybody hear me?

During the compulsory exile, everyone in Boston looked the other way.

His previous versions — with taller towers, one reaching 780 feet — had been blocked by Thomas M. Menino, the former mayor.  

chiofaro_2010_tower_rendering

A tower invisible to the political process: Mr. Chiofaro’s 2010 design

It’s worth reminding the smug Globe that the BRA was always supposed to function as an independent body, and that during the two decades over which Mayor Menino made it into his own development police, the Globe was loudly silent.

The two men became locked in an unusually public feud over the project.

The feud was unusual only in its publicity – no thanks to the Globe – because as I posted, everyone else was cowed by the mayor’s arbitrary development-approval power.  So when Mayor Menino sent Mr. Chiofaro to Coventry, none of his fellow developers held out their hands to him, for their knew the political penalty to be exacted:

“The person sent to Coventry is considered as absent; no one must speak to or answer any question he asks, except relative to duty, under penalty of being also sent to the same place.”  Wikipedia

In bygone centuries, a new king upon being crowned might pardon and free prisoners long condemned, the better to start a reign on notes of charity, and with mayor Menino’s political demise (sadly, he has advanced cancer and may be in failing health), new mayor Walsh has made a political gesture, rendering Mr. Chiofaro visible once again:

Mayor Martin J. Walsh’s administration said Wednesday that it is open to tall buildings on the site of the Harbor Garage —

Theodore A. Oatis

Not only do I want to tear it down, I want to build something much bigger in its place

The restoration of Mr. Chiofaro is more than a statement of personal style, it signals an approach to development, and to governance of development, that is both significant and long overdue.

2. A mayor must enable his city to grow

Aside from the spectacle of a public official allowing personal pique to rule his decisions [Like that never happens anywhere else in America? – Ed.], Mayor Menino’s fixation with ‘retail’ development politics – every decision being made by him – slowed down city development.  That gave candidate Walsh an opening: city development and redevelopment was part of his shake-em-up campaign persona to propose relocating City Hall and redeveloping the entire Government Center parcel (a great idea, by the way), a political Miley that helped him win election.

The Walsh administration is striking a different tone, saying it would consider building proposals that exceed the area’s recommended height limit if they provide the open space and waterfront access required by law.

The mayor realizes that policy will be changed partly by the reform of institutions like the Boston Redevelopment Authority (for reference, see my eight-part opus,Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7, Part 8), and partly by the advancement of individual development proposals and the treatment of prospective developers – and who better to signal a new perspective than pugnacious Don Chiofaro?

chiofaro_candid

I’ll punch the man who says I’m pugnacious

Every city needs a few devil-take-the-hindmost developers whose brio sweeps many along with them, and whose energy creates both visionary possibilities and the political space for a mayor to redefine the city’s approach to development.  Mr. Chiofaro’s return to political visibility is a welcome signal not just of good governance but of ambitious urban development:

– as long as developer Donald J. Chiofaro’s plan also provides [X] adequate open space and [Y] public access to the water.

In stating criteria, mayor Walsh’s administration isn’t just improving rule-making and transparency (see below), it’s also expressing a philosophy of the balance between reve nue and non-revenue uses of the urban environment.

To thrive, twenty-first century cities must grow taller. 

boston_1940

A city of low-rises: Boston, 1940

As they do, space can be captured, pre-empted from public use as it were, either by physical barriers or by deliberate psychological deception . 

And to thrive, twenty-first century cities must also incorporate leisure nodes, evening magnets, and anything else that draws people walking throughout the city from sunup to midnight and beyond.  (All true cities never sleep; something is always open all night, even if it is only the convenience store.)

late_night_boston

Up all night

The 600-foot-tall complex of buildings proposed includes a 70-foot public arcade that would give visitors the rare opportunity to walk down steps directly into the harbor. And the arcade would have a retractable roof allowing for lush landscaping in summer and ice skating in the winter.

Even knowing the city must rise into the sky, who decides when and where?  It begins with land, and land usually (not always) begins with a private developer:

092010rowlings027.jpg

Up is where it’s going to go!

Wednesday’s meeting was the first step in a revival for Chiofaro, one of the city’s most colorful developers, and his highly ambitious project.

3. In urban real estate, value is created by privatizing the sky

His $1 billion proposal would demolish the Harbor Garage on Atlantic Avenue and move its 1,400 parking spaces underground.

Current_from_greenway_140625

A view of the project from the Greenway.

Mr. Chiofaro proposes to move the parking underground because (a) he knows full well that the proposal will never be approved unless it replicates the parking now present, (b) he’ll need all the vertical floor area he can reach to generate the revenue needed to make the economics balance –

He would replace it with two towers — one 600 feet tall, the other 550 feet, both far higher than the property’s recommended height limit of 200 feet.

– and (c) to build that high in the sky, the property will need to sink deep pilings and footings into Boston’s spongy silt under the harbor, and as long as that will be happening anyhow, might as well put the parking there:

Demolished_moved_underground_140625

The concrete Harbor Garage would be demolished and its 1,400 parking spaces moved underground.

Retractable_roof_lush_landscaping_140625

A retractable roof would allow for lush landscaping and open air festivals in summer, and ice skating in winter.

The towers would contain up to 300 hotel rooms, 120 luxury condominiums, and three levels of retail and restaurants.

No affordable housing, Mr. Chiofaro? 

chiofaro_pleading

Do I look like I’m made of money?

He probably thinks he cannot afford it, because the site is cursed with too much purchase price.

4. The site must overcome the cursed economics of too much purchase price, too little existing value

The Harbor Garage is among just a few remaining development sites on the downtown waterfront, which boasts some of the city’s most popular attractions but remains oddly disjointed in places. Chiofaro and his partner on the project, Prudential Financial Inc., bought the property for about $155 million in 2007.

No one forced Mr. Chiofaro to pay that price – actually, he didn’t pay it, Prudential did – and to do so with impeccably bad timing (into the impending financial meltdown and enduring Great Recession) and with friend-losing arrogance. 

In Grose‘s The Dictionary of the Vulgar Tongue, “To send one to Coventry; a punishment inflicted by officers of the army on such of their brethren as are testy or guilty of improper behavior not worthy the cognizance of a court martial.”  Wikipedia

Nevertheless, that money, though sunk, is not forgotten:

andrea_doria

That’s a lot of sunk costs to bring up

[Continued tomorrow in Part 2.]

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