Tuesday, November 25, 2014

The cargo cult of railyard decks

I recently wrote about a proposal to build a deck over the Sunnyside Yards. This got me thinking about these projects in general. I'm afraid that railyard decks have become part of what Ryan McGreal called "cargo cult urbanism," along with convention centers, casinos, "bus rapid transit" and a "High Line": things that have high-profile associations with rapid increases in prosperity, things that people latch onto when they're desperate for improvement but unable to think clearly about what will actually improve things, or unwilling to admit that they don't know.

There is always a high-profile example that does plausibly bring prosperity: the original High Line, the Transmilenio, Foxwoods and McCormick Place may well have done so. But in practice when people try to replicate its success, the promised prosperity often does not materialize. In hindsight, it turns out that the actual generator of prosperity was something else, like upzoning, or that there are diminishing returns as the desire for gambling or conventions or office space is satisfied.

Everyone talks about how much money the New York Central Railroad made by decking over the Vanderbilt Yards in Manhattan and building office space and hotels. As the photo above showed, it didn't happen overnight: construction on the Waldorf-Astoria Hotel started more than twenty years after the Grand Central deck. There were a few other conditions as well: the Central already owned the land and construction was relatively cheap. Most importantly, the IRT subway had just been built linking Grand Central with the existing downtown and with new housing on the Upper West Side and the Bronx. There was a huge amount of pent-up demand for new office space, and the Vanderbilt Yards development made it available. It was this new availability to pent-up demand that made the buildings sell and delivered a profit for the Central.

As Stephen Smith has observed, there is currently pent-up demand for housing, but much less evidence of pent-up demand for office space, in New York City and particularly in one decking project, Hudson Yards. And as Ben Kabak reports, the new subway tunnel bringing people to the Hudson Yards is delayed and over budget. These facts in turn mean dim prospects for office towers or convention centers on future decks, including the Sunnyside Yards.

Given the market conditions that Stephen describes, I have to wonder why city officials continue to try to push commercial development on these decks. I think the reason is that unlike when Grand Central was built, developers aren’t finding private financing for decks over railyards. I would think that the financiers might have a good reason for not lending, but the city pushes ahead with public financing, such as the 50% government financing for Atlantic Yards. How does the city make back its investment? With taxes, and office buildings pay a lot more in taxes than apartment towers, even luxury ones.

Our government needs to be a lot more careful about how it finances big projects like decks over railyards. If a deck can’t be built without full private financing, the government has to have a compelling public interest to step in. That alone would cut down on some of the most unwise projects.

For the Sunnyside Yards, I'm not convinced that there is a compelling public interest in financing a deck. I'll talk about that more in future posts.


Steve Dunham said...

I think you're right. A few years ago, I saw a story in the Boston Globe about a proposed casino in central Mass. An illustration showed it surrounded by many acres of parking. My immediate reaction was that it was based on a premise of cheap gas, and furthermore it was a business where money would change hands without production of any economic good. Yet the developers and apparently the state government were expecting economic rewards from it. I doubt that Massachusetts would benefit from it.

neroden@gmail said...

Incidentally I believe that casino is now going to Springfield MA... next to the train station.

The problem with casino revenues is that they basically exist solely because other areas have banned casinos. So, the more places which allow casinos, the less profitable each casino is.

IAN! Mitchell said...

"The problem with casino revenues is that they basically exist solely because other areas have banned casinos."

Well, that the market hasn't been allowed to produce as much of the good (yes, even goods with negative economic value to the consumer are goods) as consumers demand.