have determined that this recession, nationally, was the longest and
deepest since the Great Depression. So it was only logical to expect
that Manhattan, the epicenter of this financial crisis, would
ultimately bear its worst brunt.
So far, that hasn’t happened. Job losses and declines in housing
values have been less severe than predicted, and most observers believe
the recession to be officially over, with economic indicators across
the board showing signs of a recovery.
In fact, The Real Deal‘s analysis of 100 years of
statistics, editorial content, and interviews with real estate
professionals who have spent decades in the business suggests that the
“Great Recession” likely ranks as only the fourth-worst over the past
century in terms of its overall impact on Manhattan.
Although the worst could still be yet to come, Manhattan has
struggled more during the Great Depression, the 1970s downturn and the
savings-and-loan crisis of the late 1980s and early 1990s.
Like a broken record, building booms fueled by wildly optimistic
speculation and reckless overleveraging preceded each of these busts.
In each case, Manhattan eventually came back stronger — until the next
As part of its research into how the most recent downturn compared to its predecessors, The Real Deal
created the first-ever graph showing the average transaction price of a
Manhattan building over the past 100 years, adjusted for inflation (see
spread on following page). The data was culled from the dusty volumes
of the now-defunct Real Estate Record and Builders’ Guide — once the
city’s preeminent real estate weekly — and from the Real Estate Board
of New York.
Because the “average transaction price” combines all buildings,
from townhouses to towers, versus a median price for one property
class, the graph provides an overall economic picture of the borough,
reflecting the rental, single-family home, and office markets, as well
as, to a large extent, the availability of credit.
For example, the 67 percent drop in the average transaction price
between 2007 and 2009 was the second-sharpest decline over the past
century (behind a 72 percent drop during the Depression). But it should
be noted that there were a record nine transactions exceeding $1
billion recorded during the credit-happy days of 2007, versus last
year, when there were only $5.5 billion worth of total building sales
and only five above $100 million, according to REBNY data.
That shriveling of sales last year was largely the result of banks’
refusal to lend money. When debt is easy to come by, even the most
amateur developer can get enough financing to make a record-breaking
purchase and start demolition for a 22-story hotel, as was the case
with the site of a former church near Madison Square Garden, and
hundreds of other plots like it. But when credit is tight, sales grind
to a halt, prices diminish, and construction sites lay fallow as they
Today there are more than 100 stalled construction sites in
Manhattan, and unfortunately no historic count to provide a means of
But the sky has not fallen.
Taken together, indicators that measure employment, economic
activity, housing prices and the office market show the city has (so
far) fared better during this past recession than it did during those
three aforementioned downturns. And on some levels it’s performed even
better than during the downturn spurred by the dot-com bust and Sept.
Those indicators don’t even take into account other quality-of-life
factors and cultural shifts that have recently benefited New York. For
example, unlike in past decades, today the city’s real estate market is
bolstered by a record-low crime rate, scores of television shows and
movies depicting life here in a charmed light, and a national period of
“Real estate is a behavioral business. We tend to define real
estate as bricks and mortar, but you’re building things because society
needs to use them,” said James Stuckey, a former developer and city
official who now heads NYU’s Schack Institute of Real Estate.
Stuckey, best known as a former Forest City Ratner executive who
oversaw the Atlantic Yards project (he worked for the company from 1994
until 2007), started working for the city’s economic development
corporation at the tail end of the decade-long 1970s downturn, and
eventually rose to become its president.
He said that downturn — touched off by the stock market collapse
and oil crisis, and during which the state Labor Department shows the
city lost 623,400 jobs at its worst — wouldn’t have been as severe if
not for “sociological factors,” like the race riots and nationwide
suburbanization movement that had companies and middle-class families
fleeing for the hinterlands.
Of course, Manhattan is not out of the woods yet. The borough could
easily see another dip — it saw false “recoveries” three or four years
after the real estate market first took a plunge during the 1930s,
1970s and 1990s.
Stuckey noted that Manhattan’s stubborn 17 percent office vacancy
rate during the savings-and-loan crisis — which was only exceeded
during the Great Depression, according to research from commercial firm
Grubb & Ellis — didn’t let up until then-Mayor Rudy Giuliani
passed laws in 1996 encouraging the residential conversion of older
commercial buildings in Lower Manhattan.
“Overnight, you took the vacancy rate down to like 8 or 9 percent,” he said.
Fewer job losses
As economists have repeatedly noted over the last two years, job
losses are one of the economic indicators most closely tied to the real
estate market. People with jobs fill apartments, and also need office
space at the rate of roughly 250 square feet a person.
So far, New York has lost fewer jobs than expected — roughly 65,800 between January 2008 and April 2010
(at the peak it was higher, but the city has gained 57,000 jobs since
the beginning of the year), versus the 243,000 predicted by the city
Independent Budget Office last year. According to the state Department
of Labor, a rebound began early this year.
In addition, the number of jobs counted in April, 3.1 million, is
higher than almost all of the 1970s, 1980s and 1990s, thanks to record
growth during the recent boom.
In fact, the job losses the city has seen this time around pale in
comparison to those lost during at least four downturns this past
Although the federal government didn’t start tallying unemployment
until late in the Depression, the first report published by the New
York Times in 1938 found that there were 514,327 completely unemployed
city residents, and 334,320 employed only part-time or through a
government work program.
The number of jobs lost during the 1970s downturn was 551,900. It
was 195,700 during the savings-and-loan crisis, and 113,700 after Sept.
11, according to the Labor Department.
“It appears as if things are better than they had been in the
1990s, and certainly the 1970s,” noted Michael Slattery, senior vice
president of REBNY. However, he cautioned that while there were more
job losses during those downturns, it took several years for them to
reach their lowest point, in comparison to the dramatic drop-off that
immediately followed the 2008 financial collapse.
“The sizing up of the financial markets, the virtual end to
transactions commercial and residential, the dramatic loss of jobs and
the paralysis in the local economy was the worst I can recall — worse
than the ’90s in the swiftness and steepness of price decline and
occupancy,” he said. “As for the stock market, the loss of value
[today] was probably only matched by the Depression.”
However, he noted that “the city, from a quality-of-life point of view and safety, is far superior to the ’70s or the ’90s.”
James Brown, the regional analyst for the state Labor Department,
said the length of a downturn is a key factor in determining total job
losses, as well as larger tectonic shifts in the way companies do
“The decline in the 1970s lasted more than seven years. Also, in
1969, the city still had more than 800,000 manufacturing jobs.
Manufacturing alone declined by almost 300,000 between 1969 and 1977,”
“The early 1990s downturn saw significant corporate restructuring,
which led to heavy losses in office industries [like finance and
Even though the financial sector still dominates the city’s
economy, the greatest growth in recent years has been toward the more
stable industries of health care and education, which together account
for around 18 percent of employment and offer a better buffer for the
city during recessions.
Further, when looking at the Federal Reserve Bank of New York’s
economic activity index, the drop-off in 2008 only ranks fourth in
severity since the 1960s. The index, which factors in employment, wages
and hours worked, showed a decline of 6.8 percent during this downturn
– compared to 8.9 percent after Sept. 11, 13.8 percent during the
early 1990s, and 22.6 percent between 1967 and 1977.
Office vacancy relativity
Manhattan’s office market has also so far fared better during this
downturn than during the previous four major downturns, “stabilizing”
at 10.2 percent vacancy and $50 per square foot, according to Richard
Persichetti, research manager at Grubb & Ellis.
That may be cold comfort to the current crop of Manhattan’s
struggling commercial brokers. But Persichetti said that at the worst
point during the savings-and-loan crisis, Manhattan offices had a 16.8
percent vacancy, with rents bottoming at $45 per square foot (adjusted
for inflation into today’s dollars).
The peak vacancy rate was also higher, and the trough rents lower, during the 1970s and after Sept. 11.
And while it was difficult to pinpoint a peak office vacancy rate
during the Depression, the Times archives from the period indicate that
it generally exceeded 20 percent.
Perhaps an indicator of the fast and loose lending practices that
occur during bubble periods, every major downturn over the past century
has been marked by the delivery of an enormous amount of office space,
oftentimes including a new tower that ranked as the “world’s tallest.”
In 1930, a year after the stock market collapsed, 40 Wall Street,
and then the Chrysler Building, broke the record for the world’s
tallest skyscraper — until the following year, when the Empire State
Building was finished. It was soon nicknamed the “Empty State
Building,” and didn’t turn a profit until the 1950s.
Upon realizing the office market had been overbuilt, the head of a
national builders’ group blamed the overly rosy market statistics
released during the 1920s: “This encouraged inexperienced promoters to
undertake unsound projects, the financing of which were accomplished
because no measuring rods were available to underwriters,” he said,
according to a speech quoted in the Real Estate Record.
Apparently, lessons from the past didn’t stop future developers
from overshooting the market. According to Grubb & Ellis, around 53
million square feet of office space, including the World Trade Center,
was finished during the early 1970s, and around 60 million square feet
was built between 1981 and 1991.
The 60-story Carnegie Hall Tower was one of those ill-fated
buildings finished during the height of the savings-and-loan crisis.
Thomas Elghanayan, who now runs TF Cornerstone, was one of the
“We were crazy,” he said. “We mortgaged everything we had, every
building we had, we put mortgages on our houses, everything. And we
drummed up all the cash we had and we built that building with our cash
and the bank’s cash. We had to carry it for three or four years trying
to rent it, and it bled us. It was just like a monopoly game.”
Now that tower, which Elghanayan estimated caused the company $150
million in losses, is one of the city’s premier office spaces. He said
rents at Carnegie Hall Tower today are around $85 per square foot, down
from $150 at their peak in 2007.
That type of wild fluctuation is actually typical for Manhattan
office space. The Grubb & Ellis report shows that average
inflation-adjusted rents have ping-ponged between $41 and $75 per
square foot since 1960. And a report coauthored by William Wheaton of
the Massachusetts Institute of Technology found that the value of
century-old office buildings fluctuated between 20 and 50 percent
within each decade, throughout their life spans.
Steve Kaufman, president of the Kaufman Organization, said his firm
looks at low-end rents when penciling out the numbers on building
deals, which they generally make during down cycles. “We look at it
from the perspective of knowing that if we’re in a boom period, a bust
In the last boom, it was more popular to build residential than
commercial (only around 7 million square feet of new office space have
been completed in Manhattan since 2006).
One of the largest towers still underway, besides the new World Trade Center, is the 1.1 million-square-foot 11 Times Square.
“I don’t think we’re completely out of the woods yet. But I think
there was a positive sign with the [law firm] Proskauer Rose signing
[for 380,000 square feet] at 11 Times Square,” said Slattery. “We’re
also not building the same kind of office space as we did in the 1980s,
so I think that limited supply has made a difference as well.”
Manhattan’s residential market also hasn’t plummeted as far as some
experts predicted. Goldman Sachs, in one of the most widely publicized
reports during this bust, predicted in January 2009 that Manhattan
condo prices would need to drop between 35 and 45 percent before the
While at various points in 2009, market reports from Miller Samuel
found that median prices had dropped by more than 18 percent, the
overall decline for the year was actually lower. Indeed, NYU’s Furman
Center found that the median sale price of Manhattan condos only
declined 9 percent between 2008 and 2009, and the median sale price of
all residential property combined, excluding co-ops, declined 12
percent. (Some of these figures, however, reflect prices that were
agreed upon before the market crashed.)
This year’s market reports uniformly show signs of an uptick,
although sale prices commonly rise incrementally, and then fall again,
during downturns — particularly when the government is pumping money
into the market with programs like FHA.
In comparison, Manhattan’s median sale price for condos dropped 24
percent between 1985 and 1994, and the overall median price for
residential property, excluding condos, dropped 35 percent, according
to the Furman Center.
Since Manhattan’s economy saw its big drop-off before Furman
started collecting data in 1974, there aren’t exact comparisons for
However, the average price of an elevator apartment building in
Manhattan declined about 40 percent between 1970 and 1975, according to
the Times, which cited a REBNY report. (The Real Deal found a 28 percent drop in average building sale prices over the span of the entire 1970s downturn.)
During the 1970s, the virtual gutting of real estate values, along
with the increased cost of maintenance attributed to the rising costs
of labor and fuel, caused landlords across the five boroughs to abandon
their buildings by the thousands, making the city its own biggest
landlord. This phenomenon, in turn, significantly impaired the city’s
ability to collect real estate taxes, driving it to the brink of
Worse still was the Great Depression. Between the market’s peak in
1929 and the end of 1932, Manhattan real estate values shrank by a
stunning 74 percent, and stayed that way until the start of World War
II, according to a Harvard Business School/UC Davis study, which also
used data from the Real Estate Record.
Jonathan Miller, president of appraisal firm Miller Samuel, warned
that today’s market could experience a double dip, particularly as
government props to the industry wane. He pointed out that the nation
seemed as if it had experienced a full recovery by 1933, only to fall
back into an even deeper downturn that lasted until World War II.
“It’s important to separate the overall economy from the housing
market. I don’t believe the former will [experience a double dip], but
I won’t be surprised if the latter does,” said Miller. “The expiration
of housing-related stimulus is expected to cause demand to fall over
the next few months,” he continued. “The question becomes whether there
is enough momentum to enable housing to get back on its feet by the end
of the year.”
Miller pointed out that since thousands of units of “shadow
inventory” not yet released by developers still lurk on the market, the
city’s unemployment rate is still high, and credit remains tight, the
city could see some more slippage in prices. “However, we are not
anticipating another sharp correction.”
While the residential market no doubt took a beating since the
start of the credit crisis — the number of transactions fell by more
than 50 percent, according to the Furman Center — developers and
investors who still have money say they’re dying to snap up distressed
residential projects, at the right price.
“People have money coming out of their noses,” said Elghanayan.
“I’ve tried to make a bunch of deals, but what I’ve found different
than prior busts is that [in prior busts], prices had come down
significantly. Right now prices have not come down; there are very few
He said banks are holding on to distressed property, allowing
developers to merely pay the debt service to either avoid massive
write-downs, or in hopes that a market comeback will decrease their
“What I’ve learned going through all these cycles is that they’re
wild swings,” said Elghanayan. “If you really analyzed the risk-reward
ratio of this business, you wouldn’t be in it, because on a purely
rational, analytical basis, it wouldn’t make sense. It’s true you could
make some money — you could make a lot of money in the good times –
but the risks are huge.”