As goes New York’s transit system, so goes its real estate. And the system is on the brink of disaster.
The Metropolitan Transportation Authority plans to cut service by 40 percent if Washington does not send $12 billion in federal aid, crippling the city’s chances to come back from the pandemic.
The effects would be felt beyond New York as the city accounts for about 5 percent of the country’s GDP, said Bill Rudin, CEO of Rudin Management and chairman of the Real Estate Board of New York.
“The ability to move people effectively, expeditiously, efficiently is critical to our economic engine,” Rudin said.
When the pandemic hit in March, the MTA’s ridership plummeted by as much as 95 percent. The subways have since recovered to about 1 million rides per day, but that is well off the 5.5 million norm. With about half of the authority’s revenue coming from fares and tolls, billions of dollars in red ink have piled up.
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“They cannot persist very long in continuing full service with just a fraction of their fare and toll revenue,” said Nicole Gelinas, a senior fellow at the Manhattan Institute focused on local fiscal policy, transportation and infrastructure. “And I do think they need more money from the federal government and also need to look at rational cost-cutting.”
The MTA did cut service when the city shut down, but not substantially because essential workers were still relying on it to commute. There was probably also an expectation that Washington would cover the budget deficit, but after an early aid package included a few billion dollars for the agency, nothing more has come.
The authority has since put capital projects on hold and is working on reducing expenses, said Patrick Foye, the authority’s chairman, during the MTA board meeting Wednesday. The crisis, however, can’t be resolved without federal intervention, he said.
“The solution to this nightmare resides in Washington,” Foye said. “And the financial issues we face dwarf what the MTA’s predecessors faced in the Great Depression.”
But negotiations between congressional leaders and the Trump administration for another coronavirus relief package have stalled. House Speaker Nancy Pelosi and White House chief of staff Mark Meadows spoke Thursday, but the conversation went nowhere, according to Politico.
Transit cuts could create a vicious cycle as workers lose faith in the system and fare revenue falls further, triggering more cuts and ridership losses.
The impact “would not only be catastrophic for the real estate industry, but for the entire businesses community,” said Scott Rechler, chairman and CEO of RXR Realty, who is also chairman of the Regional Plan Association and a former MTA board member.
Business leaders in New York are advocating for transit aid from Washington, said Rudin, whose late father, Lewis Rudin, led the effort to rescue the city from its 1970s fiscal crisis. The elder Rudin, who headed the family real estate empire along with his brother, Jack, persuaded business leaders to prepay $600 million in property taxes.
Another real estate leader, developer Richard Ravitch, rallied the business community and elected officials to implement five-year MTA capital plans. At the time, subways repeatedly broke down and derailed, were covered in graffiti, rarely had functioning air-conditioning and public-address systems and were crime-ridden. As they were replaced by shiny, functional cars and track maintenance improved, ridership swelled — as did the value of real estate near subway lines.
Today’s budget deficit is too large and indefinite to be filled locally, however. “It is critical that the federal government deliver substantial state and local aid, which should account for our city’s mass transit needs,” said James Whelan, president of the Real Estate Board of New York, in a statement.
There are some parallels between the current situation and the 1970s, but the circumstances are different, Rudin said.
“The New York City’s issues back then were certainly self-inflicted,” he said. “Now, this is not self-inflicted. This is a national, international crisis.”
Contact Akiko Matsuda at akiko.matsuda@therealdeal.com