Congestion pricing won’t stall real estate

Ever been stuck in New York City traffic? Stan Ponte, president of Coldwell Banker Hunt Kennedy’s Previews division, tells the story of being stuck in a taxi with an English customer who is moving to New York. She had initially complained about the costs of congestion pricing back in London, but as their yellow cab sat in traffic, barely moving, she became more and more agitated.

“Don’t worry, by the time you move to New York, we’ll have congestion pricing too,” Ponte reassured her.

“Thank God,” she replied.

As you read this, congestion pricing — the plan to ease Manhattan’s snarls by raising the price of vehicular access — is not dead, but merely stuck in traffic. The plan is in the hands of a 17-member commission (with appointees from the governor, the mayor, the State Legislature and the City Council.) The delegates have been charged with coming up with a plan that will reduce average vehicle miles traveled in the city by a minimum of 6.3 percent.

If developed and passed by the City Council and then the Legislature by March 2008, a three-year pilot project could be under way by December 2008.

The carrot is $354 million of funding from the federal Department of Transportation, which would go to New York City to help improve bus service to absorb additional commuters.

In interviews with The Real Deal, most commercial and residential real estate brokers, public policy experts, transportation advocates and business industry representatives said they expected any reduction in car traffic to benefit the real estate industry, not harm it.

The reasons are many, said experts who noted that in addition to the obvious reduction in street chaos, a number of apartments currently situated on busy avenues could stand to benefit. Neighborhoods in Queens, Brooklyn and Staten Island that are currently considered “choke” points for traffic coming into Manhattan could also see improvements in property values.

Some brokers felt a congestion pricing scheme would also not have an adverse impact on commercial real estate.

“It probably won’t affect commercial rent values or commercial investment sales values that much, and I think companies that need to be in Midtown or Wall Street will still be there,” said Eric Anton, senior managing director at commercial brokerage firm Eastern Consolidated.

Anton said he worries instead about small service businesses like locksmiths, air-conditioning repair shops and other repair services. “Those guys are going to suffer, and I imagine they will have to be creative and rent space in a basement somewhere maybe, or keep materials here so they don’t have to go back and forth.”

London’s example

Five years ago, the City of London introduced congestion pricing by charging motorists five pounds to come into the city’s central zone — the rough equivalent of Wall Street. Stockholm, Sweden also just renewed its six-month pilot study. “In both cases the economy and real estate have appreciated considerably,” said Kathryn Wylde, president and CEO of the business organization Partnership for New York City.

Although London has experienced economic shocks dissimilar to the real estate sector of New York, in most sectors, congestion pricing either had a positive effect on businesses or did not affect them at all.

“The commercial property market does not appear
to have been impacted adversely by the charging scheme even though performance both before and after the introduction of charging has been mixed,” noted a report by the Transport for London, which runs the city’s mass transit.

Residential property prices within the zone, and close to it, did also follow an unpredictable year-to-year rate of growth, but with a stable long-term increase still evident over the past 10 and past five years.

A look at the numbers by The Real Deal showed a steady increase in residential real estate prices in affected neighborhoods such as the City of London, Westminster and Kensington/Chelsea (which is just outside of the central charging zone, but now part of the western extension, a part of the city that has been added to the congestion zone). The most substantial increases occurred in 2003, the year after congestion pricing was implemented.

In New York, the Real Estate Board of New York does not think a traffic mitigation plan will have a negative effect on real estate values, said Mike Slattery, REBNY’s senior vice president of research.

Impact on parking

A representative from a major parking garage company in New York who did not want to speak on the record admitted that they had not even begun to study the potential impact, but said they did not think congestion pricing would necessarily be bad for garages.

The largest parking company in the city, which is owned by the Macquarie Group, did not return repeated calls for comment.

The Partnership for New York City, meanwhile, commissioned a study to find the causes of congestion, and found that many of the people who drive into the city every day do so because they have free parking.

The Partnership also reported that 19 percent of New Yorkers driving into the city were traveling through the city, and not to it. Many were avoiding the tolls that were required for driving around the city.

This implies that all the peripheral areas where “drive-thru” traffic is focused, such as Greenpoint, Brooklyn, Long Island City in Queens, parts of the Bronx, and Canal Street in Manhattan, will benefit, said Wylde.

Reduced sales because of congestion cost the city $4.57 billion lost in revenues per year, and increases in operating costs of $1.9 billion, according to the Partnership’s December 2006 report, “Growth or Gridlock.” They also estimated that losses due to delays in time and productivity amounted to almost $6.5 billion per year, plus an additional $2 billion in wasted fuel sitting in traffic.

The potential downside

The original congestion-pricing proposal aims to cut down on traffic entering the central business zone of Manhattan, between 14th and 86th streets, by charging $8 for car drivers and $21 for large trucks to enter the zone
during the regular business hours of 8 a.m. to 6 p.m.

Some experts expressed the belief that in a flat or changing property market, neighborhoods such as the zones immediately north of 86th Street might be affected negatively unless residential parking is implemented.

Bill Vilkelis, a broker for Barak Realty who focuses on Washington Heights and Inwood, said he worries that more people will end up parking in the areas around Washington Heights, which are already saturated with motorist traffic.

Ted Timbers, a spokesperson for the city’s Department of Transportation, said the organization was evaluating residential parking in the neighborhoods that might be affected by congestion pricing, but so far had not made any decisions.

Nick LaPorte, executive director of the Associated Builders and Owners of Greater New York, predicted that construction costs would rise to levels even greater than ever before, making real estate development prohibitive.

“They are going to say, ‘I paid $21 for a thousand trucks [to enter the congestion zone], and someone has to pay me that $21,000,'” said LaPorte. “It is a trickle-down problem that will affect all businesses.”

In addition, the specter of pricing that makes truck traffic more expensive during the day raises the possibility of more truck traffic at night, in a city where noise is already cited as the No. 1 quality of life concern.

To balance that, the top reason for traffic reduction is a matter of life and death, said Andy Darrell, regional director of Environmental Defense, a non-profit environmental group that recently helped the city convert a portion of its taxis to “green” taxis, and introduced 90 percent pollution reduction on construction equipment being used at the World Trade Center reconstruction site.

“There is a critical mass of science from all around the country that shows that people who live near heavily trafficked roadways face significantly higher risks of asthma attacks, heart attacks, cancer, impaired childhood lung disease, and other diseases,” said Darrell. “The science very convincingly points to a very significant risk zone 500 to 1,500 feet away from busy roadways, and there are about 2 million people in New York who live in a 500-foot zone around the most congested roadways.”