The Metropolitan Transportation Authority’s revenue from real estate taxes fell by almost half last year.
It collected $741 million from those taxes last year, down from $1.4 billion in 2022. That’s a 41 percent drop. MTA officials attributed the decline to the fall in commercial sales and mortgage activity. High interest rates have discouraged dealmakers, while office values have fallen by billions (maybe trillions) of dollars thanks to remote work.
At surface level, it sounds like a perfect example of the urban doom loop that Columbia Business School’s Stijn Van Nieuwerburgh forecast for New York City in 2022, before easing off the claims recently. Peel back a few layers and things might not be quite so dire, but they’re still far from ideal.
The MTA had anticipated a drop of at least $600 million in tax revenue, so it built all but $16 million of the drop into its budget. State lawmakers made up for the expected shortfall by passing a rescue package in early 2023 and bumping up fares. Without that money, the agency would have had to slash services. Instead, it ended last year with balanced books, and should stay in the black for the next five years.
Even with the rescue package, a drop-off of over $600 million is cause for concern. How do I know this? The MTA admitted it — sort of.
“This is a fundamental, existential threat to our ability to provide first-class public transit and make it better, more frequent, more reliable,” CEO Janno Lieber said at a recent MTA board meeting. But Lieber wasn’t talking about tax revenue. He was talking about fare evasion, which cost the agency $690 million in 2022.
One day after Lieber’s statement, state comptroller Thomas DiNapoli projected that the MTA would need $43 billion for repairs over the next five years. Those repairs feel especially urgent these days, after a wave of transit incidents from derailments and signal failures to delays and highly publicized crimes.
As a result, MTA customer satisfaction is down and will only get worse if things don’t improve. Transit issues might not be a primary cause of low office attendance, but they certainly don’t help.
So, is this the urban doom loop at play? Not necessarily. One reason Van Nieuwerburgh backed down on his dire projections for New York was that the city has a diversified economy, and people want to live here for play as much as for work. That’s all still true, even if everyone gripes about the subway.
The transit agency’s financial health is intricately tied to the economic vitality of the region and, as seen here, the strength of the city’s real estate. Any dent in revenue, especially one as large as $600 million, is a cause for concern.
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What we’re thinking about: Kushner Companies offloaded another portfolio of East Village multifamily properties, its third such sale in the past three months. Is low occupancy driving the sales? Or is something else at play? Send a note to david.westenhaver@therealdeal.com.
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Closing Time
Residential: The priciest residential closing Friday was $5 million for a condo at 233 West 75th Street on the Upper West Side.
Commercial: The most expensive commercial closing of the day was $51 million for an undeveloped lot at 2731 West 12th Street, Brooklyn. National Grid listed the property in 2020.
New to the Market
The priciest residence to hit the market Friday was a condo at 215 East 19th Street in Gramercy Park asking $11 million. Douglas Elliman has the listing.
Breaking Ground
The largest new building filing of the day was a 253,000-square-foot, 14-story, mixed-use building at 1051 Whitlock Avenue in The Bronx. RYTY Home Builders filed the permit application.
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A thing we’ve learned: The U.S. added 353,000 jobs in January, a show of strength by the economy. But, the positive data could have one negative impact. It will allow the Fed to put off its planned interest rate reductions, as fears of a recession are alleviated by the employment growth.
Elsewhere in New York
— Jeff Sutton recently sold 717 Fifth Avenue to Gucci owner Kering for $963 million. The deal marked the latest in a series of wins for Sutton. But it could spell trouble for one of the building’s neighbors, Trump Tower, where Gucci is the biggest retail tenant. Crain’s laid out the issue facing the iconic tower’s mall.
— Just days after it reached an agreement to stay at two New York offices, WeWork has added nine more leases to the reject pile, Commercial Observer reports. Three of those offices are in New York. Namely, RXR’s 75 Rockefeller Plaza, Walter & Samuels’ 214 West 29th Street and Wasserstein Enterprises’ 115 West 18th Street.
— A two-story home in Borough Park collapsed Friday, killing a construction worker at the site. According to Gothamist, the Brooklyn property had been issued a partial stop work order in December because it lacked permits posted for the job. The Department of Buildings is investigating to determine what caused the collapse.