Will New York Come Back?

50 people were shot in New York City this weekend. The Big Apple will soon be competing with Chicago for the title of Gun Violence Capital of the United States. In case you care, the correct  “woke” opinion is to blame it on the NRA. Because the best way to tamp down on crime is either to shift the blame or to pretend that it doesn’t exist.

And let’s also note that a few days ago a group of protesters stopped traffic in Times Square. They threatened drivers with bodily harm. The police were nowhere to be found. Does that make you want to drive through New York City?

And then there is James Altucher, hedge fund guy, entrepreneur, self-help guru, among other things. Recently, he put up a long post on Linked In explaining that New York City is done, finished. For those who believe that a new mayor, who will arrive in less than eighteen months, will save the city, Altucher rains on their parade. 

He notes, as we have on this blog, that office buildings in New York are now empty. People are working off site and are liking working off site. Of course, people do lose something when they cannot interact with their colleagues in an office. Getting out of the home and into a professional space makes a difference.

But, as I noted yesterday in a comment, what happens if the companies whose employees yearn for an office environment simply move their offices to other cities, to Austin, to Nashville, to Miami. Or better, to one of the suburban shopping malls that have been rendered near-obsolete by Amazon. At the least, the rent will be cheaper. If corporate culture does not need New York, perhaps it will move elsewhere, even after the pandemic has passed.

As for quality of life in New York today, Altucher quotes a friend who wrote this on Facebook:

"In the last week:

* I watched a homeless person lose his mind and start attacking random pedestrians. Including spitting on, throwing stuff at, and swatting.

* Ive seen several single parents with a child asking for money for food. And then, when someone gave them food, tossed the food right back at them.

* I watched a man yell racist slurs at every single race of people while charging / then stopping before going too far.

And worse.

I’ve been living in New York City for about 10 years. It has definitely gotten worse and there’s no end in sight.

My favorite park is Madison Square Park. About a month ago a 19 year old girl was shot and killed across the street.

I don’t think I have an answer but I do think it’s clear: it’s time to move out of NYC.

I’m not the only one who feels this way, either. In my building alone, the rent has plummeted almost 30 percent - more people are moving away than ever before.

So, it’s even worse now than it was in the 1970s:

Even in the 1970s, and through the 80s, when NYC was going bankrupt, and even when it was the crime capital of the US or close to it, it was still the capital of the business world (meaning: it was the primary place young people would go to build wealth and find opportunity), it was culturally on top of its game - home to artists, theater, media, advertising, publishing, and it was probably the food capital of the US.

But today, New York’s cultural scene is just about dead. This means fewer tourist dollars and a lot less work for a lot of people

Broadway is closed until at least the Spring. Lincoln Center is closed. All the museums are closed.

Forget about the tens of thousands of jobs lost in these cultural centers. Forget even about the millions of dollars of tourist and tourist-generated revenues lost by the closing of these centers.

There are thousands of performers, producers, artists, and the entire ecosystem of art, theater, production, curation, that surrounds these cultural centers. People who have worked all of their lives for the right to be able to perform even once on Broadway whose lives and careers have been put on hold.

I get it. There was a pandemic.

Of course, there’s always commercial real estate. As you know, one of the bright spots in the city has been the resilience of commercial real estate. Apparently, it is not as resilient as some of us imagined. Altucher sees a depressive spiral:

If building owners and landlords lose their prime tenants (the store fronts on the bottom floor, the offices on the middle floors, the well-to-do on the top floors, etc) then they go out of business.

And what happens when they go out of business?

Nothing actually. And that's the bad news.

People who would have rented or bought say, "Hmmm, everyone is saying NYC is heading back to the 1970s, so even though prices might be 50% lower than they were a year ago, I think I will wait a bit more. Better safe than sorry!"

And then with everyone waiting... prices go down. So people see prices go down and they say, "Good thing I waited. But what happens if I wait even more!" And they wait and then prices go down more.

This is called a deflationary spiral. People wait. Prices go down. Nobody really wins. Because the landlords or owners go broke. Less money gets spent on the city. Nobody moves in so there is no motion in the markets. And people already owning in the area and can afford to hang on, have to wait longer for a return of restaurants, services, etc that they were used to.

Well, will prices go down low enough everyone buys?

Answer: Maybe. Maybe not. Some people can afford to hang on but not afford to sell. So they wait. Other people will go bankrupt and there will be litigation, which creates other problems for real estate in the area. And the big borrowers and lenders may need a bailout of some sort or face mass bankruptcy. Who knows what will happen?

Of course, with colleges shut down, with remote learning on the rise, the students who would be coming to New York, eating in restaurants, going to clubs, even renting apartments… will not be doing so. One more nail in the coffin.

Altucher says that it’s all about bandwidth. Greater bandwidth makes remote meetings more realistic. It is not the real thing, but it is close enough. And beside, people have adapted to them.

Remote learning, remote meetings, remote offices, remote performance, remote everything.

That's what is different.

Everyone has spent the past five months adapting to a new lifestyle. Nobody wants to fly across the country for a two hour meeting when you can do it just as well on Zoom. I can go see "live comedy" on Zoom. I can take classes from the best teachers in the world for almost free online as opposed to paying $70,000 a year for a limited number of teachers who may or may not be good.

Everyone has choices now. You can live in the music capital of Nashville, you can live in the "next Silicon Valley" of Austin. You can live in your hometown in the middle of wherever. And you can be just as productive, make the same salary, have higher quality of life with a cheaper cost to live.

Besides, the lunatics are now running the asylum. Across America great cities are now being run by crazed leftists. They have allowed the streets to become unsafe, at any speed. They allow criminals to walk free. They think they can solve it by raising taxes. Parents with children have noticed and they are moving out.

Will business opportunities return? Not if companies follow people and relocate, Altucher explains:

There won't be business opportunities for years. Businesses move on. People move on. It will be cheaper for businesses to function more remotely and bandwidth is only getting faster.

Wait for events and conferences and even meetings and maybe even office spaces to start happening in virtual realities once everyone is spread out from midtown Manhattan to all over the country.

The quality of restaurants will start to go up in all the second and then third tier cities as talent and skill flow to the places that can quickly make use of them.

Ditto for cultural events.

And then people will ask, "wait a second - I was paying over 16% in state and city taxes and these other states and cities have little to no taxes? And I don't have to deal with all the other headaches of NYC?"

Because there are headaches in NYC. Lots of them. It's just we sweep them under the table because so much else has been good there.

NYC has a $9 billion deficit. A billion more than the Mayor thought they were going to have. How does a city pay back its debts? The main way is aid from the state. But the state deficit just went bonkers. Then is taxes. But if 900,000 estimated jobs are lost in NYC and tens of thousands of businesses, then that means less taxes unless taxes are raised.

Oh yes, the debt, Cities like New York and Chicago are effectively bankrupt. Good luck bringing them back. Sometimes the phoenix does not rise from the ashes.