A region's rising: Triumph in transformation

Real Estate Issues, Fall 2001

INSIDER'S PERSPECTIVE

FOCUS ON THE FUTURE

A REGION'S RISING: TRIUMPH IN TRANSFORMATION by Newmark & Company Real Estate, Inc.

Reprinted with the permission of Newmark & Company Real Estate, Inc. 2001. All rights reserved.

NEW YORK, JULY 4, 2006: in a ceremony forged of three equal parts-- solemn remembrance, hard-won solidarity, and confident vision-New Yorkers gathered today to lay the cornerstone of the first of the new towers rising on the site of the former World Trade Center. Fittingly, the head of the Regional Reconstruction and Economic Recovery Authority (RRERA), Rudy Giuliani, wielded the symbolic trowel cementing the stone in place. The governors of three states-New York, New Jersey, and Connecticut-were in attendance, testimony to the regional collaboration credited with sustaining the long, arduous work of the Authority during the protracted local recession that followed the terrorist attack of September 11, 2001. As the Tall Ships paraded past the Battery, on the 30th anniversary of the original Op-Sail event, representatives from both the public and the private sectors spoke of the actions that propelled the city from the first dark and gripping days five years ago to this moment of pride and hope.

Perhaps the greatest catalyst in those final months of 2001 was the stunning decision on the part of New York's Real Estate Board to convene a tristate executive conference to explore a potential regional strategy. Including top elected officials from a 75-mile radius emanating at Ground Zero, the real estate leaders reached out to heads of banks and insurance companies, corporate executives, the media, top universities, religious and civic groups, and representatives of the blue-collar community: police, fire fighters, transit workers, and the construction trades. The Group of 35, convened in the year 2000 by Sen. Charles Schumer to prepare a commercial development strategy for New York City, was invited to be part of the core of the executive conference, but its reach was deliberately expanded. The World Trade Center had been the symbolic center of a wide region. The victims had lived throughout the tristate area. The direct economic effects of the disaster ranged indiscriminately across state lines. The Real Estate Board of New York signaled a courageous commitment to transcending conventional constituencies in announcing the conference, calling for a united effort in a time of crisis.

As one veteran of New York economic cycles put it, "This was not the first time New York had been hammered. In a way, we did ourselves even worse back in the early '70s when we brought New York to bankruptcy, burned down whole neighborhoods, lost jobs by the hundreds of thousands, and generally gave ourselves a big black eye. The feeling around the country and around the area this time was totally different: people were ready to rally around New York. But there were still some lessons from the Fiscal Crisis that were worth remembering. One was that we don't need to go it alone. Another is that the whole region prospers when we flourish, but gets sucked down when New York struggles. And the third was that seemingly unlikely partners can actually make a powerful team. All of us are smarter than each of us. Fragmented efforts were going to be inefficient. We all understood that pretty quickly. So it was in everyone's interest to pull in the same direction."

FINANCING THE RECOVERY

The organizational roots of RRERA, in fact, can be traced to a fiscal crisis agency, the Municipal Assistance Corporation (MAC). Like MAC, RRERA was established to provide an off-budget source of bonded debt capital, with a sterling credit rating and low borrowing costs. With a $4 billion to $6 billion fiscal deficit looming in the year after the Trade Center Attacks, New York City could not itself foot the bill for all the work that needed to be done. With RRERA, the city's own credit rating could be protected and a long-range capital plan developed to rebuild the region's physical infrastructure and support its economic redevelopment as well. RRERA was able to issue tax-free bonds, supported by federal guarantees but primarily funded from two sources of recurrent revenues. The first was the cash flow coming from a re-instituted commuter tax for non-resident employees in New York City that was matched by an equal tax on non-resident income imposed by New Jersey and Connecticut to level the playing field and recognize the effects of job dispersal in the region after the WTC calamity. The second was a series of Payment in Lieu of Taxes (PILOT) agreements negotiated with property owners affected by the terrorist attack, that provided predictability for both the landlords and RRERA in the uncertain fiscal and economic climate of 2002 and ensuing years.

RRERA bonds were primarily sold into the institutional market, but benefited both symbolically and actually by a special issue of low-denomination bonds marketed to the general public in the manner of War Bonds or U.S. Savings Bonds. Besides being of practical benefit in the short term, the sales of the popular bonds helped focus attention on households' need to bolster their savings rate by setting aside periodic payroll deductions to purchase the bonds. The program was enhanced by allowing repaid bond principal to be rolled, dollar for dollar and tax-free, into IRA accounts. With economic recovery now accelerating in the nation and the New York region, the bonds are being repaid ahead of schedule, without having had to call on the federal guarantees.