New York City: Is It Really Dead?

I’ve been a busy guy over the past several weeks.

I recently started my new job. I’ve been meeting my teammates, setting up my technology and learning the ins and outs of the Medicaid industry. I’ve also started making plans to move out of my parent’s house (ha, just kidding! Sorry Mom and Dad!).

Nevertheless, world affairs remain top of mind. In fact, I’ve been spending considerable time thinking about our world’s future on the other side of this pandemic. It goes without saying that COVID-19 will lead to long-lasting structural changes in the ways we work, live, play, eat, you name it. My new website is coming soon, where I plan to dedicate a whole series of articles to what I think the future of work will look like.

One recent hot-button piece that caught my eye related to this topic was from hedge fund manager/writer James Altucher, entitled “NYC Is Dead Forever. Here’s Why.” If you want to know why he thinks New York City is going down the toilet, read his article. But since you probably have a full Netflix queue to run through, I’ll give you a quick synopsis:

• No one is occupying the office buildings in New York City anymore, even though they’re technically open.
• Droves of people are looking to leave New York City for good (Altucher shows a chart of RedFin searches to make his point).
• College students not going to school in New York City are depressing rental prices (apparently there are 600,000 students in the city…who knew?!)

But certainly the city can bounce back from all of this, can’t it? Not according to Altucher. The crux of his argument is that given the increase in bandwidth, it’s never been easier to work remotely. Below is the chart he uses (he does not cite his source):

The thinking goes that as bandwidth continues to increase, it will become easier to work from anywhere. People will continue to dump New York City for “second-tier” cities, and the culture of these “second-tier” cities will benefit from these people’s presence, thus making them even more attractive for people to move to. Eventually, the tax base of the Big Apple will erode significantly, putting it into a death spiral.

Altucher’s piece went viral, with many people chiming in on their thoughts. The article clearly struck a nerve with comedian Jerry Seinfeld, who took to the opinion page of The New York Times to offer a rebuttal. Seinfeld’s opinion piece was far less focused on substance and felt unnecessarily personal—never mind that it was also devoid of his witty humor. 

But Seinfeld has a point in that New York City has been declared dead many times, and that the city always seems to bounce back. Plus, he mentions that pretty much everyone hates working from home because there’s no “energy.” He does not back this up with data, but he’s a comedian and not a data analyst so I’ll give him a pass.

Altucher’s piece, and Seinfeld’s rebuttal, got me thinking a lot – so much so that I decided to write my first article in a month about the topic. Before getting into my arguments, a couple notes:

• I lived in New York City for about two and a half years (2011-2013). I HATED it. Perhaps it was because I was making very little money, which forced me to live deep in the bowels of Queens in a hellhole apartment above a 24-hour hookah bar. My immediate surroundings notwithstanding, the city was crowded, the people were rude, a pint of Bud Light was $8, and the Subway smelled like body odor and broken dreams.

I’m doing my best to write this article from an analytical perspective. But take into consideration that my time living in the Big Apple has influenced my thoughts regarding the city’s trajectory.

• I have great affinity for both Altucher and Seinfeld. I’ve never actually met Altucher personally. But I follow him on Twitter and LinkedIn, plus I subscribe to his newsletter, The Altucher Report. I have a fondness for his unique take on the world, never mind his disheveled hair. Moreover, we were (kind of) colleagues. Back in 2012, I was doing some freelance work with TheStreet.com while he was a contributor to the site.

As for Seinfeld… I mean, he’s a comedic genius. His eponymous TV show is often considered the greatest comedy television show of all time. And I could spend an entire Saturday binging Comedians in Cars Getting Coffee. Ok, the guy is reportedly a prick when the camera is off. And yes, he dated a 17-year old when he was in his late 30s. Listen, nobody’s perfect!

With those personal notes taken care of…

My Thoughts On The Future of New York City

Work

New York City is an interesting beast. Every weekday morning, millions of workers, along with hundreds of thousands of tourists, descend upon an island in the Hudson River that’s less than 23 square miles (for context –Denver International Airport is about 54 square miles). This is only feasible because the island is littered with skyscrapers for miles on end – NYC is home to 284 skyscrapers at least 150 meters tall, and it’s fair to say nearly all of these buildings are in Manhattan.

But those buildings are empty. Per real estate firm Cushman & Wakefield, only 10% of office workers in New York City have returned. And just over half believe they’ll be going back to the office before July 2021. 

That’s a lot of people not coming into the city. Not eating street meat nor dollar slices for lunch. Not having beers at their go-to watering hole after work. That’s a big problem – because the economy of New York City, and in particular Manhattan, hinges on these people coming to the office.

A note about bandwidth/technology: I’ll take Altucher’s figures about bandwidth at face value. Every reasonable person agrees that technology today can far better facilitate working from home compared to previous eras.

That said, I do ultimately believe that work will continue be *primarily* office-based. While some studies indicate that productivity is higher at home, other indications dispute this. For instance, Jamie Dimon, the CEO of JPMorgan Chase, has told Wall Street analysts productivity has been lower at home compared to the office, especially on Mondays and Fridays.

In addition, research has also found that both creativity and decision-making ability is higher when people actually feel each other’s presence, a point Dimon also mentioned in his meeting with analysts. It’s also why, for example, Amazon has also continued to buy up commercial real estate in the city.

(Plus, on an anecdotal level, most of my friends tell me they hate working from home. However, they’re mostly like me: single, bored and unlikely to ever grow up.)

Perhaps we’ll move to a more hybrid approach moving forward, but eventually Manhattan will repopulate. That said, even if Manhattan is 10% less crowded during a given workday, that will have a profound effect on the island’s service sector, not to mention the tax base.

Tax Base

Speaking of the tax base – it’s been absolutely crushed. Projections indicate the city faces an $8 billion revenue shortfall this year compared to past projections. 

Mayor Bill DeBlasio has warned that the city could lay off up to 22,000 employees if it doesn’t get substantial aid from the federal government (this doesn’t include Metropolitan Transportation Authority employees, more on that later). Given the current gridlock in Washington – I wouldn’t hold your breath for more cash.

There’s actually some precedent for how this could affect the city. During the 1970s, industrial decline the growth of suburbia and poor fiscal management fled New York City to the brink of bankruptcy. During this time, city services were cut substantially. From 1974-1976, nearly 20% of the police department was laid off.

As a result of diminished services, the city became gritty. Trash wasn’t collected. The Subway was covered in graffiti. Arson cases spiked. And let’s just say Central Park wasn’t exactly a good hangout spot when the sun went down. 

It was primarily the rapid growth of the financial services sector in the 1980s that led NYC out of its funk. It may take the emergence of new industries or the re-emergence of old ones to get the city and its tax base back to full strength.

Small Business & Dining & Culture

Yeah, I wouldn’t want to be a restaurant owner in Midtown Manhattan right now. Or any small business for that matter.

The projections are devastating. Civic group Partnership for New York City predicts that one-third – ONE-THIRD – of small businesses will go under by the time COVID-19 passes. That’s 77,000 small businesses. Some believe these projections are overkill, but no one denies that we’re going to see a bloodbath.

Do I think that many of New York City’s restaurants and entertainment venues are going under? Yes! It could be years before the city matches the bustle of the pre-COVID era. That’s simply too long to hold on in the competitive Manhattan landscape.

But New York City has been America’s cultural headquarters for generations, and I don’t foresee that changing. In fact, I believe a new generation of artists, culinary scientists and entrepreneurs will usher in a new era. After Detroit went bankrupt, artists took advantage of rock-bottom prices to launch a creative renaissance. While rents won’t ever hit Detroit levels, the next generation of creatives and entrepreneurs might be able to take advantage of bargain prices by New York standards. It just might be a while from now.

Public Transportation

The public transportation system in New York City is the glue that holds the city together. Per the MTA, about 80% of people traveling to New York City’s central business districts arrive via public transportation.

As COVID-19 hit New York City hard back in March, public transportation usage plummeted by more than 90%. Even as the city is currently faring far better than other parts of the country, public transportation use is still only a fraction of what it once was. Take a look at last week’s subway ridership figures:

Ridership on Metro North (to the upstate and Connecticut suburbs) and the Long Island Railroad are also down from 70% - 80% from the same time last year.

Until there’s a vaccine, public transportation ridership will continue to remain highly depressed. The MTA is losing more than $200 million A WEEK! And unless the MTA receives substantially more aid from the federal government (perhaps North of $10 billion) or enacts unprecedented fare increases, devastating service cuts are likely on the horizon.

I remember when service cuts were made after Hurricane Sandy. It made my life pure hell. And I believe further cuts could significantly diminish the desire to live in New York City. If you’re standing on a subway with hundreds of other sweaty people for two hours each day, you will think about leaving the city.

My Predictions

New York City was already having challenges before the pandemic. The city actually lost 53,000 residents in 2019. The population has only grown 2% since 2010, far less than the country as a whole.

And COVID-19 didn’t just cause problems for New York City. It also laid bare the problems the city had before COVID-19 came to town. Income inequality. Unaffordable housing. Subway stations that always appear to be on the brink of collapse.  

In the short-term (next 1-2 years), New York City has dire challenges. People are moving out of the city in droves. Rental vacancies are at their highest levels since, well, ever. Without significant aid, the city could face fiscal disasters. Business travel to the city is nearly non-existent, and there don’t appear to be any obnoxious tourists standing in the middle of Times Square taking pictures. Hopefully, there's no second wave!

In the medium-term (2-10 years), New York City will face a massive hangover. Residential and commercial landlords will continue to struggle with lower-than-2019 demand. It could take years for the labor market to reach full strength again. Many small business owners will try again somewhere else. And service cuts on public transportation, already a major problem, will cause people to up and leave town (I once had a rule that I would never date anyone off the “G” train due to its unreliability. I can’t imagine how it could get any worse).

In the long-term (10+ years), New York City will remain the cultural capital of the most powerful country on Earth. I think. There’s still an “if you can make it there you can make it anywhere” attitude that permeates. Young people will still flock to the investment banks, advertising agencies and art galleries. They’ll still yearn to call Williamsburg home and will spend all night partying in the Lower East side. To Seinfeld’s point, there is just an energy about that city that can’t be replaced. 

Now it’s your turn! Do you think New York City is dead forever? Please comment below. Also, did you like what you read? Check out more of my articles here:

How Second-Tier Cities Can Capitalize on Work-From-Home Policies

Cheers To The People Who Make Things

An Open Letter to Elon Musk