One of the recurring themes throughout 2020 was the death of major cities. Journalists took prurient pleasure in detailing the exodus from expensive, luxury condo hubs like San Francisco, and especially, New York City. Real estate experts grew bullish about single-family homes and suburban living, projecting that future work-from-home trends will inspire more people to want more space out of urban centers. The sexy urban planning theme last year was the 15 minute city, a suburban community where most needs – grocery, retail, entertainment, work – are within a short commute from a nice 3 or 4 bedroom house with a yard. Indeed, the rapid emptying out of New York, combined with the red hot demand in surrounding suburbs do seem to paint a clear picture.
But how accurate will this picture be as we move past Covid19? If the past is any indication, I believe that grand cities like New York will recover stronger than ever. Let’s just take New York City, one of the epicenters of Covid19, a city that is experiencing mass flight of the affluent, oversupply of luxury properties, and halting rental demand. While it would seem that the Big Apple has lost its cachet, I’d refer to its past trauma and recovery and posit that New York presents a rare and great opportunity for the discerning investor.
I was on a trip in Singapore when the planes hit the twin towers on September 11, 2001. After the shock wore off, I turned to my friend sitting next to me and said, “New York will never be the same.” Boy was I wrong. Sales contracts were mostly flat through the end of 2001, and surged over 30% the next year. Median prices fell around 1% in Q3 2001, and was up 12% by Q3 2002.
Perhaps that was too acute an event for comparison to our current Covid19 situation. Perhaps the collapse of Lehman Brothers is more helpful to gauge where New York is headed. In Q4 2008, sales contracts were down 48%, pretty significant. But by 2010, sales contracts increased by 21% and prices fully recovered and then some.
Much of this was helped by low interest rates and tax incentives for first-time buyers, as the government at the time was desperate to stop a depression. That desperation, especially under the Biden administration and a Democrat-controlled senate, will only grow stronger as we weather the Covid19 crisis.
Data and statistics aside, one of the best arguments for cities like New York came from a prominent real estate investor friend of mine. When asked whether he believed cities were doomed, he laughed and said, “absolutely not, not as long as young people need to mate.”
There is a certain soul to a city, and in N.K. Jemisin’s fantastic and timely book, The City We Became, New York literally comes alive, in a human avatar. There is a base human desire to not be alone, especially after this extended period of semi-forced separation. In her book, Jemisin tells us of New York that, “A city is never alone, not really — and this city seems less solitary than most. More like a family: many parts, frequently squabbling ... but in the end, against enemies, they come together to protect one another. They must, or die.”
Suburban life may serve a certain type of lifestyle, particularly for those who have found their place in the world, built a family, and is in need of space and quiet. But given that millennials represent the largest demographic group in the US, and 52% of 18-29 year-olds are currently living with their parents, there is a pent up desire to be in a place of possibilities, to find belonging. Perhaps I am biased, but I do agree with Thomas Wolfe when he said, that “One belongs to New York instantly, one belongs to it as much in five minutes as in five years.”
New York will recover. When quarantine is over, people will once again want to enjoy a street corn from Café Havana while perusing the boutiques that line the tree-shaded streets of Nolita. They will once again want to stand in front of breathtaking exhibits at the MoMA before strolling down to their reservation at Eleven Madison Park. They will once again long to laze in Central Park, among people of all ages and colors and beliefs. They will once again seek out the food, the culture, and the other-people that only New York can offer. They will once again yearn to carve out their own spaces in its vastness. The elements that made New York an epicenter will also bring about its recovery – the vigor of mixing an abundance of peoples from an abundance of cultures in a welcoming and vibrant medium.
Any New Yorker will tell you that they wish they invested in the City after 2001, and they said the same thing after 2008. I believe that as we emerge from quarantine, wiser, vaccinated, and hopefully more united, we will once again appreciate the appeal of gateway cities like New York and San Francisco. Driven by millennials and those seeking vibrancy, diversity, and belonging, our cities will be reborn, and many will look back at this time and see it as a unique window for investment.