Monday, June 12, 2006

Rising rent: a sign of the times

And it's not a bad thing that some people make it out to be. I'm quoting the entire article because it's worth reading in its entirety.
Rising Rents Threaten NYC Neighborhoods
Residential Development, Rising Rents Threaten Manhattan's Colorful Districts

NEW YORK Jun 10, 2006 (AP)— Inside the flower wholesalers on 28th Street lie stacks of roses in every color of the rainbow. Outside, the sidewalk blooms with pink and blue hydrangeas, zinnias, lilacs, hibiscus. The air smells of day lilies.

The flower district a short stroll from the Empire State Building has been perfuming the north Chelsea air since the 1890s. But the district is so threatened by rising rents and new residential and hotel development that it may have to be moved or disappear entirely.

"We're history," said Bill Nikolis, a third-generation flower seller who owns Bill's Flower Market with his brother, Jim. "The market has been kind of just blown apart by all this development."

It is a common refrain around Manhattan these days. Luxury apartments and chain retailers are sprouting up everywhere as colorful neighborhoods like the flower district fade. Long gone are districts for butter and eggs, leather and radio parts. The Fulton Fish Market, a lower Manhattan fixture for 180 years, moved to the Bronx last year.

As recently as the mid-1990s, the flower district took up several blocks, and walking along Sixth Avenue meant picking your way through a jungle of potted palms.

"Ten years ago this street was booming," said Rob Houtenbos, whose Dutch Flower Line offers peonies from New Zealand and lilies of the valley from Holland. "There were 40, 50 stores filled with beautiful flowers."

But the district has since shrunk to one block and will have difficulty staying there much longer.

The neighborhood, once a warren of low-rise retail and light industry, was rezoned in the 1990s to include residential uses. Condo towers have sprung up along Sixth Avenue, and more apartments and hotels are being built on the block the flower district occupies, displacing several businesses in the past year.

Andrew Berman, executive director of the Greenwich Village Society for Historic Preservation, said he mourns the loss of unique neighborhoods as Manhattan is increasingly given over to luxury apartments and chain stores like Starbucks and McDonald's.

"There's this homogenizing steamroller that's kind of moving through the borough that's making Greenwich Village the same as Harlem, the same as the Lower East Side, the same as the Upper East Side," he said.

In Greenwich Village, several of the small theaters that gave the neighborhood its character such as the Sullivan Street Playhouse, where "The Fantastiks" played for a record-setting 42 years have been gutted to make way for condos, Berman said.

In SoHo, high rents are forcing small and medium-sized businesses out in favor of mega-retailers like Apple and Bloomingdale's. Retail space in the Meatpacking District that went for $25 a square foot six years ago now commands $125 a square foot or more, said Gene Spiegelman, a broker with Cushman & Wakefield.

There have been several attempts to move the flower district to another Manhattan neighborhood or possibly to the Bronx or Queens.

Houtenbos said his customers retail florists, party planners, big corporations are tired of Manhattan's scarce parking and would follow him to Queens. "I think it is essential for the market to move," Houtenbos said. "Every location is a compromise."

But consensus on a move has eluded the Flower Market Association, which represents about 35 storefront businesses. Manhattan sites are too expensive and some merchants believe the outer boroughs are too remote.


Berman, whose group tried unsuccessfully to help the flower district join the Meatpacking District, said a move seems unlikely.

"The attrition scenario is the most likely one," he said. "It's just going to kind of dribble away and there won't be any flower market anywhere."
After adjusting for the purely monetary phenomenon of inflation, rising rent reflects the land's increased value. When tenants are "forced out" in favor of new ones, it merely indicates that the latter place a greater value on use of the land. But the flower shops are not being subjected to real force, only market competition that ultimately is based on voluntary commerce. If the flower shops want to stay, they can offer more. If they can't because their customers wouldn't pay the resulting high prices, well, that shows the florists aren't as competitive as the newcomers. Prices are the truly fair way to allocate resources, because people must offer more for a scarce resource, thereby proving how much it's worth to them.

What's happening to the flower district already happened to the Meatpacking District, whose name was (as you can guess) derived from its once primary industry. Now filled with restaurants and bars, it's a trendy place to hang out. Sometimes consumers want nothing more than a place to live. SoHo has been undergoing gentrification (the "SoHo Effect"), and TriBeCa has changed in very recent years from an industrial base to a very affluent residential community. The obvious explanation is that the new tenants are willing and able to pay more (their businesses are more profitable, and/or they're willing to pay more for housing), but more fundamentally the changing uses are an indication of what consumers want.

Sometimes development goes in reverse. Thomas Sowell occasionally mentions Harlem, where he grew up after his family moved from North Carolina. It was a white, Christian area until the turn of the 20th century. Then it infamously became impoverished ("ghettofication") as blacks moved in, but to criticize that slide is, well, politically incorrect. Today, you can point out with pride that some parts of Harlem are becoming more affluent (old brownstones are particularly in demand), except you'd be politically incorrect to note that it's in part from whites' return.

If Manhattan flower shops must move elsewhere, it means that there just isn't enough consumer demand to keep those shops local, and that the prevailing local consumer demand is ultimately for Starbucks and Barnes & Nobles, or apartments and condos. A major realtor may also buy up a block and start leasing office space, which a firm might pay top dollar to lease because it's expanding (i.e. creating jobs and thus greater wealth than the old flower shop). Not surprisingly, there are organizations formed to preserve neighborhoods, but like I've said before about Ted Turner working to stop drilling in ANWR, the proper thing for those people to do is buy the land and buildings themselves. What they do instead is find a way to use government's power (like zoning and other restrictions) to impede landlords from renting to the tenants of their choice.

Contrary to what one of the shop owners says, there will always be a flower market -- just not what he'd like it to be. For example, I recently sent someone some roses for her birthday. I went to FTD.com and ordered a dozen, assorted colors, boxed. Including delivery to her workplace, it came to $40, actually more than comparable with local florists' standard prices (some of whom are FTD's local suppliers anyway). Now, I didn't even know what they would look like, other than the website, but I really had no reason to trust FTD's website any less than a physical shop. There were no local flower shops whose reputation I was familiar with, and I would have had to call one anyway, since I didn't have time to visit one in person. Thus I bore the same risk with freshness, arrangement and timely delivery. I work one mile north of the flower district and don't go there, but even were it only several blocks away, I'm busy enough that I might have still used FTD's site. For some of us, the flower shops could be in Rochester for all we care.

People erroneously lament Manhattan's development. In the 19th century, farmland (imagine downtown that way!) gave way to industrialization, and the city's geographic location made it an important port for both immigrants and imported goods. Then it shifted to a commercial base, particularly with downtown's transformation into the world's most important financial locus of high finance. In each stage, the new users of the land created far more wealth than their predecessors. The wealth came not because the land increased in value, rather, the land's increase in value reflected the greater economic production and increased demand for land. Should we tear down all the skyscrapers and other office buildings, because it's more "noble" that families use the land for agrarian purposes? Should we not have torn down the pre-Civil War buildings that were razed for the World Trade Center, though the towers facilitated the creation of countless times more wealth?

I had explained that tenants unwilling or unable to pay higher rent is not truly "forcing" them. But if you want to talk about real force, specifically the corrupt power of government, here's something that began 13 years ago in Salt Lake City, while I was still living there. I actually haven't thought about this in years. After looking up what happened, I'm glad that in the end, Little America's owner couldn't use the city to force out a flower shop. It saddens me, though, that the shop's owner had to waste so much money in courts -- which he pointed out could have fixed up the shop from the dilapidated state the city accused it of being. Even so, the shop's outer condition didn't seem to deter customers, did it?

In the second half of the 1990s, the Salt Lake City government started pushing downtown redevelopment. In 1996, during my second year at the University of Utah, Mayor Deedee Corradini came one day to talk about the proposals. She spouted a lot of nice rhetoric about how the Flower Patch florist really should sell to the Little America Hotel, and how in return they'd get such a beautiful shop in the new hotel (which wanted to buy up the entire city block). "It would be magnificent," she boasted. But if it was really such a good deal for the Flower Patch, why was its owner refusing to sell?

What she didn't say was that the city in 1993 declared the area "blighted," opening the door of eminent domain. You can read a good write-up of the story here, and it explains why the owner of the Flower Patch's land didn't want to sell. I never read this in the newspapers or heard it on the news, only the city's propaganda that he was turning down a great offer and impeding progress. The owner paid $420,000 for the land in 1985, but he was never offered more than $250,000. It really doesn't matter how "magnificent" your new shop is when you must recoup $170,000 (and at Salt Lake City's generally lower prices). When you're ready to get mad, really mad, read this (do a search for "Flower Patch" to jump down to the relevant part) and its details of the city officials' corruption. What they did was true force, instead of allowing the market to work.

3 Comments:

Anonymous Brad Warbiany said...

I've got a good friend who was working for FTD.com for several years. From what he said, transaction costs imposed by FTD are such that you're usually better off trying to find a local flower shop and working through them directly. FTD doesn't even sell flowers, they sell flower orders. They don't own flower shops, but route orders through local stores. In the end, it works out to a ridiculously expensive membership, but the benefits of increased sales are worth it to the individual florist. And it doesn't really guarantee any better flowers than you'd normally get (sometimes worse, as the money eaten up in transaction costs cuts into the flower budget). In all honesty, FTD is good for what it does, but in the internet era, it's no longer necessary.

Try something like CitySearch, where you can get ratings & reviews. I ended up buying my wife flowers from this store in Atlanta, and that went over pretty well. I think you'll end up with at least as strong expectation of quality as you'd get ordering through FTD, possibly with better pricing or a more attractive arrangement.

Monday, June 12, 2006 2:52:00 PM  
Anonymous Anonymous said...

Perry,

Did you actually see the flowers you sent in that box from FTD.com? You say you sent an 'arrangement', but those roses come in a DIY bunch and are delivered looking nothing like the professionally arranged presentation you saw on FTD's site. The difference between what you ordered and a florist-delivered dozen is akin to sending a bag of groceries instead of taking someone out to dinner.

Wednesday, June 14, 2006 8:20:00 PM  
Blogger Perry Eidelbus said...

I don't know that I particularly care for your tone. What the hell are you implying, that I'm less of a person for going by FTD?

I would have brought her flowers myself, but I work in the city, and my friend works in White Plains. She's also kept her birthday a secret (she dislikes them) in the three years I've known her, and this year she finally admitted it to me...the day before. There was no way for me to visit a White Plains flower shop in person, let alone deliver them myself. So I had to make do.

And if you must know, she loved them and couldn't stop telling me how beautiful they are. They were only boxed but, like I told Brad, everyone in the office oohed and ahhed over them. According to you, I got lucky, huh?

Wednesday, June 14, 2006 9:34:00 PM  

Post a Comment

Subscribe to Post Comments [Atom]

Links to this post:

Create a Link

<< Home