it is impossible to prove that the Soho artist in residence regulations are a resale problem unless 'victims' come forward

number crunching cannot get you there
One way to look at how different people talk about A.I.R. in Soho is whether they think it is “a problem” or whether they think it is like white noise (always present, more or less, but you get used to it and it won’t hurt you … perhaps unless you happen to be especially sensitive to noise in that spectrum). Attorney Margaret Baisley is probably the most visible proponent of Team Problem (we need to do something); Sean Sweeney of the Soho Alliance is easily the most visible proponent of Team White Noise (nothing has changed).

See Sweeney’s comment on Saturday’s post, my March 5, is renter protection the thorniest (and separable) piece of the Soho artist in residence puzzle?:

Until figures or reports showing a dramatic decrease in prices or actual real people harmed, I shall continue to view this as an academic question and a tempest in a teapot.

This viewpoint raises at least 3 issues for Team Problem:

1. it is hard to argue about “a problem” with someone who does not agree that there is a problem
2. especially when (as we shall see) that person has a huge influence in the solution you propose for the problem he does not acknowledge
3. and when the question he asks in order to engage about “the problem” (show me real world impacts) can’t be answered

One way to frame that real world impact question is as Sweeney says above, with:

figures or reports showing a dramatic decrease in prices or actual real people harmed

I will explain why I am convinced that it is impossible to look at market data and find a Soho resale problem, as well as why the anecdotes about “actual real people harmed” are not (yet) sufficient and why it is unlikely that Team Problem (a) can get more persuasive anecdotes or (b) win if they don’t get more persuasive anecdotes. Bear with me, as we start with some market metaphysics.

the Zen of niche stats
That favorite question asked if a tree falls in the forest and no one is near, does it make a sound? The equivalent for my world of Manhattan lofts is if a Soho loft is sold at a lower price because of A.I.R. risks but you can’t prove it, does it really matter?

If I get too deep into a discussion about the problem that the number of sales in Soho is too small to provide meaningful answers, I will show myself a poor contestant for Are You Smarter Than a 5th Grader? But let’s look at some top line numbers.

StreetEasy says there were 261 coops, condos or townhouses sold in Soho in the last year, 115 of which were in the last 6 months, 22 in the last 60 days, and 7 in the last 30 days.

If you wanted to look for an A.I.R. effect on sales volume or prices, how would you do it? I closed that Saturday post with “When I figure out a way to test that proposition, I will let you know”. Here are some problems with designing a test to measure A.I.R. effect on sales volume or prices using market statistics:

They are all realted to what is your base line?

If you examine sales volume, how do you select any period of sales in Soho that is free from an A.I.R. effect? How do you know that period was free from any period of sales in Soho? If you just look at the slope of the line over time, you have to compare it to … what? … the overall market (most likely, as the best candidate). If you compare Soho sales volume to the overall market volume, you will see that the overall market volume varies a lot in a given year. (I am not going to graph it, but Miller Samuel annual data is here; quarterly data is even more variable, here.) With much smaller numbers, Soho A.I.R. sales will normally be even more variable.

If you examine sales prices, do you use median sale price, average sales price, or average price per foot? Do you compare the current (recent) Soho market to an earlier period of sales in Soho that is free from an A.I.R. effect? If you compare it to the overall market, that is pretty crude. If you designed a study comparing ‘similar’ Soho lofts to ‘similar’ Tribeca lofts, you‘d have so few valid pairs that you’d have no valid time-line. (Note that The Miller aggregates Soho and Tribeca when showing data by neighborhood, so you’ll get no [easy] help there.)

Oh, and you can’t use all Soho sales. You can only use Soho sales in buildings zoned for manufacturing. Looking at StreetEasy’s data set in 2010, there were 17 sales at 505 Greenwich Street, 23 sales at Soho Mews (311 West Broadway), 7 sales at 2 Charlton Street, 3 sales at 255 Greenwich Street; none of which are subject to A.I.R. because they are not zoned for manufacturing. Of course there are other buildings in Soho that are similarly not zoned manufacturing, including only part of the single coop 140 Thompson Street and 468 West Broadway, which had 5 sales in 2010. So that 261 Soho sales number from StreetEasy (above) would be reduced by at least 50.

I hope it is obvious at this point that you can’t prove anything with a 12 month trend line that has fewer than 200 data points.

If you can’t prove anything by market stats, what data is left? Individual data points, which are sometimes called anecdotes. And one man’s anecdote is another person’s outlier, to be ignored as a basis for making policy. Unless there were a lot of anecdotes….

who will call attention to themselves, and risk a DoB visit, or a market hit?
This nugget from Attorney Baisley, quoted yesterday, bears repeating:

“No one will put their hand up and say, ‘I’m living here illegally, please rezone the neighborhood,’ ”

Nor is it likely that many shareholders will do what Commenter Damion did (see my December 17, real world impact of Soho artist-in-residence rules and Certificate of Occupancy enforcement, as the dialogue continues, and his full comments on The Mother of All A.I.R. Posts, November 12, did the NY Times just write the obituary for the Soho real estate market?): describe his specific problem getting a loan from an unnamed bank.

Instead of individual and specific victims coming forward, people like Attorney Baisley act as proxies. Commenter Damion again, based on conversations with two different lawyers, that:

• a year ago there were a half-dozen buildings that had been refused amended C of O’s by the DOB because they could not provide the requested Artist Certificates for every unit in their building
• DOB was making a habit of requiring artist certificates for all units in buildings that he was representing and in some instances his threats to sue the DOB was sufficient to unblock the situation but in other instances the DOB refused to budge

None of these buildings was his, so he naturally felt constained about ‘outing’ them as having a problem.

The media love anecdotes.

Candace Taylor in The Real Deal in August (Top 10 Real Estate ‘deal killers’; with my bold):

For years, these [A.I.R. /  Soho zoning] rules weren’t enforced, but a recent crackdown by city officials combined with buyers’ increased vigilance is now causing many transactions to run aground. Baisley said she is currently working on two multimillion-dollar deals that have run into trouble because of zoning problems.

Take-away: “many” transactions have “run aground”; Baisley had two that had “run into trouble”. No details, and no mention if any of those transactions eventually closed.

Jhoanna Robledo, in New York Magazine (Loft Clauses / What happens if the city steps up enforcement of Soho’s artist-in-residence laws?) was also a little vague:

Apparently, there are more than a few co-ops under Department of Buildings scrutiny for AIR-related violations.

Take-away: that was from July 2007!

To recap, here’s Christine Haughney in the November 12 New York Times article Suddenly, SoHo Heeds Law Limiting Lofts to Artists:

Apartments, even those in buildings with the prestige of famous residents, have languished on the market. Banks began withholding mortgages. Co-op boards began ordering residents to apply to the city for certification as artists.

 

And last year, for the first time anyone could remember, the city rejected as many applications as it approved, in a cryptic process that mystifies those who have gone through it.

Haughney offered no examples of banks withholding mortgages, or buildings forcing residents to apply for certification; she did have one specific example, though without details it is hardly clear that any of these units were "languishing" (as opposed to, say, over-priced),

At 158 Mercer Street, for example, one buyer who offered $8.2 million, the asking price, for a loft several months ago backed out after his lawyer warned him about the artist requirement.

The sellers’ broker … cut the price to $6.9 million but found no takers, and three other apartments in the 22-unit building have been for sale for more than three months

According to StreetEasy, that $8.2mm-cut-to-$6.9mm loft was taken off the market on November 5 at $6.8mm; two others were taken off in December and February. The last sale in the building was November 8, 2008 (the June contract was post-Peak but pre-Lehman) at $1,678/ft. The 3 lofts recently taken off the market were asking $1,581/ft, $1,786/ft, and $1,478/ft. If the building has always had ‘an A.I.R. problem’ then there’s no way to blame these non-sales on A.I.R.; if you are looking for only a ‘recent A.I.R. problem’, without a lot more analysis there’s not enough room between the November 2008 clearing price and these asking prices to blame anything other than The Market.

Later, Haughney cites the DoB about other issues at that building (“including tests of the building’s smoke detectors and repairs to the elevators that the city has not approved”) and quotes the managing agent sounding confident:

the building was “working with the Department of Buildings to reinstate their temporary certificate of occupancy.”

She also quoted one ‘skittish’ banker by name:

But banks, which have been tougher on all kinds of borrowers as a result of the foreclosure crisis, are now skittish about giving loans in buildings that have an artist-in-residency requirement, said Eric Appelbaum, president of Apple Mortgage. Banks worry that if mortgaged apartments go into foreclosure, the artist rule may make them harder to resell.

Any shareholder or managing agent who is quoted in the media as having an A.I.R. problem runs the risk that the sellers from the building will be at a competitive disadvantage compared to other buildings, and that the notoriety may cause greater scrutiny from the city. (Presumably, 158 Mercer was already dealing with both issues.) I just don’t see the incentive to volunteer, with chapter and verse.

burden of persuasion
The problem for Team Problem is that they don’t like the status quo, but are unable to marshall the kind of facts that may be needed to cause change.

Sean Sweeney, at least the honorary captain of Team White Noise, has heard and read everything, and is unconvinced by this ‘evidence’, as above:

Until figures or reports showing a dramatic decrease in prices or actual real people harmed, I shall continue to view this as an academic question and a tempest in a teapot.

I don’t need to take a position about how important the Soho Alliance is to any change; I will let Aline Reynolds from Downtown Express do that:

The Bloomberg administration recently said it would only consider rezoning Soho if there was a communitywide campaign behind it. And, until Sweeney receives a groundswell of complaints about the current zoning, he said, there will be no such campaign.

Team Problem can’t win without moving the ball; they can’t move the ball except with details about “actual real people harmed”. Who has the incentive to come out as a victim?

In the meantime, you can expect to see articles like this recycled from time to time, as we have seen in my November 30, how are Soho artist-in-residence articles like the Richter Scale in California?. Cynics will say this is all in an attempt to sell newspapers.

And to drive eyeballs to certain blogs 😉

How can they be proven wrong?

© Sandy Mattingly 2011