Time for Change: NYU Faculty on Development After Sandy

Faculty members from New York University's Schack Institute of Real Estate discuss the future of development after Hurricane Sandy.

Over the next several years, the commercial real estate industry will face decisions about development and investment in vulnerable coastal areas. In a wide-ranging conversation held a month after the storm, three members of New York University’s Schack Institute of Real Estate discussed the coming challenges with CPE senior editor Paul Rosta. What follows is a condensed transcript of that discussion.

  • Rosemary Scanlon was named dean of the Schack Institute in April 2012. A specialist in urban and regional economic studies, she has served as New York’s deputy comptroller and as the chief economist of the Port of New York and New Jersey.
  • Patricia Lancaster served as commissioner of the New York City Department of Buildings from 2002 to 2010. An architect who has also worked in development, she teaches infrastructure and planning courses.
  • Barry Hersh, a veteran urban planner, is a clinical associate professor and teaches courses on development. Last summer he completed a study on waterfront development nationwide for the NAIOP Commercial Real Estate Foundation.

CPE: As we take our first look at the aftermath of Sandy and its impact, what we can take away in terms of sustainability and development?

Hersh: I think there are a lot of lessons to be learned. First of all, I think it’s interesting that there are some political figures (saying) we have to do something different—we can’t just let these storms come through, and they just do way too much damage and we can’t afford it. So I see a lot of things. Just to start with, one that is controversial is that there are some places that probably will not be rebuilt or projects that will not be built.

There are places that have been damaged several times in the past few years. You have to figure out (how) to do something better. You can’t just rebuild it as it was. And that’s true nationwide. This morning in the New York Times, there are articles about Sea Gate (a private gated community located at the western end of Coney Island in Brooklyn) and Breezy Point (a Queens neighborhood where 111 homes were destroyed by fire on the night of the storm.) … I don’t want to pick on any one of those specific sites. But you have to think about this and say: Is this really a smart place to build, knowing what we know about (rising) sea levels and (coastal communities’) vulnerability to storms?

Now the problem isn’t that the sea level rises six inches. The problem is that storms become fiercer and the site becomes more vulnerable. There’s a lot of real estate that can continue, and it becomes a question of moving it up the hill or putting it on stilts or protecting it by a bathtub or putting its mechanisms above the flood-plain level. But there will be a lot of that in New York and places like Lower Manhattan where you have big investments, and you can provide some protection, but it will surely impact development.

CPE: If there are changes to land use on coastlines in the future, where is the push going to come from: Lenders? Insurance carriers? Government? The end users themselves?

Hersh: Actually, all of the above. There are things that government will do at all levels. I think that municipalities will certainly be stronger in enforcing their flood zones, their zoning, their building codes. For example, after the hurricanes in Florida, municipalities in Southern Florida adopted a much more stringent building code. And while we now have close to an effective national building code … we may see both the national code organizations and municipalities strengthen their codes and also become much more cautious about approving waterfront developments and understanding what they’re doing.

If lenders perceive risk, they’re going to stay away. There are buildings in Lower Manhattan they’re saying won’t be habitable until March. Well, some of those buildings may be foreclosed on. If they have no income because they have no tenants, depending on what insurance they have, they could easily go under. A lot of them could be refinanced, but (foreclosure) could happen.

I don’t think waterfront development won’t happen—people love the water. … But I think people will be much more careful about planning for the flood plain being at a little higher elevation—putting in protections, et cetera. And in sites where they really can’t protect it, then it will be hard to develop.

CPE: What do you see as some of the potential implications for building codes, especially in areas that may be vulnerable to flooding?

Patricia Lancaster: It’s the building code that talks about what zone a building is in according to the FEMA flood map. It covers both dry flood proofing and wet flood-proofing. It’s an appendix to the Universal Building Code. Wet flood proofing is where the lattice at the bottom of a building breaks away and allows water to flow freely underneath the building. Dry flood proofing is when it’s waterproof and keeps the water out. There are different places and situations in which these things are used.

That said, an examination of a building code is a good idea for the zones that FEMA calls the 100-year flood. There are implicit issues in that. One (is) … are the flood zones (drawn) broadly enough? And the other is, should we be designing to something other than the 100-year flood—for instance, the storm surge? And if so, how big (should it be)? …

If I were the building department, or even making recommendations, I’d want to know how high a storm surge to design for, and that means you need to reconsider the FEMA flood maps, as well. And let me just round this out by saying that there are also zoning issues, so, for instance, in Flood Zone Type X, you might want to preclude the building of critical facilities like hospitals or schools.

Going back up to 30,000 feet, you have the regulatory medley, to use a very positive word, of the FEMA maps, … the building code, and the zoning resolution that need to work in concert to bring about a resiliency change for New York City’s regulatory framework.

Hersh: When the FEMA maps first came out, Staten Island was very upset with them—they thought they were overly cautious. Hindsight is always 20-20. A hundred-year storm doesn’t happen once in a hundred years. It means there’s a 1 percent chance it happens in any given year. And if you get unlucky, it could happen three years in a row. Speaking about how we make places more resilient, (it’s a) combination of how the buildings are designed, where they’re located and also the use of natural features—wetlands and sand dunes and washes—which (explains) a little bit of what happened on Staten Island. Because if you lose those, as you did in New Orleans, you have much less protection.

CPE: What are the lessons of Hurricane Sandy that have jumped out at you so far?

Rosemary Scanlon: The first thing that I would say is … we’d better be prepared to listen to what the experts have to tell us (about global climate change) and do something about it. I do think that we stand the probability of good action—the (U.S.
Army Corps of Engineers) spent a fortune shoring up the levees in New Orleans—as opposed to Katrina. Now our governors (in New York and New Jersey) are saying, “We’ve got to do something.”

I’m just back from a weekend (conference) in London. They were fascinated, really watching what happened in New York, because they’re very concerned about London (from) storm surges on the Thames. (London’s) whole underground transport system is just as threatened as ours is. And even they’re ahead of us, building the Thames Barrier (a 520-meter-long moveable flood barrier completed in 1982, which spans the river near Woolwich and protects 120 square kilometers of London from storm surges). Now they’re worried that the Thames barrier is no longer adequate—not high enough. So the New York problem has sure got them thinking in London, too.

CPE: What are the most important things we should be doing?

Scanlon: First of all, it’s the question of the insurance companies. What decisions will the insurance companies make about allowing people to rebuild in places where their house was destroyed on the Jersey Shore or in Rockaway? If you can’t fight it, is there flight? Do you move inland and turn the barrier islands of Rockaway or New Jersey into literally that—great big sand dunes as natural barriers? That all comes down to a planning and siting issue. Do you rebuild in the same place? Will the insurance companies give you insurance to do it? Do we have to set up very expensive public flood insurance programs, like they’ve had to do in the state of Florida, with some federal money or the kind of things we did with terrorism insurance after 9/11, which was set up for big buildings?

I think that the next phase is what Patricia was addressing, which is, What are your building codes? And the third thing would probably be the immediate barriers. Maybe there are certain barriers you can build higher. But then the question is, What do you do outside the harbor? Is it possible to build anything? Engineers and policymakers need to start thinking about this. My hope would be that all these studies turn into taskforces.

Hersh: There were a number of buildings in Long Island City that were flooded, but some buildings withstood it much better than others. The other thing to remember is that a building code is a minimum, not a maximum. From a development perspective, it’s an encouragement not to just follow the curve, and maybe even do a little bit more and to try to market their buildings and allow their projects to proceed by saying, “We are doing what needs to be done, and your tenants will be safe in this building.”

I think there will be waterfront development in New York City and elsewhere, but I think that you could really shoot for a higher standard. … You know, there’s really no such thing as flood-proof. There’s flood-resistant.

CPE:. Is that something that you see as potentially being a competitive advantage?

Scanlon: Definitely. To pick up on Barry’s point, the Goldman-Sachs Building at the World Trade Center survived. … It didn’t have a leakage. It wasn’t just because of the sandbags they put around it—they must have helped—but everything else they planned for. It’s a new building, and they planned for (a major weather event). The WTC site got inundated, but the water, as I understand it, came in through the open trenches they were working on to supply the very lower levels. It wasn’t just the water that poured over the Hudson.

There’s no doubt that the real estate industry is really galvanized by this now, as we are here at the faculty at Schack. Bill Rudin (vice chairman & CEO of Rudin Management Co., which owns and operates office and residential buildings in Manhattan), speaking at our capital markets conference on Nov. 7, made that point very strongly. He was gearing up all sorts of taskforces and groups in any number of organizations that he is a member of or chairs, like the Association for a Better New York, and again galvanized the whole real estate industry.

CPE: Clearly, we’ve seen instances in the past where a major event has a very limited long-term effect. Do you feel that Sandy really changes the way stakeholders view planning and development in coastal areas?

Hersh: People have been seeing and hearing these things now (for some time); you could pick Katrina as a starting point. Here in the New York area, we had two (major storms) in less than a year and a half. That really begins to have a permanent impact. It certainly does from the regulators. It certainly does among the financial people who have to deal with picking up the pieces for buildings that are destroyed or left empty. … I think people will really begin to value the feeling that their building will not be shattered repeatedly.

Lancaster: I would second what Barry said. Most people now acknowledge that there’s something going on, from tornadoes in the South to the storms that we’ve had to other events worldwide. Something really big has happened. From a building code perspective, it’s very different to talk about a 1 percent chance of a flood, as Barry said, and to talk about something that can happen any day. It’s a different way of thinking.

Scanlon: I give both the Port Authority and the (New York Metropolitan Transportation Authority) very high marks for the way they got this (transit system) pumped out this time and back working. They got it up and running, but it’s clear going forward that your resistance strategy is not going to be to hammer plywood boards on top of a subway tunnel. We clearly have to do something. I’m confident this time that the probability is that the people who are in charge will do something.

Lancaster: What you find is that real estate developers and their money flow more easily into places that have a clear direction set by the government. Our local examples around here are the High Line, the Hudson Yards and Wyandanch transit-oriented development (a 134-acre revitalization project planned for the struggling downtown area of a community on the South Shore of Long Island). Government didn’t pay for it, but they seeded the money to set the right direction.

Scanlon: I would come back and reaffirm what I think will be the stance of the real estate industry in New York (City). It’s a powerful industry. … We’ve got 400 million square feet of office space alone, not even counting our residential inventory. That’s 10 percent of the national volume of commercial office space. I think that the chances are that our real estate industry will take a real strong stance now on how do we protect our investment from … outside the property line. We’ll probably be having at least a minor part of that discussion here at Schack.

For more analysis of the impact Hurricane Sandy had on commercial real estate and changes that could be made to better withstand future such storms, view the Special Report: When Disaster Strikes in the January 2013 edition of Commercial Property Executive.