NYC's 1970s Real Estate Crisis and its Remarkable Recovery

Just a few days ago, a young friend looked at me incredulously over coffee and said, 'New York City real estate has never been this bad.' I couldn't help but chuckle. 'You should have seen the 1970s,' I replied. 'Office space was a bargain, and the city was on the brink of bankruptcy. New York has weathered storms before; it always bounces back.'"

One advantage of having experienced multiple real estate cycles is the added perspective it gives on the inherent ups and downs of a city like New York. Real estate investment isn't a sprint; it's more of a marathon. The ability to hold long-term and ride out the fluctuations is often what separates the seasoned investors from a newcomer. In the grand scheme, downturns like the 1970s, the Great Recession or even the recent COVID-induced slump are but chapters in a city's expansive real estate history. Knowing this, you can approach investing with a balanced view, prepared for both the challenges and opportunities that lie ahead.

New York City in the 1970s faced a real estate crisis that reverberated through the halls of its iconic skyscrapers and into the quiet angst of City Hall. With a fiscal deficit reaching $2.2 billion by 1975 and 20% of office space sitting vacant, the city was teetering on the edge of bankruptcy.

The atmosphere was a far cry from the prosperous post-World War II era. The oil embargo of 1973 had sent shockwaves through the American economy, with the price of oil quadrupling in just a few short months. Against this backdrop, New York was grappling with its own set of unique challenges: a crime rate that had soared 60% from 1960 to 1970, and a failing public infrastructure.

The subway system became a symbol of decline: graffiti-tagged cars, service disruptions, and an alarming rise in crime—250 felonies a week by the mid-70s. Fire incidents surged by over 400% between 1966 and 1975, straining an already overworked fire department. Schools fared no better; budget cuts led to teacher layoffs, overcrowded classrooms, and the depletion of basic supplies. In 1975 alone, over 10,000 teachers were laid off. This crumbling infrastructure amplified the "white flight" phenomenon, as 820,000 white residents fled between 1960 and 1980. Fleeing families and hesitant businesses eroded the tax base, worsening the city's already precarious fiscal position. By 1975, the city's deficit ballooned to $2.2 billion, bringing New York to the edge of bankruptcy.

The fallout was evident in the real estate market. By the late 70s, with inflation taken into account, some estimates suggest you could purchase office buildings in the city for as little as $5 per square foot.

The New York Times reported in 1975 that more than 20,000 apartments in New York City were in some stage of mortgage foreclosure. Buildings in various boroughs were affected, but it was particularly problematic in the Bronx, where many properties went vacant. The city was rife with foreclosed properties, so much so that at one point, New York City became the largest landlord, owning approximately 20% of the local housing stock because of the default crisis.

Yet, as history would have it, New York's transformative spirit proved indomitable. Ed Koch, who became Mayor in 1978, implemented various reforms including crucial infrastructure investments amounting to $5.1 billion between 1985 and 1989. By the 1980s, with crime beginning to dip and Wall Street surging, New York started experiencing a renaissance. By 1998, the vacancy rate for offices had dropped to a mere 5.6%.

Today, as we grapple with the real estate uncertainties in the post-COVID era, it is enlightening to revisit the trials and triumphs of New York City in the 1970s. New York weathered the storm before, emerging stronger and more resilient. As we look towards an uncertain future, this chapter in history serves not only as a cautionary tale but also as a beacon of hope.

At Twining Properties, our long-term hold approach to real estate has seen us through multiple cycles and crises, further solidifying our belief in the enduring potential of New York City. We understand that resilience and evolution are as much a part of the city's fabric as its skyscrapers and subways. Our experience navigating these ebbs and flows allows us to continue investing in the city with both caution and optimism, ready to face whatever challenges and opportunities lie ahead.

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