Big Apple Worries About a Wall Street Bear’s Bite
Hours after another traumatic day on Wall Street, real estate agent Barbara Corcoran got a desperate message from a customer poised to buy a $600,000 Manhattan co-op: “Stop everything! The market is collapsing. Don’t call us, we’ll call you.”
In the last week, Corcoran has gotten five such calls from New Yorkers--”jumpers” she calls them--all with a bad case of Wall Street jitters. “Everyone asks if the market is crashing and what it means,” she said. “It’s on everyone’s mind.”
For the last five years, New York has profited from the market boom as no other city. But now the party might be ending, and investors who thought nothing of paying $2,325 for a magnum of Haut Brion at lunch are having second thoughts. While the turbulence has alarmed millions, the anxiety is particularly felt here, at the epicenter of the nation’s markets.
Indeed, the state’s chief fiscal officer recently warned about the city’s over-dependence on the investment industry, which pays millions in local taxes. Comptroller H. Carl McCall noted that Wall Street, which represents only 5% of New York City jobs, generated 56% of the city’s total growth in earnings from 1992 to 1997.
His Aug. 13 report voiced concern over this imbalance and added: “The changing environment affecting financial markets and the growing likelihood of a national recession pose . . . considerable risks to the city’s fiscal stability.”
Not to mention the pocketbooks of those New Yorkers who have profited handsomely from the bull market--before it headed downward, with the Dow Jones industrial average now down more than 16% from its July high.
“Do I think that some people will now pay less for wine and cigars in fancy restaurants? Maybe,” said mega-developer Steven Witkoff, who insisted that the city is still a prime real estate market. “Will they buy fewer Mercedes? Maybe.”
If a bear market does emerge, it would be a rude awakening.
Big Surplus Driven by Financial Sector
Once plagued by chronic budget shortfalls, the Big Apple currently enjoys a $1.6-billion surplus, much of it driven by huge financial sector profits. The market has generated $900 million--or 36% of the growth in local tax revenues since 1992, and this Wall Street windfall has helped to pay for an array of programs like anti-crime and anti-drug efforts.
The unprecedented growth has boosted related industries, like law, communications and even the Broadway stage, which has become increasingly dependent on stock-rich investors. As financial companies grow, they have sparked their own building boom, with several brokerage firms currently erecting massive new headquarters in the Times Square area.
Market prosperity has also fueled an epic spending spree among the newly minted elite, for such things as million-dollar apartments, luxury cars, yachts and expensive nights out in the city’s finer restaurants. It’s been a less exhibitionist kind of wealth than New York experienced in the 1980s, according to many observers, because players have accumulated far more money today and, unlike before, most do not court publicity.
But it’s hard to ignore headlines when the stock market plunges, especially if you’re among those who are on the receiving end of a record $10 billion in bonuses paid by Wall Street last year.
“We shouldn’t assume the worst about what this means for New York, yet it’s unrealistic to think the previous prosperity can simply continue,” said John Lipsky, chief economist for Chase Manhattan Bank. “After all, no trees grow to the sky.”
Does the uncertainty rekindle memories of the 1987 crash? New Yorkers are quick to point out that the city is in much better fiscal shape than it was back then, when Black Monday helped trigger a recession from which it took years to recover.
What’s more, the securities industry has been through a major consolidation--and its hiring policies have been more cautious in this boom--which could reduce the need for the kind of wide-scale layoffs that socked the city after 1987.
Despite huge surpluses, Mayor Rudolph W. Giuliani has assumed less Wall Street growth in his 1999 budget forecasts. And the city is squirreling away revenues to cover future shortfalls. But that still may not be enough to protect New York against a downturn, experts said.
“Without the support of Wall Street, the underlying city economy is in a relatively weak position,” said Sara Johnson, a Standard & Poor’s economist who regularly surveys the city. “Business costs are not competitive with other areas, tax burdens are high and unemployment [8.1%] is also high.”
As the market generates record city income, there has been a tendency to ignore these underlying problems. Yet they are the inescapable dark side of New York’s prosperity. The market surge that boosted the value of real estate and stock portfolios in Manhattan has largely eluded the city’s other four boroughs, leaving a growing gap between the super rich and the very poor.
All the while, New York continues to lose a large number of manufacturing jobs. Although other areas of the local economy are growing--such as communications, tourism and high-tech industries--they do not come close to providing the annual tax revenues generated by the city’s sprawling financial sector.
This imbalance has caused many economists to criticize New York for failing to diversify its economy. Still, “it’s difficult to simply conjure up these changes, as if a local government has enough power to make it happen,” noted Lipsky.
The Caviar Crowd Is Unaffected
The storm warnings are obvious, but few are panicking, yet. Pricey restaurants like Le Cirque 2000, Balthazar, Jean Georges and Lutece report no decline in patronage this week. And newer hot spots like Patroon, which feature $300 imported cigars as an after-dinner indulgence, have yet to feel a pinch.
“Obviously, it [the market trouble] is going to have some effect at some point, but we haven’t seen a major falloff,” said Kate Merlino, a spokeswoman for Petrossian, the city’s premier caviar and champagne restaurant. “Last Friday, when you’d think people would have been very down, the restaurant was filled. Those who want caviar are still buying it.”
And the high end of the housing market roars on. Corcoran, who heads the city’s largest real estate brokerage firm, noted that demand for $10-million penthouses overlooking Central Park “remains insatiable,” with typically three or four VIP buyers competing for the same location.
While some customers may be wavering, she said, “my truly high-end buyers are looking at a shortage of properties. These are people who aren’t accustomed to not being able to get what they want--and they are learning the value of patience.”
In the last 12 months, prices in Manhattan’s high-end real estate market have remained high. According to the New York Observer, a weekly newspaper, investor Bruce Wasserstein bought a Fifth Avenue co-op for $12 million; Leslie Wexner, chairman of the Limited, purchased an eastside co-op for $9.5 million; Kevin Kennedy, managing partner of Goldman Sachs, acquired a Central Park West co-op for $9 million, and hotelier Ian Schrager bought a $7.5-million home on the same exclusive street.
Usually, such frenzy means long-term confidence in the city’s financial health. But there are mounting fears among several experts that New York is skating on thin ice.
N.Y. Boosters Remain Confident
“Our economy and public health are always going to be at risk if Wall Street under-performs,” said Ray Horton, a business management professor at Columbia University and outgoing president of the independent Citizens Budget Commission. “The stock market is the absolute engine of the New York economy, and it has become a disproportionate source of our local revenues.”
As the market zigs and zags, New York boosters remain cocky. The city’s heralded drop in crime has made it a magnet for tourists, they say, and New York’s supremacy as an international center is unrivaled.
“This town is still a haven for foreign investment, and it’s a success story,” said midtown developer Witkoff, as his voice broke up over a car phone. “I can’t hear you now,” he joked. “So maybe I should close the roof of my Rolls-Royce.”
BLUE CHIPS RETREAT: The Dow slid 45 after Tuesday’s bounce-back. Broader markets were mixed. D1
