Mar. 20, 2009, page 6
LOS ANGELES DAILY JOURNAL
Bad News for the Times
By Gideon Kanner
It seems like only yesterday that, acting in furtherance of its Times Square redevelopment plan, New York condemned a city block in midtown Manhattan, at 43rd Street and 8th Avenue, in order to turn it over to the New York Times and its developer Forest City Ratner, for the construction of a new high rise headquarters building for the Times. It was supposed to be a famous Italian architect’s tour de force (if you doubt it, just ask the gushing Times architecture critics). The block selected as the site for the new Times building was an ordinary midtown commercial block that was free of the porn stores that had lined 42nd Street between Times Square and 8th Avenue, and inspired the Times Square redevelopment project. Though it was no more “blighted” than other nearby Manhattan streets, the particular site chosen for the Times’ new building was included in the ballyhooed Times Square redevelopment effort that in addition to banishing porn, would spruce up the area, making it more inviting to tourists.
To say that this was a sweetheart deal for the Times would be an understatement. The subsidized price the Times paid for the land when it was transferred to it after its condemnation was about half of what comparable local land sales indicated. At the time the Times estimated that “city incentives” to it would come to $29 million. Also, buried in the 99-year land lease to the Times and its developer was an option clause that would permit those two to purchase the building after 30 years for “nominal consideration.” It doesn’t get much better than that, does it?
Of course, to provide the Times with a building site, it was necessary for the city to acquire the targeted block and to displace all the commercial enterprises that had owned and occupied space in it for years. And, under New York eminent domain law, there is no compensation for business losses inflicted on condemnees. So what, said the Times. One of its executives was quoted at the time as saying “It’s our responsibility to all the stakeholders in this company to be as competitive as we can be.” And so, the Times’ posh new digs were built on the economic bones, so to speak, of the displaced indigenous businesses that did no one any harm and that had provided the public with a variety of useful goods and services.
It’s now a half-dozen years later, and it turns out that things haven’t quite worked out as hoped. Faced with an adverse economic climate that now increasingly afflicts the newspaper business, the New York Times is strapped for money and has just sold its interest in that new building, retaining the area it occupies as a tenant with an option to repurchase it.
Likewise, the Times’ partner in the new venture, Forest City Ratner, is having problems of its own and just took out a $640 million mortgage against its portion of that new building.
We also learn that the Times had sold its old building for $175 million, but its “stakeholders” did not make out too well on that one – the buyer resold it for three times that amount. Who knew, says the Times, that a short-lived boom in Manhattan real estate was coming.
The moral of this story is that urban redevelopment, no matter how semantically disguised, is nothing more that a commercial real estate venture that uses strong-arm government tactics in acquiring urban land from unwilling “sellers.”
But like all other business ventures, it also runs the risk of failure when times turn bad, or even when they don’t, when other negative factors are brought to bear on the deal. For an excellent, concise discussion of this aspect of redevelopment, read the conclusion to the opinion of Justice Macklin Fleming in Regus v. City of Baldwin Park, 70 Cal.App.3d 968 (1977), where he observes that those glowing urban redevelopment projections can be risky business and therefore should be funded with the entrepreneurs’ private venture capital rather than the taxpayers’ money, because there is an ever-present risk that the project promoters’ promises of baking a bigger economic pie for all may turn into “pie in the sky.”
Though the New York Times’ misadventures give rise to a classic and well justified case of Schadenfreude, I resist rejoicing over the Times’ misfortune. In spite of its flaws, warts and pimples, it’s a good newspaper and it would be a shame to see it go under or even decline in quality along with so many other, once-renowned American newspapers.
Still, it can’t go entirely without notice that there is poetic justice involved here. When the Supreme Court decided the wretched Kelo case in 2005, the country reacted with shock and outrage. But the Times was one of only two major national newspapers (the other was the Washington Post) that in spite of its clear conflict of interest, cheered the court’s decision on its editorial page, and endorsed the “economic redevelopment” process that forcibly takes one citizen’s land in order to give it to another one, for the latter’s financial gain.
Well guys, turnabout is fair play and eventually chickens do come home to roost. The moral of it all is that he who would live by the redevelopment sword runs the risk that the sword may turn into a wet noodle when the economy tanks.
Gideon Kanner is professor of law at Loyola Law School in Los Angeles,and is of counsel to Manatt, Phelps and Phillips.