The $400M Abandoned Skyscraper New York Still Doesn't Know How to Save

[00:00:00]Stand at the corner of Court Street and Livingston Street in downtown Brooklyn and look up. The tower is right there.

[00:00:08]43 stories of concrete and dark [music] glass rising above the low commercial buildings around it like something that wandered in from a different city and never found its way back out. It has no tenants. It has no lobby activity.

[00:00:22][music] It has no future that anyone in the city of New York has been able to agree on for the better part of three decades. It has a name, though. It has always had a name, Gotham Tower, which, and I say this with complete sincerity, is the most New York name you could possibly give to a building that has spent its entire existence failing.

[00:00:49]what this building was supposed to be.

[00:00:50]To understand the Gotham Tower, you have to understand what downtown Brooklyn was supposed to be in the late 1980s. And to understand that, you have to understand what New York City does every time it survives something it probably should not have survived. The fiscal crisis of 1975 had nearly killed the city. The federal government's response was so indifferent, it produced one of the most famous newspaper headlines in American history. Ford the city dropped dead. The city did not drop dead. It recovered.

[00:01:20]And by the late 80s, Manhattan was booming in the way that only Manhattan booms loudly, expensively, and with complete confidence that the party has no closing time.

[00:01:33]Brooklyn was not Manhattan. Not even close. But it had something Manhattan was running out of, which was space at a price where the numbers still worked.

[00:01:42]The Metro Tech Center project had just broken ground a few blocks from the Gotham Tower site, sold to the city as the catalyst that would transform downtown Brooklyn into a real commercial district, a legitimate alternative to a Manhattan market that had nowhere left to expand. The Gotham Tower plugged directly into that story. The developer, Atlantic Terminal Associates, assembled the site, the financing, [music] and the political relationships needed to get a 43tory mixeduse [music] tower approved in a neighborhood that had never seen anything remotely that tall. Office space, groundf flooror retail, residential on the upper floors, the tallest building in Brooklyn, proof that Brooklyn had arrived. The architecture was exactly what you would expect from 1989. Post-modern gestures on a glass curtain wall. Setbacks that nod at zoning history without committing to it. A building that wanted to be taken seriously, but was still figuring out the outfit. Not ugly, not beautiful, financially motivated, which in New York is practically its own architectural style. The total projected cost was $400 million in 1989 money. [music] Nobody asked the obvious question about whether downtown Brooklyn could support it. They rarely do during booms. That is rather the point of booms. The rise construction on the Gotham Tower preceded the way large [music] projects proceed when the money is flowing and the political winds are favorable, which is to say it proceeded with the momentum of something that feels inevitable [music] right up until it isn't. The concrete cores were poured. The structural frame climbed. The building's profile became visible [music] from the elevated F-Train platforms, from the Brooklyn Bridge, from lower Manhattan, across the water. In certain circles of the New York real estate community, there was genuine conviction that downtown Brooklyn's moment was finally arriving.

[00:03:42]Then the tenants did not come. Not in the numbers required, not at the rents required. The building had been designed in the boom, financed [music] in the boom, and underwritten against a leasing market that existed only inside the boom. It attempted to open directly into one of the most severe commercial real estate collapses in American history.

[00:04:03]The recession of 1990 and 1991 hit commercial real estate with the specific ferocity that always follows a debtfueled [music] expansion. Manhattan office vacancies spiked sharply. If Manhattan tenants were not filling Manhattan office buildings, the argument that they would commute to Brooklyn to lease space in [music] a 43-story tower required an optimism the market was no longer capable of producing. The savings and loan crisis arrived at precisely the wrong moment. The lenders behind the Gotham Tower were exactly the category of institution failing across the country as collateral values collapsed faster than anyone had modeled. The Resolution Trust Corporation, the federal agency created to clean up the wreckage, was about to become one of the largest holders of distressed commercial real estate in American history.

[00:04:52]Construction slowed. Then it stopped at roughly 30 floors. 30 floors is the crulest stage at which to stop. You have spent most of the budget. You have delivered none of the product. What you have left is a concrete skeleton that is neither a building nor a vacant lot. It is a problem that compounds quietly through every winter, every rain, every freeze cycle, while everyone argues about whose problem it actually is. The building stood there open to the sky.

[00:05:20]The most expensive unfinished sentence in Brooklyn, what went wrong and when.

[00:05:27]Here is the sequence. Not the polite version that appeared in press releases, the actual sequence. Atlantic Terminal Associates had assembled his financing in 1988 and 1989 using a combination of construction loans from institutions that were in several cases already showing signs of the stress that would eventually consume them. The underwriting assumptions embedded in those loans required the building to achieve lease commitments from anchor tenants before or shortly after construction completed. Those lease commitments did not materialize because the tenants who [music] might have signed them were watching the Manhattan market soften and making the entirely rational decision that they did not need to expand into Brooklyn when they could renegotiate their existing Manhattan leases at more favorable terms. The lead lender on the construction [music] financing was a thrift institution with exposure to the New York commercial real estate market that turned out to be catastrophic. When the institution failed and its assets were transferred to the Resolution Trust Corporation in the early 1990s, the Gotham Tower construction loan became a government asset. The federal government was now the deacto owner of an incomplete skyscraper in downtown Brooklyn. This is the kind of sentence that sounds like a punchline, but is not. The people who had to manage this situation had no punchline available to them. The RTC's mandate was not to develop real estate.

[00:06:49]It was to liquidate assets at the best available price and return the proceeds to the insurance fund that was covering the deposits of the failed institutions.

[00:07:00]Developing a half-built skyscraper in a market with no tenants was not in the liquidation playbook. The RTC sold the Gotham Towers loan at a discount to a series of investors whose interest in the property was financial rather than developmental. and the building passed through a sequence of ownership structures over the following years that added legal complexity without adding construction progress.

[00:07:25]Each ownership transfer triggered negotiations.

[00:07:28]Each negotiation produced proposals.

[00:07:31]Each proposal required city approvals, financing commitments, and tenant agreements, none of which arrived in the combination necessary to restart construction.

[00:07:43]The building sat. The concrete aged. The rebar beneath the concrete began in certain locations to [music] experience the early stages of the corrosion that happens when concrete structures are left open to weather without maintenance. The city of New York was watching all of this, not watching in the active sense of an entity that knew what to do and was doing it. Watching in the helpless sense of an entity that understood the problem was significant.

[00:08:10]That the building was becoming a liability rather than an asset. that the site of an unfinished skyscraper dominating the downtown Brooklyn skyline was not the image the burrow's redevelopment advocates wanted in the newspaper and that there was no obvious mechanism by [music] which the city could make the problem go away without spending money it did not have on a project it did not own. This by the way is the part of the story where every single party involved will tell you it was someone else's responsibility. The developer will point to the lenders. The lenders will point to the market. The market will point to the recession. The city will point to the private ownership structure. And the building will continue to stand there unfinished in the rain, [music] not particularly interested in anyone's explanation.

[00:08:55]The building itself.

[00:08:57]Walk around the base of the Gotham Tower and spend some time looking at what three decades of incompletion does to a reinforced concrete structure. What you see first is the lower floors, the ones that were most nearly complete before construction stopped. The exterior cladding on these floors was partially installed, and in certain sections, it has been maintained with enough regularity to suggest someone at some point was paying attention. In other sections, the cladding has separated from its substrate in ways that make you instinctively widen your path on the sidewalk, which is the appropriate response. What you see above that is the raw structural frame.

[00:09:36]Concrete columns and floor plates exposed to weather, stre with the rust, staining that tells you water has been moving through the structure and finding the steel within the concrete and beginning the slow conversation with that steel that concrete and water always have, which ends the same way and is never good. The building has been assessed multiple times by structural engineers, retained by various owners, and by the city's department of buildings. The assessments are not public documents in their complete form.

[00:10:07]What has emerged in public reporting and in litigation filings over the years is a picture of a structure that is not in imminent danger of collapse, but is also not in a condition that permits conventional renovation to simply pick up where construction left off. This is the engineering detail that gets lost in the political conversations about the building's future. Restarting construction on a reinforced concrete frame that has been exposed to weather for 30 years is not the same as continuing construction on a reinforced concrete frame that was paused last Tuesday. [music] The concrete has carbonated in the outer layers, reducing the alkalinity that protects embedded rebar from corrosion.

[00:10:52]In certain locations, the corrosion has progressed to the point where the affected concrete must be removed, the rebar treated or replaced and the concrete recast before any additional load can be placed on those members. And this is before you address the mechanical, electrical, and plumbing systems that were partially roughed in before construction stopped and have spent the intervening decades in a condition best described as decorative.

[00:11:17]Every pipe, every conduit, every piece of equipment that was installed in the incomplete building before 1991 would need to be removed and replaced, not upgraded, replaced. The foundation is, as best as the public record indicates, sound, which is the one genuinely good piece of structural news in this entire story. And I am going to let it sit there for a moment because there is almost nothing else in this chapter that qualifies as good news. Who was holding the bag? The question of who is responsible for the Gotham Tower requires a longer answer than it deserves because the genius of the legal and financial structure surrounding a failed development of this scale is that responsibility has been distributed across so many parties across so many years that no single entity can be credibly held to account [music] for the full scope of the disaster. Atlantic Terminal Associates, the original developer, [music] ceased to exist in any meaningful operational sense. When the financing [music] collapsed, the principles moved on. Some of them moved on to other projects. Some of those other projects also failed. This is not unusual in the development business [music] during a downturn of the severity of the early '90s. And I am not saying that with any particular generosity. The development business in 1992 was [music] producing failure at a rate that was genuinely difficult to distinguish from the business model. The savings and loan institution that provided the construction financing was itself a casualty of the same conditions that killed the project. Its failure was not caused by the Gotham Tower loan alone. But the loan was among its distressed [music] assets and the institution's failure transferred the problem from the private sector to the federal government in a way that removed it from the normal mechanisms of real estate workout. The Resolution Trust Corporation did [music] what it was designed to do, which was dispose of the asset as [music] efficiently as possible. Efficiently in this context meant selling the loan at a discount [music] to buyers who saw value in distressed real estate debt. What it did not mean was ensuring that the buyer of the distress loan had the capacity or intention to actually complete the building. The RTC was not in the business of ensuring outcomes. It was in the business of generating proceeds. The subsequent owners, the succession of investment entities and development partnerships that held the Gotham Tower paper through the 1990s and 2000s, each of them arrived with a plan. Each plan had a press release. Several plans had architectural renderings. Some plans had city council hearings. None of them had the one thing that all the plans required, which was a tenant willing to commit to enough square footage at a high enough rent to make the financing of the remaining construction viable.

[00:14:17]The city's role in this deserves its own examination. New York City has extraordinary tools for intervening in distressed properties. It can condemn.

[00:14:28]It can acquire, it can deploy tax incentives, zoning modifications, and public financing mechanisms of considerable power when it chooses to use them. In the case of the Gotham Tower, the city's use of those tools over three decades produced a [music] record that is charitably incomplete.

[00:14:48]The revolving door of rescuers. Count the rescue attempts and you lose count before you finish the 1990s. The first serious post RTC proposal came in 1994 when a development group announced plans to complete the building as a mixeduse residential and commercial tower.

[00:15:07]Contingent on securing city financing support and an anchor commercial tenant.

[00:15:12]The anchor tenant did not materialize.

[00:15:14]The city financing did not arrive in the form requested. The proposal expired quietly. 1997 brought another proposal.

[00:15:22]This one focused on converting the upper floors to residential condominiums, a use that was beginning to show real demand in the improving New York market of the mid90s. The conversion proposal ran into the structural assessment problem. Converting an incomplete commercial frame to residential use requires modifications [music] to floor plate sizes, ceiling heights, mechanical shaft locations, and a dozen other building systems that had been designed for office occupancy. The cost of those modifications added to the cost of completing the base construction produced a number that the residential condominium market of 1997 could not support. 2003, a hotel developer, credible on paper, letters of intent, a flag from a recognizable hospitality brand, a new set of architectural renderings, the financing structure required, a city-backed loan guarantee that the Bloomberg administration declined to provide on the terms requested. The hotel developer moved on to a site in Long Island City that was easier to finance. 2008 arrived and with it the brief window of the mid decade boom during which almost anything in New York seemed fundable. A development partnership acquired the site and announced a comprehensive mixeduse proposal that would complete the tower and activate the ground floor retail.

[00:16:47]Construction was projected to restart in 2009. 2009 was the year Lehman Brothers filed for bankruptcy [music] and the global financial system temporarily ceased to function in any normal sense.

[00:17:00]The proposal did not survive contact with that particular reality.

[00:17:06]2014.

[00:17:08]A serious buyer, real capital, a proposal that got further than any previous attempt, far enough that the city's economic development corporation engaged substantively with the planning process, far enough that community board presentations were made, far enough that local elected officials began cautiously using the word progress. The buyer's financing was structured around a federal program whose rules changed during the diligence period in ways that restructured the returns on the deal to a point where the deal no longer worked.

[00:17:38]The buyer withdrew, the proposal was shelved. There is a particular kind of exhaustion that settles over a community that [music] has watched the same building fail to get saved enough times.

[00:17:51]It is not despair exactly. [music] It is closer to the feeling you get when you have rescheduled the same appointment.

[00:17:57]so many times that you have stopped believing the appointment will ever actually happen. Downtown Brooklyn has that feeling about the Gotham Tower.

[00:18:05]People who have worked in the neighborhood for 20 years have watched more rescue attempts than they can accurately recall and have developed a productive skepticism about the next one. What saving it would actually cost.

[00:18:18]Let us talk numbers, not the numbers in the proposals, the actual numbers.

[00:18:24]completing the Gotham Tower in its current state, given the structural remediation required to address 30 plus years of weather exposure, given the complete replacement of all mechanical, electrical, and plumbing systems, given the cost of bringing the building envelope to a condition that satisfies current New York City energy code requirements, which are substantially more stringent than anything that existed in 1989. Given the cost of ground floor activation, lobby construction, elevator installation, and everything else that turns a concrete frame into an occupiable building, the estimate that circulates among the engineers and developers who have looked seriously at the project in the last decade lands somewhere between 600 million and $900 million on a building that cost 400 million to start and never [music] finished. The math of that equation is straightforward and brutal.

[00:19:14]You are being asked to invest [music] between $600 million and $900 million in a structure in downtown Brooklyn in order to produce a building that will compete in a market that has added millions of square feet of new residential and commercial inventory since 1989. The building you produce will not be new. It will be a completed building with a 30-year-old structural frame and a history that is to put it gently, not a marketing asset. The return on that investment depends entirely on what the building is used for when it is completed, at what rents or sale prices, and over what time horizon. Every analysis that serious developers have run on this building has produced the same conclusion, which is that the numbers only work if either the cost of completion comes down substantially or the revenue potential goes up substantially. And neither of those things is currently true. [music] Demolition, incidentally, is not cheap either. Demolishing a 43tory reinforced concrete frame in the middle of a dense urban neighborhood with occupied buildings on adjacent lots and a subway line running beneath the street is [music] an exercise that would take years and cost tens of millions of dollars and produce a vacant lot that would then need to be sold or developed.

[00:20:31]The math of demolition is bad. The math of completion is bad. [music] The math of doing nothing is also bad, just more slowly. What the city has done about it, the city of New York has issued violations against the Gotham Tower property. Multiple violations for maintenance failures, for facade conditions, [music] for signage requirements, for a range of technical infractions that the Department of Buildings is empowered to site and fine.

[00:20:57]The fines have been issued, some have been paid, some have been contested. The building has not been completed. There have been city council hearings. There have been statements from burough presidents. There have been task forces and working groups and inter agency consultations. Mayor Bloomberg's administration had conversations about the building. Mayor Delasio's administration had conversations about the building. The current administration has had conversations about the building. The conversations are a matter of public record. The building is also a matter of public record in the sense that it is a 43story concrete frame that anyone in downtown Brooklyn can see by looking up. The legal mechanism by which the city could acquire the property against the owner's wishes exists, but requires a showing of specific public necessity and involves a condemnation process that is expensive, slow, and legally contested in ways that have made administrations reluctant to initiate it without a clear plan for what happens after the acquisition. Acquiring the Gotham Tower and then not knowing what to do with it is a worse political outcome than not acquiring it and not knowing what to do with it. Because at least in the second scenario, the city is not also holding the liability. The state has been involved periodically through the Empire State Development Corporation, the agency that manages economic development projects with state [music] financial participation. The state's involvement has been consistent with the city's meaning substantive in the discussion [music] phase and absent in the commitment phase. The lesson the building teaches. The [music] Gotham Tower teaches a lesson that the real estate industry already knows and periodically forgets [music] and will forget again. The lesson is about the assumption of continuity. Every large development project that gets financed during a boom is underwritten against the assumption that the conditions present at the moment of underwriting will persist long enough for the project to stabilize. [music] The rents that justify the construction cost will be achievable. The tenants who represent the demand will remain in the market. The lenders who provided the capital will remain solvent. The city that permitted the project will remain supportive. The economy that makes all of it possible will continue to function.

[00:23:13]When that assumption is violated, as it always eventually is, the consequences fall most heavily on the structure itself. The humans involved can exit.

[00:23:23]The investors can write down the loss.

[00:23:25]The lenders can transfer the debt. The developers can reorganize. The building cannot do any of these things. The building stays exactly where it was put, bearing the full weight of every [music] bad decision made in its construction, in its financing, and in the 30 years of failed rescue attempts that followed.

[00:23:44]There is something almost philosophical about the Gotham Tower if you are in the mood for that kind of thing, which I recognize not everyone is. A building is the physical manifestation of an argument that the future will be better than the present. That the demand you are building for will exist when the building is ready to receive it. When the argument turns out to be wrong, the building remains as a three-dimensional record of the error. You cannot delete it. You cannot archive it. You cannot move it to a subfolder labeled ambitious failures and close the window.

[00:24:17]>> [music] >> It is 43 stories tall and it is standing in downtown Brooklyn and anyone who wants to see it can look up from the Court Street sidewalk any morning of the week. The financial system that produced the Gotham Tower also [music] produced the mechanisms that abandoned it because the same logic that said this project is fundable at $400 million also said this problem is not mine to solve when the funding ran out. The city that benefited from the tax revenues of the boom that created the building has spent 30 years declining to fully commit to the cost of resolving it. And the market that was supposed to validate the original investment has never provided that validation in a form that made the rescue economics work.

[00:25:01]Walk back to the corner of Court Street in Livingston Street. It is early morning. The Fra rumbles overhead. The coffee shop across the street is open.

[00:25:10]People move past with their headphones in, not looking up. The way New Yorkers have always navigated a city that gives them too much to look at and not enough time to look at it. Look up anyway. 43 stories of concrete frame. The lower floors with their partial cladding and their decades of weather staining. The upper floors open to the sky. Standing in the particular silence of a thing that has been waiting so long it has stopped expecting anything. Downtown Brooklyn has changed completely around this building. The Metro Tech Center was completed. The Barklay Center was built.

[00:25:42]Residential towers went up in Dumbo, Fort Green, Borum Hill. The neighborhood that the Gotham Tower was supposed to lead into the future went ahead and [music] built that future without it.

[00:25:54]The latest proposal involves affordable housing, market rate, residential, community space, city subsidy, state participation, federal tax credits, and private capital. It has a rendering. It does not have a construction contract.

[00:26:10]There is always a latest proposal. There is always a rendering. The rendering is always lovely. The building is still there, still incomplete. Still, the most visible evidence in downtown Brooklyn that $400 million and three decades of effort and more rescue attempts than anyone can accurately count have not been enough to turn a concrete frame into a place where people actually live.

[00:26:35]The Gotham Tower was supposed to prove that Brooklyn had arrived. In a way, it did exactly that, just not the way anyone intended. Brooklyn absorbs its failures the same way it absorbs everything else, completely without ceremony, and keeps moving. The F-Train still runs. The coffee shop is still open. The concrete is still aging, and the building is still standing. 43 stories over a burrow that has learned over 30 years that some things get finished and some things just get taller.