Rock and Roll Real Estate

By Gamal Hennessy

The CMJ festival began this week, which gave me a chance to see one of my favorite local bands down at Fat Baby. The downtown rock sound of Tigers & Monkeys was an enjoyable diversion to everything going on with the markets and the election but it didn’t take long for economics to find its way into the underground performance space.

Whenever you go to a live show in the LES, there is a controlled chaos between acts. Band members become roadies breaking down and setting up their own equipment, friends go off to smoke and refill drinks. I don’t smoke and I wasn’t in the band, so I looked around for a way to pass the time before the next set started. I saw a young lady standing close by that looked interesting. Since flirting for a few minutes is always entertaining, I started to look for an opportunity to approach.

Unfortunately she was already with a guy and their body language suggested they were a couple. While this does present a problem, it is not necessarily a deal breaker. The best solution is to start talking to the guy to avoid conflict, draw both of them in, figure out exactly what their relationship is, and then flirt indirectly. The process takes longer to do, but what else was I doing?

It turns out that this guy, Jay, was between jobs. He recently worked in commercial real estate, but new deals were hard to come by. Even existing deals were falling apart as the market tanked. Jay decided to get out before things got too bad (or Jay got fired, it’s not the important part of the story) and he was relaxing for a few weeks.

I forgot about the girl for a few minutes because I wanted to find out what Jay might know. The rise of the real estate developer has put a lot of pressure on nightlife after 9/11. I decided to get his inside perspective on how the down market was affecting New York’s real estate boom and ultimately impacting nightlife.

Q: What’s going to happen to all the buildings in the city that are half done?
A: A lot of those projects came from new developers who were trying to cash in on the peaking boutique hotel market. Banks are trying to get out of those deals now by putting the developers into default. They’re afraid these new developers won’t be able to turn a profit. At the same time they don’t want to hold such a high volume of property and write down so many bad deals because it will beat down confidence on Wall Street even more. So the developers and the banks are in a stalemate. Neither side wants to blink.

Q: How do you see this shaking out?
A: The banks are going to use the bailout to start over. Once the bailout takes affect, the government will buy a lot of the bad deals. After that, third parties will come in and buy those projects from the government at a discount. The new developers that don’t have experience will be pushed out and flagship property owners like Marriott and Hilton will come in and use their systems and buying power to keep costs down and get those places open.

Q: How do you see all this affecting the clubs?
A: It will hit the bigger places harder. Bottle service spots are going to take it on the chin because finance guys can’t afford it anymore. The smaller spots like this one will do better, because they know how to make money without bottles.

Now I can’t confirm Jay’s credentials and even if he knew what he was talking about he might have been too drunk to make an accurate assessment. But his answers didn’t sound that farfetched. Steven Lewis predicted the recession would create a similar dynamic in nightlife. Clubs run by inexperienced owners who rely on bottles will fold and owners who can keep people coming and keep costs down can ride things out and take over poorly run spots. While Jay’s perspective on bottle service doesn’t take into account all the bottles that the street pharmacists still buy his answers were good enough for an out of work broker.

After a few more minutes of banter, the next band started playing, the girl was gone and my friends came back from their smoking break. Having done all I could at Fat Baby, I followed my friends in search of late night eats. We found a diner built in the shadow of a construction site on East Houston. If Jay was right, that site was might stay empty for a long time.

Have fun.