Do Twinkies Have an Expiration Date? Lessons from Hostess’s demise and what Congress can do for our entitlement programs

 

By: Robert Knakal

Goodbye Twinkies, or at least Hostess Twinkies. It appears as if the iconic baking company will be liquidated, after the largest union representing Hostess employees decided to play chicken with management and lost. The result is that 18,500 jobs will be vaporized. While reading about the plight of Hostess, one can draw an analogy between the maker of Ho Hos, Ding Dongs, Drake’s Cakes and Wonder Bread and our entitlement programs like Social Security, Medicaid and Medicare. 

            Since the national election a couple of weeks ago, I have been asked by reporters from various media outlets what the impact of going over the fiscal cliff would be on the commercial real estate market. While there are several possible outcomes of going over the cliff (none of which is good for commercial real estate), the more important issue in all of the things Congress must address is entitlement reform. All of the other items, whether is be a payroll tax holiday or capping a certain expense item, are merely parsley on the plate. Without someone having the courage to deal with entitlement reform, we are simply kicking the can down the road, and these programs may end up like Hostess, in bankruptcy and unable to do much for anyone who was relying on them. 

            Hostess, which has been around since the 1930s, had previously been in and out of bankruptcy, and in its most recent slide was able to negotiate concessions from some of its many unions. Last year, Hostess had gross revenue of about $2.5 billion, but posted a loss of $341 million. Clearly, the national trend away from junk foods did not help its performance, but some of the work rules created redundancies in operating expenses. For instance, bread and cake products had to be packed, delivered and unpacked by three different people and on two different trucks, as those who touched bread were not allowed to touch cake. Additionally, on many delivery routes, another different employee was required to move the products from the back rooms out onto the shelves. 

            In all, Hostess had 372 collective bargaining agreements, which mandated that the company maintain 80 health and benefit plans as well as 40 different pension plans. On top of last year’s $341 million loss, its numerous labor agreements required $31 million in increased costs in 2012 and even more next year. Hostess asked for an 8 percent concession on wages and a higher contribution to the health plan from members of several of its unions. Many agreed, but the members of the Bakery Confectionery, Tobacco Workers and Grain Millers International Union voted not to agree to the concessions. Hostess, having no other choice, obtained approval from the court to modify collective bargaining contracts, and the union members opted to walk out and go on strike rather than accept the court’s decision.

            Many of the members who voted to reject the proposal said in interviews that they thought the company “could make a better deal” for them. This was clearly a gross miscalculation, given the precarious position the company was in from a cash-flow perspective. The numbers were so bleak that the company was unable to sustain the strike, a reality that should have been very clear to stakeholders given the existing debt, revenue and expense metrics that Hostess was facing. The numbers for an operating business must make senses in order for the business to succeed. Businesses, after all, exist to make money, and if they don’t make money, they eventually fail to exist. 

            While our entitlement programs are not “businesses” that exist to make money, there is a lesson to be learned from Hostess. Its fate illustrates that a system of any kind, if unsustainable, must change with changing conditions, or ultimately it gets wiped out. Our entitlement programs are paying out more than they are taking in, and each year when the Congressional Budget Office recalculates the numbers, the estimate of how many years each has until it runs out of money shortens significantly. And those calculations are based upon the growth rates that are fictional, meaning that they are more underfunded than we think.

            Let’s hope that these programs are reformed so that they are allowed to exist for as long as folks need them. We can learn from Hostess and all of the other entities that were unable to adapt to new realties and were therefore unable to exist.

Number of stalled NYC construction sites jumps to January 2011 levels

From left: Building Congress President Richard Anderson and a stalled construction site

Back to the drawing board, New York City. The number of stalled construction sites in Gotham has risen 17 percent since February—effectively eliminating progress made in getting construction going again in the last year, a new report from the New York Building Congress shows.


The Department of Buildings began tracking the number of stalled sites in the five boroughs in July 2009, following the collapse of Lehman Brothers the previous September, which resulted in widespread construction delays. This month, 691 sites were identified as stalled, up from 592 in February of this year. The November total marks the seventh highest number of stalled projects since the report’s inception, and the highest since January 2011.

Of the sites deemed stalled, 45 percent have been on the DOB’s list since it began, and 26 percent were added this year. The New York City Department of Finance estimates that stalled sites, including vacant land, have an aggregate market value of $883 million, the report said.

Brooklyn fared the worst of all the boroughs, with 47 percent of total construction projects — 323 in all — stalled as of today’s report.

“It is interesting to note that while the raw number of stalled sites has increased, the estimated market value has dropped by nearly half a billion dollars,” Building Congress President Richard Anderson said in the statement. “This suggests that the luxury residential market was home to an outsized percentage of the projects that have resumed in 2012.” –Guelda Voien

http://therealdeal.com/blog/2012/11/28/number-of-stalled-nyc-construction-sites-jumps-to-january-2011-levels/

Two-Trees Bringing 32-Story Apartment Tower to Downtown Brooklyn

 The transformation of the BAM Cultural District is barreling forward. Two Trees is beginning the public review and approval process for a 32-story tower (right, click for big) in Downtown Brooklyn, just across the street from Atlantic Center. The site is currently a parking lot bound by Flatbush, Ashland Place, and Lafayette Avenue, and we last talked about it way back in 2008 when news first broke that Two Trees would be developing the project. Back then, the building was going to have 180 apartments and 187,000-square-feet of cultural space, but now it will have 300-400 apartments, 20 percent of which will be affordable, and just 50,000-square-feet of cultural space.

It will also have a sprawling 16,000-square-foot public plaza along Flatbush Avenue and 23,000-square-feet of ground floor retail. Enrique Norten of Ten Arquitectos is still the project architect, and the arts space will be shared by BAM, 651 ARTS, and the Brooklyn Public Library.

In partnership with the Gotham Organization and DT Salazar, the HPD is developing another new apartment building and cultural community space on a lot bound by Fulton Street, Rockwell Place, and Ashland Place. This building will be 515,000-square-feet, and it will contain a whopping 600 apartments, plus 40,000-square-feet of cultural, retail, and office space. Half of the apartments will be affordable, and 40 percent of the affordable units will be two-bedrooms. The HDC expects to finalize financing for the project late next year, and construction will begin shortly after.

And last but not least, the HPD has released an RFP for the development of the final parcel of the BAM Cultural District. The site is located at Ashland Place and Lafayette Avenue, and the RFP calls for 100,000-square-feet of floor area, with a minimum of 15,000-square-feet being dedicated to cultural groups. The building can also include apartments and/or commercial space. Proposals are due February 1, 2013.
With the Atlantic Yards towers also going up, this area of Brooklyn is getting kind of crowded, not to mention that all these new residents will be living in a perpetual construction site.

by Jessica Dailey

Real Estate Forum's Top New York Investment Brokers

For the full article, please click here. Massey Knakal proudly congratulates Stephen Palmese for being named to Real Estate Forum's Top New York Investment Brokers. Thus far in 2012, Palmese handled 18 transactions for a total dollar volume of over $118,000,000.

Hurricane Sandy Rallying Cry For Anti-Development Crowd in Brooklyn

The Gowanus neighborhood of Brooklyn has been billed as one of the city’s most up and coming areas for the better part of a decade despite the literally toxic nature of its namesake canal.

Now, development-wary locals are viewing the surge of dirty water that Hurricane Sandy brought to the Superfund site as a rallying cry in their restrained fight against Gowanus’ residential and commercial rehabilitation.

The corner of Third Street and Third Avenue, near the Whole Foods site in Gowanus. (Courtesy Flickr user Wojohowitz)

Residents of the 39^th District encompassing Gowanus, Carroll Gardens and Park Slope, among other neighborhoods, addressed their concerns in a letter to the Lightstone Group, which is planning a $257-million, 700-unit rental apartment complex between Bond Street and the canal along First Street.

“As you are no doubt aware, the site of your proposed development was under several feet of water during the storm,” wrote City Councilman Brad Lander in a letter urging Lightstone to “reconsider—and, for the time being, withdraw” plans for the site.

But Lightstone, led by David Lichtenstein, dismissed this criticism and said the company, aided by FEMA maps, had already taken potential storm damage into account when it designed the project.

“I think we’ve got a development here that’s going to be fine,” architect David West told The Wall Street Journal. “Maybe we’ll find we want to raise the level a little more, but it will be relatively easy to do that. I don’t foresee there being any serious design changes.”

The battle for rough-hewn Gowanus has also swirled around the construction of a 52,000-square-foot Whole Foods store on Third Avenue at Third Street–catty-corner and just across the canal from Lightstone’s project. The healthful grocery behemoth appeased locals anxious about increased traffic with plans to refurbish The Coignet building, a nearby landmark from 1873 that had fallen into disrepair. In a made-for-in-and-by Brooklyn twist, the retailer also pledged to stock the store’s shelves with products native to locavore-crazed Kings County.

Work on the Whole Foods foundation is slated to begin by the end of the year, with a projected opening in the summer of 2013. Meanwhile, Lightstone is scheduled to seek building permit approval from the city’s Planning Commission this month.

By: Billy Gray

http://commercialobserver.com/2012/11/sandy-rallying-cry-for-anti-development-crowd-in-brooklyn/?utm_source=Sailthru&utm_medium=email&utm_term=The%20Commercial%20Observer%20NOW&utm_campaign=CO%20NOW%2011%2F20

Brooklyn Loses 'Stepchild' Status

By YAFFI SPODEK

Buying Brooklyn's tallest office building wasn't a well-timed move by SL Green Realty Corp.
The company, Manhattan's largest office building owner, bought 16 Court St. in 2007 at the peak of the market paying a pricey $107 million for the mostly vacant tower. Since then the landlord has had to deal with the global financial downturn and a plunge in the building's value.

 

16 Court St. in downtown Brooklyn. 

But lately the 38-story building's fortunes have been improving. Its occupancy has increased to 85% from 19.4% in 2007 with a mix of new tenants in businesses, some not ordinarily attracted to downtown Brooklyn.

In its most recent deal, 16 Court achieved the ultimate in success for Brooklyn office buildings: attracting a tenant from Manhattan. After more than a century in lower Manhattan, BlumbergExcelsior Inc., a nationwide supplier of specialized legal software, signed a lease for 12,420 square feet. It plans to move its 50 or so employees to 16 Court by the spring.

"Brooklyn no longer has the stepchild status to Manhattan," says Robert Hebron, of Ingram & Hebron Realty, the exclusive leasing agent for 16 Court. "It's become a different place."

A view of the street level.

The downtown Brooklyn office market, an accumulation of stodgy second-class buildings near Brooklyn Borough Hall, is beginning to see the benefit of the borough's renaissance as a place to live, visit and find world-class entertainment. In recent years thousands of new apartments have been developed, and national retailers and hotel companies have added locations in the surrounding neighborhoods.

The Barclays Center made headlines recently when it opened nearby with a Jay-Z concert. The 18,000-seat arena is the new home of the Brooklyn Nets basketball team.

Owners and brokers say that, thanks to these improvements, many Manhattan-based companies no longer see Brooklyn as a second-class address. Meanwhile, rents in Brooklyn remain a lot lower than those in Manhattan, a powerful incentive during tough economic times.

"We would have stayed in TriBeCa for under $30 a foot, but it was impossible to find a space for that price," says Bob Blumberg, chief executive of BlumbergExcelsior.

According to Cushman & Wakefield, average Brooklyn rents were $28.83 in the third quarter, compared with $39.83 in downtown Manhattan and $66.42 in Midtown. Meanwhile, the Brooklyn vacancy rate declined to 8% as of the end of September, down from 11% at the end of 2011. The Brooklyn statistics includes Dumbo and the MetroTech Center, as well as the downtown markets, which total about 15 million square feet.

To be sure, the real-estate industry has heralded the turnaround of the downtown Brooklyn office market in the past, only to see it fizzle. The area is still being hurt by the overall weak economy that has slowed leasing citywide, as well as the decrepit condition of some of its buildings.

But brokers and owners say there are reasons to be bullish about Brooklyn other than the new arena, hotels, stores and condos. The Dumbo market has become so hip among start-ups and technology companies that there is practically no vacant space there.

Some of that demand is beginning to spill over into downtown Brooklyn, brokers and landlords say. "We're seeing some signs of different businesses and tech businesses looking at space," says Steven Durels, SL Green's director of leasing.

Also, a game-changing deal in downtown Brooklyn was sealed earlier this year when New York University agreed to rent 370 Jay St. for a school of applied science. The 61-year-old building was the former headquarters of the Metropolitan Transportation Authority and is mostly vacant.

The deal will result in a major upgrade to the unused property in the heart of downtown Brooklyn. It will also bring students and faculty and possibly spinoff businesses to the area. "That creates a buzz," says Glenn Markman, executive vice president at Cushman & Wakefield.

Downtown Brooklyn has benefited by a wave of economic development initiatives that stretch back to the development of MetroTech starting in the 1980s. The city also has made zoning changes and offered tax breaks and other incentives to encourage development.

"Brooklyn is going to have people looking at it as a first choice, rather than as an alternative, less expensive choice," says Steven Spinola, president of the Real Estate Board of New York. "If the Nets can do well in the season, that will also help speed along the process."

 http://online.wsj.com/article_email/SB10000872396390443615804578042702351881838-lMyQjAxMTAyMDIwNzAyODc3Wj.html?mod=wsj_valettop_email

City Takes Up Zoning Changes to Erase Downtown Brooklyn’s Glut of Parking Spots

 By: Thomas Kaplan

300 Livingston Street


In traffic-clogged New York City, where parking spaces are coveted like the rarest of treasures, an excess of parking spaces might seem like an urban planner’s dream.

Yet city officials, developers and transit advocates say that in Downtown Brooklyn, there is this most unusual of parking problems: There is simply too much of it.

The issue, officials say, lies with the large garages that the developers of new residential buildings have been required by zoning rules to construct. But with 13 subway lines and 15 bus routes in the area, many new residents choose to leave their cars behind, meaning the garages sit half-empty and take up precious space.

“People are choosing to live in Downtown Brooklyn because of the great access to the public transit network that they find there,” said Tucker Reed, the president of the Downtown Brooklyn Partnership. “The last thing we need to be doing is developing more parking.”

The city is now seeking to rein in what it sees as a glut of parking. On Monday, a City Council panel is scheduled to consider new zoning regulations that would reduce how many parking spaces must be built with new residential developments in Downtown Brooklyn, and allow developers who already have excess parking to reclaim the unneeded space for other uses. (Because there are so many subway tunnels and other infrastructure in that part of Brooklyn, many of the garages are above ground, making it easier to use the space for something else.)

Residents in Downtown Brooklyn are likelier than those in many other neighborhoods to go car-free: 22 percent of households in the neighborhood own cars, according to the Census Bureau, compared with 45 percent for the city over all.

In making the case for reducing the parking requirements, the city’s Planning Department cited the Avalon Fort Greene, a high-rise on Gold Street with more than 600 units. Under the current rules, the building was required to have more than 250 parking spaces, but the city said barely one-third of them were being used.

Paul Steely White, the executive director of Transportation Alternatives, said residents moving into the area, particularly younger ones, wanted nothing of the “car-oriented suburban lifestyle of their parents.” He called the proposed changes a step in the right direction by city officials.

“We hope they go even further to tip the balance even more in favor of transit, walking and, increasingly, bicycling,” Mr. White said.

Under current rules, developers of new residential buildings in Downtown Brooklyn must provide parking spaces for at least 40 percent of households. The minimum parking requirement would drop to 20 percent under the new rules, and there would be no requirement to build parking with subsidized housing units, a move that supporters said would reduce the cost of building such units.

The proposed rules were approved by the City Planning Commission last month, and they will go before the Council’s Subcommittee on Zoning and Franchises on Monday.

Councilwoman Letitia James of Brooklyn said there was no question that Downtown Brooklyn was a “transit-oriented community.” But she said she was concerned that parking could become more difficult to find because of the opening of the Barclays Center, and she added that she was not convinced it was a good idea to allow developers to get rid of excess parking they had already built.

“They would turn it into more luxury housing,” Ms. James said, suggesting that it was naïve to think developers would volunteer to turn their extra parking into subsidized housing or a community space.

In his review of the city’s proposal, the Brooklyn borough president, Marty Markowitz, called for the zoning rules to be adjusted not only to reduce the requirement for automobile parking, but also to increase the requirements for providing bicycle parking by 50 percent.

Mr. Markowitz said his proposal demonstrated the wrongheadedness of “erroneous claims from critics that my office doesn’t advocate enough for the bicycle community.” But the Planning Commission concluded that requiring additional bicycle parking was beyond the scope of the zoning changes that were being considered. 

 http://www.nytimes.com/2012/11/26/nyregion/seeking-to-rein-in-excess-parking-in-downtown-brooklyn.html?partner=rss&emc=rss&_r=1&