Friday, September 16, 2005

Lower Manhattan v. New Orleans Reconstruction

Just what should government at all levels do to get people to come back to Lower Manhattan or New Orleans, which were hit by a massive terrorist attack that destroyed more than 10 million square feet of office space and displaced hundreds of business or flooding that destroyed much of the city and infrastructure, respectively.

If you say spend spend spend, then you've been paying attention to what President Bush has offered.

Has it worked?

Not quite in the way you would think.

So far, residential real estate has come back fast and hard, with many office buildings speeding to convert to residential co-ops or lofts because of higher demand in Lower Manhattan. The establishment of Liberty Bonds was supposed to spur new building in Lower Manhattan, but that hasn't happened. Few new buildings are on the drawing board, and the program was amended so that buildings elsewhere in Manhattan could take advantage of the low cost financing options.

Since we're four years on from the 9/11 attacks, we know that there are some things that have worked. The Port Authority has rebuilt its infrastructure with a new temporary PATH terminal at the WTC and NYC Transit has rebuilt the train lines that were disrupted and destroyed by the collapsing towers. Private developer Larry Silverstein has rebuilt 7 WTC, in part using insurance proceeds, Liberty Bonds, and other financing to be the first permanent structure constructed since the attacks. It should be ready for occupancy in the coming months, but there are few businesses interested in that space thus far.

Lawsuits between Silverstein and insurance/reinsurance companies may determine the course and pace of the rebuilding (the one attack theory versus multiple attacks). Lawsuits by families against public agencies/authorities/airlines had to be mitigated via a Victims Compensation Program, which was tied with a bailout for the airline industry. Even still, there are a couple hundred lawsuits pending against the Port Authority and others for 9/11 related issues.

What does this tell us about the reconstruction efforts in New Orleans?

Areas that were least affected by the flooding will come back pretty quickly. Infrastructure will be a mixed bag because of the complication of the levee system. Roads and bridges will be fixed in short order, though permanent repairs or replacement may take time.

Lawsuits will determine how much rebuilding will be done in areas most severely flooded or damaged by storm surge or winds. Already Mississippi is suing insurance companies to get them to pay for flood damage (most standard policies exclude flood damage, which is usually covered under a separate policy). Many residential owners and some businesses are likely underinsured on their property so that they will not be able to recover fully from the losses. That should be a big lesson for anyone who considers buying a property anywhere - make sure that you're fully insured for your losses, because you'll be kicking yourself if you decide to save a few bucks. It might cost you hundreds of thousands should this kind of event happen in your neck of the woods.

Many people will simply not return to New Orleans no matter what money is spent. They've seen their time in New Orleans come to an end. They may resettle where they ended up during the evacuation, or they may choose to return to New Orleans in different parts of the city. That is similar to what happened with Lower Manhattan. Some businesses have stuck it out - American Express for one. Others relocated to Jersey City or Midtown. Some simply closed up shop.

Some businesses are hedging bets and hoping to return on the gilded wings of new government handouts. That's the Goldman Sachs strategy - they're looking to build a building across from the WTC site, but had resisted building due to changes at the WTC site, a planned tunnel that would have been situated at the building's doorstep, and the hope that they could get more favorable terms from the city and state. Goldman Sachs got a windfall in order to build at the site, despite the fact that there really wasn't anyplace in Midtown that met its needs, and the Lower Manhattan site was ready made for a new building to go up.

So, expect a mixed bag on reconstruction in New Orleans, especially if you take Lower Manhattan as a guide.

Don Surber has a suggestion for Gulf Coast reconstruction. Save $100 billion by giving each displaced resident $100,000 and call it a day. That surely seems to be far better than handing the money over to the rediculously inept state and local Louisiana officials who never found a porkladen project they couldn't support while the region's levees were slowly sinking under their own weight.

Have you heard about the bridge to nowhere that Alaska's representatives included in the Transportation package? It's a $315 million project that has absolutely no value whatsoever. It is a piece of pork, pure and simple. More on the bridge pork. So far some Bozeman, MT residents have suggested giving back $4 million for a parking garage project.

Please don't pass the pork. Another person writing to return the money.

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