We all heard about how long it took for the 2nd avenue subway (Q) to get designed and built; how many false starts; how many budget changes we endured. Now that the long awaited subway is a reality, let’s look at how long it would take to recoup that investment.
This analysis will not look at the subway as an operating entity that requires maintenance or additional capital investments; it will assume that it breaks even. It will only look at the increase in real estate taxes in the surrounding area.
Now, it would take many months to figure out exactly what that number is but, instead, I will some assumptions to arrive at an estimate.
Here are my assumptions:
- that all buildings are 100 feet deep on the avenues
- that all buildings in the defined area are built to 70% of their maximum allowable Square Footage
- that the Real Estate taxes are $11 PSF/ Year
- that all buildings within 100 feet from an avenue are zoned C1-9, R10 or an equivalent zoning that yields a 10 FAR
- that all buildings between the avenues are zoned R8B for an equivalent zoning that yields a 4 FAR
- We will only look at buildings between 1st and 3rd Avenues from east 63rd street up to east 96 streets.
So we are analyzing a total of 33 blocks (63rd to 96th streets; first to third avenues) each with 200 feet of frontage on the avenue by 100 feet deep for both sides of first, second and third avenues. This, multiplied by 10 FAR (70% built), yields a total of 27.2MM SF. Then we take 400 feet between the avenues for 33 blocks on both sides of the street and for 2 blocks between 1st and second and second and third avenues for a total of 29.6MM SF. Applying our $11 PSF of annual tax, we estimate that the city collects $624.8MM in annual tax payments.
Most real estate experts have estimated that property values along the Second Avenue subway have increased; with estimates ranging from 5%-25%. My opinion is that the values will eventually come in on the higher end of this range because retail rents have dropped severely due to the construction disruption, and are likely to recover to levels that are similar to or higher than they where before subway construction began.
Sooooooo…… assuming a 20% increase in property values and assuming the tax rate remains constant then
the City’s economic benefit from its $4.4B subway investment as reflected on real estate taxes ALONE is $124MM per annum – or a 2.8% return.
Not a bad return given that there are other economic benefits like additional employment, reduced commuting time, social benefits such as safety, etc. It appears that this is a good investment that will outlast many generations. I just wish for more subways!
NEW SUBWAY STATIONS