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The Stench of '89

Things started to get really scary when some of the S&Ls that financed the co-op conversions went belly up. For the first time since the Great Depression, it was possible for perfectly solvent buyers to get stuck with a virtually worthless property. In one of the most extreme cases, the FDIC liquidated the assets of Silverado Savings and Loan, a collapsed Denver outfit, by seizing a 26-story co-op near Lincoln Center it had co-owned. Across town at Tudor City, owner Time Equities couldn’t cover the complex’s underlying mortgage and taxes (not to mention utility bills and staff costs), and ended up giving it away, unit by occupied unit, in a jaw-dropping fire sale: In 1992, if the new owner were willing to assume the accrued debts, a Tudor City one-bedroom could be had for $3,500. In the East Village, Lower East Side, Upper West Side, and Harlem, people abandoned buildings outright: After Mayor Dinkins raised property taxes, property owners began selling to cut their losses at a rate not seen since the Bronx Is Burning days of the seventies.

In the meantime, a new issue weighed heavily on the economy—the looming Gulf War. With GDP slowing and consumer confidence down, the Dow sputtered, and another round of Wall Street layoffs and defections followed, this one reaching much higher up the food chain. “In 1990,” remembers one former investment banker turned hedge-fund manager, “my compensation went down by a third. Obviously, you think about leaving. I decided to stick around, but a lot of people got out. They kept saying, ‘It’s just not fun anymore.’ ” Many traders and bond salesmen, having amassed vast fortunes in the eighties, chose 1990–91 as the moment to retire. Others had that decision made for them in the wake of bond-trading scandals.

The third tent-pole that had propped up the New York economy—along with Wall Street and real estate—was tourism. In 1989, the estimated economic impact of tourism on New York was $12 billion, more than the combined financial-industry salaries for the year. But by 1990, it too was flagging, thanks to the war, the cost of oil, and New York’s persistently high crime rate (that was a year of 2,262 murders, 18,000 subway felonies, and Brian Watkins, the 22-year-old Mormon tourist who was knifed to death in a subway station).

So many jobs were dependent on out-of-city visitors and free-spending trader types that unemployment spread quickly throughout the city. Retail shed 50,000 jobs, with restaurants and food sales among the hardest-hit sectors. “The Dow Jones was so low,” half-jokes Keith McNally, whose Tribeca-defining Odeon was arguably the nexus of the prerecession boom, “that we could no longer offer fresh pepper. The salad bar was never the same.” Weak demand, combined with an increased hotel tax, started putting hoteliers out of business, too. The airline industry reeled from the back-to-back bankruptcies of Eastern and Pan Am Airlines. Publishing, a $14.9 billion business previously thought to be “recessionproof” (Random House, Simon & Schuster, and Viking all grew through the Great Depression), fell victim to an unrelated dependence on the megastore concept. Legal and accounting services, which feed off Wall Street, began mass layoffs. Manufacturing employment saw its worst losses since World War II. By the time the dust settled, 361,200 jobs—precisely 10 percent of the total workforce—would be gone.

Nationally, the recession lasted only nine months, from July 1990 to March 1991. But the city’s ringside seat to the Wall Street follies meant that the downturn here began earlier, hit harder, and stuck around longer. Things started to turn around in December 1991, when the Fed let loose with an emergency discount-rate cut of one full point (bringing it to 3.5 percent) and didn’t raise rates again until 1994. “When you can borrow cheaply, you can leverage the hell out of everything,” says Parrott. In Japan, interest rates were even lower—about one percent—and American businesses began borrowing in Tokyo to finance deals in New York. Within a year, a yen-fed Wall Street was back up and staging a kind of jobless recovery: From 1992 to 1993, while the region lost another 67,000 jobs, financial-sector salaries jumped by a gaudy 45 percent, to $164,000 on average. With big bonuses coursing through the city’s financial veins, New Yorkers started spending again. Broadway posted a 22 percent jump in ticket sales. Hotel occupancy crawled up. Stores reported a record Christmas season.

By 1994, lured by the finally bottomed-out rents, national stores began moving in on Chelsea and the midtown district, making Sixth Avenue between 14th and 34th the generic (but lucrative) strip mall it is now. Barnes & Noble, Bed Bath & Beyond, and CompUSA all opened new stores in Manhattan. A Times article from the summer of 1994 titled “New York Area Climbs Out of Recession” mentions the first outpost of a novel “Starbucks expresso [sic] bar” in Westchester County.