kxREAL ESTATE
AND
NEW YORK, JUNE 17, 1916
THE ECONOMIC HEIGHT OF BUILDINGS ON FIFTH
AVENUE, SOUTH OF THIRTY-FOURTH STREET
By REGINALD PELHAM BOLTON
TO the student of economics the con- est point, beyond which there is no
struction of tall buildings on Fifth gain, and generally a loss Let me pre-
., ^ r • , A sent the fundamental elements which
avenue is an evident financial error. An ^^.^^^ ^^^^^ ^^^ ^^^^^^ ^^^^ ^^^ ,^„j
e.xamination of the land values as pub- from any building:
lished by the Department of Taxes First. The value of the grotind floor is
shows a radical decline in value of the the largest element in any building, and
land in the district in which the tall always commands the highest rate of
building first made its appearance. rental. The rental value of the ground
A comparison of these land values for floor is the measure of the value of the
the year 1909 with the year 1914 shows land. If the rental obtainable does not
that a recession of value has taken place exceed interest upon the land, and the
between 14th and 26th streets, to taxes thereon, then it is necessary to
a substantial proportion, in some cases build additional space above the ground
amounting to thirty per cent. In the floor. Whatever space is thus created
section north of 26th to 30th streets, above the grouiid floor must support
there is a practical stagnation of values itself by paying its own expense of op-
in places where a tall building has been eration, interest and depreciation upon
constructed. The largest relative in- its cost, and provide the necessary mar-
crease is in that part of the avenue least gin to meet the deficiency between the
invaded by the tall building. The loss ground floor rental and the interest and
of values from 14th to 23rd streets ofif- taxes on the land.
sets all the gains from 27th to 33rd Second. An important element with
streets. The total loss between I4th to all buildings is that the higher the build-
23rd streets is about $3,070,000. ing the greater is the cost of construc-
The mistaken idea of owners, real es- tion per cubic foot_ of building. This
tate agents and architects as to the earn- is a matter which is lost sight of by
ing value of the skyscraper has required architects, because they will riot regard
twenty years of experience to correct. it from the standpoint of similar de¬
in my judgment, the construction of a sign, but generally draw two entirely
tall building in excess of a certain height different buildings, and then compare
is a detriment to the land, and must their cost one with the other. Briefly
eventually result in a decrease of its stated, the underlying principle is, bttild-
value, because, as has been the case ing for building of similar design, height
on Fifth avenue, the decline in land val- increases cost above six or seven stories,
ues is a result of the creation of an ex- Third. The cost of operation of all
cessive area of occupiable space. This buildings increases with height. So soon
has brought about an urgent necessity as a building is raised above the second
on the part of owners to fill that space story, elevator operation is necessitated,
with any class of tenant which will pay Every story added increases expenses of
the rent necessary to support the build- heating and lighting, and reduces rental
Ing. This competition brings down the area by space devoted to stairs, eleva-
rentable returns, and as the building tors and toilets.
must pay for its own operation first, and Fourth. As the rentals of upper floors
then must pay interest, and should pay are always less than that of the grotind
depreciation on its own cost, there is and second floors, the increase in build-
little or nothing left to support the val- ing does not produce proportionate re-
ue of the land. turns in rental. The logical height of
The property owner who invades a any building can be fixed with a knowl-
locality having a given character of bus- edge of the ground floor rental, and
iness, and erects therein an excessively probable prevailing rents for the upper
tall building, injures himself, and also floors. The returns from these sources
his neighbors. He creates a new area after deduction of operating costs and
for which tenants must be found, and fixed charges on the building, will de-
assumes that the e.xtent of business in tcrmine the value of the land,
that location is capable of extension. To take a concrete instance, let us
This would be logical and possibly sue- ascertain what is the most economical
cessful in a great many Instances, if height of bnilding for a typical inside
the a'ddition to the area were upon the lot along Fifth avenue, the value of
ground floor, or very near thereto; but which is, say, ten thousand dollars per
the addition of space in a high building front foot. The unit of computation is
is not of the same character. The re- one hundred square feet of lot area,
suit is that a diflferent class of business We may consider that the ground
is introduced into the locality, generally floor would rent for at least eight dol-
to its detriment. lars per square foot per annum, with the
There is a logical and proper height right of use of part of the basement,
of building which fits every land value. The second floor can be assumed to rent
and there is a particular height which at two dollars and twenty-five cents per
will maintain the land value at the high- square foot. Rentals above the second
COMPARISON OF BUILDINGS
Per 100 sq. tt. of lot area.
13 and
20 and basement 12 and
basement and and sub- basement and 10 and 7 and
Floors. sub-basement, basement, sub-basement, basement. basement.
Contents....................... 21,.340 16.140 12.980 11,140 8,,380
Cost per cu. ft................. 38c. .32c. 23c. 22M,c. 20c.
Cost of building................ $8,185 $3,164 $3,243 $2,506 $1,676
Gross rents..................... $2,007 $1,708 $1,507 $1,.3S1 $1,187
Operating cost, per cent...... 50 48 46 44 42
Net income..................... $1,003 $8.84 $810 $772 $6.88
Less 10% on building........... $185 .1i368 $486 $322 $.321
Land value at 3%.............. $3,700 $7..360 $9,720 $10,440 $10,420
Contents of 20 stories. 2 6-10 times 7 stories. Cost of 20 stories, 1 9-10 times 7 stories. Cost
of building, nearly 5 times 7 stories. Rents ot 20 stories, 1 7-10 times 7 stories. Net Income,
1 5-10 times 7 stories. Land value, 37% of 7 stories.
floor could not at present be assumed
to average higher than one dollar per
square foot.
We will compare five heights of build¬
ing: twenty stories, fifteen stories,
twelve stories, ten stories, and seven
stories, and shall find the results given
in the preceding column.
With the usual proportions of occu¬
piable area applied to each of these, we
shall find that the respective incomes
per one hundred square feet of lot are
as follows:
20 stories.....................$2,007
15 " ..................... 1,708
12 " ..................... 1,507
10 " ..................... 1,381
7 " ..................... 1,187
The operating expenses of buildings of
this class will increase with height, and
it may be assumed that the seven-story
building will require forty-two per cent,
of the gross income for operating ex¬
penses, including taxation, and the high¬
est building will require fifty per cent,
for the same purposes. These figures
will reduce the net income from these
buildings to the following:
20 stories.....................?1,003
IS " ..................... 884
12 " ..................... 810
10 " ..................... 773
7 " ..................... 688
A study of the cubical contents of each
building can readily be made from an as¬
sumed plan, and a scale of prices can b«
applied, commensurate with a reason¬
ably desirable character of construction.
Whatever price may be decided for tht
seven story building, will be increased
for any height above seven stories.
Placing the seven story cost at twenty
cents per cubic foot, the ten story will
cost twenty-two and one-half cents.
The twelve story......twenty-five cents
The fifteen story.......thirty-two cents
The twenty story......thirty-eight cents
The cubical contents of the buildings
will be as follows:
7 stories......... 8,380 cubic feet
10 " ......... 11,140 "
12 " ......... 12,980 "
15 " ......... 16,140 "
20 " ......... 21,540 "
All these are the cubic feet of building
construction per one hundred squart
foot of the lot.
The cost of the building at the rates
above assumed, will be as follows:
7 stories.....................$1.676
10 " .................... 2,506
12 " ..................... 3,245
15 " .................. 5,164
20 " ..................... 8,185
It will thus be seen that the twenty-
story building will involve five times the
invested capital of the seven-story build¬
ing, but will produce less than twice the
gross and net rental.
Now having ascertained the invest¬
ment in the building and the net income
derivable therefrom, we have only to
deduct from that income the fixed
charges upon the building construction
to find the amount of money annually
available for interest upon the land value.
If the fixed charges on the building be
taken at six per cent interest and four
per cent depreciation, then the results
will be as follows: There will be left