Sunday, February 13, 2011

Buildings Do Not Create Jobs--Let's Cut the Rhetoric

It’s time we put an end to the political rhetoric that “buildings create jobs.” Companies create jobs and a building is but one of the three classical components of production, along with labor and capital. But it has become the norm in every announcement of a new commercial building for the government official and/or private developer to announce that the building of “One XYZ Place will create 100 construction jobs and 600 permanent jobs.” The claims are pernicious because it is often the rationale for government approval or public financing for the building and for public infrastructure expenditures (see Assembly Square link).

Buildings do not create jobs. Companies create jobs and then, as needed, assemble the factors of production necessary to produce a product or service. One of these factors of production is land, which, for our purposes, can be considered commercial space. The other factor is capital, such as the machinery necessary to manufacture a product or the telecom system necessary in a new office. The third and most important is labor.

To say that one factor of production—land (or commercial space) -- creates another factor of production—labor-- is not only theoretically wrong, it is absurd on the common sense level. A building is a box. If, and the” if” goes to the very core of commercial real estate, the building attracts a user, it will still be a box. It will not create the jobs; it will only house the jobs. And if the company leaves, it will not sprout new jobs. It will still be a box.

Buildings do not create construction jobs either. If the building is constructed by and for a specific user, the user, by creating the building, creates the construction jobs. If the building is constructed on a speculative basis, derived from an investor’s perception of the need for commercial space, then the construction jobs are created by the investor, not by the building. Again, the building is a box, just one factor of production.

One might argue that this is an issue of semantics. I beg to differ, because the “buildings create jobs” battle cry is used as a justification for virtually every new commercial construction project. If a private investor constructs an office building purely on the basis of its judgment of supply and demand and exactly within the zoning and building codes, I have no problem with semantics. Of course, this happens in the Land of Make Believe. Every office building constructed in Boston, even those meeting zoning and building codes, must still receive Boston Redevelopment Authority approval at the design level. And then the sensational claims come gushing out about buildings creating jobs. And then come the requests for public financing or incentives. And then the taxpayers start coughing up money based on an untruth. This is not an issue of semantics when semantics become a weapon of deceit.

The citizens of Massachusetts have now learned the issue the hard way, spelled E-V-E-R-G-R-E-E-N. Taxpayers paid for the building to the tune of $58 million in direct subsidies, incentives, and tax breaks. Evergreen created the jobs. And then Evergreen eliminated the jobs. The building is empty. It is not “creating jobs.” It is just a big empty box, which is all that it ever could be. It may once again become an active factor of production if a user chooses to produce a product or service in the box. But until then, the building will not be creating jobs.

Unfortunately, the Governor had already drunk the “buildings create jobs” Kool Aid, and his erstwhile development director, Greg Bialecki, is still handing out cups of the stuff all over the state. And we all keep drinking it. By the way, Mr. Bialecki considers Evergreen as a minor mistake. Makes you wonder what a major mistake would be.

If you want an idea how deeply entrenched this wishful thinking extends, simply visit the Boston Redevelopment Authority website, look up any development project, and read how many jobs the project will create. It’s a complete farce. I know a lot of landlords who wish that their existing half empty office buildings started to suddenly create jobs one day.

Saying a building creates jobs is like saying that making a hammer will create jobs. It leaves out the fact that hammers do not stand up, grab some nails, and start pounding away. A person (let’s call that person Mr. Labor) picks up the hammer first. And someone (let’s call that someone Mr. Producer) informs Mr. Labor what he wants him to do with the hammer. And, if we all hold our breath, maybe Mr. Producer will find his way to Fort Devens and rescue us all from the Evergreen debacle.

I’m a real estate broker. If buildings created jobs, my profession would not exist.

Wednesday, February 2, 2011

The Geography of Disaster: The LNG tanks of Everett, Massachusetts

While the Commonwealth continues to debate the wisdom of onshore LNG plants in Somerset and Fall River and while the populace cries foul at Cape Wind over price concerns, the Department of Energy recently and quietly painted a frightening picture of the onshore LNG industry. Liquefied natural gas, exposed to air or water, forms a pool of superheated, inextinguishable fire. Its burn rate depends on the amount of the spill, wind, waves, and currents. By its own assessment, the DoE, working in conjunction with the Sandia National Laboratory, estimated that a breach of only 3 of the 10 compartmentalized tanks on a typical LNG tanker would kill anyone within a ½ mile radius in less than 20 seconds. In 8 minutes, a breach would cause 2nd degree burns within a 2.5 mile radius.

Using Census Bureau and City of Boston estimates of workday populations under the 3 tank DoE scenario, over 80,000 people would die within 20 seconds with an additional 540,000 people suffering severe burns, many fatal, within 8 minutes. Within 12 minutes, fire would engulf all of Charlestown, East Boston, South Boston, the South End, the North End, North Station, Beacon Hill, the Back Bay, the West End and the towns of Chelsea, Everett, all of East Cambridge and over one half of Somerville.

Those are the aftermaths of breaches in tankers. The actual tanks at Everett, at equal if not greater risk of a similar breach, contain over 125,000,000 cubic meters of LNG, ten times the amount carried in a single ship.

There are 9 operating LNG plants in the United States. As the table below shows, Everett is the only plant located in a populated area and the only plant served by passage through a narrow, active harbor.

The Geography of Risk: The Relative Location of Existing Liquefied Natural Gas Plants in U.S.A.

Location of LNG Plants     Surrounding Area   Nearest Major City      Distance (miles)

Sabine, LA                         Island in lake              Shreveport                   72

Kenai, AK                       Port on Cook Inlet        Anchorage                    65

Freeport, TX                     Isolated bay                   Houston                      61

Cove Point, MD              Isolated riverfront      Washington DC               46

Cameron, LA                   Isolated bayou              Lake Charles                24
Lake Charles, LA            Island in lake               Lake Charles                 18

PeƱuelas, PR                    Offshore ocean                Ponce                         7

Elba Island, GA       Unpopulated Island in river     Savannah                    6

Everett, MA            Heart of major city port            Boston                       1/4