We now proceed to examine the second part of this subject, financial or economic depreciation, the term of which must naturally fall within that of physical deterioration.

Some uncertainty due to this cause attends the permanency of the investment of money in real estate, notwithstanding the vast appreciation in value of land in certain cities, especially in New York, which is a natural inducement for the purchase of real property. The prospective investor is frequently led to think that the future appreciation of the land will recompense him for any over-valuation of improved property at the time of the purchase, or for depreciation of the building thereafter.

This is not always the case as has been shown, and therefore consideration should be given to underlying causes which tend to reduce the earning capacity of the buildings which form the improvement, rather than to depend upon an indeterminate appreciation of the land value to cover any loss in the value of the building or in its earnings.

Fig. 12.

The useful or economic existence of all classes of buildings, in the rapid march of modern conditions, is constantly shortening, and a methodical system should be adopted by which provision may be made for this contingency, which is apparently as inevitable as the physical aging of the structure, and may be more rapid in its effects.

The establishment of vested interests in some improved properties in excess of the earning ability of the buildings thereon, after a certain period of usage, is a result of the construction of unduly expensive structures, not merely for the site occupied, but for the effective earning period of their existence.

Many experienced observers have pointed out the undesira-bility of the "top-heavy" improvement of real estate, and the opinions of authorities will be found to be warranted by results in very many instances of over-building. It is a matter of common remark among those interested in real estate that the existence of so many well-known buildings and of such varying types should have come to an end in so rapid and apparently premature a manner.

Buildings considered when erected to be of the most permanent character of improvement have not survived a period of a third of a century of remunerative existence, and in some instances extensive remodeling operations have been required to prolong their economic existence, in spite of careful and liberal current expenditures upon upkeep. It has also been observed that the more prominent and valuable the site, the earlier is the date at which the process of reconstitution will be due. It is upon such sites that the most extensive and elaborate buildings are often erected.

In the case of hotel buildings the effect of financial deterioration is most quickly apparent, and it is the expressed opinion of one of the most able and successful of metropolitan hotel proprietors that the efficient profit-earning period of a hotel dependent upon fashion for its support does not greatly exceed fifteen years. Some hotel buildings have, it is true, existed for about a third of a century, but their earning capacity has been gradually declining, and more than one instance of a one-time "fashionable hotel" could be cited which after little more than a decade and a half has been productive only of increasing expenses in face of reducing returns.

A rather definite illustration of this subject is afforded in the recent sale of a 12-story hotel of about twelve years of age on a West Side street near a fashionable avenue in Manhattan.

If this loss on the building be assumed to have been made up by the increment of land value, then the latter must have risen in twelve years from $190,000 to $313,000, or about 65%, but even if so, there has been no profit in the whole transaction.

The process of deterioration existing in business buildings is somewhat less rapid, but equally inevitable. It is varied only by certain instances where peculiar location and surroundings outweigh the attractions of newer buildings and localities and serve to maintain or even to increase the rentals. But the insistence of modern business life demands, sooner or later, extensive and expensive remodeling or partial reconstruction, for which in most instances no preparation or provision has been made, and which is therefore frequently postponed to the growing disadvantage of the investment. Mere huge proportions or expensive construction cannot be relied upon to bar the need for remodeling in the future, any more than similar conditions have done in the past, as in the instance of the first steel-frame building, which has barely lasted long enough to become interesting ere it is likely to be condemned; while radical changes have been made recently in some comparatively modern steel-frame structures.

The Gillender Building, fourteen years in existence, furnished evidence of the indestructibility of the steel skeleton when its members are protected in a sufficient manner. But in these days the durability of building materials has mostly been dropped from the list of controversial questions in metropolitan work. For in practice it is found that the physical is almost certain to exceed the economic durability of a building as a whole.

Over-expense in original construction, ill proportion for the value of the site, unsuitability for situation, and maldesign are fundamental causes which hasten the progress of financial decay.

But other causes for which the designers of the building are not directly responsible, but by which the property is nevertheless a sufferer, may equally inevitably bring about a period to the useful existence of a building. A change of fashion, shift of business, movement of population, alteration in line of traffic, or even some untoward local occurrence or change in nature of ownership, which injures the character of its neighborhood, may leave the building a financial log upon its site, an economic failure, and an obstruction on the real estate, proportionate to its size and original expense.