By Francis Greenburger
I write as a native and lifelong resident of New York City, and not as a building owner and real estate investor, against the adoption of Int. No. 1796-2019, or commercial rent stabilization in New York City.
Local government must think through the consequences of adopting the bill and recognize that enacting Commercial Rent Stabilization will significantly damage New York City’s economy and impair the viability of conducting business in NYC.
A few brief examples of the proposed legislation’s impacts are:
- Lower tax revenues and building values. Being the only city in the country with commercial rent stabilization will cause buyers of real estate to be extremely wary of investing in New York City’s commercial real estate. Attorneys and financial advisers will warn of the significant risks that commercial rent stabilization will produce and banks will not be comfortable financing transactions in NYC. Three immediate resulting economic impacts to NYC will be:
- Real estate values will decrease and as result there will be lower real estate tax base and taxes for the City to collect;
- There will be fewer sales of NYC commercial real estate. A decrease in transaction volume will equate to less transfer taxes collected by NYC and NYS; and
- With lower values, fewer sale transactions, there will be less mortgages recorded in New York thereby reducing the amount of mortgage recording tax revenue collected by NYC.
- Good well-paying jobs will be eliminated in NYC. Because free market rent for commercial properties will have been eliminated, less commercial spaces will be built, renovated or improved. The demand for construction and design related services and the demand for such jobs will be reduced and less workers will be needed. In addition, given less sales and financings of commercial property, there will be less demand for brokers, bankers, lawyers, accountants and their support staff who assist in real estate transactions and thus, again, less jobs will be needed. Fewer jobs not only cause individual hardship to those people and their families who experience the loss, but also equates to less income taxes collected by NYC.
- There will be an increase of buildings in disrepair and the quality of our buildings will suffer. Often in commercial lease negotiations, building owners invest substantially in tenant spaces to improve and modernize them. Regularly, costs are shared between landlord and tenants and a tenant’s share may be amortized into their rent (i.e., the building owner loans the money to improve the tenant spaces). Commercial rent stabilization will eliminate the viability of such an arrangement. The decreasing margins on commercial rents (which are already nascent to begin with given rising costs and rising taxes) are not sufficient to cover the costs of building modernization and improvements. With little to no new construction because of regulated commercial rents and the inability to improve buildings through rental revenues, there will not be viable means to modernize and improve our buildings and the quality of our physical buildings within the City will suffer; and new buildings will not be built due to the existence of commercial rent stabilization.
Most importantly, the culmination of all the other headwinds working against NYC including increases in federal taxes, increase in state and local taxes (including real estate), and the elimination of the SALT deduction have dramatically increased the tax burden on our businesses and residents.
It is a primary reason why individuals and businesses are relocating to places like Florida, Nashville, TN and Austin, TX. Our government cannot undertake short-sighted legislation and give businesses, capital, and our residents another reason to flee NYC. It will end up being our collective loss and some other region’s gain.
Francis Greenburger is the chairman and founder of Time Equities, an NYC-based investment and development company with a portfolio of approximately 35.8 million square feet of residential, industrial, office and retail property.