New York’s new rules are sending developers in search of more business-friendly cities, according to experts.
Speaking at Tuesday’s Future Forward conference hosted by Anchin, Paul Massey, CEO of B6 Real Estate Advisors said the current political climate would ultimately scare away more than just the industry.
“With the SALT tax (changes) and the anti-development environment, it puts a strain on the middle class,” said Massey, who ran for mayor as a Republican candidate in 2017. “We really need to think about how to appeal to developers and immigrants and others.”
Joseph McMillan Jr., CEO and chair, DDG, said his company is focusing investment in the Midwest, Florida and California. “We’ve calculated better returns outside New York City and that’s where we’ve spent the majority of our time in the last several years,” he said.
And Jeffrey Simpson, managing partner at Arch Capital said the practice of investing outside of the city has “become standard.”
Marc Wieder, partner and co-leader of Anchin Real Estate Group, moderated the event at the Times Square Sheraton with panelists McMillan; Simpson; Matthew Baron, president of Simon Baron; James Lin, associate partner, Jaros, Baum & Bolles; and Massey.
The panelists shared the view that the Housing Stability and Tenant Protection Act of 2019, as the package of tenant-friendly legislation that was passed in Albany is officially known, is a disaster with effects that have yet to be fully realized yet beyond the immediate lower valuations.
“Now you have buildings that are 40-50 percent of what they were worth,” said Simpson, adding that he has seen a slowdown in renovations and in even in amenity offerings.
“Amenities vendors — there’s nothing for them to do,” he said. “I do believe affordable housing is an issue but I don’t think this has accomplished anything.”
On the HSTPA, which drastically reduces the ways landlords of roughly one million stabilized units can raise rents, Wieder said it seemed all landlords were lumped in with greedy ones who took advantage of the old system that included far greater reimbursements for major capital improvements and individual apartment improvements.
“Part of the lesson was the reality of people being piggish as it relates to IAIs and MCIs,” said Wieder, “and instead of dealing with the bad people, they punished everybody. Now these apartments are going to go to hell and private properties are going to become like NYCHA buildings. They’re doing to be run-down.”
Speakers said they expect the city will suffer from a decline in revenue, considering that half its budget comes from real estate taxes.
“We’ve done some simple math and we think there will be an eight to ten million dollar hole,” said Baron. “So how do you plug that?”
McMillan said a newly-revived pied-a-terre tax bill is also a response to a public perception of landlord greed.
“It’s backlash to the condominium boom and a perception that condo developers have incredible wealth and they aren’t taxed enough and that trickles down to the rental side,” he said. Still, he predicted better days ahead for the residential sales market, which, as of the most recent (2019 Q4) reports showed signs of trickling back upwards.
“There’s only so long buyers or renters will stay on the sidelines,” he said. “They need to move, to get married, to start a family. There are a lot of options now if you’re looking for a condo.”
Simpson was more skeptical, saying he believes some condo building owners are trying to hide their inability to sell units through re-financing, or as he put it, “extend and pretend.”
“I think there is a lot of product out there that’s in deep trouble,” he said, adding that many New Yorkers are “rich by the week.”
Simpson defined that group as those in the $250,000-$750,000 income range, who, because of the cost of housing, still live check to check after high rents and other costs such as private school and child care.
“Crime is going up, I’m getting taxed. It’s freezing nine months of the year and you start to think, ‘What am I doing here?’”
While Massey added that he had no plans in the near future to run for office again himself, he stumped for his presidential candidate of choice. “I think Mike 2020 would fix a lot of this,” he said.
McMillan however advised those in the crowd to become politically active if they don’t like what they’ve been experiencing. “As an industry we haven’t engaged historically — we haven’t gotten our message out there. We have to engage in a grassroots way.”
He also encouraged owners to vote in local elections. “Turnout in local elections is trending downwards, so simply vote. That would be a fast way to start.”