A recent article on Bisnow has an interesting article where commercial real estate executives addressed the challenges facing the industry as government continues to enact legislation that adversely affects the industry as a whole. The general consensus of the executives spoken to is that it is now time that the industry acts or there may be negative consequences that may be substantial and permanent.
According to the Real Estate Board of New York (REBNY) there was total of $22.4B worth of commercial properties sold in the first half of the year. It was a 17% drop in the number of transactions. In the multifamily sector the total dollar volume fell 37% between the first half of 2018 and 2019. Transaction also dropped by 31%. According to a Commercial Observer, Robert Knackal of JLL states “Manhattan are on pace for $2.6 billion dollar volume in sales this year, a 42 percent drop from the $4.5 billion which occurred in 2018. This total would be 78 percent below the record $12 billion of sales that occurred in 2015. Taking the $5.46 billion Stuyvesant Town / Peter Cooper Village transaction out of the 2015 statistics is appropriate given the massive size of that transaction. Removing that sale from the data, the present pace is still 61 percent below the activity seen in 2015.” He believes that sales have been disappointing and we do not know the true impact on property values until we see the numbers coming in the next quarters.
REBNY President states “The results were unsettling, REBNY’s analysis indicates the drop has already resulted in a $66M loss in tax revenue for the city. I would like to represent to you that the decline in investment sales was an aberration and won’t be repeated. Our fear, though, is that it’s the start of a trend. There’s been a series of policy decisions at a federal, state and city level, the elimination of [the state and local tax deduction], rent regulation changes and the city’s approach to reducing greenhouse gas emissions that we believe will lead to a significant disinvestment in New York City over time.” Besides the rent reform regulations which has had a chilling effect on the industry, there are also factors that are political in nature at all levels that are affecting investment in multi-family properties. L&L Holding Co. President Robert Lapidus indicated this. He stated “The political environment is the worst I’ve ever seen. I always used to think that the mayor of New York City had a much bigger impact on my business life than the president. And now there’s a situation where they’re both having severe adverse impact. He continued by stating that the impact of legislation and the political climate is a “disaster”. “Whether you look at the regulations up in Albany, you look at chasing Amazon out, there’s a lot of fingers to point. Those are both disasters. They are disasters. And it’s hard to come back from that.”
We are also beginning to see large developers default of their loans. A recent article by the Wall Street Journal indicated that two landlord with large portfolios of rent-regulated apartments have defaulted on $200 million dollars in loans. Besides developers defaulting on loans which will affect NYC’s tax base, the city will also have challenges as to the crumbling infrastructure, homelessness and “crazy” taxes according to Vornado Executive Vice President Glen Weiss. He also believes that the industry has to act in order to save it. “Certainly, we’re not feeling great about the world and the atmosphere by which we’re trying to do business in,” he said. “We’ve really got to take a stance on this for our industry … It has to get fixed. If it doesn’t get fixed, all this talk about all these companies wanting to be New York, the war on talent and building buildings, it’s going to end.”
We are also in agreement with the real estate heavyweight in believing that there needs to be a fight for the industry. Clearly the actions of the political majority here in New York City and in Albany appear to be short-sighted and will have adverse affects leading into the next decade. Hopefully common sense will prevail.
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