As a lifelong resident of New York City, and not as a building owner and real estate investor, I oppose the adoption of 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 here. 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; fewer sales of commercial real estate resulting in less transfer taxes collected by the city and state; fewer mortgages recorded, thereby reducing the amount of mortgage recording tax revenue collected.
• Well-paying jobs will be eliminated. 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 will be reduced.
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.
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 the city.
• 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 . 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.
Likewise, 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 the city, 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 and Austin. Our government cannot undertake short-sighted legislation and give businesses, capital, and our residents another reason to flee New York City.
It will end up being our collective loss and some other region’s gain.
Francis Greenburger is chairman and founder of Time Equities, Inc.