Experts Decry Rent Laws’ ‘Disastrous’ Impacts
John Jordan | August 8, 2019
NEW YORK—More than 125 commercial and residential real estate professionals heard a rather sobering outlook of what the recently enacted new rent control regulations enacted by the State Legislature and signed into law by Gov. Andrew Cuomo will have on the region’s real estate market.
The morning session was held on Aug. 7 at the Hutchinson Metro Center in the Bronx and was sponsored by the Hudson Gateway Association of Realtors’ Commercial Investment Division and the Bronx-Manhattan North Association of Realtors. The program featured a panel of experts that agreed that the new rent control laws will have a debilitating impact on the region’s real estate market. They charged that the new rent laws will squeeze some multifamily owners, particularly smaller businesses, who will cancel or at the very least put off needed capital projects that will worsen living conditions for tenants.
The panelists were: Eliot J. Cherson, senior and founding partner of Hertz, Cherson & Rosenthal, PC; Victor Sozio, executive vice president, Ariel Property Advisors and Matthew Engel, president, Langsam Property Services Corp.
HGAR CID President John Barrett, managing director, investment sales, RM Friedland, was the moderator of the program.
Cherson began his presentation discussing a litany of some of the more onerous regulation changes that will impact the industry. Editor’s Note: NYSAR recently published an article entitled “13 Things to Know Expansion of Rent Regulation and Tenant Protection.” Go to http://www.realestateindepth.com/news/things-to-know-expansion-of-rent-regulation-and-tenant-protection/
Cherson, who is a member of the Westchester County Rent Guidelines Board, said he and another board member recently told a tenant representative on the guidelines board that the rent control reform measures will not be good for both landlords and tenants. “We tried to explain that there will not be new roofs, there will not be new furnaces, there will not be new windows and doors and elevators, etc. and the apartments are not going to be renovated when a new tenant comes in,” he said.
He said the tenant representative responded that she did not care and that for too long landlords had the upper hand and that “it is now our (tenants’) turn.”
At a recent guidelines board session, Cherson noted that a landlord testified he had a contract to put in three new elevators in three different buildings. “When (Gov.) Cuomo signed the law, he called the contractor and said, ‘Cancel’ the order. He cancelled three new elevators. Who benefits from that?” he queried.
Cherson, Sozio and Engel agreed that the rent control reform bill will result in significant job losses in the building and construction sectors in New York City and affected surrounding suburbs.
The implementation of the new regulations comes at a time when multifamily sales activity has fallen sharply in the city, according to Sozio. Due to the uncertainty over what changes would be made in the rent laws, multifamily sales transactions have “been crushed” in the first six months of this year—down 47% in Manhattan, 37% in Brooklyn and 70% in Northern Manhattan as compared to the same period in 2018.
“The whole market is being reset,” Sozio noted over the rent control regulation changes.
He said that at mid-year there were 170 sales transactions in New York City in 2019. The last time New York City failed to reach the 400-deal level in the multifamily sector was in 2010, Sozio noted.
“Now that the laws are actually out, we will see how the market adjusts,” Sozio said. “It will take some time to adjust and I expect that transaction volume will still stay very low, especially because of how severe these changes were and how much it is going to take to adapt to them.”
Engel and Sozio agreed that the rent law changes will lead to an increase in distressed properties. On a brighter note, changes in lending rates will likely lead to a flood of property owners seeking refinance deals.
Engel, who is chairman of the Community Housing Improvement Program (CHIP), said that the onerous changes in the rent laws are forcing some building owners to “milk properties as opposed to invest and better properties and neighborhoods and that is the fundamental problem that the politicians missed or just said, ‘I don’t care about because it doesn’t promote my own personal future.’”
CHIP, the Rent Stabilization Association of NYC (RSA) and individual property owners recently filed suit to challenge the constitutionality of the New York Rent Stabilization law and actions by the City of New York under that law. Their lawsuit charges that the overly burdensome regulatory scheme violates the Due Process and Takings clauses of the United States Constitution.
The print edition of Real Estate In-Depth will provide further coverage of the CID program and the rent control issue in its Manhattan Supplement.
The sponsors of the CID event were: Orange Bank & Trust and Webster Bank.
Additional photos from the event can be found here.