How N.Y.'s CRE Lobby Is Approaching The Election, Looming Fiscal Crisis
With Election Day less than two weeks away, New York's formidable real estate lobby is looking for ways to work with an increasingly progressive political landscape in the city, while pushing to elect pro-growth moderates in the suburbs to help rejuvenate the state's economy after a devastating fiscal blow.
The industry lobby is bracing itself to navigate uncharted territory in the upcoming session, set to begin in January, amid a massive fiscal crisis and an ongoing pandemic, all while federal funding for state governments is still far out of reach.
Much of what the session will look like depends on the outcome of national and local races on Election Day. As the Democrats are expected to maintain their majority in the legislature, there has been a push within the industry this election season to support more pro-growth moderate candidates outside of the city, with the hopes of balancing out the most progressive voices in the lawmaking chambers.
“I am hopeful that in this election, some moderates will be elected in suburban races [to] counter the lawmakers that are off spouting anti-capitalist rhetoric,” Jay Martin, the executive director of landlord lobbying group Community Housing Improvement Program, told Bisnow.
Nevertheless, the industry will still have to win support for its core issues, and the only way it will be able to do that effectively is to work more with the increasingly progressive legislature, one that the industry has had a less-than-friendly relationship with over the past two years.
“Real estate now needs to move into the mode where it understands that the winds are blowing against it, and it needs to get out in front of the policy wave that is coming in its direction,” said Seth Pinsky, a former executive at RXR Realty who worked for former Mayor Michael Bloomberg. "It needs to propose solutions to the problems that the public cares about that it can live with — rather than to keep trying to block policies that it can’t live with."
It is hard to overstate the fiscal peril New York's state and local governments are in. This week, Gov. Andrew Cuomo foreshadowed cuts to services and a jump in taxes unless federal funding comes through with a possible $59B revenue shortfall over the next two years, per The Wall Street Journal.
In New York City, where an unemployment rate of 14% means nearly half a million residents were out of work as of last month, the local government is steeling itself for a $13.5B shortfall through 2022.
“Property owners, as well as tenant advocates, should understand that it is going to be very difficult to address this crisis without real financial relief from the federal government,” state Sen. Brian Kavanagh, the chairman of the Committee on Housing, Construction and Community Development, said in an interview. “I’m somewhat optimistic that at some point, the federal government will get around to doing this next stimulus bill.”
House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin said on Wednesday negotiations had made progress on a funding package, but there is little chance of a vote before the general election, meaning funding could be months away.
“We have been pursuing our strong agenda that is intended to balance the interests of tenants and landlords on the housing side,” said Kavanagh, who represents the 26th Senate District, which spans lower Manhattan and western Brooklyn. "I think that you're going to see a continuation of that in the next session."
He predicts the state Senate's Democratic majority will remain, potentially with a “few additional seats.”
With the Democrats bound to maintain control of the state legislature, the industry lobby wants more moderate lawmakers in those seats, sources say, to push through pro-development priorities in the upcoming session and move away from some of the measures real estate leaders have dubbed "draconian," such as the Housing Stability and Tenant Protection Act of 2019.
This election cycle, real estate groups have set their focus on funneling money toward campaigns for potential Democratic allies in the Senate during the general election, particularly on Long Island and in the Hudson Valley.
“This [is] a classic real estate tactic,” Michael McKee, treasurer of the tenants advocate lobby group the Tenants PAC, told the Albany Times Union in July. “They know they can’t buy off New York City Democrats right now … So why not throw money at the ones they might?”
Leaders in the industry’s key lobby groups acknowledged the industry’s desire for a moderate legislative body during interviews with Bisnow this week.
Democrats running for Senate, who have vocalized support for progressive ideas alongside support for pro-growth or pro-business policies, have received a combination of donations spanning labor unions, construction trade groups and New York City business people.
Two such candidates include incumbent state Sens. Anna Kaplan and Monica Martinez.
Kaplan, who chairs the Committee on Commerce, Economic Development and Small Business, represents parts of Long Island’s Nassau County and touts economic development and cutting taxes as key issues on her re-election platform. She worked to pass a cap on property taxes during her time in office. She also has had a hand in economic development projects on Long Island and has been described as acting with “moderation and restraint,” according to a City and State 2018 profile.
Kaplan has received thousands of dollars in contributions from business groups and those in the development-related sectors, according to campaign finance disclosure reports. She received $2K from Bronx-based Diamond Property Group, $250 from the National Federation of Independent Businesses, $500 from the Buildings and Trades Council of Nassau County, and contributions from various unions such as $2,500 from the New York branch of the AFL-CIO.
Martinez, who represents parts of Suffolk County, also voted for the property tax cap, in addition supporting legislation promoting women and protecting the environment. She, too, received donations from construction groups, including $500 from the Building & Construction Trade Council of Nassau and Suffolk and $1,500 from the Sheet Metal Workers Local Union.
The Real Estate Board of New York, the largest trade group for New York City real estate, said it is backing candidates that will engage in pro-development conversations more robustly.
“We’re looking to be supportive of elected officials and candidates that take a data-driven approach to pro-growth health, that’s all we can ask for,” REBNY Senior Vice President for Government Affairs Reggie Thomas said. "We’re looking forward to working with those elected officials and candidates."
Industry advocates said they believe that the legislature will come together to support pro-growth policies in the upcoming session, if only because the success of New York City’s economic rebound is tied to the success of the real estate industry.
“There has to be a happy medium here ... No one should be proposing those extremes and we should be meeting in the middle,” CHIP’s Martin said. “New York relies on its property tax base, it’s needed for recovery, and I remain cautiously optimistic that common sense will rule the day.”
Through September, New York City and state have collected $755M less in tax revenue from residential and commercial real estate sales compared to 2019, a 42% decrease, according to REBNY.
Kavanagh said he has had numerous productive conversations with the real estate community over the course of the crisis.
“COVID-19, in particular, is going to require an extraordinary level of smart thinking and major allocation of resources. I think that a lot of people in the real estate industry understand that,” he said. “I think we've all become also more aware of the important role of commercial real estate as we looked at businesses and communities getting decimated by COVID.”
New York Building Congress President and CEO Carlo Scissura said measures that support development will be necessary to meet many of the goals of the progressive agenda serves — lifting up working-class people hurt by the pandemic-fueled economic downturn.
“It’d be nice to not go up there and be fighting legislation and instead look at ways to solve problems,” Scissura said. “Let’s not add to policies that prevent economic relief for those who need it most.”
Scissura said pro-development policies aren’t in opposition to progressive efforts.
“We can be a progressive city and state and understand that construction and development are needed to keep this city and state progressive,” he said.
The Upcoming Session
Once the election is over, officials for lobby groups say they will start immediately preparing to work with the newly elected legislative body.
“At the end of the day, we’re looking forward to Nov. 3, but more importantly Nov. 4 when we have an opportunity to talk to those who are going to be taking office in January and discussing how we can be good partners to ensure we have a strong recovery ahead," Thomas said.
Top of mind for the real estate community is a slate of bills that would usher in major changes to how they do business.
The Good Cause Eviction bill, sponsored by Sen. Julia Salazar, is still on the agenda, though Kavanagh has said it will likely see some amendments. In July, Assemblywoman Yuh-Line Niou, who represents parts of lower Manhattan, put forward a bill that would cancel rent and some mortgage payments.
Real estate players are also nervous about the re-emergence of the so-called pied-à-terre tax. The bill’s sponsors have fixed technical issues that stopped it from going ahead last year, The Real Deal reported in August.
Martin said the priorities in the upcoming session for his organization — which counts over 4,000 landlords, most of whom own rent-regulated units, as members — will be to seek immediate relief for landlords whose rent rolls have been hit as a result of pandemic unemployment hikes, and to repeal parts of the rent reform laws that went into effect last year, in particular the preferential rent ban.
“I think the important thing is figuring out relief for owners, that is going to be the bulk of the effort in the next session,” he said. “We just did a survey, and 1 in 10 won’t be able to make their January property tax payment. There is serious pain here.”
Thomas said REBNY won't focus on single bills, but themes of bills that prioritize helping renters pay rent, supporting property owners and leading to the quickest recovery possible.
While everyone seems to be all-in on propelling New York City's recovery, the best way to get to that recovery is where views will certainly diverge. Some developers are worried about certain bills that could be pushed through this session.
Taconic Investment Partners co-CEO Charles Bendit, whose firm owns thousands of rental units in the city, said in an interview this week that some of the “aggressive” bills the legislature is considering are “preposterous."
He is also concerned about the future of the 421-a tax break, now known as Affordable New York, which he said is due to expire in 2022.
“Listen, I am a great believer in collaboration, I would be very open to discussing ideas,” Bendit said. He added that he met with many elected officials in the lead-up to the passage of the Housing Stability and Tenant Protection Act of 2019.
“I don’t think any of the proposals that we made got the time of day," Bendit said. "When the Democrats took the Senate, they were just going to do what they wanted to do — it was like, ‘Thank you for sharing.’"
Kavanagh told Bisnow that rather than “canceling rent,” he has been advocating for programs to help tenants pay their landlords. He does, however, believe that the Affordable New York tax break is “too generous” in the way that it is structured.
But the pandemic may have created a new era, said former Bloomberg staffer Pinsky. He predicted that the progressives pushing far-left policies and the real estate community will begin to inch closer to each other’s points of view as the crisis wears on.
“I think just the fact that we are essentially in a second Great Depression is eventually going to sink in with the progressives, and people will realize we cannot keep saying no to investment,” he said. “The fact that we face a historic budget shortfall that could lead to a free fall in services will sink in with the business community, and at some point, they’ll swing behind an increase in taxes. Eventually, both sides will have to moderate their approaches.”