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Month: September 2022

Enough Apartments in NYC To Go Around But NY State Legislators Can’t Seem to Get It Right

Published on September 1, 2022
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Good intentions can often produce bad outcomes and, in NYC, we are beginning to see the unwanted ill effects of the June 2019 Housing Stability and Tenant Protection Act (HSTPA).  The law—noble enough in its pursuit to preserve affordable housing—has proven to be an unmitigated disaster.  In June 2019, we at Invictus Property Advisors wrote an article setting out ten (10) key takeaways from what was then newly enacted legislation.  Two items of concern flagged by us were units falling into disrepair and landlords keeping rent stabilized units vacant after tenants departed, describing the latter as a “perverse and unintended consequence of the new rent laws.”  Three years on, many of our gloomy prognostications came to pass, much of it detailed in the Real Deal article.

Of note:

  • The cost to gut renovate an apartment vs. allowable rent increases: $60,000-$120,000 vs. $89 increases per month
  • The monthly operating costs per unit vs. median monthly rent for a stabilized apartment: $1,548 vs. $1,422
  • The number of homeless New Yorkers vs. number of vacant apartments: 60,000 homeless (of which 15,000 are children) vs. 43,000 vacant stabilized units
  • The percentage of affordable units (i.e., under $1,500 per month): less than 1% of the housing stock, the lowest in three decades
  • The percentage of NY state legislators voluntarily accepting lower pay to share in the pain: zero  

The numbers don’t lie: this law has resulted in disincentives to renovate and rent up very much needed affordable apartments.  A shameful reality is that there are even enough vacant units to house two thirds of NYC’s homeless.  But rather than embrace widely understood market forces and basic economics, legislators blame landlords for creating artificial scarcity (i.e., keeping stabilized units off the market to drive free market rents higher) or painting apartment walls with “gold” paint presumably to inflate renovation costs.  The response from state assembly member Linda Rosenthal (who holds a B.A. in history) was to introduce a bill charging a “warehousing fee” or a penalty on landlords for failing to place tenants in rent stabilized apartments starting three months after a unit becomes vacant.  Unlikely to pass and arguably unconstitutional but demonizing landlords plays well in liberal circles and masks the lack of a real plan.  Ms. Rosenthal and legislators of her ilk are outside their core competence on this issue and should bring experts into the mix—history will treat her well if she does.   

Suzannah Cavanaugh, Sasha Jones. “Vacant, Rent-Stabilized and Locked up: NYC’s Ghost Apartments.” The Real Deal, 1 Sept. 2022, therealdeal.com/magazine/national-july-2022/that-empty-feeling/.
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The Saudis Look to Make an Addition to the Wonders of the World the Line

Published on September 1, 2022
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By NEOM. (n.m.). https://www.neom.com/. https://theconversation.com/what-is-the-line-the-170km-long-mirrored-metropolis-saudi-arabia-is-building-in-the-desert-188639

The world has a handful of wonderful structures that reflect the glorious capability of mankind.  A few that come to mind include the Great Wall of China intended to fend off invasions and raids.  Though it failed miserably with its stated objective, today it serves as an impressive 5,500-mile tourist attraction and a tangible piece of political propaganda.  Let us not forget the Incan site high in the Andes Mountains in Peru known as Machu Picchu and the Colosseum in Rome where gladiators dueled each other and animals were pitted against man in death matches. There are certainly others (i.e., the Taj Mahal and the Khaznah to name a couple) but the Saudis are looking to put their own signature project on the list with The Line.

It is a one-building megacity structure stretching more than 106 miles, house up to 9 million residents, extend 650 feet wide and reach 500 meters above sea level.  The project will cost hundreds of billions of dollars, feature a high speed train running end to end in 20 minutes and re-invent the way people live with vertically layered communities. Words can’t capture the scope of this project but this video link can, check it out.

The Saudi government may have a spotty record on a whole host of things but who am I to judge and despots are known to get stuff done.  The Line is sure to disrupt the 500 million birds that migrate across Saudi Arabia each year and be a decades long punishing slog for migrant workers (a.k.a. construction artists) who are likely to suffer ignominious living conditions and paltry wages building this giga project. That said, sacrifices need to be made and one must suffer for their art so, in the end, I am chomping at the bit to see The Line come online. 

Allan, A. (n.d.). What is The Line, the 170km-long mirrored metropolis Saudi Arabia is building in the desert? The Conversation. https://theconversation.com/what-is-the-line-the-170km-long-mirrored-metropolis-saudi-arabia-is-building-in-the-desert-188639
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Are NYC Properties Falling in Protected Tax Classes 2A/2B on The Chopping Block

Published on September 1, 2022
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Like many things, it starts with a whisper before morphing into a collective roar and this author fears that protected tax class 2A and 2B buildings in New York City may become Albany’s next target. The evidence of a legislative backlash involving the cancellation of protected tax classes is anecdotal at this point but the private equity behemoth, Carlyle Group’s, recent moves into this “mom and pop” space may have put the issue front and center for legislators. Over the past year, Carlyle has spent more than $500 million buying smaller apartment buildings in bite-sized $2 and $3 million checks.

Small potatoes for a group like Carlyle so what’s going on? Protected 2A/2B buildings enjoy the benefit of limited tax increases to no more than 8% annually and 30% over a five year period. And in a city with ever growing expenses, the 2A/2B  properties provide predictability to an owner’s net income and serve as an inflationary hedge against other operating expenses. The end game is to amass a portfolio of these properties and sell them at a premium. Take Highpoint Property Group, led by Drew Popkin, who caught on to the 2A/2B game early and recently put 20 such buildings on the market at an asking price of nearly $300 million. 

In 2018, Michael Shah of Delshah Capital purchased 28 2A/2B properties from Silvershore Properties that had done the heavy lifting of assembling the properties. To be clear, there isn’t anything illegal about this (nor should there be); in fact, it is quite savvy and, put simply, just an example of capitalism at work. But in current times, City Council members and NY senators are bound to start asking whether multi-million and multi-billion dollar owner/investors like the Carlyle Group should be benefitting from the 2A/2B tax class designations.  In a nation of laws, the rules that benefit the “little guy” should and must also benefit the larger players as well.    

Rebong, Kevin. “Carlyle Group Builds Empire of Small Brooklyn Apartment Buildings.” The Real Deal, 28 July 2022, therealdeal.com/new-york/2022/07/28/carlyle-goes-big-on-small-brooklyn-buildings/. Accessed 24 May 2023.
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Manhattan Office Numbers are In and… It’s a Mixed Bag

Published on September 1, 2022
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Maria Gotsch is Partnership Fund for New York City. (n.i.). https://pfnyc.org/. https://web.sichamber.com/Associations/Partnership-for-New-York-City-430

Will they or won’t they…return to the office?  It’s the question employers, office landlords and just about every small and medium sized business reliant on Manhattan workers is asking.  More than 160 employers (mostly located in Midtown and the Financial District) were surveyed between April and May 2022 to gauge the work from home (WFH) trend and how permanent we can expect it to be.  The findings are as follows:

  • A mere 8% of Manhattan office workers report to duty five days a week;
  • On any given workday, you can expect 38% of Manhattan office workers at their office desks (expected to grow to 49% in September 2022);
  • By industry, it is the real estate folks returning in droves with an average daily attendance of 82% with law, tech, media, consulting and financial services firms far behind, all falling in the low to mid 40% range;
  • Larger firms (greater than 5,000 employees) are returning to the office more slowly than smaller firms (fewer than 500) with 53% of employees in the office on an average weekday for smaller firms vs. 31% for the larger companies.

The good news is that the trend suggests Manhattan office workers across all industries and company sizes are expected to return to the office in greater numbers.  In addition, 58% of the companies surveyed expect their headcount in NYC to increase or stay the same over the next five years.  The more troubling metric for all the stakeholders who depend on office worker dollars every day is that 78% of employers envision a hybrid office/work from home model post pandemic.  The bottom line: WFH is an acronym we will all be adopting and we ought to start adapting to this new reality, including the executives in C-suites at REITS like Vornado and SL Green as well as the homeless person living off the kindness of NYC strangers.

Gotsch, Maria. “Partnership for New York City.” The Staten Island Chamber of Commerce, web.sichamber.com/Associations/Partnership-for-New-York-City-430. Accessed 24 May 2023.
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