Good morning and welcome to the Monday edition of the Real Estate Newsletter. We’ll look ahead at the coming week and catch you up on what you might have missed last week.
One of the key points of debate around a bill in Albany that would restrict rent hikes and make it harder to evict tenants is how the measure would affect new construction.
A new policy brief from the Community Service Society and the Pratt Center for Community Development seeks to rebut claims that it would limit new supply, pointing to housing production in cities that have similar protections in place. They argue the New York bill should not exempt new buildings, as similar measures in states like California and Oregon have done.
The bill, pushed by state Sen. Julia Salazar (D-Brooklyn) and Assemblymember Pamela Hunter (D-Syracuse), would prevent evictions for nonpayment if a landlord hiked rents beyond 3 percent, or 1.5 times the rate of inflation for a given region, whichever is higher. It is fiercely opposed by real estate and landlord groups, who argue it would lead to disinvestment and exacerbate New York’s housing shortage.
“You can have stronger tenants rights, without limiting the supply of housing, in terms of either new development or investment,” said Sam Stein, a researcher at the Community Service Society, who co-authored the policy brief.
The authors point to New Jersey, which has a law on the books that was a model for the New York measure, though with one key difference: It gives tenants a defense against eviction if they’re facing a rent increase deemed “unconscionable,” but doesn’t define numerically what that is, leaving that up to the courts. CSS and Pratt cite as evidence localities like Jersey City and West New York, pointing to the existence of both robust tenant protections and some of the fastest rates of housing production in the country.
Concerns around how the bill could make it harder for new projects to pencil out remain, however. Basha Gerhards of the Real Estate Board of New York argued that, for one, the proposal would limit the viability of mixed-income projects, “[eliminating] the ability of market-rate apartments to cross-subsidize affordable units, by imposing these controls on the market-rate apartments that were purposely left out of stabilization.”
Others point out the bill could make it harder for builders to respond to market cycles and lead lenders to tighten their standards. The issue will likely be on legislators’ minds as the bill is debated in Albany in the coming weeks.
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HOTEL WATCH — “Hotel bill is union’s latest effort to boost market share,” by The Real Deal’s Kathryn Brenzel: “Hotel workers are supporting a measure that could reduce the number of hotels in the city. That sounds contrary to their interests, but the opposite is true, because the bill targets nonunionized hotels. The New York Hotel and Gaming Trades Council backs a measure that calls for every certificate of occupancy issued for a class B hotel to allow for residential use as well. However, it won’t cost any of the union’s members their jobs: The bill all but ensures the hotels where they work will not be converted into housing. Under the measure, the owner of any hotel with unionized workers must receive written approval from the employees’ collective bargaining representative to move forward with a conversion. So, union reps would have the power to block conversions, while workers in nonunion hotels would continue to have no say.”
IN THE ZONE — “NYC moves to crack down on ‘dark stores’ operated by fast delivery apps,” by New York Post’s Lisa Fickenscher: “Mayor Eric Adams is moving to crack down on the proliferation of warehouse-like spaces that grocery delivery apps have created inside former Big Apple storefronts – ordering them to allow customers to shop there or move to the outskirts of the city, The Post has learned. Critics including City Council members Gale Brewer and Christopher Marte have argued that storefronts operated by apps like Gopuff and Gorillas violate zoning laws because they operate mostly as warehouses and should therefore move out of neighborhoods zoned for retail use. In response, some of the stores recently began allowing walk-in customers in an ad-hoc manner.”
WHAT’S IN STORE — “Will Overturning Roe Reverse the Blue State Exodus?” by Commercial Observer’s Julia Echikson: “The revelation that the U.S. Supreme Court is gearing up to overturn Roe v. Wade — the landmark 1973 decision that legalized abortion nationwide — shocked the American public this week. After a draft of the decision by Justice Samuel Alito was leaked to Politico, protests erupted across the country as the nation faced the prospect that abortion could be illegal within weeks in at least 22 states. If Roe is overturned, that reality will force a new calculus on Americans and American companies. The pandemic triggered a shift in migration patterns, with remote workers freer than ever to move away from their offices and out of cities, and white-collar workers moving South to generally more conservative states — a shift that the real estate industry is still grappling with.”
TIP ME: Something going on readers should know about? Have a tip or a story idea? Email me at [email protected].
HOUSEKEEPING — “A Landlord ‘Underestimated’ His Tenants. Now They Could Own the Building,” by The New York Times’ Ronda Kaysen: “On a sunny afternoon in the spring of 2017, a dozen tenants from a small Bronx apartment building met at a trendy Port Morris neighborhood bar with exposed brick walls, craft beer and funky cocktails. One of the tenants had slipped fliers under her neighbors’ doors a few days earlier, calling for the weekend meeting. Shoving two hightop tables together, and ordering sliders and wings, they huddled, trying to figure out how to deal with a new landlord who’d come in with big plans to raise rents after buying the building for $4 million.
“The group took the first step in a five-year journey that would end with the landlord gone and the tenants poised to own their 21-unit building. A nonprofit organization paid the landlord $2.6 million for the property in February 2022, and plans to eventually hand it over to the tenants, who will be able to buy their apartments for $2,500 each. Over the past five years, only 11 rental buildings have converted to this type of limited equity co-op, called a Housing Development Fund Corporation co-op, where tenants buy their apartments at prices set by the city, and can sell them for a limited profit.”
END OF AN ERA — “Iconic NYC hotel that was home to Dodgers’ World Series celebration faces foreclosure,” by New York Post’s Hannah Frishberg: “Once among the toniest hotels in the outer boroughs, one also set to reopen as a luxury stay, this landmarked stunner now faces foreclosure. How Brooklyn Heights’ Hotel Bossert has fallen from grace: The Montague Street beauty previously nicknamed the ‘Waldorf-Astoria of Brooklyn’ has been hit with a $112 million pre-foreclosure notice after missing mortgage payments and accumulating hundreds of thousands of dollars in debt. On April 13, Wells Fargo filed the notice against building owner, the Chetrit Group, in Kings County Supreme Court, business site PincusCo first reported. The notice alleges that the real estate developer owes more than $126.7 million on a $112 million loan from 2019.”
OFFICE WATCH — “Vornado puts FiDi office building on the market as it trims portfolio,” by The Real Deal’s Rich Bockmann: “Steve Roth’s Vornado Realty Trust is looking to sell another office building as it trims outdated portions of its portfolio. The REIT’s 1980s-era office property at 40 Fulton Street in the Financial District is for sale, marketing materials show. The company aims to get somewhere between $130 million and $140 million for the 29-story building, according to a source familiar with the matter. A representative for Vornado declined to comment. But on the company’s first-quarter earnings call this week, president Michael Franco said the landlord plans to sell $750 million worth of property this year as it prunes its portfolio.”
LAW AND DISORDER — “Related sues Meadow after foreclosure on Garment District hotel,” by The Real Deal’s Keith Larsen: “Even venerable real estate firms have deals they would rather forget. For Midtown-based Meadow Partners, the purchase of the Gregory Hotel is one. The developer bought the Garment District establishment, then known as Hotel 35 Herald Square, for nearly $50 million in 2014 and invested about $10 million in renovations. In April 2021, a year after Covid shut down the city, the hotel’s lender, AllianceBernstein, initiated a foreclosure. After another year, investors Denis Xhari and Vlash Pepa bought the hotel, at 42 West 35th Street, in a foreclosure sale for $32.8 million — barely half of what Meadow Partners had invested in the property.”
— “Jobs report shows more workers returning to office,” by The Real Deal’s Orion Jones
— “Disbarred real estate attorney Mitch Kossoff gets 4+ years in prison,” by The Real Deal’s Rich Bockmann
— “Deals of the Day: May 6,” by Crain’s
