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Photo via Getty Images
Photo via Getty Images
As a native and lifelong resident of New York City, and not as a builder and real estate investor, I am writing against the introduction of Int. No. 1796-2019, or Commercial Rent Stabilization in New York City. The local government needs to think through the consequences of passing the bill and recognize that the passing of commercial rent stabilization will seriously damage the New York City economy and affect the viability of doing business in NYC. Some brief examples of the impact of the bill are:
- Lower tax revenues and building values. As the only city in the country with commercial rental stabilization, real estate buyers will be extremely cautious about investing in New York commercial real estate. Lawyers and financial advisors will warn of the significant risks involved in commercial rent stabilization, and banks will be uncomfortable with financing transactions in NYC. Three immediate economic impacts on NYC will be:
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- Property value will decrease, and as a result property taxes and city taxes will be lower;
- There will be fewer commercial real estate sales in NYC. A decrease in transaction volume equates to fewer transfer taxes levied by NYC and NYS; and
- With lower values and fewer sales transactions, New York will book fewer mortgages, reducing NYC-collected mortgage tax revenues.
- Well-paying jobs will disappear in NYC. With the discontinuation of free market rents for commercial real estate, less commercial space is being built, renovated or upgraded. The demand for construction and planning-related services and the demand for such jobs are reduced and fewer workers are required. In addition, with fewer sales and financing of commercial real estate, there is less demand for brokers, bankers, lawyers, auditors and their assistants who assist with real estate transactions and thus fewer jobs are required again. Not only does fewer jobs cause individual hardship for the people and their families who suffer the loss, but it also means fewer income taxes that are collected by NYC.
- There will be an increase in the number of dilapidated buildings and the quality of our buildings will suffer. In commercial rental negotiations, builders often invest heavily in rental space in order to improve and modernize it. The costs are regularly shared between the landlord and tenant and a tenant’s share can be amortized in the rent (ie the building owner borrows the money to improve the tenant’s rooms). Stabilizing commercial rent will eliminate the profitability of such an arrangement. The falling margins on commercial rents (which are already emerging in the face of rising costs and rising taxes) are not enough to cover the costs of building renovations and improvements. With little to no new construction due to regulated commercial rents and the inability to improve buildings through rental income, there will be no viable means of upgrading and upgrading our buildings and the quality of our physical buildings in the city will suffer; and new buildings are not being built due to the existing commercial rent stabilization.
Most importantly, the peak of all other headwinds against NYC, including the increase in federal taxes, the increase in state and local taxes (including real estate), and the elimination of the SALT deduction, dramatically increases the tax burden on our businesses and residents Has. This is a major reason individuals and businesses are moving to places like Florida, Nashville, TN, and Austin, TX. Our government cannot pass short-sighted laws and give businesses, capital, and our residents one more reason to flee NYC. It will be our collective loss and another region’s gain in the end.
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