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The Real Estate Philosopher


Commercial Rent Stabilization is Possibly About to Hit NYC – If You Are in NYC Real Estate, You Need to Read This

Sep 9, 2021

Here we go again with Commercial Rent Stabilization being threatened in NYC.   Just so you don’t think I am messing around, the first sentence of the proposed statute says:
 
“This chapter applies to all commercial spaces with a lease or rental agreement that expires after July 1, 2020, whether or not such lease or rental agreement was in effect on that date.”
 
And yes, there will be an Administering Agency, a Rental Guidelines Board, penalties for harassing tenants, and all the other accoutrements of the government regulating an industry. 
 
The first step is to register your building with the Administering Agency with various information about your building and pay a (small) fee every year for each space to defray costs. 
 
You might pretend to have a sigh of relief since the act “only” applies to retail spaces under 10,000 square feet, manufacturing establishments of less than 25,000 square feet, and professional offices or other offices of 10,000 square feet or less.  But you then have to think about whether your – bigger – building might encompass these kinds of tenancies – how might this apply to sublets and licenses – and it’s anyone’s guess how it might apply to co-working and similar occupancy relationships.  And the foregoing not to mention whether this is the camel’s nose under the tent for further regulation.
 
Also, there is an awkwardly worded paragraph at the end which (seems?) to say that not only does this apply to future rents but I think also existing rents can be reduced as well if there are “extraordinary circumstances” which has resulted in a rent which is “substantially different from the rents generally prevailing in the same area for substantially similar commercial spaces.”  So this might hit your building’s cash flow right now even before you get a new tenant.
 
Also – you might think it might carve out new construction, but it does not. 
 
This is not someone else’s problem – if you are in NYC real estate, I am sorry to say that it is your problem.
 
Here is the proposed statute: Int. No. 1796, and here is a commercial rent stabilization summary by my partner YuhTyng Patka.
 
I wrote two articles on this subject in the past couple of years – since a close to an identical statute was proposed in the past.  Here are those articles.  I just read them, and I don’t have to change a word:

Notably, this kind of regulation purports to hurt the allegedly wealthy real estate owners – and yes it will do that in the short run – but the irony is that those parties will lick their wounds and invest elsewhere (i.e. not in NYC).  And the fallout – described in my articles -- will land entirely on those less fortunate in NYC.  One would think this lesson would have been learned by now. 
 
As of now, we understand that this proposed statute is being sponsored by 16 of the 51 councilmembers in the City.  That is not an insignificant amount of support, so if you are a NYC real estate player – pretty much anywhere in the capital stacks -- this is a time you should do your best to act, or this could really happen.  The craziness of COVID – the presence of a lame-duck mayor – the existence of political parties who unfairly target the real estate industry – and all the other political warfare present in our city – could conspire to make this happen.
 
What can you do?
 
As my prior article suggests:

Contact the Council Members.  And I urge you not to be angry or emotional.  Point out intellectually the downside of these actions. In this vein, I urge you to stress not that we real estate people will lose money, but instead, that capital will flee NYC – that the values of buildings will drop (dramatically like 30% we just saw in multifamily), thereby crushing the tax base – destroying jobs (as who would build a new rent-regulated building) – and so much more.
I don’t have union contacts.  If you do, then let the unions know that this is going to be a disaster for them.
If you have contacts in the media, see if you can get them to write some articles on this subject.  Legislation of this nature should not proceed quietly in the cover of night.  If the City Council is going this way, they should do it out in the open.  I believe that the multifamily disaster of two years ago occurred partially because it was rammed through super-fast and under the radar.  Indeed I think no one really believed it was real till it was really real. 
Attend the hearing set for September 17th at 10AM at Council Chambers, City Hall.

To conclude – I love NYC, and this would be very bad for NYC – hence I put forth that it is in all of our best interests to do something to stop this before it is too late.
 
Bruce Stachenfeld aka The Real Estate Philosopher™

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As the Chairman of Duval & Stachenfeld – a law firm in mid-town NYC known as The Pure Play in Real Estate Law – I am inviting you to join The Real Estate Philosopher™. This will consist of my thoughts and also thoughts of friends and colleagues.

It will not be published in any traditional media – it will go only to friends of our firm. The purpose here is very simple – to put forth thoughts in the real estate world that are different, provocative, and challenging of accepted wisdom. Hopefully, nothing said here will be mainstream thinking.

You may be wondering how I am qualified to write on these topics since I am “just” a lawyer. However, I have an unusual place in the real estate world. As the Chairman of The Pure Play in Real Estate Law (one of the largest real estate law practices in NYC), I interact with an incredible number of real estate players. This ranges from small real estate shops with nothing but a gleam in their eyes, to some of the largest real estate institutions in the world, and everything in between. This gives me a unique and global perspective and allows me to act as an amateur philosopher in the real estate world. This has always been my hobby and it is what I love doing.

Regards,

Bruce Stachenfeld
a.k.a The Real Estate Philosopher™

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