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The Real Estate Philosopher


Dear City Council of New York City - Please do not Impose Commercial Rent Control on New York City

Nov 6, 2018

I ask you nicely.
 
Please do not impose commercial rent control.
 
I love New York City and this will really hurt us. 
 
I appreciate that those in favor really wish to do something “good”.
 
But with all my heart, soul and intellect I ask you to reconsider.
 
The free market certainly can be harsh – and indeed it is certainly the worst form of regulation – except for all the others….
 
Commercial rent regulation will be a very bad thing. 
 
I will not rehash the reasons as everyone knows both sides of the debate.
 
However, I will say this for sure that within a few years landlords and tenants will hate each other – courts will be involved – people will be suing each other and we lawyers will clean up – prices for property will drop (a lot) – and investors will seek greener pastures to invest in.
 
All of this has to be weighed against the expected good that is hoped for. 
 
I have a broad swath of clients throughout all levels of the capital stack – and an even broader array of friends of the firm – both institutional and non-institutional in nature.  I am as plugged into the real estate world as much as anyone.   
 
My clients and my friends are good people; however, they are not foolish.  They will seek profitable investments for themselves, for their families, for their investors, for their partners and for their constituencies.
 
Certainly they will think twice about investing in a market where they don’t get the benefit of the upside in return for taking the burden of the downside.
 
Many investors will flee the market and fewer will come in.  Certainly if anyone asks my opinion I will suggest that there is not a logic to investing in this type of real estate product, except a very discounted price. 
 
This will not be “good” for New York City.
 
And this is not really that debatable either.  It is just what will happen.  Investment capital will flee, prices will drop, tax bases will fall, and the long-term competitiveness of New York City will be impaired. 

Throwing in a little math – which I admit is super rough and is not scientific – I just read that the Commercial Observer says that the total value of NYC real estate is $1.9T.  If retail is 15% of that (my rough guess), it means that retail real estate in NYC is worth a little less than $300B.  If retail rent control is enacted I would expect retail would suffer a drop in value of 15%.  That is a drop of $45B of value.  I understand that NYC real estate taxes are a bit of a black box, but after asking around (and getting all sorts of answers) I suspect that 1.5% of fair market value a year is a reasonable rough guess.  This would mean that NYC will lose about $675M in taxes every year.  And of course other taxpayers would need to make up that loss.  Considering the SALT and other hits to our tax burden we were just hit with, I would think we would want to be pretty sure that commercial rent control on retail is really “good” before doing it. 
 
Oh and one last thing.  Once it is “done” it can “never” be undone – ever.  That is because those who benefit from it will fight tooth and nail doing away with it largely because they will become dependent on the rent breaks.  The Council can always decide to do this someday in the future – but it cannot do it now, realize it was a mistake and undo it later.  This decision is irrevocable.
 
So please – I ask you nicely - don’t do this.  It will hurt New York City, which I really do love.   
 
I note that these are solely my personal views as The Real Estate Philosopher and do not reflect the views of my law firm Duval & Stachenfeld LLP.
 
Thank you kindly,
 
Bruce Stachenfeld

 

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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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