Real estate interests got a butt-kicking in Albany this year — but state legislators might not be done.
The new legislative session starts next month, and it’s an election year. With some incumbents likely to push pro-tenant bills to ward off liberal or socialist challengers, real estate industry insiders still reeling from June’s rent-law overhaul don’t expect the leftward lurch to stop anytime soon.
“It’s scary,” an executive at a large New York City multifamily owner, who requested anonymity, said of the progressive proposals and the political climate.
Add to that a $6.1 billion budget gap that has lawmakers thinking about raising taxes, almost certainly on the people who buy high-end real estate.
“Do you cut spending or do you raise revenue?” Assembly Speaker Carl Heastie told reporters Tuesday. “For us in the Assembly, we always believe in raising revenue.”
Many industry folks believe New Yorkers already pay too much. “Why would anyone want to live here that has means to live somewhere else?” said a senior executive from a major real estate company. “These taxes are insane.”
The June 23 primary election also means that whatever Albany does will likely happen in the first few months so lawmakers have time to return to their districts to campaign. New York state primaries were previously held in September.
“No one wants to be in Albany in June when they have elections,” said Joe Strasburg, president of the Rent Stabilization Association. “Everything is going to be wrapped up before the budget process [which ends April 1]. Then they’ll let people escape.”
Here are five things real estate interests fear might pass in the upcoming session.
Pied-à-terre tax
The real estate industry narrowly escaped a tax on non-primary, high-priced homes earlier this year.
When it appeared likely to pass, developer Will Zeckendorf went to Albany and tapped lobbyist Patrick Jenkins, who has close ties to Speaker Carl Heastie. The two were college roommates and Jenkins later served as Heastie’s chief of staff. As late as 2016 he was still on Heastie’s payroll as a consultant.
Jenkins was the right lobbyist to stop the pied-à-terre levy, which fizzled within two weeks as the industry rallied. Several developers called the sponsor, Manhattan state Sen. Brad Hoylman, to warn of the impact the measure would have on their business. Critics flagged that owner-occupied co-ops would be unfairly taxed by the legislation. And the Citizens Budget Commission — whose trustees include representatives from the Durst Organization, Related, SL Green, Tishman Speyer and Vornado Realty — published a report saying the tax might have counterproductive effects on the market and the economy.
“They basically went to the playbook of how to kill a bill and flipped through every page,” Hoylman said at the time.
Perhaps most importantly, the industry pitched what it considered a more palatable alternative: higher transfer taxes on expensive home purchases. The legislature passed that instead.
But the pied-à-terre tax bill is expected to be reintroduced in 2020 with strengthened language.
“There was some hard lobbying by REBNY against pied-à-terre, and the two different assessment mechanisms in the legislative drafting seemed vulnerable to legal challenge,” said Michael Kink, executive director of the Strong Economy for All Coalition, a labor-community coalition. “We’re going to be making the case that there is still a good reason to impose a New York tax on the international billionaires and multi-billionaires.”
“Flip” tax
Two Brooklyn lawmakers, state Senator Julia Salazar and Assembly member Erik Dilan — whose father she unseated in 2018 — are teaming up to push for a tax on the sale of real estate within 18 months of its purchase.
Real estate investors are pouring into Cypress Hills and East New York to offer homeowners cash buyouts for their single-family homes in the Brooklyn neighborhoods. House-flippers have made quick profits on many Central Brooklyn properties.
Michelle Neugebauer, president of the Cypress Hills Local Development Corporation, said the wave of real estate speculation in that neighborhood has targeted seniors and homeowners in financial distress, encouraging them to cash out or escape debt.
“Usually the home-flippers target people who have been in foreclosure in long-term and senior houses,” Neugebauer said. “Try to get them to sell their property, promising to get them out of trouble or whipping up ‘now the neighborhood has been on the upswing, make a quick buck,’ stuff they’re peddling.”
Neugebauer said she thinks the progressive tilt of Democratic politics will motivate lawmakers to back a bill to limit real estate speculation, regardless of whether their own constituencies are directly affected.
“We want to build on that momentum. We think there’s a real appetite to look at the legislation,” she said. “Some of the co-sponsors don’t even represent homeowners, but they quickly connect the dots that it’s real estate speculation and displacing people.”
Expanded mortgage-recording tax
Manhattan Assemblymember Harvey Epstein is drafting a bill to reshape the state mortgage-recording tax, which is currently 0.5 percent for mortgages of any amount (and 0.8% in the 12 counties serviced by the Metropolitan Transportation Authority).
“A $1 and $100 million mortgage are different animals,” Epstein said, “and they should not be treated in the same way.”
The lawmaker said he expects a more progressive structure to be opposed by luxury developers, but private equity players may benefit.
“Owners of higher-end, larger real estate projects say it’s already hard enough to do business in New York,” Epstein acknowledged. “[The tax] will make it harder to do bank financing. They will have to turn to a separate market, either private equity or a non-traditional lending market.”
According to sources, the bill would also provide a dedicated revenue stream for the New York City Housing Authority. That would help it gain support among many legislators in the city.
“Good cause” eviction
“Good cause” eviction is high on activists’ list for Albany next year after being stripped from the rent-law legislation that landlords otherwise despised. But the measure, which would make evictions much harder to achieve, is expected to face opposition from some upstate lawmakers skeptical of limiting landlords’ options for ousting troublesome tenants.
William Magnarelli, an Assembly member from Syracuse, voiced his opposition to the measure earlier this year. Real estate industry professionals warn that it would have a disastrous effect on their business and deter investment.
Albany state Sen. Neil Breslin, who sponsored the bill to allow municipalities to opt-in to rent stabilization, said his upstate colleagues are more reluctant about the eviction measure.
“I do think ‘good cause’ eviction is a hard sell,” Breslin said. “That’s a ways away here.”
Elimination of property tax breaks
The same coalition of tenant groups that pushed for the changes to the New York rent law in June are also set on eliminating tax exemptions for new development through the state’s Affordable New York program.
The 421a and 485a programs give tax exemptions to developers of residential and mixed-use properties, respectively. The coalition says the programs cost New York billions of dollars and “provide no meaningful affordable housing benefit” because many of the lower-rent units they produce are still too expensive for many New Yorkers.
But an executive at a prominent New York City multifamily firm said the elimination of 421a would have a profound impact on construction.
“They’re saying there’s no benefit from 421a — what about the construction jobs?” the person said. “If all that stops, the city’s done.”
The lesser-known 485a program is used more in Buffalo than in any other city, according to a recent analysis by the Public Accountability Initiative. The group projected the total value of the tax exemption in Buffalo from this year through 2030 at $66.9 million, which could go up in smoke if tenant activists have their way.
Coming soon: The five best things for real estate that could happen in Albany next year.