Cheap shot. Rhetoric. Boogeyman.
Those were the kind of terms I heard from the industry while researching a column about Gov. Kathy Hochul’s proposal to keep large investors away from single-family rentals in New York.
Davis Mendez, CEO of Sunbelt Homes, called it “without a doubt an attention grab for someone looking to utilize a buzzword everyday Americans hear when it comes to investing into SFR: Wall Street homebuyers.”
He noted that owners of single-family rentals not only provide a valuable service to Americans looking to lease a home, but they also helped the entire housing market recover from the Great Financial Crisis.
Remember when the housing bubble burst and millions of Americans defaulted on their mortgages? Lenders foreclosed and inventory spiked. Investors were the only active buyers during that period, as many ordinary Americans could no longer get a loan. People needed to rent, and communities needed investors to buy zombie homes and make them available.
If not for investors, Mendez said, “We could’ve been looking at blighted neighborhoods all over the country to this day.”
Fast forward a dozen years. The pandemic surge in home prices was powered by retail buyers focused on getting a place to live, not return on investment. “They weren’t afraid to offer over asking prices and waive contingencies,” Mendez said.
“The effects of institutional ownership are minimal,” he noted, “when you think about their strategy to buy at the right price to produce the target return.”
Kathleen Danilchick, CFO of Atlas Real Estate, a property management and brokerage firm in Colorado, was a bit more forgiving of Hochul, calling the governor’s proposal “well intentioned.”
But she said large operators own a negligible fraction of single-family rentals — only 0.1 percent of Nassau County’s, for example, according to John Burns Research and Consulting.
Danilchick panned Hochul’s idea to ban institutional buyers from making an offer until a home has been on the market for 75 days. It makes no sense, she said, “to provide this reduction in market liquidity to all transactions just to prevent a very small amount of institutional ownership.”
Regarding two other elements of the governor’s plan, Danilchick said reducing the deductibility of interest would not deter large operators of single-family rentals. “REITs already have a tax advantaged ownership structure and the very small decrease in the deductibility of interest expense isn’t a factor in the decision to purchase in New York,” she said.
She added that the provisions denying deduction for interest and depreciation would be difficult to audit and enforce. “The properties [by institutional investors] are simply added to pools that secure the debt to their existing facilities which are scattered geographically with a very small portion attributed to NY,” Danilchick said. “It would not even be a blip on their radar.”
It is far from certain that Hochul can get her proposal through the state legislature.
“Time will tell,” said Mendez, “but one thing is for certain: Professional landlords are good for the economy.”
What we’re thinking about: The important rezoning for the Arrow Linen project in Windsor Terrace also rezoned parcels featuring row houses in between where the two 10-story buildings would rise. The in-between parcels, which are not owned by Arrow Linen, are now limited to six stories — as demanded by opponents of the project. The change also subjects them to Mandatory Inclusionary Housing. The owners of those parcels never weighed in. Should they be upset? Send your thoughts to eengquist@therealdeal.com.
A thing we’ve learned: Property insurance premiums for single-family homes with mortgages rose by a record 14 percent last year to an average of $2,290, up 61 percent over five years, according to the ICE Mortgage Monitor Report released Monday. Seattle, Salt Lake City and Los Angeles had the highest increases in 2024. Florida’s percentage increase was among the lowest, but that’s because premiums there were already among the highest. Nationwide, a record 11.4 percent of borrowers switched carriers, up 2 percentage points from 2023.
Elsewhere…
A foreclosure auction for 6623 Fort Hamilton Parkway scheduled for last week was adjourned, according to Greg Corbin of Northgate Real Estate Group, which is handling the sale.
You might remember that the troubled Brooklyn apartment building resulted in the erroneous inclusion of Adam Leitman Bailey on Public Advocate Jumaane Williams’ “worst landlords list.” Bailey is a real estate attorney, not a landlord, and had explained to Williams’ office why it would be wrong to include him on the infamous list.
Corbin was seeking a stalking horse bidder for the 90-year-old, 28-unit Dyker Heights building. The asset also has two retail spaces, is in a safe area, and is across the street from a popular park with tennis and pickleball courts.
Yet Corbin had set the opening bid at only $2 million. Even without the retail, that’s a per-unit price of just $71,000 — not an uncommon number in the rent-stabilized market. (One 29-unit building just sold for $9,800 per unit.) The 2019 rent law severely limits how much rents could be raised to pay for renovations needed at the Dyker Heights property.
Still, some mostly rent-stabilized buildings have been fetching around $150,000 per unit, which could yet happen at 6623 Fort Hamilton Parkway.
Closing time
Residential: The priciest residential sale Tuesday was $10 million for a 3,034-square-foot condominium unit at Fortis Development’s Olympia Dumbo, 60 Front Street in Brooklyn.
Commercial: The most expensive commercial closing of the day was $49.9 million for a 71,500-square-foot, 169-unit Hilton Garden Inn at 121 West 28th Street in Manhattan. Han’s Holding Group sold the property to Raymond Chau.
New to the Market: The highest price for a residential property hitting the market was $12.9 million for a 5,920-square-foot condominium at 433 East 74th Street in Lenox Hill. Gilad Azaria and Lolita Peradze of Douglas Elliman have the listing.
Breaking Ground: The largest new building application filed was for a 40,411-square-foot, 45-unit residential project at 354 East 194th Street in Fordham. Leandro Nils Dickson Architect filed the permit on behalf of Riverdale-based Westorchard Management.
— Matthew Elo