With national and statewide victories, millions in Democratic-heavy New York City found November’s first week to be a jubilant one. But for leaders of the city’s real estate industry, two events were cause for wincing: Republicans in the State Senate, who long espoused policies friendly to landlords, lost control to Democrats; then, the next day, Mayor Michael Bloomberg announced he wanted to raise the industry’s taxes, seeking a 7 percent hike in the property tax rate.
“There’s always good days ahead,” Steven Spinola, president of the Real Estate Board of New York (REBNY), said facetiously.
While developers and landlords’ influence hardly risks disappearing, Albany’s historic leadership change presents a major challenge to the political might of the local real estate industry, as Democrats say the question is not whether new property regulations will be added, but how many and when.
“They probably don’t want us to touch it, but we are going to reform it, we promised we would, and we are going to do that,” Senator Tom Duane said of rent regulation specifically, though he added that landlords may side with Democrats on other real estate policy issues.
The real estate industry has long been one of the state’s and city’s most powerful interests, and for decades had a top ally in the Republican-led State Senate. Under the longtime majority leader, Joe Bruno, the chamber served as a brick wall against Democratic-led bills on issues from rent-regulation changes to tenant protections, issues where landlords felt their interests were threatened.
A glimpse at the value of that industry-Senate alliance can be seen in the campaign contributions for this past two-year electoral cycle. Led by the two main real estate advocacy groups, REBNY and the Rent Stabilization Association (RSA), landlords threw hundreds of thousands, if not millions, of dollars into campaign accounts in a bid to keep the Senate in Republican hands. A sampling of those individuals and firms that gave at least $50,000 to Senate Republicans, according to campaign filings: Steven Roth, chairman of Vornado Realty Trust; Urban Associates, a firm controlled by residential developer Daniel Brodsky; John Catsimatidis, a developer and owner of Gristedes supermarket chain; Donald Trump; and Glenwood Management, one of the city’s largest apartment owners.
“They recognized the importance of a strong real estate industry, and they were a buffer against legislation that was potentially irresponsible,” Gary Jacob, executive vice president of Glenwood Management, said of the Senate Republicans.
Much greater sums of money, of course, are at stake. The State Legislature has final say over a huge array of laws, incentives and regulations that have a significant impact on the real estate industry. Incentives such as the 421-a residential housing tax break, a separate commercial tax break, many tenant protection laws, and even changes to New York City property taxes go through Albany.
Perhaps the greatest fear of many in the industry is a change to the rent-stabilization laws, which allow landlords to charge market-rate rents for apartments if regulated units become vacant—vacancy decontrol—or if the tenant makes over $175,000 annually for two consecutive years in any size apartment of $2,000 or more monthly—known as high-income decontrol.
What exactly the Democrats will change or reverse is unclear.
For years, the Democratic majority in the Assembly and the Democratic minority in the Senate supported without consequence bills that would have vastly expanded protections for tenants and restrictions on landlords. Given the political reality—the Senate Republican leadership was sure to block their passage—Democrats in both chambers never thought the legislation had a chance of becoming law.
Last year, for example, the Assembly passed a bill that almost all Senate Democrats supported that would have blocked landlords’ ability to remove an apartment from rent stabilization when tenants move out, abolishing vacancy decontrol.
Now, Democratic lawmakers say, both houses will likely back away from some of their prior positions when it comes time to pass laws, though it is uncertain to what extent.
REAL ESTATE INDUSTRY representatives say they hope to at least have the ear of the expected Senate majority leader, Malcolm Smith. The Queens Democrat is a former real estate developer and is generally more fiscally conservative than many of his Senate colleagues. While he did not respond to a request for comment, he has previously suggested that real-estate-related legislation will be a balancing act between the industry and tenants.
There does not seem to be any immediate rush on the part of the Democrats to get to tenant legislation when the second session begins in January, as the state’s grim fiscal situation, with a $12 billion deficit projected by the governor, seems likely to consume the attention of lawmakers, at least until the budget is due at the end of March.
Aside from pushing back certain legislative action for months, real estate industry professionals say the straitened economic climate could help them avoid new regulations and restrictions that Democrats might otherwise want to put into effect.
“The real estate industry is an extremely large component of the economic engine of New York City and New York State,” said Frank Ricci, government affairs director at the RSA, the main advocacy organization for landlords that own apartment buildings with rent-stabilized units. “I don’t suspect in these times that the Senate or the Assembly Democrats are going to want to shut that engine down.”
Still, Mr. Ricci said it was far too early to predict what legislative actions Democrats would take. Indeed, Mr. Smith has yet to be anointed majority leader; the committee chairs have yet to be chosen; and it is unclear how much power, if any, will be officially deferred to the majority leader, though Mr. Smith said last week the Democrats would change rules so that “committee chairs have the ability to move legislation forward.”
Tenant advocates are pushing for changes to a host of laws, concerning issues such as vacancy decontrol; rent-regulated Mitchell-Lama buildings; the ability of New York City to set its own rent-regulation laws; and the Rent Guidelines Board, which sets rent increases for rent-stabilized apartments.
“We have a big agenda,” said Mike McKee, treasurer of Tenants PAC, a group that directed its recent efforts wholly at overturning the Republican Senate.
“The Democratic majority gives us a chance to enact legislation—it doesn’t mean it’s going to be a walk in the park,” he said. “We’re up against a very powerful adversary.”
ON THE CITY government level, REBNY and RSA suffered a blow last week in their uphill fight to stave off a property tax hike, as Mayor Bloomberg said he would seek City Council approval to rescind a 7 percent property tax cut. The two organizations had argued strenuously against a tax increase.
The issue goes before the Council at a time when the ability of the real estate industry to affect city legislation is also challenged by a new campaign finance law that seeks to curb influence from lobbyists and any companies with business before the city; this includes property owners seeking land-use changes. Whereas unions and tenant advocacy groups still can donate at existing levels and help with get-out-the-vote efforts—one of their political strengths—those with business before the city are restricted to less than one-tenth of the standard contribution limits.
Mr. Spinola of REBNY acknowledged the law presented an obstacle, but denied that the industry would suffer because of it.
“Nobody has stopped asking us for the same thing; they would just like us to be more creative on how we do it,” Mr. Spinola said of fund-raising efforts. REBNY, he said, is considering putting money in campaigns independent of individual candidates, which are not subject to the same limits but can support or criticize candidates.
“The issue is, we will have every right to express our voice—for or against issues as well as for or against individual candidates, and we will do so,” he said. “I don’t expect to give up any influence.”
With additional reporting by Jimmy Vielkind