How to Hurt New York’s Commercial Property Stock

As a New Yorker, some of the actions taken by the City Council really make me scratch my head, particularly when it comes to initiatives that will clearly force unemployment to climb, tax revenue to decrease, and the deterioration of our commercial properties to accelerate. If the Council’s initiatives are implemented, New Yorkers will suffer significant job losses and further erosion of our tax base. Our deficits are at historical levels, and a main objective should be job creation, not job destruction.

In fact, we need job creation now more than ever. Our local unemployment rate, at 10.8 percent, is already above the national average. We need jobs to help our local economy, and those very jobs will help our commercial real estate market. Unfortunately, the initiating and endorsing of bills that are anti-stimulative and anti-job creation seems to be a growing trend.

One of these horrendous bills was part of the proposed rent-regulation-reform package passed by the New York State Assembly earlier this year, which had the endorsement of the City Council. Among other things, there was a bill proposing the limitation on the benefits of making major capital improvements (MCIs) and individual apartment improvements (IAIs) to multifamily properties.

In the 1970s, the quality of our housing stock deteriorated significantly. Because of rising costs of ownership, which could not be mitigated due to rent regulation, many buildings were abandoned and burned and entire neighborhoods suffered. The Legislature, in response, created a system of rent regulation in which an owner was rewarded with rent increases for making MCIs in a property and for upgrading the quality of a unit via an IAI.

The legislation motivated the private sector to invest in the city’s housing stock. It has been estimated that on an annual basis, these two incentives create approximately $500 million of private investment. These programs have been an enormous success, and the dollar value of investment in housing that they represent far exceeds state and city investment in affordable housing.

Under Bill A01928, rent surcharges for MCIs would be prohibited after the cost of the improvements have been recovered. Therefore, the primary incentives to upgrade building systems in the older rent-regulated housing stock will be eliminated if the Senate passes this bill. Sixty percent of New York’s stabilized housing stock is at least 80 years old, and old buildings require more maintenance, not less. The proposed law creates incentives for owners to do little more than patch and minimally repair building systems that are antiquated and obsolete, rather than replacing them.