Bisnow | October 8, 2019
By Julia Troy
In June, state legislators passed a slate of rent regulation laws that put the New York City real estate industry in a state of shock. While lawmakers and tenants’ rights advocates hailed the legislation as historic, real estate professionals described it as “troubling” and “irresponsible,” and worried that it would cause investors to abandon the NYC market.
Michael Weiser, president of GFI Realty Services, believes that the new regulations hold the potential to make a dramatic impact on the NYC real estate investment market, but he remains optimistic about the future.
“The challenges for owners are real but not insurmountable,” Weiser said. “We’ve weathered economic downturns, recessions and difficult political climates, as well as past changes to rent regulation laws, and we’re ready to weather this.”
GFI has been operating in NYC for more than 30 years, and Weiser is confident that his team has the experience and expertise needed to help clients navigate the new realities for investors. Bisnow spoke with him about what these new regulations mean for the city and the types of assets investors should be setting their sights on now.
Bisnow: Why are real estate professionals panicking over the new rent regulation laws?
Weiser: If you rewind the clock 45 years or so, NYC rental housing was in bad shape. Buildings were in disrepair, unsafe and unlivable. Through a variety of regulations, from rent stabilization to major capital and individual apartment improvement programs as well as tax abatements, NYC created a framework that incentivized landlords and private investors to fix the problems and improve buildings, while still providing protection and affordability for tenants. The results speak for themselves. NYC units in private hands are amongst the best quality in the city, especially for their age. The new laws that were just passed, however, have created a situation where landlords are no longer incentivized to maintain and improve their properties by capping the rate they can increase rents based on tenant improvements at 2%. While some may argue that landlords will always maintain their assets to protect their investment, if the value of your investment has gone down and has fundamentally changed, you don’t necessarily throw good money after bad. If the cost to renovate a unit and bring the physical condition to market standards results in landlords generating zero income or actually losing money on the rental, it becomes cheaper to leave the unit vacant. I am not saying that the multifamily market is gone forever but it has substantially changed. As a result, we all need to adjust how we do business in this new climate.
Bisnow: Do you believe that concern over the new laws is overblown?
Weiser: I don’t. In order for a city to function and maintain a robust economy, quality housing must be available for people on all levels of the economic totem pole. With the new system, the average NYC renter who can’t afford rents of $4,500 or more per month in a luxury building and is not blessed with a low-cost, rent-regulated apartment will have a much harder time finding a nicely renovated unit in an older building. If these residents can’t get a good place to live at a decent price, we start to lose the labor force and the NYC economy will lose its edge.
Bisnow: What types of assets do you think investors should be focused on now?
Weiser: Despite the concerns I expressed, the NYC multifamily market is still a smart choice for investors who are focused on stable, long-term returns. Also, NYC still has many additional real estate investment opportunities in other asset classes including mixed-use, office, industrial, retail and general commercial properties. These assets are probably best positioned to weather the storm. Investing outside of NYC is of course also an option, and at GFI we are able to present our clients with a diverse set of investment opportunities, both in the city and out of state.
Bisnow: How can you help investors navigate these new, uncertain waters?
Weiser: At GFI, we have decades of market experience that spans multiple cycles, but as I mentioned, our knowledge covers every asset class and extends to many other states and markets. We know the challenges of doing business today, but we are in for the long haul, the way we have been for decades. We can help guide investors that have never developed before by teaming them up with experienced developers and general contractors as well as operating and equity partners who can bridge their experience gap and introduce them to new markets.