Opposing Views on Rent Regulation Light up Real Estate Panel
By Ryan Deffenbaugh
March 21st, 2019
Debate is heating up as the statutes that govern the city’s roughly 1 million rent-regulated apartments near their June expiration date.
The rising temperature could be felt at a panel discussion hosted Thursday in Midtown by real estate investment firm Marcus & Millichap. Progressive politicians provided a picture of the ways a Democratic-controlled state Legislature, along with allies in city government, think they can improve conditions for tenants through reforming the rules. Lawyers and property brokers who work with owners of rent-regulated buildings, meanwhile, countered with warnings that changes to the system could further burden over-regulated landlords.
As described by City Councilman Mark Levine, both the city and the state are facing an epidemic of evictions and a homeless crisis.
“We’re losing ground in a lot of these fights,” Levine told the panel. “If the island of Manhattan becomes a place where only billionaires can afford to live, this is not going to be the New York that all of us have come to love.”
On the other side, proponents of more landlord-friendly regulation reforms said the system is already being abused by people who could afford higher rents, and that many of the proposed changes would hurt landlords and curtail investment.
“The system is broken, the system is dangerous, it is a waste of time and money,” real estate attorney Adam Leitman Bailey said. While he said he does not oppose renewing rent regulation, he thinks the answer to the city’s housing issues is to build more places to live. “Why we have laws that are anti-business, anti-landlord and are restricting development makes no sense to me,” he said.
State Sen. Brian Benjamin, who represents parts of upper Manhattan and Harlem, appeared to stake out more of a middle ground. “I don’t want to create an environment where landlords are not incentivized to invest in properties, I don’t want NYCHA 2.0 to be spread across rent-stabilized apartments,” he said. “But I also don’t want financial incentives for landlords to push people out of their homes.”
Shaun Riney, a broker in Marcus & Millichap’s Brooklyn office, said the landlords he works with are most often concerned with potential changes to the rules governing rent increases following major capital improvements, known as MCIs, as well as individual apartment improvements, or IAIs. MCIs allow landlords to recover the cost of improvements to buildings by permanently increasing rents on apartments. IAIs allow landlords to increase the rents of specific units to pay for certain renovations within the apartment.
“If you remove MCIs and IAIs, there will be a significant drop in property valuations and a significant resignation, capitulation—whatever you want to call it—on maintaining the buildings bought under previous rules,” Riney said.
Real estate attorney [redacted] added that the city’s aging apartment buildings require steady investment, “so you must keep the incentives to the owner for upgrading properties.”
Levine countered that the system is often abused, with landlords charging rent increases over time frames well beyond what is required to recoup the investment.
Asked about the idea that rent increases through MCIs could be abolished—as a bill from Senate Deputy Majority Leader Michael Gianaris proposes—Benjamin was noncommittal. He said lawmakers in Albany will consider a range of options to find a middle ground that “reduces the ability for excesses” while allowing businesses to grow.
Benjamin said it is “extremely unlikely” that rent-regulation legislation will be included within the budget, which is due April 1.” (Rent regulations) will be dealt with by June,” he said, “which means they are probably dealt with in June.”
The event was hosted by Dansker Capital Group at Marcus & Millichap. Andrew Dansker, head of the Marcus & Millichap team, was the moderator and host.