Governor Andrew Cuomo’s budget of $ 193 billion has several provisions that could benefit real estate. However, over the next two months it will be decided whether any of them will survive the legislative battle.
New York is facing a $ 15 billion deficit and pressures are on to raise taxes on the rich. However, Cuomo hesitated to do so, but admits it would be necessary without adequate government assistance.
The governor has also proposed legalizing marijuana and one-time revenue boosts like licensing downstate casinos – a move several prominent office landlords have taken.
Progressive lawmakers seem to have other plans, however.
The Senate, in which the Democrats won a veto-safe majority in November, has pushed for more taxes for the rich. The Chamber’s move to the left over the past two election cycles has resulted in policies that favored tenants. Many in the real estate industry are hoping lawmakers will take a more moderate stance as New York tries to recover from the pandemic, but there is little evidence to suggest it.
In a radio interview with WNYC, Senate majority leader Andrea Stewart-Cousins renewed her support for more taxes for high earners – regardless of how much federal aid is given.
“The rich are getting richer, the middle class is shrinking and the poor are getting poorer,” said Stewart-Cousins. “I think we need to have a more progressive tax structure.”
The fear in the real estate industry is that taxing another millionaire could cause some high earners to flee or avoid New York and harm the luxury market.
Cuomo’s budget proposal also includes measures to set rules on commercial evictions, facilitate the conversion of office buildings to residential buildings, facilitate compliance with emission caps and change the taxation of short-term rental companies.
The final budget is due by April 1st. The public hearings begin on January 26th, with each legislature addressing a programmatic area. Housing construction will be discussed at a hearing on February 2nd and economic development and taxes on February 23rd. However, the final budget agreement is being worked out behind the scenes by Cuomo, Stewart-Cousins, and Congregation Speaker Carl Heastie.
Here are the parts of the proposed executive budget that could have the greatest impact on the real estate industry:
1) Prohibition of commercial eviction
Cuomo proposed a ban on commercial evictions, but it includes disclosure requirements for commercial tenants, which some consider a small concession to landlords.
In order to be eligible for eviction protection for non-payment, commercial tenants must provide their landlord with a form explaining financial difficulties. The current eviction ban of the state does not require this.
The ban would last until at least May 1, though some expect it to be renewed then.
A potential bright spot for landlords: Under Cuomo’s rule, commercial tenants would have to indicate how much state, local and federal aid they have received. This can help landlords sue tenants for money – a legal strategy not hampered by the eviction ban. The financial information to prevent the eviction could be evidence if landlords try to collect rent arrears.
2) Office and hotel conversions
In his original state state speech, Cuomo called for the conversion of vacant commercial space into mixed-income apartments. Its proposed budget includes laws that would allow office, hotel, and other commercial property owners to override certain local zoning regulations to encourage residential remodeling.
The bill provides three options for homeowners: they can set aside at least 20 percent of the homes as affordable, create supportive homes, or finance the construction of either type of home elsewhere. The funds could also be used to “prevent homelessness”.
The Department of Housing and Community Renewal of the State is tasked with determining how much funding would be required to meet the off-site housing option and would likely set the affordability levels for the other options. The agency did not respond to requests for more information.
The governor would allow midtown office owners and hotel owners in the outskirts and parts of Manhattan to avoid the local light and air needs for apartments. This does not cover the entire universe of local restrictions on housing, e.g. B. the required distance between two buildings on a single zone plot.
Nevertheless, the industry is largely positive about the proposal.
“With options and flexibility, we have to do that,” said Mitch Korbey, partner and chairman of Herrick Feinstein’s Land Use and Zoning Group.
3) Workaround for the emissions cap
The proposed budget creates an alternative for New York builders to meet the emissions caps. It would allow home builders to buy renewable energy loans outside of the city to offset greenhouse gas emissions from their properties – a priority for the real estate industry since the city passed Local Law 97.
The law of May 2019, which mandates a 40 percent reduction in city-wide greenhouse gas emissions by 2030 and 80 percent by 2050, provides for loans that builders can buy from renewable energy generated in the city. However, practically no such electricity is generated in the five boroughs.
Passing Cuomo’s proposal that loans purchased outside of the city by the end of 2034 would be eligible would be a big win for owners of the large buildings covered by city law.
“Dense and highly efficient buildings like LEED Platinum One Bryant Park can only significantly reduce emissions with renewable energies,” said a spokesman for the Durst Organization. “The proposed state law creates a much-needed avenue for investment in renewable energy.”
4) Tax and Disclosure Changes
Airbnb and other short-term rental companies may need to start collecting state and local taxes, as well as the $ 1.50 nightly room rental fee. In his budget plan, the governor called for “creating a level playing field between traditional participants in the hotel industry such as hotels, motels and B & Bs and the growing rental sector”. According to the Wall Street Journal, the change could raise $ 10 million in fiscal 2022 and $ 18 million in subsequent years.
The proposed budget would also limit the payment of property transfer taxes. It prevents sellers from directly or indirectly transferring this responsibility to the buyer. In cases where taxes are not paid on time, the buyer must bear the costs, but can then take legal action against the seller.
Cuomo also proposed amending a 2019 law requiring certain property owners camouflaged by LLCs to disclose their true identities. The measure stipulates that owners, administrators and representatives of properties with one to four residential units disclose their names in a joint tax return. The governor would exempt real estate mutual funds, mutual funds, and publicly traded companies from the 2019 law.
Cuomo’s budget description includes projects where the total cost of its infrastructure plan is $ 306 billion. It would overhaul transportation systems, roads, bridges and airports, although some details have yet to be disclosed. Real estate industry groups say investing in infrastructure is key to New York’s economic recovery. It also improves property values.
The New York Real Estate Board just reported that housing starts have dropped to their lowest level in ten years.
In 2020, the total area of new buildings in New York City was 28 percent lower than in 2019. The planned construction of residential units decreased by 17 percent to 27,402.
“Governor Cuomo, Senator [Charles] Schumer and President [Joe] Biden recognizes the importance of robust investment in new construction and infrastructure efforts as part of our recovery, ”said James Whelan, President of REBNY, in a press release. “We must all work together to make sure their initiatives can be implemented as soon as possible to get shovels in the ground and create tens of thousands of good jobs for New Yorkers.”
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