The War for New York: What the Cuomo-de Blasio Feud Means for Real Estate

“There’s a natural conflict between the mayor of New York City and the governor of New York,” said Republican political strategist Susan Del Percio, who worked for Cuomo between 2014 and 2015. “But it shouldn’t get to the point it’s at now where you can’t move forward on basic concepts that you need to move forward on. The feud affects New Yorkers when [the mayor and the governor] aren’t concerned with solving a problem, they’re more concerned with pointing fingers and advancing their positions within the progressive movement.”

Their friendship dates back at least to 1997 when Cuomo became U.S. Department of Housing and Urban Development secretary; he picked de Blasio to oversee billions in federal housing funding for communities throughout New York and New Jersey. In 2002, when Cuomo made an unsuccessful bid for governor, de Blasio publicly supported him and ultimately helped him gracefully exit the race.

It’s hard to peg exactly when their relationship went south, but it seems to have happened sometime in de Blasio’s first year as mayor over funding for a universal pre-kindergarten. The mayor wanted to impose a tax on New Yorkers making more than $500,000 to fully fund pre-K for 50,000 kids. The governor and the Republican-controlled State Senate weren’t having it. Although the state legislature ultimately carved out $300 million for the initiative, the mayor was frustrated that he hadn’t gotten his tax and the governor wasn’t thrilled that the mayor had forced his hand (plus, Cuomo had planned to pay for it with just $100 million statewide).

But whatever the cause, their weapon of choice seems to be real estate.

The New York City Housing Authority became a cudgel this spring, when Cuomo declared a state of emergency to expedite repairs at NYCHA’s 326 developments. In March, he stopped by Forest Houses in the Bronx and declared the conditions there “intolerable” and “disgusting,” lifting up kitchen tiles to expose roaches and examining black mold in bathrooms. He would go on to visit three more public housing projects in less than a month, before signing an executive order on April 2 that declared the state of emergency and required an independent monitor be appointed within 60 days to oversee NYCHA.

A few days later, de Blasio shot back during a press conference at Queensbridge Houses that the governor was using the city’s 400,000 public housing tenants as a “political football,” adding, “They should not be paid attention to only for a few weeks, and then forgotten.” He pointed out that the governor had earmarked $300 million in state funding for NYCHA over the past three years but had disbursed less than half of the money, because it was supposed to go toward “quality-of-life improvements,” like playgrounds and security cameras, and assembly members would have control over spending the money on developments in their districts. The budget specifically forbade that the funding be spent on infrastructure upgrades, to include roof repairs, boiler improvements and plumbing.

“[In 2015] NYCHA had submitted a plan [to Albany] to spend $100 million for roof replacements, which it desperately needed,” said Vic Bach, a housing policy analyst at the Community Service Society of New York. “And instead Cuomo gave $100 million but said it could only be used for quality-of-life improvements. If that’s any indication of his longtime commitment to NYCHA I’ll let it speak for itself.”

Cuomo’s independent monitor—which will be chosen by de Blasio, City Council Speaker Corey Johnson and the president of the NYCHA Citywide Council of Presidents—will have the power to change NYCHA management and mandate repairs to developments. The governor argued that the monitor was necessary to rein in the agency’s out-of-control spending, because “delivering money to NYCHA is like throwing it out the window.” However, the city will have to foot the bill for what could end up being hundreds of millions, or even billions, in repairs to NYCHA buildings, according to the text of the governor’s executive order.

Although the governor pledged an additional $250 million in state cash to NYCHA last month, his financial commitment pales in comparison to the $25 billion the agency needs to fix up properties and infrastructure. The mayor’s administration, on the other hand, claims it has invested $3.7 billion in the city public housing authority over the past four years. Cuomo and de Blasio’s years-long conflict has prevented them from fixing the agency’s fundamentally inefficient project management or from raising the money necessary to make many of NYCHA’s buildings safe and habitable.

“The blame game is really destructive, it’s really wasteful financially, and likely not a whole lot is going to happen,” said Republican political consultant Bill O’Reilly, a partner at November Team. “I think it’s dispiriting to the public.”

O’Reilly theorized that the governor could introduce a new city property tax to raise money for NYCHA. “The governor’s going to torture the mayor with NYCHA,” he said. “The so-called independent monitor is going to find a billion problems, the city is going to have to pay for it, and that money has to come from somewhere. A real estate tax seems like a strong candidate. I would imagine an across-the-board real estate tax—[especially for] single-family homes and co-ops.”

But why is Cuomo suddenly so interested in NYCHA, after several years of ambivalence?

The agency made headlines this past winter for widespread heat outages and failures to conduct lead paint inspections. Tenants sued over the mold, lead paint and heating outages in February, and then last month the federal HUD declared that NYCHA would need HUD approval to withdraw money from its capital fund.

Still, political commentators suspect Cuomo’s newfound attention to public housing is connected to a rumored 2020 presidential run.

Or he might be responding to a more immediate threat: Cynthia Nixon. Since the actress and education activist announced her candidacy in mid-March, the governor has shifted noticeably to the left on a number of issues, including ethics reform, housing policy and NYCHA.

Landlord lawyer Sherwin Belkin, of Belkin Burden Wenig & Goldman, argued that Nixon had definitely pressured the governor into adopting more tenant-friendly stances.

“From legalizing marijuana to plastic bags, the governor has begun tacking left, and that tack tends to be contrary to the interests of the real estate industry,” he said.

Last month, Cuomo backed the repeal of vacancy decontrol, a policy that allows landlords to deregulate rent-stabilized apartments when they become vacant and reach a certain monthly rent threshold (currently $2,733). Landlords and their attorneys are a little alarmed, because the policy allows owners to raise rents dramatically once stabilized tenants move out of a unit. Vacancy decontrol has allowed owners to deregulate more than 150,000 units since 1994, according to Rent Guidelines Board data.

“It would be cataclysmic for the city,” Belkin said. “We could go back to the ‘70s when owners abandoned buildings and were foreclosed on by the city because owners couldn’t carry [the costs] and pay the taxes. It needs to be carefully studied and someone needs to figure out what the ramifications are.”

Real estate interests are concerned about a perfect storm of circumstances that could turn Albany against them. Last month, the governor pushed for vacancy decontrol as part of a package of policies he would enact if the Republican-controlled State Senate flipped to a Democratic majority in November. And just a week prior, Cuomo forced the Independent Democratic Conference—an eight-member group of Democratic senators that caucused with the Republicans—to come back into the Democratic fold.

Belkin worries that if the Democrats seize control of the Senate (they already control the Assembly), they’ll push for policies that would bring deregulated apartments back into stabilization, rolling back years of rent increases.

“Vacancy decontrol has been around since 1993 and we are talking about decades of buildings having been bought and sold predicated on the existence of deregulating apartments,” he said. “Entire financial underpinnings are predicated on that.”

In fact, Nixon is advocating for exactly that kind of radical rent-stabilization policy. Her housing platform, unveiled last week, called for ending vacancy decontrol, re-regulating tens of thousands of formerly stabilized apartments, and eliminating the vacancy bonus (which allows landlords to increase rents 20 percent when a stabilized tenant departs) and preferential rents. She also proposed expanding rent regulation to all buildings with six or more units statewide. Currently rent stabilization only applies to properties with six or more units constructed before 1974 in New York City, Westchester, Rockland and Nassau counties.

“Too many New Yorkers can no longer afford to live in the community, town or even city where they grew up,” she said in a press release last week. “Hundreds of thousands of black and brown families are being pushed out of the neighborhoods that they have called home for generations.” (Nixon’s campaign did not return Commercial Observer’s request for comment, nor did Cuomo’s or de Blasio’s press office.)

But the specter of new rent-regulation rules isn’t the only issue that’s rattled the real estate industry during Cuomo’s tenure. There was also the collapse, in early 2016, of the 421a tax exemption program, which has been a vital financial support for developers building new rental housing in the five boroughs since the state legislature enacted it in 1971. Developers spent more than a year stuck in limbo wondering what would happen to the tax break. Although 421a finally returned in April 2017 with a few new requirements, the 16 months of back and forth between the mayor, the governor and the legislature didn’t inspire confidence among members of the real estate industry.

The expiration of the old 421a law “resulted in a lack of clarity, a lack of sureness about what was going to happen next,” said Mitch Korbey, a real estate lawyer who chairs Herrick Feinstein’s land use group. “Real estate interests need predictability. Developers want to know what’s expected of them before they invest, before they move forward with a rezoning or a project. That uncertainty can give investors pause.”

He added, “There ought to be a dialogue with the mayor when it comes to real estate matters like that that fundamentally affect the city. It shouldn’t be something that’s done in response to a political battle.”

Even though real estate developers, investors and contractors are among Cuomo’s biggest campaign donors, political observers and real estate watchers speculated that he could throw them over in order to prove his progressive bona fides.

“I don’t think his ultimate concern is real estate donors, it’s whether he’s ready for the White House,” O’Reilly said. “Cynthia Nixon could win the primary. His numbers aren’t that great. There are a number of pockets of Dems around the estate that don’t like Cuomo.” (A Quinnipiac poll from earlier this month had Cuomo up 50 to 28 percent against Nixon, but this showed an 8 point decline from a mid-April poll by Sienna College showing a Cuomo lead of 58 to 27 percent, as per CNN.)

Belkin felt that the feud between the mayor and the governor has already been driving real estate policy in a direction that wasn’t favorable to landlords and developers, and Nixon has only magnified the problem.

“They don’t seem to work together to come up with public policy that works for tenants and property owners,” he said of de Blasio and Cuomo. “Particularly in the last several months they seem to keep trying to one-up each other on who can pass more rules and take more positions that can cripple the ability to own and manage property more quickly. The mayor tries to keep the rent-guidelines [increases] at zero or as low as possible. The governor suddenly announces he’s in favor of vacancy decontrol. The council passes all kinds of guidelines about acts that are suddenly harassment. It’s almost like a tit-for-tat of who can be worse for the real estate industry.”

And then there was the public fight over the subways, which largely run on a decaying signal system that dates back to World War II.

Last June, the governor declared a state of emergency for the subways, a procedural decision that suspended the MTA’s cumbersome procurement rules and allowed the agency to purchase equipment and put out repair contracts more quickly than it normally would. The move gave the governor the apparent moral high-ground in the battle over subway funding, even after claiming that he did not control the MTA a week prior. A couple weeks later, MTA Chairman Joe Lhota unveiled an $836 million plan to rescue New York City’s beleaguered subways, which called for the hiring of 2,500 workers and the fast-tracking of repairs on tracks, signals and subway cars.

The question of who would pay for the subway overhaul plan has become a touchstone of the Cuomo-de Blasio feud. Lhota argued at every turn that the city should fund half the plan, and he finally got his wish at the end of this March when the mayor ponied up an additional $418 million in funding for the subways. But the mayor only agreed to pay for half of the subway turnaround effort because the governor inserted a clause in the state budget that required the city to fund the subways. The city, for its part, claims that it’s kicking in $2.1 billion in capital funding for the MTA this year and another $2.5 billion toward the agency’s five-year capital plan, which includes $18 billion for transit projects.

So it came as no surprise when Cuomo said, during an Association for a Better New York Breakfast last month: “The city refused to fund half the plan. We lost eight months before the [subway action] plan could become fully operational, which was a terrible loss and waste of time.”

De Blasio spokesman Eric Phillips shot back in a statement: “Eight months ago, New York City’s money would have gone into the same hole of mismanagement that caused the subway crisis.”

As with rent control and NYCHA, the transportation battle has left the public dealing with the fallout.

“The question of whose MTA it is is not productive,” said Del Percio. “It’s New Yorkers’ MTA. They should be focusing on serving the people instead of focusing on each other. They’re putting their political agendas ahead of the needs of everyday New Yorkers.”