Commercial Real Estate Remains Behind Kathy Hochul and Eric Adams — Results or Not

Adams pledged to lower crime by increasing police patrols on city subways and return what he described as the city’s swagger through promoting its restaurants, clubs and entertainment venues.

In her state budget address in February, Hochul proposed new mandates to build 800,000 homes across the state as well as measures making it easier to convert empty offices into residences and develop denser properties in cities. Hochul also pitched extending the deadline to qualify for an expired tax abatement known as 421a if developers can complete their projects by 2030. And she insisted on altering the state’s bail laws to give judges far more discretion to set bail for felonies and misdemeanors.

The city’s business leaders have been impressed with Hochul and Adams’ to-do lists and their openness toward seeking advice from the city’s corporate citizens.

“The mayor and governor have advocated for thoughtful policy proposals to help move New York closer to full recovery following the impact of the COVID-19 pandemic,” James Whelan, Real Estate Board of New York president, said in a statement. “REBNY looks forward to continued work with all public officials to identify and implement a wide range of policy solutions to address our housing crisis and sustain a vibrant business environment.”

Partnership for New York City President Kathy Wylde, whose group represents corporate leaders, said the two issues she hears most about are public safety and affordability.

“People feel insecure from a personal safety standpoint, and they feel financially insecure,” she said. “Employers are concerned that the recruitment of young employees to New York is becoming difficult because of housing and taxes.”

But Hochul and Adams have struggled to get stuff done on both issues — and on others — despite their fervent pledges to do so.

Adams antagonized City Council leaders by proposing in January to slash funding for libraries and schools in his budget before ordering agencies to make additional 4 percent cuts in April for the upcoming fiscal year that begins in July. New Yorkers’ concerns that public safety hasn’t improved quickly enough have eroded Adams’ approval ratings. He has appointed landlord-friendly members to the Rent Guidelines Board, which approved a 3.25 percent hike last year for rent-regulated apartments. And his administration continues to grapple with providing services for thousands of asylum-seeking migrants.

Hochul isn’t having an easier time in Albany. State legislators refused to comply with her bail law changes, causing budget talks to drag on two weeks after the March 31 deadline. Her housing agenda could get carved out of the budget entirely, as suburban legislators staunchly opposed attempts to override local zoning decisions and city lawmakers blocked attempts to remove a cap that limited the density of new residential developments. (Budget negotiations were ongoing as Commercial Observer went to press.)

Real estate leaders aren’t blaming the mayor or the governor for policy shortcomings just yet. But the challenge of enforcing laws governing housing and the environment and working with progressive lawmakers could further hamper Hochul and Adams’ ambitions.

“The policy has been fine. The challenge is implementation, especially with the governor and the legislature,” Jordan Barowitz, principal at Barowitz Advisory and a former Durst Organization executive, said. “There’s been a seismic shift in power from the executive to the legislature, so there’s a bunch of policy resistance to the governor’s budget. The legislature has run amok.”

Hochul’s dilemmas

When Kathy Hochul was sworn into office in August 2021, she touted her collaborative nature and a fresh approach after a decade of Andrew Cuomo’s domineering rule.

The state’s business community believed she could also serve as a bulwark against the legislature’s progressive tilt and fueled her re-election effort the following year. Hochul hauled in nearly $22 million by January 2022 and had more than $46 million by the November election. Real estate owners sunk $4.6 million into her campaign treasury, and several prominent developers, including Arnold Gumowitz, Vornado’s Steve Roth, Related’s Stephen Ross and Jeff Blau, Fisher Brothers’ Winston Fisher, and Tishman Speyer’s Rob Speyer, each gave the former individual maximum of $69,700.

But an unexpectedly tight race against Republican Rep. Lee Zeldin, partly due to ceding the issues of crime and the state’s economic recovery to her opponent, blunted some of Hochul’s momentum. By December, Hochul abandoned her promise to cooperate with lawmakers by nominating a chief judge whom Democratic senators opposed and refusing to withdraw him until the Senate rejected her candidate two months later.

Developers continued to back Hochul as she sought to center housing as her top priority in the state budget and extend the life of the lucrative 421a tax incentive for below-market housing that expired last June. But state legislators entered budget negotiations with more leverage than they have had in more than a decade, especially after Hochul signed a legislative pay raise instead of tying it to her budget bills.

Now Hochul’s housing agenda could be delayed or entirely dismantled by lawmakers who have different priorities.

“We won’t see where real estate winds up with Albany until we see the white smoke coming from Kathy Hochul’s ears,” Ken Fisher, a member of Cozen O’Connor’s business law department, said. “There’s no question that the real estate industry recognizes the shift to the left that is permeating both houses in Albany. You have a very vocal minority that is candid about not believing in private ownership in real estate.”

Progressive legislators have demanded that the budget include expanded protections to tenants facing exorbitant rent hikes or eviction, a measure that Hochul has refused to consider and landlords oppose. Assembly Housing Committee Chairwoman Linda Rosenthal of Manhattan questioned whether Hochul’s housing package truly prioritized the affordability of its units and has sought to alter its requirements.

Legislative leaders proposed swapping incentives for mandates to spur development in the suburbs — a plan that New York University researchers said would not work. Other legislators modified Hochul’s office conversion proposals to require at least 40 percent of new units to be set at below-market-rate levels and tweaked her 421a deadline extension by refusing to offer the incentive to any property owner currently facing litigation, one source said.

As obstacles to Hochul’s housing agenda piled up, Senate Finance Chairwoman Liz Krueger of Manhattan proposed in late March removing the package from the budget and holding a legislative summit to reach consensus on several affordable housing issues before the session ends in June.

As of mid-April, negotiations on housing, bail and everything else were ongoing.

“There’s a frustration that could be resolved hopefully with these budget negotiations,” one real estate industry leader with legislation pending in the budget said. “The governor should be able to outmaneuver them in a way that Cuomo did repeatedly.”

Adams’ frustrations

Like his counterpart in Albany, Eric Adams has contrasted his governing style with an unpopular predecessor and embraced New York’s business community as a partner to navigate the city’s economic recovery.

He made improving public safety the centerpiece of his mayoral campaign and won because voters entrusted a former police captain to rectify the sense of lawlessness that descended on the city during the pandemic.

After declaring New York would no longer be “anti-business,” the business community bear-hugged him back. He raised $19 million for his 2021 mayoral campaign and collected another $850,000 for his re-election bid in the first six months of last year with contributions from REBNY’s Whelan, SL Green’s Stephen Green and Triangle Capital Group’s David Azar.

Adams has since kept close ties to the city’s private sector titans by convening a council of corporate leaders and hosting private dinners where he has urged large employers to stay in the city. His calls for Wall Street companies to force their workers to return to the office earned praise from the city’s commercial real estate sector frustrated with office vacancy rates that have surpassed 16 percent.

“I think the mayor has got the right message and the industry appreciates it. It’s a big change from the last mayor,” Wylde said. “He’s not blaming the rich or the real estate industry, he’s saying these are shared problems to solve.”

Adams anticipated that crime would be his toughest challenge. In his first year, shootings fell but major crimes rose 22 percent, driven by a spike in robberies and burglaries.

The city’s housing crisis has proven even more intractable. A housing supply shortage that developed over decades and caused rents to skyrocket last year forced the mayor to revamp his affordable housing agenda. He has since proposed streamlining bureaucratic rules and simplifying the approval process to speed up the construction of new homes. A near-record level of homelessness compelled Adams to direct police and emergency workers to involuntarily hospitalize mentally ill individuals on the street, in a move that was widely rebuked. And the constant influx of migrants from the southern border has bedeviled the mayor, who has tried to avoid sheltering them and instead proposed transporting them to other parts of the country.

Some of Adams’ proposals have met resistance at the City Council, which is far to the mayor’s left. Large rezoning projects, including Innovation Queens, were held up for months until the local council member extracted concessions from developers for units for low-income residents. And when Adams ordered a third round of budget cuts in April, City Council members warned it would lead the city down a “harmful, destabilizing path.”

The real estate industry remains hopeful over the Adams administration’s handling of two core issues this spring: casino licenses and building emissions regulations. Developers and gaming industry leaders have lobbied Adams and his top aides for months, since the mayor has an influential say on where any casinos might ultimately be sited. Property owners have also sought to influence the city’s rule-making process regulating fines and energy credits for buildings that don’t meet greenhouse gas reduction mandates.

But making the city safe and affordable for New Yorkers and the rest of the world remain the mayor’s top priorities.

“The mayor has been outspoken in that we need a livable city where people feel safe, not just for the residents but for commuters and tourists, and that mission is very important to the industry,” Barowitz said. “A city is not a city unless people come to visit. For the industry, that’s an existential issue.”