Sunday Summary: LLC Bans, Brokers Fees, Congestion Pricing, Oh My!

“Part of the problem is that the worst actors in New York’s real estate market hide behind anonymity, frequently through the use of anonymous shell companies,” said a statement from Emily Gallagher of Brooklyn, who introduced the bill in the Assembly. “When bad actors are allowed to hide, the whole industry takes the blame because the true culprits cannot be identified. In a system of property ownership dependent on clear public title, we should be able to answer the question ‘Who owns what?’ And that was the case for hundreds of years through an inquiry with the county clerk’s office. I’m hoping that this bill is a step towards restoring that important precedent.”

Also on lawmakers’ radar are landlords who rent to illegal pot businesses. City Councilwoman Lynn Schulman of Queens introduced legislation that would fine landlords $5,000 to $10,000 for renting to businesses that sell cannabis without proper licensing.

And City Councilman Chi Ossé introduced the “Fairness in Apartment Rentals Act” which is attempting to pass residential broker fees from prospective tenants onto landlords.

The Real Estate Board of New York was particularly miffed about this last bill. In response to it, the lobbying organization circulated a warning to its members that the proposed law would cut into brokers fees.

“Instead of dealing with the housing crisis, this bill is a wasteful distraction that does far more harm than good,” the REBNY email read. “The legislation wrongly punishes real estate agents for a housing shortage and rising rents they did not create, while falsely claiming it will also improve the home search process for renters.”

Ossé’s office waved this away. “There is no bill to cap brokers fees. We are introducing a bill, however, that would obligate whichever party hired the broker to then pay the fee,” a spokesperson said in an email. “So, if a tenant finds an apartment without the help of a broker and the landlord contracted a broker for their services, the tenant would not be responsible for the fee.”

Speaking of REBNY, a perhaps surprising proposal that they’ve gotten behind in recent years — congestion pricing — seems to be back from the dead. While there’s no final timeline on when congestion pricing will actually take effect, the real estate business has been somewhat supportive of the measure.

Oh, and did we mention that the Rent Guidelines Board voted 5 to 4 to raise rents on rent-stabilized apartments 3 percent on one-year leases and 2.75 percent for the first year and 3.2 percent for the second on two-year leases? Yeah, that also happened.

Whew!

Gimme the bad news first

There are certain contests you just don’t want to win.

While a lot of cities have had unloved, unused office stock for a while now, Los Angeles has the dubious distinction of being named the city where office values declined the steepest over the last year, according to a new report from Commercial Edge.

Sales prices have come down from $412 per square foot to $237 per square foot over this time last year, a 43 percent cut.

What’s even more alarming is that L.A. is second only to Manhattan in best sales volume, having closed $1.01 billion in deals, year-to-date. (Gotham closed $1.32 billion.) The two combined cities constitute more than 20 percent of the office sales closed this year ($11.9 billion nationally by the end of May).

“We anticipate that there will be more distress for office properties in markets with the highest concentration of remote workers,” said the Commercial Edge report. “Nonetheless, as the U.S. office real estate outlook indicates, well-positioned assets in these markets will continue to perform well, but older and poorly located properties will face more challenges.”

Of course, it’s not just office that’s in trouble.

Even seemingly safe assets like multifamily have seen some distress. At The Arie, the luxury rental on the Upper West Side of Manhattan, it looks like A&R Kalimian Realty’s $195.8 million CMBS loan has gone into special servicing.

And even though something like life sciences is still a relatively safe asset (just this week Tishman Speyer scored $750 million in financing for the 900,000-square-foot, mixed-use Harvard Enterprise Research Campus in Boston) there are things to be nervous about.

At least we’re nervous to hear that Jonathan Litt’s Land & Buildings (L&B) investment management firm is betting against the sector.

“Life science was a pandemic ‘winner’ as public and private money flowed into the sector, propping up life science building rents, occupancies and values over the past three years, in our view,” said a white paper released by L&B this week. “With a tighter capital markets backdrop and flexible work policies of life science companies, lab space fundamentals appear set to rapidly deteriorate.”

Wha?

What about the fact that, as the received wisdom goes, lab experiments are the one thing that you can’t do in your bathrobe over Zoom?

Well, L&B examined Placer.ai data at Alexandria Real Estate’s portfolio and found that attendance was down 60 percent from March 2022 to February of this year in their New York City properties. (At other Alexandria properties in Seattle, Boston and San Francisco, attendance was down 59 percent, 56 percent and 52 percent, respectively.)

Any good news?

For all the bellyaching about the problems with converting old office stock to something else, it can be done. And, in fact, we’re seeing it with industrial real estate.

Earlier this year Newmark found that some 15.2 million square feet of offices nationwide had been put to industrial use (the majority of which are being used as new construction storage facilities.)

The money is certainly there for a good industrial project like, say, Howard Industrial Partners’ 90-acre project in the Inland Empire, which just scored $137.8 million from Brookfield (BN) Property Group.

That being said, it’s not as though nobody is trying to convert office to residential. In L.A. we learned this week that Jamison Services is trying to turn a 33-story, 600,000-unit office tower in Downtown L.A. into apartments.

Speaking of big residential projects, it looks like Related Companies and Essence Development are planning on demolishing the 2,005 apartments that comprise Fulton Houses and Elliott-Chelsea Houses in Chelsea and replacing them with 3,500 new mixed-income apartments.

And while we had assumed that flex office was in worse trouble than regular office, it looks like that is turning around, too. New York City saw flex space rates rise 9 percent per desk from the last quarter of 2022 to the first quarter of 2023, and Miami has also been seeing prices edge up.

Sunday reading

If you’re trapped in the house because of the weather this weekend, try to imagine sunny climates and sandy beaches. Like, say, Florida. And what better way to think about Florida than its real estate.

Last week CO ran a cover story interviewing two titans of Florida real estate, JP and Nick Perez of Related Group, who went into their back story, what they’re working on, their feelings about “Succession” and more.

See you next week!