New York City REITs Continue to Size Up Mamdani

Local politics does not often seep into quarterly earnings calls, but the unexpected results of New York’s Democratic primary has put many real estate investment trusts on edge.

During SL Green Realty’s second-quarter earnings report last month, several analysts wanted to know what Chairman and CEO Marc Holliday thought of Zohran Mamdani’s upset victory in the mayoral primary and how “Mamdani-type socialist policies” affected the REIT’s long-term outlook for New York. 

Holliday had hosted a $1 million fundraiser for Mayor Eric Adams’s re-election campaign days before the call and was not about to heap praise on the upstart Queens assemblyman who vanquished several Democratic rivals. But Holliday asserted that the city’s largest office landlord would not sweat another left-wing mayor.

“I’m very confident in our ability, and given our relationships across the broad spectrum of the political ideology, to continue to operate and succeed in whatever political environment that we’re facing,” Holliday said on the call. “But we’ve been pretty clear in what we look for in a mayor in terms of being both pro-business, but also active in social causes and in affordability.”

Hilary Spann, who leads REIT BXP’s New York-area operations, said last week in an interview with Commercial Observer separate from this story that state laws and oversight would hem in parts of Mamdani’s local agenda. Besides, New York will remain New York in terms of demand.

“I think we, and the clients that we do these developments on behalf of, believe that New York will succeed,” Spann said.  

REIT investors have been less diplomatic — and that’s important as these real estate investment vehicles can often be a barometer for how people and institutions feel about investing in New York in general. 

The morning after Mamdani emerged with an eight-point lead over former Gov. Andrew Cuomo in the June 24 primary, shares of New York real estate trusts and banks dipped noticeably. Stock prices for SL Green and Vornado Realty Trust, two of New York’s largest REITs, each plunged 5 percent. Shares of other REITs dropped similarly.

Analysts attributed the shift to concerns over Mamdani’s pledges to raise the corporate tax rate to 11.5 percent and to halt rent increases for rent-stabilized units.

Mamdani has since held a series of private meetings with CEOs in which he laid out his vision for running the city. The Democratic nominee has won over some of them, but many real estate executives remain concerned about his tax plans and are monitoring the race now that Adams, Cuomo and Republican Curtis Sliwa are all actively running.

So far, Mamdani is well positioned to come out ahead. A Zenith Research/Public Progress Solutions poll in July had him leading the five-way field with 50 percent of the vote, with Cuomo a distant second.

Partnership for New York City President and CEO Kathy Wylde, who organized several confabs, said that Mamdani has recognized the role of private sector investment in housing construction and touted property tax reforms as a way to lower costs. Her audience’s reactions have been “all over the map.”

“It’s been everything from, ‘He seems more rational than we thought’ to ‘It’s worse than we thought,’ ” Wylde told CO. “He said his goals in terms of affordability, and he is open to all ideas for how to get them done.”

REITs and their investors have options too. They can work with Mamdani if he were to win, or they can invest in projects elsewhere if they are unsatisfied with the city’s direction.

“If Mamdani wins, expect the REITs to slow-roll any fresh New York City buys for office or multifamily properties,” Lev Mavashev, managing principal of the investment brokerage Alpha Realty, said. “Most will be targeting more pro-business-friendly markets for their acquisitions. Local private investors will still be active, but the REITs will most likely sit it out.”

Political consultant Hank Sheinkopf wondered why REITs would look at New York if Mamdani keeps his campaign promises. 

“He’s in favor of no cops, a bloated budget and increased taxes, but who’s going to pay for it?” Sheinkopf said. “Why invest in a place where it’s more difficult to make money instead of going to a place where it is not?”

New York’s institutional office investors are evaluating several risks to their properties beyond a possible regime change in City Hall.

President Donald Trump’s tariffs on foreign goods such as copper, lumber and steel are driving up the costs of home and office construction, putting some projects at risk. Inflation has stayed stubbornly high, and the Federal Reserve has declined to lower interest rates in the short-term despite White House pressure. 

In New York, more than 20 percent of Manhattan’s offices were vacant this summer, according to a Cushman & Wakefield report, while hybrid work policies haven’t completely gone away. Meanwhile, the effects of federal budget cuts on New York’s economy, declining international tourism in the Trump era, and even artificial intelligence’s threats to the city’s entry-level white-collar jobs are shaping investment trusts’ decisions.

“There’s the old adage that capital goes where it wants and stays where it is welcome, but you are also evaluating risks that extend well beyond Mamdani’s entry and influence,” said Ken Fisher, an attorny in Cozen O’Connor’s business practice. “Whatever concerns they might have of Mamdani’s tax policies or impact on quality of life, there are term limits for a mayor and he’d be facing election in four years, so the amount is more limited than some of the macro trends floating around.”

Mamdani built his campaign on the theme of tackling the city’s rising cost of living.

In addition to hiking taxes and freezing rents, he promised to triple the amount of residential projects built with city funding, raise tens of billions of dollars on the municipal bond market, and expand rent-stabilization rules for all newly built developments. But he has said relatively little about commercial office space and retail policy beyond eliminating fees and regulations for small businesses. (Mamdani’s campaign did not respond to emails requesting comment.)

That hasn’t stopped real estate companies from speculating about what could happen to their investments next year, especially if Mamdani makes dramatic housing and tax changes. 

“The reality is that there’s not any certainty about the future, and that’s what makes investors concerned,” said Michael Johnson, a spokesman for the New York Apartment Association. “Status quo politicians don’t change housing laws dramatically, but the uncertainty around Mamdani is that it’s going to be hard to build for the next four years because of the rent freeze and other regulations.”

Real estate leaders are already bracing for the rent freezes that Mamdani has promised.

One of the few areas where the mayor has power to affect prices is by making appointments to the Rent Guidelines Board, which regulates leases for roughly 1 million of the city’s 2.3 million apartments. After the board approved a 3 percent increase on one-year leases this year, Mamdani reiterated his pledge that there would be no new increase over the next four years, which could constrain building owners squeezed by rising maintenance and insurance costs.

REITs that own these types of units could face more exposure to the market than those that merely own office towers. 

Johnson, whose association represents landlords of rent-stabilized units, predicts that without new subsidies or regulatory reform, investors could leave REITs that have government-subsidized apartments in their portfolios.

“REITs have diversified portfolios and they can find other places to invest, but, if you’re heavily invested in New York City, you’re not going to be able to pull your investment so easily,” he said.

Office conversions could be affected as well, but to a lesser degree. Owners that transform underutilized offices into new homes receive long-term state exemptions on property taxes if 25 percent of the resulting units are leased at below-market rates. But those units are subject to rent-stabilization laws, and Mamdani’s policies could alter the long-term revenue that owners calculate to determine whether a project is worth starting. 

Changes to city regulations could be another concern. Mamdani could increase the enforcement activity of agencies and assert a larger role in the structure of development deals where the city owns the land. 

“New York is already an extraordinarily difficult environment to build, and, if for some reason if you want to make it more difficult, you’re going to get less housing,” said Jordan Barowitz, founder of Barowitz Advisory and a former Durst Organization executive. “No one knows if he’s going to have an anti-business environment or not. That’s the question.”

—with reporting from Isabelle Durso.