The Real Deal New York

Albany’s power structure resets

In wake of primaries, the state’s shifting political winds could spell trouble for the real estate industry

The New York State Capitol in Albany

On the morning after last month’s primary elections, John Banks, president of the real estate industry’s most powerful lobbying group, feigned disinterest.

“It doesn’t matter to us who won last night,” said Banks during a press conference announcing the Real Estate Board of New York’s annual banquet. “We’ll reach out to the new people and begin to engage them in a dialogue.”

Former New York City Comptroller John Liu, who beat out Tony Avella for a Queens seat in the state Senate, did not share REBNY’s enthusiasm. “REBNY is in for a rude awakening,” he said in an email to The Real Deal.

Real estate is used to getting its way in Albany, where a receptive Democratic governor and a pro-business Republican state Senate have ruled for much of the last decade. And the Independent Democratic Conference — the oft-maligned troupe of Democrats that broke away from the mainline party to share power with the GOP — had for the last seven years provided the industry with a final layer of much-needed protection.

But even though REBNY donated generously to IDC (and other industry-friendly) candidates, six of the eight IDC members lost on primary night, including Avella.

Related: Recasting Cuomo

“Between now and November you’re going to see more effort by the real estate community to engage with [remaining] moderate Democrats,” said Ken Fisher, a government affairs attorney with the firm Cozen O’Connor, where he represents real estate clients like SL Green Realty and Pinnacle Group.

The state Legislature is not the only political unknown for the industry. After November’s general election, Letitia James — who the real estate industry backed, but is far from a trusted ally — is very likely to take the reins as the state’s next attorney general. And Gov. Andrew Cuomo, while long a friend to the industry, has political priorities that could make him a less-reliable backer.

Fisher said he believes there will be some effort to ramp up enforcement on the industry and to prevent landlords from increasing rents. But “it’s not known what bills will come out of committee,” he noted.

Together, these changes amount to a blow for the industry, which has billions of dollars tied up on everything from tax breaks to rent regulation.

Many of the progressive newcomers sweeping into Albany ran on platforms that opposed the political machine and big real estate. Not only did many of them pledge not to take any money from real estate, they actively condemned REBNY.

When asked about the differences the industry has with these candidates in a phone interview, Banks kept it light: “I prefer to weigh 180 pounds and have hair, but that doesn’t mean anything.”

Goodbye, vacancy decontrol?

One of the biggest upsets for the real estate world came from Alessandra Biaggi, who took down IDC leader and perennial real estate favorite Jeff Klein by nearly nine percentage points in the Bronx.

Biaggi, a lawyer and women’s rights activist, was front and center in the anti-REBNY movement, posing for photos while holding a sign that read “Beware of REBNY— Real Estate Bullies Plaguing New York.” 

Winners Zellnor Myrie, Robert Jackson and Julia Salazar, a 27-year-old member of the Democratic Socialists of America who defeated eight-term Sen. Martin Dilan, posed for similar photos.

While Dilan was not an IDC member, he received more real estate money than any other senator with the exception of Klein, according to one analysis by the website Gothamist. Salazar crushed him by 15 points, running on a campaign of “universal rent control” in a gentrifying district that stretches from Greenpoint to East New York.

Most of the progressive winners ran on reversing or reforming policies that the real estate industry has aggressively pushed in Albany.

Those candidates have vowed to repeal the state’s Urstadt Law, which keeps New York City from setting stronger protections for tenants and repealing so-called luxury (or vacancy) decontrol, a practice that allows landlords to deregulate rent-stabilized housing. They also backed reforming the way landlords win permanent rent increases by upgrading buildings, and eliminating the so-called “LLC loophole” in campaign finance laws, which allows real estate and other industries to donate virtually limitlessly to political campaigns.

Last year, Matthew Engel of the Community Housing Improvement Program, a landlord group, said if Democrats were successful in dismantling the IDC, the party would quickly start whittling away at all the pro-business protections in place when the rent laws come up for renewal in 2019. “The playbook is there,” he said.

Related: What would Tish James do?

Despite these wins and the blow to the IDC, the industry could be saved if the GOP holds onto its majority — even by a single seat. And there are still two IDC members left. (The conference was technically disbanded in April, but on a practical level had been acting as if it still existed.)

REBNY is not taking anything for granted. The group was characteristically vague late last month when asked about its plans between now and the general election. A spokesperson would only say that outreach efforts are underway.

Meanwhile, REBNY’s independent expenditure committee, Jobs for New York, is sitting on $430,000 that it can spend on ads, including $135,000 that it raised on the day of the primary and the following day.

In addition, REBNY’s political action committee still has $100,000 on hand after the primaries and will likely keep raising more cash.

In addition, two PACs associated with the powerful Rent Stabilization Association landlord group, which spends more on lobbying than any other organization in New York, have a massive $1.9 million left.

Between now and the Nov. 6 general election, expect REBNY and the RSA to deploy money where Republicans are locked in close races.

Recipients could include Long Island Sen. Elaine Phillips, who narrowly won in 2016 and faces a challenge from Democrat Anna Kaplan. So far in this cycle, REBNY and the RSA have given Phillips more than $21,000 combined. Up in the Hudson Valley, meanwhile, Republican Annie Rabbitt is hoping to fend off Democrat Jen Metzger. So far, the PACs have given Rabbitt $31,000.

Targeting Senate seats outside the city has been a key tactical move for the industry. That’s largely because it’s politically easier for elected officials to vote against bills that help rent-stabilized tenants when they don’t have rent-stabilized housing in their districts — it’s also where most of the Republicans are.

Critics of stronger rent regulations argue that the controls jack up residential prices overall by removing supply from the market.

Attorney Stephen Meister, who has represented major landlords like Stellar Management in large rent-regulation cases, characterized luxury decontrol as “pro-tenant.”

“[It’s] not anti-tenant, because it enables an increase in market-rate units,” he said, employing an argument that conservative economists often make. “Supply drives down price … arguments can be made that rent stabilization actually hikes rent overall because it’s not means-tested.”

But pro-regulation activists are hoping a new class of progressive freshman legislators can push changes through as early as next year, when New York’s rent laws are up for renewal.

“A lot of things can be done in 2019 to change rent laws,” said Susan Kang, a political science professor at John Jay College of Criminal Justice who organized with the group NO IDC NY.

“I don’t know what is going to happen … but I would love to see long-term changes to rents based on capital improvements scrapped,” she said. “Once the cost of the upgrade has been paid off, that rent increase should not stay.”

Counting on Cuomo

If this new batch of candidates can get these measures through the Senate — the Democrat-controlled Assembly has long been in favor of these reforms — they will very likely end up on Cuomo’s desk.

The governor has publicly expressed support for rent reform bills but has not come out swinging on the issue.

In an August debate against primary challenger Cynthia Nixon, he made only a passing reference to increasing the threshold at which landlords can decontrol apartments.

Last month, his campaign took it a step further, telling the nonprofit investigative media outfit City Limits that he wants to eliminate vacancy decontrol altogether, a stance that the industry is very much against because it would prevent regulated units from ever flipping to market rate.

But the Senate — which has served as a giant stop sign on the issue — has long given the governor political cover from making that promise a reality.

Still, some real estate players worry about Cuomo’s tack left if the Senate acts on the measures, especially as he reportedly eyes a 2020 run for the White House and looks to burnish his progressive credentials.

They argue that toying with vacancy decontrol could severely depress the market in New York.

Elie Rieder, an equity partner in Fieldstone Properties, a multifamily landlord with rent-stabilized and Section 8 buildings across the city, said, “if your rents are capped but your expenses are not capped [and] rent continues to be pushed down, landlords have a lose-lose situation.”

Should progressive Democrats make any headway on inching their real estate agenda forward, sources say the reaction from the industry will be swift.

“Most of these [proposals] are not taking into account the fact that somebody actually has to have an incentive to build and an incentive to own,” Rieder said.