The thorny real estate issues Cuomo faces upon reelection

A look at the tricky topics the governor will face in his likely second term

Sep.September 01, 2014 07:00 AM
Newmark Holdings’ Jeff Gural

Newmark Holdings’ Jeff Gural

Real estate players have come out in force to back Gov. Andrew Cuomo this election cycle. But there are some important and controversial real estate–related issues that the governor is expected to tackle in the very likely case that he is reelected. And, sources said, that in doing so, he will likely disappoint some of his key industry supporters.

Cuomo, whose office did not respond to requests for comment, will also have to contend with the popularity of a key state figure — his successor as Attorney General, Eric Schneiderman — who’s not always in lockstep with him.

Here’s a rundown of some of the thorniest industry issues on tap for the governor:

Casinos

Cuomo didn’t leave the fate of New York City casinos to chance. Legislation he pushed through last year to legalize full-fledged casinos in the state for the first time also expressly prohibits new gaming venues in the five boroughs until at least 2019. The move was designed to give the proposed casinos upstate a chance to establish a strong customer base.

This fall, the state gaming commission will dole out four new, highly coveted casino licenses in three regions. The state estimates that the new casinos will generate more than $400 million in revenue and help revitalize upstate’s lackluster economy. (Last year, the state collected $877 million from its nine racinos — racing tracks with video-lottery terminals.)

But longtime gaming industry analyst Harold Vogel said that $400 million estimate is unrealistic, given that casinos in several states have seen a “flattening out in revenues.”

Nevertheless, with at least 13 groups statewide vying for the licenses, Cuomo will be disappointing a slew of casino players.

Major casino operators are aggressively pushing for the licenses, and spent more than $11 million in the past two years to influence state and local policymakers, according to the nonprofit New York Public Interest Research Group.

The biggest spender by far is the Malaysian company Genting Group, which is looking to build three upstate casinos. Genting — which developed the Resorts World Casino at Aqueduct Racetrack in Queens and has operated it since it opened in late 2011 — spent $2.5 million on lobbying fees and $984,000 on state and local political contributions since 2012, according to NYPIRG. Meanwhile, Newmark Holdings’ Jeff Gural, who owns casinos through his firm American Racing and Entertainment, spent just over $75,000 on lobbying fees and $700,000 on political contributions in that same period, in his quest to expand his Tiago Downs racino in Nichols, New York, into a full gaming facility.

Casino owners would have been banned from making direct political contributions if a proposed clause prohibiting them from doing so had made its way into the casino expansion legislation. But the clause was nixed at the 11th hour, much to the dismay of good-government groups.

“The gambling deal is a boon for certain wealthy special interests and of dubious value to the public,” Susan Lerner, executive director of Common Cause New York, said in a statement on the organization’s website at the time.

After the bill passed, Cuomo said there were “some things we couldn’t come to terms with.” But the negotiations were held in a closed session, and it’s unclear who pushed to remove the clause.

Action from the AG

Last month, the AG’s Real Estate Finance Bureau published a memo requiring condominium sponsors to hold deposits, down payments and advances in a special escrow account until they deliver a complete apartment to a buyer. The new regulation, according to the memo, is designed to prevent sponsors from using the down payments to pay for construction and to ensure the timely completion of development projects.

The memo is one of a series of reforms coming from Schneiderman, who sources said is now ramping up his local real estate investigations, including against developers, landlords and brokerages.

But Schneiderman’s crusades could sour Cuomo’s relationship with real estate players, who are by far his biggest financial backers.

“For the first time in almost three years, the AG’s office is actively pursuing cases and seeking justice for homeowners,” said real estate attorney Adam Leitman Bailey.

Perhaps most notably, the office prosecuted a case against notorious Queens’ developer Tommy Huang last year. Huang was barred for five years from any involvement in real estate projects statewide. He was also fined $4.8 million after he pled guilty to securities fraud stemming from selling condos at a project in Elmhurst, despite a 1999 ban barring him from doing so.

It’s not just developers that Schneiderman — who is also up for re-election — is targeting. Last month, three small New York City–based brokerages agreed to pay penalties and change their policies to settle an investigation by the AG. The firms, which were representing landlords in the lease-ups of their rental buildings, admitted to ignoring applicants after learning that they would be using Section 8 housing vouchers to help pay the rent.

Schneiderman is also ratcheting up enforcement against landlords who fail to file the city’s Real Property Income and Expense Report, which the city uses to determine a property’s market value for tax-assessment purposes. Some landlords such as Hilton Worldwide, which owns the Hilton New York Hotel, have paid fines in excess of $300,000, according to news reports.

While he’s won praise in liberal circles, Schneiderman isn’t scoring points with the governor. He and Cuomo have clashed publicly several times since they took office, including early this year, when they disputed how to spend a $613 million settlement paid by JPMorgan Chase over its role in the 2008 mortgage crisis. Schneiderman wanted to use the money to prevent avoidable foreclosures, while Cuomo wanted it diverted to the state’s general fund.

“I thought the attorney general was operating on behalf of the state, and here the attorney general’s operating on behalf of the attorney general,” Cuomo told Crain’s editorial board at the time. They eventually agreed to split the bank’s first installment of $163 million.

Renter tax credit

While residential renters don’t pay property taxes, they often bear the brunt of those hikes when their landlords raise rents to help pay for them.

Cuomo proposed a tax credit in January that he said would help address that imbalance. But some observers saw it as a political ploy in anticipation of November’s election.

The proposed credit would have benefited renters making less than $100,000 — about 2.5 million of the state’s 3.3 million renter households, a majority of them in New York City. It was slated to cost the state $200 million in the first year and $400 million in subsequent years.

But in March, the Republicans in the state Senate, along with the five Democrats who typically vote with them, shot down the credit.

While the credit did not make it into this year’s state budget, Cuomo could resurrect it down the road.

Rent-regulated housing

To court voters and the state’s powerful tenant unions, Cuomo has generally sided with tenants over landlords, particularly those in rent-regulated housing, sources said.

“When [George] Pataki was governor, we had someone who was much more of an ally of rent-regulated landlords,” said Jim Wacht, a principal at Lee & Associates, a commercial brokerage that also owns rent-regulated properties.

Pataki, who was governor until 2006, championed so-called “luxury decontrol,” for example. That allowed landlords to start charging market rates for rent-regulated apartments leasing for more than $2,500 — provided that the apartments had become vacant, or that the tenants in them earned more than $200,000 a year for two consecutive years.

Wacht said, however, that Cuomo seems to be pushing things in the other direction.

“The big concern [in the industry] is that he is more concerned with tenant rights,” Wacht said.

In 2012, Cuomo created the state’s Tenant Protection Unit, which advocates for tenants and investigates landlords.

On Cuomo’s watch, income thresholds for rent-regulated housing have also increased. And he’s now going after certain landlord protections, such as the “four-year rule,” which sets a time limit on how far tenants can go back in the books to determine whether there was a rent overcharge. The state, Wacht said, is looking “to find as many loopholes” as possible in the four-year rule.


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