Real estate veterans are preparing for Eliot Spitzer’s possible election as New York’s next governor, and doing so with campaign contributions. They’re also searching for solid clues of what Spitzer would do to improve the pace of development in Lower Manhattan, initiate tax incentives for rental housing, and improve the economy once in office — all issues the state Attorney General has mentioned in his campaign for governor so far.
One thing is already sure: Spitzer has the backing of the real estate heavies.
“Eliot will make an amazing governor and he will bring business to New York like it has never seen before,” developer Donald Trump told The Real Deal. Trump is one of only a handful of business executives in the private sector to support Spitzer publicly.
But a quick glance through Spitzer’s campaign contributions roster reads like the Who’s Who of Real Estate, reinforcing the notion that the New York real estate industry favors him. And it could be that Spitzer favors the industry — for example, his support for eliminating real estate taxes. But a closer analysis of his work as Attorney General reveals he is not a shoe-in for the old boys ‘ club, hardly surprising given his reformist zeal.
“Eliot has always had a particular understanding and affinity for the real estate industry because it’s in his blood,” said Ryan Toohey, his campaign manager, referring to the fact that Spitzer’s father is developer Bernard Spitzer, who bought his first New York property in 1952. The younger Spitzer garnered $1.3 million in income in 2004 from family real estate holdings, and relatives have so far contributed $336,000 to his campaign. “He has often said that if he wasn’t doing what he is doing now, he’d be in real estate,” said Toohey.
Steven Spinola, president of the Real Estate Board of New York, agreed that Spitzer brings a certain real estate savvy to the political sphere. “There is no question,” he said, “that Eliot Spitzer has an understanding of the problems and the importance of real estate as an industry. ”
These kind words come from the head of an organization that just last October received subpoenas from Spitzer’s office, demanding REBNY turn over records relating to the standardization of commissions and the establishment of a multiple listing service in New York City. Spinola told the New York Times his organization doesn’t have the data that is being requested — it doesn’t even discuss commission rates and, while it has rules and regulations for its member firms to send each other listings, it doesn’t keep track of listings in a centralized database (see related story below).
Howard Rubenstein, the public relations counsel for World Trade Center site developer Larry Silverstein, said he backs Spitzer, not just because he is a friend, but because he thinks Spitzer understands that creating a good economy is good for real estate. “If he acts on that,” Rubenstein said, “real estate people will be in Seventh Heaven.”
Spitzer also enjoys backing, of course, from his father Bernard, whose projects as a developer include the 57-story Corinthian apartment tower on East 38th Street.
“He is going to be a good thing for the entire city and the entire state,” said the elder Spitzer in an interview with The Real Deal.
It’s a delicate balancing act for all of those in real estate with so much to gain and so much to lose: Silverstein’s stance on the trade center redevelopment is under attack from Gov. George Pataki, the Port Authority of New York and New Jersey, and Mayor Michael Bloomberg. A new governor could step in and make things better, or worse, depending upon which side of the equation you’re on.
An industry favorite emerges
Spitzer is the clear favorite among New Yorkers regardless of their occupation, polls show. He held a comfortable lead in a Jan. 19, 2006 Quinnipiac University poll of likely voters, with a 72 percent to 8 percent lead over Democratic challenger Thomas Suozzi and a 62 percent to 19 percent lead against likely Republican nominee William Weld.
But a careful analysis of Spitzer’s actions as state Attorney General should give pause to many real estate veterans who think he’ll be a pushover for the industry. Many of these industry veterans, for one thing, were unwilling to make a public statement about Spitzer’s campaign, even though their names appear in bold print on his campaign contribution list.
“I think the real estate people will welcome him,” said Rubenstein. “I don’t think they have any fear of him, but he is a tough guy, and he can’t be pushed around.”
Jeff Gural, chairman of commercial brokerage Newmark Knight Frank, who contributed $8,000 to the campaign, pooh-poohed the idea that the “Spitzer effect” that altered the face of the insurance and banking industries will affect the real estate industry the same way. “I am happy if he can rid the state of dishonest people,” Gural said. Besides, he added, “our business is somewhat different, and as a result it is not that easy to cook the books.”
Gural also noted that, as attorney general, Spitzer has always handled the administrative issue that affects city real estate most, the filing and approval of condo titles, with efficiency.
Spitzer, though, has a burgeoning list of enemies in activities tangential but essential to real estate, including banks whose mortgage lending practices have come under a microscope as the attorney general investigated rates based on race. These investigations, often relying on state Unfair and Deceptive Acts and Practices (UDAP) statutes, have upset the banking industry.
“In the last five years in particular states, attorneys general have used these ambiguous UDAP statutes to hold businesses hostage by making claims in which they extract unreasonable settlements about practices that were beforehand deemed reasonable,” said an attorney who did not want to be identified because he represents several large banking clients whose records have been subpoenaed by Spitzer’s office. “Spitzer has been very good at it. He took on the Securities and Exchange Commission; he took on the federal government. The only thing that is not outmatched by his record is his ego.”
In fact, Spitzer has wasted no time going after some in the real estate services sector.
Last month, it was widely reported that Spitzer was investigating several title insurance companies to determine whether they had paid millions of dollars in insurance-premium rebates to some large favored customers, including real estate developers.
Spitzer’s office is also trying to determine if the title companies paid referral fees to their agents, mortgage brokers, and attorneys who brought them clients, which is illegal. If he finds any irregularities, Spitzer may be required by law to go after the clients, including developers that participated in the rebates.
And that could be the event that brings individual real estate Humpty Dumpties tumbling down.
But no one has admitted to thinking about that now. “The valid, ethical real estate people,” Rubenstein said, “really want the scams to go away, so I think they would applaud him if he went after borderline scammers.”
Going after real estate fraud
In October 2005, Newsday reported about a new wave of foreclosure and rescue scams that were hitting Nassau and Suffolk counties. Also referred to as equity-stripping scams and deed thefts, the scammers entice homeowners unable to make their loan payments and promise to help them make their payments, while actually placing the title for the property in the scammer’s name, thereby defrauding the homeowner.
Brad Maione, a spokesman for the Attorney General’s office, said Spitzer was investigating hundreds of statewide complaints on these and similar scams. He was unable to comment on the number of complaints or whether they had arisen as a result of the hot real estate market and rising interest rates.
As recently as September 2005, Spitzer reached an agreement with two Westchester County real estate brokers, Patricia Forgione’s Realty Network and Greentree Realty and Relocation Company, for leading minority customers away from primarily white areas in Eastchester as well as in Dobbs Ferry, Irvington, and Hastings-on-Hudson.
In June 2005, Spitzer reached an agreement with A & S Property, a New York City-based landlord, and S & S Equities, its real estate managing agent, for improperly charging tenants rental commissions on its rent-stabilized apartment building at 70 Prospect Park South West in Brooklyn.
Economic development and OCC vs. the AG
Besides targeting individual scammers, Spitzer looks like he would make some big structural changes to government if elected, which could affect real estate in big ways.
In March, Spitzer outlined plans for rebuilding the economic vitality of New York state, at the same time he accused the state’s development strategy of being “fragmented, politically driven, and unaccountable.”
He said the responsible agency, the Empire State Development Corporation, was “too often driven by political considerations rather than economic merit.” The ESDC often uses eminent domain to push projects forward. Some think Spitzer’s position on issues like eminent domain may be a surprise in the offing.
“Eminent domain, which is really critical to the ability of the city and the state to assemble sites, and critical to the development projects, on that matter, I think Spitzer would be sympathetic to planned development and be supportive of that position,” said Kathryn Wylde, CEO of the Partnership for New York City.
Toohey, Spitzer’s campaign manager, though, urged caution on predicting the candidate’s position. “Eliot looks at eminent domain situations,” Toohey said, “as he does most things, on a case-by-case basis rather than from a development point of view.”
Spitzer’s fight with the federal government over jurisdiction issues relating to banks and mortgage lending could also have implications for banks entering real estate brokering — long a contentious issue for the real estate community, who have lobbied to keep banks out of the real estate business.
Spitzer sued the federal Office of the Comptroller of the Currency for preempting the state from regulating interstate banks, specifically regarding consumer protection laws for banks operating in New York. In October, a federal court ruled for the OCC. Spitzer’s lawsuit stemmed from a nationwide lending survey that, according to his office, “confirmed the stark racial disparities in mortgage lending that [this] office has been investigating for six months.” Conducted by the Federal Reserve Board, the survey showed African-Americans far likelier than whites to receive high-cost loans.
In April 2005, Spitzer’s office began investigating the disparities to determine if they were based on race, but after initial cooperation with the investigation, the banks, including Wells Fargo, JP Morgan Chase, Citigroup, and HSBC, filed a lawsuit to halt it, and were joined by the OCC in asserting that only federal authorities can review whether banks have violated state statutes that protect consumers from discrimination in mortgage lending. Spitzer’s office is countersuing, and has been joined in the suit by 34 other states.
“The question I would pose to the OCC,” Spitzer told The Real Deal, “is what are you doing? They jumped to protect the banks from our inquiry, saying ‘Don’t worry, we’ll take care of this.’ But where have they been?”
The issues of state regulation versus federal oversight of interstate banks being decided could have a profound effect on real estate in New York because some of the same banks have made unregulated incursions into brokering. As newly minted brokers, the banks would be operating outside state laws that regulate the New York brokerage business, and they would be spurred on by the OCC’s regulatory inaction, according to some observers.
Searching for incentives
The real estate industry will watch Spitzer’s approach to public funds and incentives for the industry very closely, insiders say.
“Tax incentives [are necessary] in areas of our city that aren’t developing in a really rapid and critical way, parts of the Bronx, for example, and some parts of our poorer neighborhoods,” Rubenstein said. “But our tax incentives should be linked to affordable housing and [the next governor] should really push it to make it work.”
Jeff Levine, principal of Douglaston Development, speaking at The Real Deal’s new development forum in March, said the absence of new rental development in the city has reached near crisis proportions, and said that he was working with the city to create tax-abatement programs to encourage it.
“It would be very nice if the mayor and the [future] governor would be on the same page on housing needs in the city,” Levine said after the forum. “Rental housing is an important first step for people immigrating to this city, and if we don’t have [it], we may preclude the city’s growth.”
Not everyone agrees a future governor should provide tax incentives to specific industries for economic growth. “Economic development should be done with a general tax policy, because we don’t want to be in a position of picking winners and losers,” said Elizabeth Lynam, deputy research director of the Citizen’s Budget Commission.
But others are chomping at the bit for incentives favoring rental development. Still, they bristle at the idea that a Gov. Spitzer could play the tenant side of the equation by protecting rent control. “Rent regulation in the eyes of most housing economists has been deemed overall a negative in terms of housing supply to the community,” Levine said, “even though the state has been the keeper of the flame in rent regulation.”
Spitzer wades into listings debate, goes after REBNY records
Last October, state Attorney General Eliot Spitzer’s office and the federal government subpoenaed the Real Estate Board of New York for “any and all” data and records about the standardization of commissions and the establishment of a multiple listing service in New York City, the New York Times reported.
Spitzer’s office would not comment on the investigation last month, signaling perhaps that it’s still ongoing.
But industry observers have noted that Spitzer’s investigation may well be a big step in the unraveling of the system that controls commissions that brokers charge, the manner in which they advertise and show property, and the universal access to information about available properties.
Representatives for REBNY said at the time of the subpoena that it doesn’t discuss or decide on commission rates at all, and, while it has rules about sharing listings — the so-called 72-hour rule — it doesn’t have a centralized database that compiles listing information. Steven Spinola, president of REBNY, said last month that the organization submitted a response to the Attorney General’s inquiry several months ago, and was still waiting to hear back from Spitzer’s office.
The investigation comes on the heels of a suit in September by the Justice Department against the National Association of Realtors, the largest real estate trade organization in the U.S., for anticompetitive practices in broker listings. The suit challenged a policy that the department said “obstructs real estate brokers who use innovative Internet-based tools to offer better services and lower costs to consumers.”
Broker Lala Wang, who has battled REBNY for the better part of a decade over listings and currently has a lawsuit pending against the trade group, had received Spitzer’s help at one time, though he later withdrew his support.
Several years ago, Wang, who attempted to use her listing service to advertise apartments for a flat fee of $149, lost her broker’s license and entered into a long, prolonged battle with the New York Department of State on a variety of technical issues including whether she could operate her open marketplace without an Apartment Information Vendor license. Wang appealed to Spitzer’s office for assistance — which initially she received.
But, after some back and forth with the state agency, Spitzer withdrew his support from her case in an apparent conflict of interest between his duty to protect state law, and a duty to protect consumer interests.
Wang later filed a lawsuit against REBNY at the end of 2004 for allegedly breaking federal and state antitrust laws, a case that is still unresolved. The suit revolves around Wang’s claims that her company was being unfairly excluded from accessing REBNY listings.
Industry wonders what a Governor Spitzer would do for Downtown
If Eliot Spitzer wins the New York governor’s race, he would have to resolve key Downtown development issues at the World Trade Center site, including a stalled memorial, a delayed schedule, a disappointed mayor, and the alienation of significant players on the Lower Manhattan Development Corporation.
“The only thing I will say about Downtown redevelopment is that it is multiple years later and the reason we are where we are, with the absence of a coherent blueprint, is the failed leadership at every level, with the people involved,” Spitzer told The Real Deal.
Last month, Spitzer also questioned the economic viability of building the Freedom Tower and faulted Gov. George Pataki for a failure of leadership in the rebuilding effort, implicitly sticking up for World Trade Center site developer Larry Silverstein.
“I think it’s too bad that people are pointing the finger at one individual and saying he’s at fault — if anybody’s responsible, it’s the governor,” Spitzer told the New York Times at the end of March.
Donald Trump, who’s contributed financially to Spitzer’s campaign, says he’s sure Spitzer is the right person to bring the Lower Manhattan projects back on track. “I think he will bring the city and the state together for the first time in a long time,” he told The Real Deal. “A lot of things will be on track that haven’t been.”
But Spitzer’s campaign has been slow to release a detailed road map on how exactly Spitzer plans to untangle the Lower Manhattan morass.
“At the appropriate moment, Eliot will lay out a detailed plan for Downtown redevelopment with due consideration paid to the need to move quickly and to the economic viability of the project,” said Ryan Toohey, Spitzer’s campaign manager.
Spitzer’s last most public link to the Lower Manhattan project was the thorough airing of dirty laundry between LMDC chairman John Whitehead and Spitzer. Whitehead criticized Spitzer in a Wall Street Journal editorial for publicly humiliating his friend Hank Greenberg, chairman of insurance giant AIG, which ended up paying millions of dollars in fines for fixing insurance rates.
According to Whitehead, Spitzer responded to the editorial by threatening him over the phone and declaring an “open war” with him. Those words were then given editorial page treatment by the Journal, creating a war of words flung back and forth through the media.
Spitzer, others say, might speed the pace of rebuilding by being more politically neutral in his approach to Lower Manhattan. “Based on what I have seen him do he would be forceful on those issues [such as Lower Manhattan redevelopment],” said Kathryn Wylde, president and CEO of the Partnership for New York City. “The real estate industry says they are prepared to take economic risks, and to take political risks are difficult, and I think Spitzer is not the kind of elected official who thinks he has to politicize everything.”
This neutrality may be essential to sorting out what gets built at the World Trade Center site. “This is a major juggling act to keep people happy,” said Real Estate Board of New York president Steven Spinola, “and to keep people moving forward.”
In a recent interview with the Times, Spitzer hinted that he sympathized with Mayor Michael Bloomberg’s frustration at the pace and priorities of Downtown redevelopment, including the iconic Freedom Tower, which Pataki strongly supports.
“I certainly think that there’s a very serious question about the economic viability of the Freedom Tower,” Spitzer told the newspaper. “The prospect that the Freedom Tower would be built and would sit there vacant — as essentially a white elephant — that would sap the entire cash available to build the other buildings, is something that is very problematic.” He stopped short of backing Bloomberg’s call for substantial residential redevelopment, though.