Brutal brokerage realities
Multifamily sales and rental agents are feeling the heat from New York’s new rent laws and quickly altering their strategies
With New York’s new rent laws jolting the real estate business, commercial and residential brokers that focus heavily on multifamily properties are feeling the pressure and quickly changing tactics.
Two brokers, speaking on the condition of anonymity, singled out Rosewood Realty Group and Ariel Property Advisors as firms that could be hit especially hard by the host of new tenant protections — as both have been entrenched in areas with a heavy supply of rent-stabilized buildings such as the Bronx and Upper Manhattan.
Aaron Jungreis, Rosewood’s co-founder, said his company is already shifting its focus to include more New York office buildings, land deals and properties in New Jersey to keep business moving.
And while that shift comes with a learning curve, it’s nothing Rosewood can’t handle, he added.
“It’s not rocket science. You’re still selling,” Jungreis said. “The writing was on the wall six months ago, so it’s something I started to look at then.”
Ariel’s Shimon Shkury downplayed his firm’s reliance on multifamily properties, describing its portfolio as “very diverse.”
“The majority of our inventory today is development,” Shkury said. “It’s not like we always focused only on multifamily as opposed to others. In that sense, we’re good.”
James Nelson of Avison Young said that while it might make sense for some brokerages to shift gears in the wake of the new rent laws, doing so is often easier said than done.
“I think it’s hard to pivot like that,” he said, adding that it takes time to learn the ins and outs of new asset classes and locations. “If you have a career in multifamily buildings, to just jump in and say, ‘I’m going to do office or industrial today,’ I think that could be tough.”
Though it remains to be seen whether the sales market picks up as several owners look to shed rent-stabilized assets, JLL’s Bob Knakal said, for now, many firms don’t have much of an option.
“It’s not just the smaller brokerages,” he said. “Anybody that primarily did multifamily sales, they’re going to have to get into other types of properties because the volume of sales in that space is going to be muted for the foreseeable future.”
Commercial brokers say that, in addition to creating an ambiguous sales market, the new laws will do little to increase affordability and could drive down the quality of the city’s housing stock.
Marcus & Millichap’s Peter Von Der Ahe said the restrictions on Major Capital and Individual Apartment Improvements could put an end to the longstanding trend of revitalizing New York neighborhoods, with landlords having fewer incentives to renovate their buildings.
“There are many things that go into that, but one of the foundational aspects of it is the quality of the housing,” he said. “You can’t have a neighborhood renaissance and have bad housing.”
Former mayoral candidate Paul Massey — who launched his new brokerage B6 Real Estate Advisors last July — also predicted that changes to the MCI and IAI programs would prevent many of New York’s older buildings from getting the upgrades they need.
Additionally, the city may see its budget shrink, given that a chunk of its revenue comes from real estate taxes, and property assessments could decrease under the new laws, Massey noted.
“The city set itself up for budget reductions,” he said.
Since older buildings in need of MCI or IAI work represent only about 20 percent of his firm’s business, though, B6 won’t need to change its strategy much based on the new laws, according to Massey.
“A big chunk of what we do are free-market, mixed-use buildings,” he said, adding that while those in the rent-stabilized businesses “will likely take a pause to evaluate and adjust … the rest of the world goes on.”
No more deposit security
Residential brokerage heads zeroed in on the new rule capping security deposits at one month’s rent, which some say will severely limit the number of tenants who can qualify for apartments.
That change is likely to impact rental firms across the board as they grapple with smaller client pools, according to industry players.
“I don’t think that we’ll go out of business, but the incomes of my agents will go down,” said City Connections Realty’s David Schlamm. “Will the profit for the company go down? Yeah, I think it will.”
Bold New York’s Jordan Sachs echoed that sentiment but said that his brokerage doesn’t plan to make any big adjustments. “We’re not changing the way we’re going to do business,” Sachs said. “We just need to reformat a big part of the application process.”
Some brokerage execs say that tenants applying for apartments could also take a hit under the state’s new security deposit limits. Schlamm said the rule would harm “lower-income people who don’t have rich parents,” while Bond Real Estate’s Douglas Wagner cited foreign clients with no U.S. credit history and recent college graduates as possible unintended victims of the new rule.
People in both groups, who often move to the city to start well-paid jobs, had been able to put down large deposits without proof of income or credit checks. But now, according to Wagner, landlords may steer clear of them.
“The additional security deposit has been a great solution for landlords to manage their risk,” he said.
Sachs argued that the new law would force more tenants to rely on other people or companies to guarantee their leases — a shift that could cost them more than a steeper security deposit. “It’s one thing to give three months’ security knowing you’re going to get it back,” he said. “It’s another thing having to pay a fee to have someone guarantee the lease.”
But Citi Habitats’ Gary Malin said he was less concerned about losing business, noting that some landlords may just loosen their standards under the new rules, which could lead to more eligible tenants.
At the same time, Malin said he still sees the new restriction as a bad decision.
“I think that there are lots of reasons why, at times, people need to have greater than one month’s security,” he said. “And because that was a tool available to many people, owners were able to bring certain people into the building with that increased risk.”