Speaker 1 0:00 Hannah, Hannah Kramer 0:05 welcome to deconstruct a podcast from the real deal. I'm Lila Burke and I'm Hannah Kramer, and we have lots of interesting real estate news for you this week, particularly some conclusions coming out of our New York City forum. But we'll take you through a couple of headlines. First, let's get started. Speaker 1 0:24 All right, Lilah Burke 0:26 we're going to be talking a lot about politics this episode, so wanted to start off with some non politics news. We had a story recently from reporter Keith Larson about Japanese firms in the New York City multifamily and trophy asset markets. Hannah Kramer 0:41 Yeah, tell us what they're investing in, Lilah Burke 0:44 sure. So historically, Japanese firms have been pretty active in trophy assets, buying up big office towers, but now they're entering a lot more into New York City multifamily walk up small buildings. Keith even spoke to one broker who told him that, and this is a little bit wild, but 90% of the buyers that he's working with are from Japan, so it's just been a sort of increase in their interest in that market. Our team did an analysis with Okada and company and found 2.1 billion in total acquisitions, including trophy market assets from Japanese firms since 2024 Hannah Kramer 1:20 so why do Japanese investors like us real estate so much? And why are they looking at multifamily now? Lilah Burke 1:28 Well, there's a couple of reasons. The first is that interest rates in Japan have been very low, so they can borrow money cheaply, outbid American firms and then get a pretty good yield. The second is that there is a sort of tax quirk in Japan that allows investors to depreciate the value of wood frame structures very quickly. So investors have been buying those in the US market as a tax shelter. Everything in real estate is about taxes. It seems that way. Speaking of which, we do Hannah Kramer 2:00 want to keep you up to date on the Pied a Terre tax, which has been proposed here in New York City, Lilah Burke 2:06 and a reminder, this would be a tax on second homes in New York City worth more than $5 million so what's the latest? Hannah Kramer 2:13 What we know now is that the Pied a Terre tax will be in the New York state budget. There's been a little bit of arguing on Thursday in the news about exactly how finished this budget deal is, but by all accounts, the Pied a Terre tax is included. Now we are still light on some of the specifics about it, Lilah Burke 2:31 right? I mean, how would the tax work? Exactly? Hannah Kramer 2:35 That's what we're still trying to figure out. The latest update there is that the Hochul administration has backed off of the idea that they were going to use the property's assessed value to determine which units would have to pay this tax, which makes a lot of sense. We previously reported on the fact that condos co ops in New York City are valued on the assessor's roles in a similar way to multifamily, which means that the value on the Department of Finance's books is much lower than the actual market value of these properties, right? So if Hochul was going to use that to determine which properties to assess, there would be very few that would actually be paying this tax, so it would defeat the purpose, right? Lilah Burke 3:14 So how are they calculating the $5 million value Hannah Kramer 3:17 they've said that they're going to use a model that captures properties worth over $5 million through the use of various mechanisms, such as comparable sales data where applicable. Lilah Burke 3:25 Okay, that sounds complicated. Hannah Kramer 3:28 Yeah. I mean, I think it doesn't really mean anything at this stage, like we just don't know right now how they're going to figure this out. And that is a huge logistical stumbling block. And the logistics are important here, they have to have a way to actually administer this program. And Bess Friedman pointed out at our forum, rightly, that the logistical hurdles were one of the big things that killed this proposal back in 2019 Lilah Burke 3:52 but you know, you and I have talked about before, this tax is pretty politically palatable, right? These are not voters. So do you still think it'll pass. Hannah Kramer 4:00 Yeah, I think that it will pass. The question now is whether it'll actually generate the $500 million that the Hochul administration thinks it will. We'll see. Lilah Burke 4:09 All right. Well, hopefully we'll know soon. Hannah Kramer 4:14 Lila, you have some Mamdani administration news for us too, right? Lilah Burke 4:19 Yes. So on Wednesday, the Mamdani administration announced $31 million in judgments for a Bronx landlord Fordham Fulton Realty, tied to two properties and housing code violations. Those include lack of heat, lack of hot water, not great stuff. Okay, Hannah Kramer 4:35 $31 million that's a lot of money. It seems like that should be a win for the Mamdani administration that has, so, you know, emphasized code violations, right? Speaker 1 4:45 Well, Lilah Burke 4:45 the Mamdani administration is certainly counting it as a win, but there's also a lot of spin here. It's a little bit unclear how much of this $31 million that the city and tenants are really going to see the landlord. Has declared bankruptcy, so the actual amount that they pay will be worked out in bankruptcy court. The Mamdani administration has also said that they are talking to the lender on the properties, Fannie Mae, about selling them to a mission driven Mamdani Administration approved buyer, but I don't really know if Fannie Mae is going to go for that. These were also lawsuits that were started during the Adams administration that Mamdani is taking credit for. I mean, I'm sure their litigation team has been pursuing them in the last four months, but a little unclear there. It's obvious that the Mamdani administration is really trying to figure out a playbook to deal with these. You know, so called bad landlords. But you know, we're just gonna have to see how that plays out in reality. Hannah Kramer 5:44 Yeah, so a much more complicated picture than it first appeared. Let's get into our main story for the day and talk about the big picture of the New York City market that we got from our forum. Let's Lilah Burke 5:56 do it. So we are taping this on Thursday. Yesterday, we had our annual New York City Real Estate forum. Really fun day. Lot of interesting conclusions coming out of it. What was your favorite moment of the event? I mean, I think my favorite moment from the forum was the panel with Bess, Friedman of Brown Harris, Stevens and Pam Liebman of Corcoran. For those of you who were there, it got a little spicy. I don't know. I have a lot of takeaways from it, but it was very fun to watch. Our moderator was just in the middle, like head swiveling back and forth, watching them sort of, you know, trade barbs, which I appreciated that day. Hannah Kramer 6:41 Yeah. I mean, not that we don't come to this event to learn about the real estate industry, but I will say that some of the, you know, most fun and exciting moments are when things get a little heated, which I'll also say my I don't know if it is a favorite moment, but certainly the most exciting moment of the day, a little terrifying at the time was we had a couple of protesters jump up three separate times while related, Jeff Blau was speaking on our first panel of the day. Lilah Burke 7:10 Okay? And Hannah, I was actually out of the room when this was happening, and then I came back, and I was so surprised, but remind me what happened, because I wasn't there. Hannah Kramer 7:17 So our publisher, Amir kranke, was on stage with Jeff Blau, and all of a sudden, somebody you know, pops up in the audience and starts shouting. It actually took us a while to understand what the protest was about. I will say that we don't see a ton of protesters at Real Deal events, but you know, related has done some projects that have certainly brought controversy on them. And I would say I would have expected that we might get some political interest around, you know, things like related work with the Elliott houses in Chelsea the NYCHA buildings that they are helping to redevelop. But this was actually a protest from New York communities for change about the plan to subsidize the Hudson Yards phase two platform, which we just talked about on this podcast last week. Very present. Super I thought it was really interesting that the protest was about tax subsidies. That's like kind of a wonky real estate thing that we don't normally see get a ton of attention. So it's interesting to me that, you know, Money and Finance and the way that the business world works is something that's really coming into the fore for political activists, right for people who are worried about, you know, affordable housing. These things are coming together in, like, a really active way right now. Lilah Burke 8:40 And Hannah, you and I talked about this, that what loomed large over the forum was not, you know, interest rates or other market forces. It was politics and city politics, which, you know, was on display in the Jeff Blau panel. Yeah, it very much Hannah Kramer 8:52 was. And it was interesting, because one of the things that Jeff Blau was kind of saying is that his intention is to sort of rise above politics, right, which I think is a fair thing for an executive to say, and it's a common sort of way of talking, right? He's saying, we invest in New York. We still believe in New York, regardless of protesters and, you know, whatever else is going on. At the same time, it feels kind of impossible to rise above the politics of it all. Right? Now, he's saying Hudson Yards phase two is going to continue to go forward. Hudson Yards phase one also had this platform. They figured out how to finance it and get it built right. So I think that Jeff Blau is absolutely capable of getting phase two executed. But at the same time, it just is so hard to ignore the fact that politics right now are so heated, so frothy and so focused on real estate. Lilah Burke 9:45 And we did have some actual political figures there. You actually moderated a Q and A with Dina Levy, who is mom Danny's Housing Preservation and Development Commissioner. In the morning, we had Leila bozorg, First Deputy Mayor for housing and. And it seems like the Mamdani administration is really sort of doing outreach to the real estate community. It seems like, you know, they kind of wanted to be there. Wanted to be speaking to this audience, right? Hannah Kramer 10:12 Yeah. And I will say I appreciated that both of them were, you know, pretty candid, as much as I think they reasonably could be as a politician, right in front of a real estate audience. And, you know, we reached out to Layla bozorg team to invite her several months ago, Dean Olivia's team came and said, hey, we'd like to, you know, have her on stage. We'd like to talk with you guys. And in my conversation with her, she is clearly a super practical person. I do think she's very well informed about housing issues. Now she has a perspective. She's not somebody from a background in the private sector, right? But at the same time, I do think she has a pretty good understanding of how real estate is built, how it functions, how it's financed. So there is a big opportunity here for these folks in the Mamdani administration to come together with folks in the real estate space, and it was really kind of interesting and encouraging to see that happen. Lilah Burke 11:06 And it seems like there's an interest in collaboration on both sides. But it also seems like, you know, from what Jeff Blau was saying, there's going to be an expiration date on that openness. You know, he was saying, it's early days, you know, let's see. But at some point we will have to see. You know what that collaboration looks like, and I'm curious to know whether it will be a fruitful collaboration or not. Hannah Kramer 11:31 Yeah. And I think right now they're early on in the admin, right? So they have the opportunity to say, hey, we're listening. We're here. We want to hear from you now is the time for that? Right at the same time, there are things that they're saying, Oh, we're listening to you on 480 5x for example. I asked Dena levy about this, and she said, You know, I want to see the numbers like I need a real estate developer to sit down with me and show me why it doesn't work on your balance sheet. And she said that the folks she's spoken to that have complained about how 45x doesn't work have not been able to show her the actual numbers. So I mean, I will say, Lila, you and I hear this all the time from developers about how it doesn't work. If you have those numbers, you should send them to HPD. They want to know right to be fair to them. At the same time, she didn't seem super interested in calling for big changes for 480 5x right now, I mean, we are only two years into an eight year program, but if you don't call for any change for 480 5x Now it doesn't get introduced this session, maybe it gets introduced next session. It's hard to get a bill passed quickly, so we're extending the timeline until there's some sort of relief for 480 5x if indeed it doesn't work, as folks in the real estate community seem to agree, it does not Lilah Burke 12:54 right. And Layla bozorg also sort of said something about this. You know, she was asked by Eric inquisit, our columnist, about, you know, it seems like it's not working. You seem like you want to keep waiting, you know how much longer? And you know, she was like, wait longer. Like it's year two of an eight year program, and we will continue to sit and wait and see how this plays out. So it doesn't look like there's going to be a lot of changes to 45x going forward. Yeah, one thing I also thought was really interesting from that conversation you talked about this in your story, covering the panel after it happened, was a little bit of flexibility on the rent freeze issue. I mean, am I being too optimistic about that when I say it that way? Well, the preliminary vote is tonight, Thursday, so we will have to see. But yes, Leila bozor did sort of acknowledge something that landlord groups have been saying for a while, that the rent guidelines board vote, you know, they control rent increases in rent stabilized apartments, that it's a very blunt tool. There's one number. I mean, there's two numbers for one year leases and two year leases, but there's one number for a diverse housing stock, and it can't really capture the need of these different types of housing. Landlord groups have also perhaps been grappling with the political reality that they're in. They've been calling for split increases, so a rent freeze on newer buildings that are rent stabilized, and an increase on older buildings. A little unclear if that's going to happen. But what bozorg wanted to talk about, instead of split increases, was what the Mamdani administration has focused on, which is expense side relief. So their insurance program, you know, they want to back a, you know, insurance option for rent, stabilize and affordable housing, things like that, which you know, Dina levy also referenced, Hannah Kramer 14:44 yeah, Dina levy was similarly, pretty happy to talk about expense side relief. I think that's something that the administration sees as palatable, right? If landlords are suffering, their costs are going up just like regular people's costs. I think they. Can make their voters understand that, right? And so providing things like that insurance, it does help, I think it would really help folks in the industry without also looking like, you know, some sort of total giveaway to the evil real estate developer, right, right? Lilah Burke 15:17 I mean, the insurance thing, I think would be helpful, from what I've heard from landlord groups. It's also just very small scale. Just very small scale. You know, they are aiming for to cover 100,000 units by 2030 there are almost a million rent stabilized units in the city. So it is pretty small. The other thing about that is that it's not on the backs of tenants. Tenants aren't paying for it, which also makes it, you know, much more politically palatable, but the preliminary vote is, as I said tonight, so by the time you're listening to this, we will have coverage and analysis up of that Hannah Kramer 15:48 at the same time as we were having all of these, I think, really great conversations with folks from the administration in the background, you still have the context of another topic we talked about last Week, which is this pied a Terre tax, this Ken Griffin Mamdani spat that's ongoing, right? And just in the last couple of days, we now have huge developer from Vornado, Steve Roth, come out, and he spent, I think, something like six minutes at the beginning of one of their investor calls talking about how much he hates the phrase tax the rich, comparing it to a racial slur, which I will say is not a good look and a wild, pretty out of touch thing to say, even if you were very strongly against the concept of taxing the rich, Lilah Burke 16:38 It's patently ridiculous. I would say, Hannah Kramer 16:40 yeah, that was a crazy thing for him to have said. But this is still happening, right? And there still are these questions. And it seems like this big gap of the Mamdani administration wants to do things like the Pied a Terre tax, but at the same time wants to incentivize, you know, more building, more investment in New York, more housing. It feels like a huge divide for folks in the real estate industry, I think, Lilah Burke 17:03 right? And you also saw this in the Bess Friedman, Pam Liebman panel, where they both agree on the pieditary tax, I mean, agree about how much they don't like it, Hannah Kramer 17:13 yeah. And it was funny, like, one of the only things in a conversation where they were really heated with each other, talking about private listings, talking about consolidation. I really recommend going and watching the video of this panel on our website if you weren't there. But the only thing that they were super aligned on, they both agreed, pied a Terre tax. Terrible for the industry, terrible for the market. They seemed fairly resigned to it happening, but they hate it. I think everybody in the industry is just going to hate it. They're maybe going to hate it and suffer it, but it's never going to be a popular choice. Lilah Burke 17:50 But we did get some insight right into the Griffin, what he's going to do going forward, right with 350 park Hannah Kramer 17:57 we did. We had a really great office panel. Glenn Weiss from Vornado was on that, and he was pretty clear that demolition has started on this project. You know, they really do appear to be going forward the doubling down on the Miami headquarters that Ken Griffin talked about, it sounds like that was already in process before this whole pied a Terre tax and like personal spat began. So if 350 Park is happening, which it sounds like it is, maybe Mamdani kind of gets away with this, Lilah Burke 18:30 right? And the last thing I'll say, you know, sort of in relation to the Steve Roth comment on the investor call, you know about tax the rich, as bad as even some racial slurs. I mean, my takeaway from that was, I think that there's been sort of a lack of reflection since cuomo's loss about what went wrong here. You know, it does seem like these policies are, you know, fairly popular with the New York electorate. And I think that that's something that real estate might have to think about and grapple with and address in a different way. Hannah Kramer 19:02 Yeah, it'll be interesting to see whether or not they can do that, and at the same time, whether the Mamdani administration can build, you know, a beneficial relationship with the real estate community. I think for folks in the industry right now, it kind of feels like every time they turn around to fix one part of the machine, you know, they dent another Lilah Burke 19:21 right? The relationship is certainly in flux, so it'll be interesting to see where it goes. Hannah Kramer 19:26 We'll be watching that's all we have for you this week. Folks, thanks for listening. Thanks for coming to the forum. If we saw you on site, and if we didn't, you can watch videos of all of the panels live on the real deal.com, and on YouTube. Now, our script today was written by Lila Burke and Hannah Kramer, edited by Kara Ivan press and our in room producers were married to Duke and Usha sukai. Our sound engineer and post producer is Mila Miller. Lilah Burke 19:51 See you next week. Speaker 1 19:52 You. Transcribed by https://otter.ai