The Rent Guidelines Board Public Testimony Meeting Is Coming – June 13, 2013

A number of NYC associations serving the multifamily building owner community have been offering encouragement for owners to participate in this year’s public testimony hearings in front of the Rent Guidelines Board (RGB). Since I rather enjoy pontificating about the challenges and headaches of building management, particularly in a regulated environment, I figured I’d give it a shot this year. As I understand it, these meetings have been a bit toned down in recent years, but traditionally have been a circus of tenant activists and politicians who think it realistic to ask for 0% rent increases. Typically, owners/landlords are under represented, but I keep hearing that our participation can make a difference. If you are an owner and reading this blog, consider coming to the Emigrant Savings Bank Building at 49-51 Chambers Street (Between Broadway and Centre Street) on June 13. Testimony starts at 10AM and, I believe, may continue all day until 7PM. If you’d like to get on the speakers list, you can call the RGB directly at 212-385-2934, or just drop a line to Courtney Ronner, Director of Communications at RSA,  cronner@rsanyc.org. (I think going through Courtney, as I did, is the easier route.) Click here to download RSA’s RGB Talking Points if you need a little help formulating what you want to say.

The following is my intended talk:

Good morning. My name is Michael Vinocur and I come here as a modest-sized landlord with a fractional interest in a few
buildings in upper Manhattan. The early 20^th century walk-ups we own were decrepit when we first purchased them, with hundreds of HPD violations each. They now are significantly improved buildings, with zero or close to zero violations. We consider ourselves good landlords and good stewards of the housing stock we manage. However, these improvements happened only by digging into our own pockets and forgoing any real return on our investments, as RGB increases have continually lagged our increased operating costs.

Though I appreciate the struggles to pay rent encountered by some of our lower income tenants, many of them are, in fact, well insulated from rent increases though things like the SCRIE and DRIE programs. And I’ve been amazed at how readily those who find themselves in court for non-payment of rent can get “one shot” deals wherein the city will pay their back rent if they get themselves in a jam.

I know there is little sympathy for landlords in this room, but I’m here to appeal to you to consider an increase this year that at least keeps pace with the Price Index of Operating Cost. Though this index understates the real cost of maintaining a building, leaving out things like capital expenses and legal costs related to difficult tenants, it still, as you know, was pegged at 5.9% this year. Thus, I think it fair that your one-year renewal rate should at least be in this ballpark. I’d also encourage you to maintain a minimum dollar increase for apartments under $1000, of which we have quite a few. Subjecting a $600 apartment to a straight percentage increase just doesn’t generate enough dollars to be fair to the landlord.  

From 2007 to 2012, the Rent Guidelines Board one-year renewal increases have totaled 17.5% while my water and sewerage bill has gone up almost 76%. That’s over a 4 to 1 ratio! Heating costs have gone up far more than 17.5% during that time frame. So have material costs for repairs. So have salaries for supers. Insurance premiums are climbing faster than recent RGB guidelines, and this was further exacerbated by tropical storm Sandy. I have one building where my tax bill in recent years went up over 80%, despite less than a 20% increase in my rent revenues.  And don’t forget that in many parts of the city now, taxes are pegged to around 30% of gross rent revenue. So, when you grant us a 5.9% increase, realized that only leaves a little more than 4% after property taxes to cover operating expense increases.

In light of last year’s absurdly lean 2% increase, I ask you to, at a minimum, allow us to keep up with our increased annual expenses. If you want a healthy housing stock in New York City, RGB increases should genuinely keep pace with the real increased cost of properly operating and maintaining our nearly 100-year-old buildings. Thank you. 

A Brief Report on Massey Knakal CRE Investment Summitt 2013

Photo courtesy of GreenPearl Events

First of all, I apologize to my readers for the long gap since my last blog post, but business has been very busy as of late and the blog has fallen by the wayside. Additionally, I’ve been waiting for something worth reporting on. Last week I attended the Massay Knakal CRE Investment Summit t the Hilton. Though I didn’t stick around for the full day, as the focus was more on retail and office than on multifamily, I did listen to the keynote talk given by Bob Knakal, Chairman and Founding Partner of the firm that bears his name. As always, Bob’s talk was filled with data gathered by his firm and offered a solid assessment of the state of the NYC commercial market.

In his overview, Knakal presented data that shows that building turnover has contracted from last year’s uptick and now suggests that the average hold period for a building in New York City is over 40 years. As widely reported, last year showed quite a transactional volume uptick due to anticipated changes in the capital gains tax rate, and thus Knackal is looking or a 20-25% decline in number of deals in 2013. He does, however, see potential for a slight increase in dollar volume due to the recovery in large office building transactions. The feeling is that rents will increase over the next year in all sectors with greatest strength in retail, followed by residential, followed by office. As an example of some of the startling changes in retail, it was reported that rents in Bushwick have doubled in the last nine months.

Knakal outlined five things to look out for in 2013:

1) Supply: Will be healthy this year as evidenced by the recent growth in Massey Knakal net exclusive listings during Q1 from 114 to 168.

2) Demand: Will continue to exceed supply. This is being fueled by:

• High net worth individuals who are chasing yields in this 0% interest rate environment
• Real estate families, who are, always looking to expand their portfolios
• Institutional investors, ripe with cash and again comfortable with the market
• Foreign sector investors, who see NYC as a safe haven to move cash to

Photo courtesy of GreenPearl Events

3) Interest Rates: This has been the rocket fuel that has driven the market. Knakal noted, though, that however artificial these low rates, investors seem not to be properly factoring the risk of what happens when rates do rise. He went on to suggest that rates could rise faster and sooner than people think. However, in a later “Borrower’s Brawl” session, a panel seemed less willing to guess when rates would go up. All felt it would eventually happen, and that it is a major risk, but no one would venture as to timing.

4) Jobs: This is the factor that can have the biggest impact on commercial real estate since it impacts all three segments–office, retail, and residential. Knackal noted that the current job market has the lowest percentage participation since 1979 and that nationally we are still 12 million jobs short of what is needed to “feel good” again. Given the Federal Reserve’s posture towards trying to promote job growth, I would conjecture that rates are safe until we start to see some convincing job growth.

5) Mayoral Race: New York City has been propped up by having had two consecutive pro business Mayors over the course of 5 terms. So, clearly there is a fear of having a less accommodating  more liberal next mayor. Beyond the mayoral race, Knakal pointed to importance of maintaining state and local tax deductibility. His fear is that if this is pulled, it will sink the area, as people choose to work elsewhere in order to avoid the onerous resulting income tax disparity.

Look for my next blog to post within about a week. The NY Building Show is coming up this week and I plan to attend a special CHIP panel entitled, “Buy, Sell or Hold.” I’ll report on what the pundits have to say if this proves an informative panel.