What will New York real estate look like next year?

By David W. Chen and Stephanos Chen

One in five New York City tenants did not pay rent in September, by one estimate, and there is growing concern of “an eviction tsunami.”

As apartment vacancies climb, sale prices and rents are falling, but nowhere near the magnitude needed to compensate for scarce affordable housing options.

And while the flight of affluent residents to the suburbs appears to be overstated, major companies are downsizing and fewer people are commuting, setting the stage for a new reckoning over personal and business priorities.

Real estate is everyone’s business in New York City. The industry generated nearly $32 billion in taxes last year, 53% of the city’s tax revenue, and it employed more than 275,000 people, according to the Real Estate Board of New York and labor statistics. An inveterate source of obsession, envy and frustration, real estate colors the aspirations and agendas of countless people, companies and policymakers.

So how the industry weathers an unparalleled economic collapse fueled by a global pandemic will reshape not just the chronically underfunded public housing system and the overbuilt luxury condominium market, but also virtually every aspect of urban life.

To assess what might happen in the next year or two, The New York Times interviewed nearly 50 people, including former senior city officials, real estate executives, affordable housing advocates, urban planners and brokers.

When will the real estate market recover, and what will it look like in terms of supply, demand, and prices?

Will New Yorkers be more open to development in their neighborhoods, or will they be even more resistant?

How will housing, transportation, retail and commercial real estate be affected in the broader New York region?

The outlook is daunting. Unemployment in New York City is still 14%, after hitting 20% in June and July. The hotel occupancy rate is 39%, down from 95% this time last year, according to research firm STR. Roughly one-third of the city’s 240,000 small businesses may never reopen, and iconic retailers like Neiman Marcus are closing.

Residential real estate sales plummeted 40% in July, and 57% in August, compared with 2019, according to the New York City Comptroller’s Office. Commercial sales were down 28% and 43% in July and August, compared with last year.

Still, many experts predict that New York will eventually bounce back — as it always does, citing the eventual rebounds after the Great Recession, 9/11 and the fiscal crisis of the 1970s.

What will happen to the market?

Rents and sale prices will continue to drop in the next year, significantly so in some areas, but likely not for the people who need relief most.

Rents in the New York metro area — including parts of New Jersey and White Plains — are projected to drop 7.7% to 11.3% by the middle of next year, from the first quarter of 2020, according to Andrew Rybczynski, a managing consultant with CoStar Advisory Services, a commercial real estate data provider.

After the 2008 recession, rents fell nearly 10% in Manhattan because of high unemployment and rising vacancies, said Nancy Wu, an economist with listing website StreetEasy.

The median rental price in Manhattan, including concessions, was $3,036 a month in September, according to brokerage Douglas Elliman. That is an 11% drop from the same period a year ago, but still far beyond the means of most New Yorkers. Citywide, the median rent last year was $1,467 a month, according to the New York University Furman Center.

Rents will continue to drop citywide, in the absence of a vaccine, Wu said, but that trend masks affordability problems in several neighborhoods hit hard by the coronavirus.

In an analysis of neighborhoods with the lowest rates of infection — affluent neighborhoods like Battery Park City and SoHo in Manhattan — rents dropped 1.9% from February to July, largely because of rising vacancies. In the hardest hit neighborhoods — including East Elmhurst in Queens and Fordham in the Bronx — rents have actually increased 0.3% in the same period, and a disproportionate share of Black and Hispanic renters, many in the service industries, have shouldered that burden.

“New York has been a tale of two cities — not just in terms of the pandemic, which is known, but also with rent affordability,” Wu said, noting the dearth of options on the lower end of the market.

In sales, the boroughs beyond Manhattan are expected to recover sooner, because they are relatively less expensive, and proximity to midtown is no longer a top priority. In August, Brooklyn exceeded the pace of sales recorded the same time last year, and Queens is on a similar but slower trajectory, according to StreetEasy.

Discounts of under 10% are widespread, but prices have yet to plummet, except in the ultraluxury tier. Buyers waiting for fire sale prices may be disappointed, because the market was already three years into a price correction before COVID-19, Wu said.

It is less clear what will happen in the saturated new-development market. Out of more than 20,000 condo units citywide that have come to market since 2018, nearly 60% remain unsold, said Kael Goodman, chief executive of Marketproof, a real estate data company. That represents $33 billion of unsold apartments, and about 2,000 of those units have not yet even begun sales.

So far, the glut of new luxury inventory has not resulted in many distressed sales, in which units may be sold in bulk to investors at deep discounts. To avoid foreclosure, some scenarios could involve converting condos to rentals, or restructuring loan obligations. Industry observers expect to see more of these actions in the months to come, as developers run out of options to satisfy lenders.

“It’s the ‘Road Runner’ dynamite scenario: The fuse is burning, but it hasn’t blown,” Goodman said. “Whichever way things break, there will be buildings that will have to be traded.”

What happens to real estate’s political clout?

In recent years, the real estate industry’s clout has waned as local legislators have leaned increasingly to the left, and campaign contributions from the Real Estate Board of New York have shriveled. In July, progressive challengers, like Zohran Kwame Mamdani, a housing counselor, toppled incumbents viewed as too moderate.

City and state legislators are mulling an apartment vacancy tax and other measures to discourage speculative investment, while opponents warn of a “death spiral,” in which over-taxation could scare away the wealthy. The highest-earning 1% of New York City residents generated 43% of city income taxes and 51% of state income taxes collected from individuals living in the city as of 2016, according to the Empire Center for Public Policy, a fiscally conservative think tank.

But more than any statistic or legislation, the most consequential factor for real estate is what will happen on June 22, 2021.

That is the date of New York City’s next primary election, and it will be the most consequential since 2013, when Bill de Blasio, bolstered by his “tale of two cities” campaign, swept into office. Now, with term limits forcing out a deeply unpopular de Blasio as mayor, along with most of the City Council, a wide-open battle for the city’s leadership is underway. And real estate interests say the stakes have never been higher.

The city’s next mayor will need to address urgent land use and housing issues that have dogged the current administration even in a time of prosperity and freewheeling spending. A $9 billion budget shortfall looms.

Depending on what happens in the presidential election, it is too early to gauge whether voters will opt for, say, a technocrat like former Mayor Michael Bloomberg or a rising progressive like Rep. Alexandria Ocasio-Cortez. One presumed favorite, City Council Speaker Corey Johnson, has already bowed out, highlighting the unpredictable nature of the race.

“What these two crises have laid bare is that this extraordinarily wealthy city which was doing so well for one segment of the population was completely failing other segments of the population, including people we now call essential workers, and communities of color, generally,” said Vishaan Chakrabarti, a former city planning official who is now dean of the College of Environmental Design at the University of California, Berkeley. “Now how can we use this pause to think about the city that should be — a more equitable city?”

Some power brokers, like developer Stephen M. Ross and Daniel L. Doctoroff, a deputy mayor under Bloomberg, are already plotting how to best use their influence and money to elevate their preferred mayoral candidate.

“Just vote — vote in the Democratic primary,” said Mary Ann Tighe, chief executive of CBRE NY Tri-State, a commercial brokerage, during a Zoom panel organized by the Partnership for New York City, an influential business group. “And get people to serve on the community boards who come from the world of business who understand the basic economics of the city.”

What will happen to big projects?

In light of the virus’s disastrous effects on the economy, some believed the path forward for several stalled megadevelopments would be cleared, because of their promise of new jobs and infrastructure.

Instead, opponents have grown more circumspect, and the de Blasio administration, in its waning days, could push for something critics have long demanded: rezoning in wealthier, whiter neighborhoods, not the communities of color that have often been the reluctant recipients of major redevelopment.

A large expansion of Brooklyn’s Industry City complex, which developers said would create 20,000 new jobs, was quashed last month by opponents who doubted that claim and said the project would hasten the displacement of the largely lower-income immigrant community nearby.

Also in September, the city backed out of a proposal to build up to 15 mixed-use towers on 28 acres in Long Island City, where Amazon previously failed to garner support for its New York campus, because of local concerns about gentrification and inadequate infrastructure.

The Justice for All Coalition, a community group opposed to the project, explained in a letter in July: “The proposed rezoning — for the purpose of building luxury residential and commercial mega towers — is exactly what this community does not need in the face of COVID and the urgent issues raised by Black Lives Matter.”

Alicia Glen, a former deputy mayor under de Blasio, rejected that thinking.

“This is not the time to double down on the narrative that business is bad, that development is bad,” said Glen, who recently started a development firm, M Squared, which builds mixed-income housing in cities across the country. “We can’t play to the cheap seats of being against everything and everybody.”

But the disproportionate harm the virus has caused to Black and Hispanic residents in lower-income neighborhoods has emboldened another view, critics say: That the argument is not simply pro- or anti-development, but a matter of where the effort is placed, and for whom.

So the mayor’s decision this month to back a rezoning in SoHo, one of the wealthiest neighborhoods to be eyed for new affordable housing, is a significant moment, said Alex Fennell, the coordinator for the Racial Impact Study Coalition, a community advocacy group.

“It’s the first time the city has flat-out said, ‘We need to put more affordable housing in affluent, white neighborhoods,’ and that’s an important rhetorical shift,” Fennell said.

The proposal, which made scant mention of new housing when it was floated last year as a mostly commercial rezoning, is now seeking to allow about 3,200 new housing units to be built, including 800 below-market-rate apartments. The city has also signaled that a rezoning of Gowanus, a neighborhood in Brooklyn that is wealthier than several other neighborhoods eyed for redevelopment, is also a priority.

“There was an unspoken rule that you don’t rezone wealthy neighborhoods,” said Will Thomas, a board member of Open New York, a pro-housing group. While local opposition is already building, he said “SoHo is the first step in really showing that it’s politically possible.”

What happens to affordable housing?

The Department of Housing Preservation and Development, which funds and maintains much of the city’s affordable housing stock, suffered a deep cut this summer, when the city agreed to decrease its capital funding by 40% over two years.

Rachel Fee, executive director of the New York Housing Conference, a policy and advocacy nonprofit, estimated that could translate into 21,000 fewer new and preserved affordable housing units and 34,000 fewer jobs, mostly in construction and related industries. (In a reversal, the city said Thursday that it would restore about half of the funding that had been scheduled to be cut.)

The cuts could delay or derail a number of once-assured projects. In Far Rockaway, Queens, an 11-building complex called Edgemere Commons with more than 2,000 units, all of which would be offered below market rate, was scheduled to receive city financing in December, but a backlog of stalled closings this summer means their project will likely be pushed back further.

“Now we’re in limbo,” said Daniel Moritz, a principal at Arker Companies, the developer, which planned to begin construction this year.

Millions of dollars in predevelopment costs like architectural plans, legal fees and engineers can overwhelm developers awaiting funding, said Ron Moelis, a co-founder of L+M Development Partners. His firm expected to close city financing in June on the first phase of Bronx Point, a mixed-use project in the South Bronx with 542 below-market-rate units expected to be completed by 2023. Now financing has been pushed back until at least December.

“At the exact moment in time when we as a city know that we should be doubling down, the city is pulling back,” said Barika Williams, executive director of the Association for Neighborhood and Housing Development, a coalition of housing organizations.

In a September survey representing about 85,000 apartments in New York, nearly 20% of tenants paid no rent, according to CHIP, a group that represents 4,000 landlords and managers of primarily rent-stabilized buildings.

And unemployment figures do not show the full scope of struggling renters, Williams said, because many who are out of work or are underemployed were paid in cash, and therefore not recorded by official counts. “We’re on the brink of an eviction tsunami,” she said.

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