Why New York City's mayoral frontrunner rattles the commercial real estate industry

The meteoric rise of a little-known state assemblyman, Zohran Mamdani, who staged an upset victory in the Democratic primary to become New York City's mayoral frontrunner, has sent waves of concern throughout the commercial real estate industry.

He pushes rent control in a city packed with apartment landlords. He wants the city government to take the lead in building affordable housing to increase the supply. He calls for raising the corporate tax rate by more than half and boosting taxes on those who earn over $1 million annually, two groups that have often invested in the biggest U.S. commercial property market.

“The fear is real” about a Mamdani winning scenario, said Jeff Gural, chairman of GPF Real Estate, a major New York real estate firm whose portfolio includes the iconic Flatiron Building, in an interview. “With no experience, and you’re going to have him running the biggest city in America. I think that's risky, no matter what his policies are … Socialism doesn't work anywhere in the world."

Still, Gural, who recently met with Mamdani, 33, to address his concerns about public safety and other issues, said he found Mamdani "charming." He also said the candidate could be convincing: "I think he makes a good point that this income inequality is a problem. No question about it. ... I agree with him" on that.

RXR Realty CEO Scott Rechler met with Mamdani, too.

“I found him much better as a communicator than the caricature that they show him in the news," Rechler said, as he recalled his conversations with Mamdani in a speech this week hosted by the Young Men's/Women's Real Estate Association. "He was, I think, in a stage where he was more focused on governing than politicking, and was saying all the right things. But the proof is going to be in the pudding."

He added: "It's hard to really see someone that has taken some of these tough positions to be able to retreat from them. He might, and that would be great."

Mamdani is a democratic socialist whose affordability-centered campaign promises come as New York’s market-rate apartment rents have reached record highs. Moreover, the city is contending with what the NYC Housing and Vacancy Survey found to be a record-low rental vacancy rate of 1.4% amid a supply shortage.

Mamdani's policies are sure to attract the attention of progressives in large cities around the country who may look to follow New York City's lead. There's also international interest because New York is a significant destination for investment from outside the United States.

If he wins, his proposals still will need buy-in from others, including state lawmakers and the governor, to become reality. History has shown New York has managed to persevere and thrive regardless of who sits in City Hall, industry professionals said.

A potential Mamdani win also could be positive in such areas as his promise to increase city staffing levels to move affordable housing "projects forward more quickly" and "fast-track planning review" for "any project that commits to the administration’s affordability, stabilization, union labor, and sustainability goals."

With his campaign proven to attract young voters, his potential win could also help lure younger people to work for the city and fill vacancies, including many involving agencies in the "built environment," said Suri Kasirer, CEO at her namesake lobbying firm, at a recent ULI New York event titled "Housing on the Ballot."

Here are some topics and agenda proposals real estate professionals are watching as the election approaches:

With New York’s average monthly apartment asking rent recently reaching what CoStar data shows as a record high of $3,360, or about double the U.S. average, Mamdani’s campaign website says he “will immediately freeze the rent for all stabilized tenants.”

That pitch comes as the city buildings that house about 1 million rent-stabilized units are already facing rising delinquent loans as expenses have risen at double the rent growth rate, according to a survey by the Community Preservation Corporation, a nonprofit affordable housing lender and investor.

“We're in this distress situation now, even before ‘rent freezes’ come into effect,” Karim Hutson, founder, president and CEO of mixed-income housing developer Genesis Companies, told CoStar News. The company's portfolio includes rent-stabilized buildings.

“That just talks to just how troubled as an industry that we are," Hutson said. "What we've seen is just uncontrollable expenses, whether it's water, sewer, insurance, utilities, [that] have just gone way up.”

Mamdani wants the city to take the lead in building a proposed 200,000 “publicly subsidized … rent-stabilized” housing units over the next 10 years as part of a $100 billion housing commitment. He wants the city to do this instead of “waiting on the real estate industry to solve a housing crisis from which they profit," according to his campaign.

To do that, he plans to raise $70 billion in municipal bonds, a move that would require state approval.

“The city cannot fill or preserve enough housing without private partners,” said Vicki Been, co-faculty director of New York University’s Furman Center for Real Estate and Urban Policy. She is a former New York City deputy mayor for housing and economic development. “The city doesn't have the expertise. … It needs the private sector. … They are very good at building. They are very good at operating."

She added: "Can they be better? Sure. Are there outliers, sure, but they are very good at delivering housing, and we need to get out of their way to a certain extent so that we're not spending … on a lot of process, and a lot of just costly measures.”

Mamdani, who also promises free buses and universal childcare, wants to fund his agenda by raising the top state corporate tax to 11.5% from 7.25% while levying a 2% income tax on people earning over $1 million, saying he wants to “require the wealthiest New Yorkers to pay their fair share.”

“At a certain point, you go over the edge” in pushing people and companies out, Greg Kraut, cofounder and CEO of New York real estate firm KPG Funds, told CoStar News. “This may be that point.”

Million-dollar earners, less than 1% of New York’s resident filers, have paid about two-fifths of both the state’s and the city’s personal income taxes, according to the nonprofit think tank Citizens Budget Commission. Raising taxes on the wealthy could hurt “New York’s value proposition” and accelerate the city’s declining share of millionaires, who, the think tank said, “provide significant revenue critical to support services."

New York state’s share of the U.S. million-dollar earners dropped to 8.7% by 2022 from 12.7% in 2010, including declines in the city, while states such as Florida and Texas saw gains, according to the Citizens Budget Commission.

A survey by the think tank found public safety and quality of life rank next to affordability among the biggest concerns for New Yorkers, with the percentage of New Yorkers feeling safe taking subways at night slumping to 22% from 46% in 2017. Therefore, Mamdani’s stance on policing and crime is being closely watched.

Mamdani said he wants to create a Department of Community Safety and dispatch outreach workers to subways to “prevent violence before it happens," and he has supported ending cash bail requirements and reducing the jail population. While he’s walked back his previous calls to “defund the police,” and now says law enforcement has a “critical role to play,” some in the real estate industry aren't quite convinced.

“Public safety is the number one issue, and that’s something he controls,” GPF Real Estate's Gural, a major office landlord, told CoStar News. While Mamdani speaks of the critical role of law enforcement, “we need to make sure he's not going to defund the police. … We can't move our buildings, but companies can move to other cities and states.”

Mamdani said he’ll fix what his campaign described as the city’s “arcane” property tax system. Some previous city mayors also promised to do this but failed to deliver.

The system that assigns properties to different classes based on their size and use has led to what the New York City Comptroller Brad Lander’s office described as “inequities” that “disincentivize rental housing development.”

It also “significantly favors wealthy New York neighborhoods” over areas such as Staten Island, southeast Queens, eastern Brooklyn and the northeast Bronx, where homeowners sometimes pay three times the effective tax rate of homeowners in Manhattan and owners of brownstones in Brooklyn, according to Lander's office.

Mamdani said he would “shift the tax burden from overtaxed homeowners in the outer boroughs to more expensive homes in richer and whiter neighborhoods.”

Mamdani wants to create “a network of city-owned grocery stores” aimed at “keeping prices low” instead of “making a profit.” Those stores won’t have to pay rent or property taxes, and “will buy and sell at wholesale prices,” according to his campaign.

Some bodegas and grocery stores have said the practice will put them out of business or push them to close shops in the city, according to media reports.

“There's a reason why we don't do socialism at the local government level in the United States, and it's not ideology,” said Nicole Gelinas, a senior fellow at think tank Manhattan Institute, at a Citizens Budget Commission conference. “It's because it's really hard running a grocery store. It’s a full-time operation. … You don’t want to add running a system of grocery stores to the mayoralty.”

Mamdani said he'd pitch a new law to raise the city’s minimum wage to up to $30 an hour by 2030. The current minimum hourly pay is $16.50.

While some studies suggest a minimum wage increase doesn’t lead to job cuts, others say it could push employers to increase adoption of robots and automation to replace low-wage workers.

While New York has led the U.S. office and tourist market rebound from the pandemic and places high in surveys of destinations for young talent, the industry is watching if overseas and other investors will sour on putting capital in New York if Mamdani wins.

“If he does even part of the things that he's campaigning on, it will be a disaster in the city,” Danny Fishman, CEO of New York investment firm Gaia Real Estate, told CoStar. Fishman added that he’s stopped investing in the city beyond his existing portfolio even when he can buy properties at a big discount.

“People are shocked that in New York, the capital of capitalism in the world … someone with policies like this can be elected," he said. "Why does someone from outside of the country invest in New York? Because he wants to diversify from his country … to have less risk. If he has more political risk, why would he take money from his country and put it here?”

City voters will decide on Nov. 4 whether Mamdani gets the chance to act on his campaign platform when they go to the polls to choose among him, former New York Gov. Andrew Cuomo, a Democrat who is running as an independent candidate, and Republican Curtis Sliwa. The incumbent mayor, Eric Adams, ended his independent campaign for reelection, but his name remains on the ballot.