How Much Impact Does a Mayor Have on CRE Values?
New York City’s primary result certainly has everyone talking about the future of our city. Yes, the election is far from over and there is plenty of time for a strong independent candidate to prevail in the general election. But regardless of who wins, how much impact does a mayor have on CRE values?
A mayor leads the direction of a city and sets the tone on public safety, education, and housing. He or she has a major impact on whether a city is considered business friendly, which can lead to economic growth. Consider how differently Los Angeles and San Francisco’s mayors have been perceived by the business community. Daniel Lurie has been praised in San Francisco for being “open arms” to business by Bloomberg.com and called “pragmatic, pro-business, and a centrist” by the Washington Post, bringing the city back to life. Whereas, Karen Bass has been criticized for her handling of the wildfires, crime, and by the recent protests.
When it comes to the mayor’s impact on real estate, it can depend on how much weight the State carries. In New York City, the mayor appoints the heads of City Planning, the Buildings Department, and the board of the Rent Guidelines Board. However, it is New York State which sets tax abatement programs and oversees rent regulation. It was Albany that was responsible for the 485-x and 467-m tax abatement programs. Under Gov. Hochul, Good Cause Eviction was instituted which caps increases on fair market rents. So, can New York’s mayor have that much of an impact on real estate economics?
To see the impact on CRE pricing, let’s compare what happened during the Bloomberg and de Blasio administrations. Bloomberg served three unprecedent terms from 2002-2013. He set forth a pro-business agenda that led to great economic growth. For CRE, it also included the most extensive rezoning which impacted 40% of the city. By contract, under Bill de Blasio, there were rent freezes in 2015, 2016, and 2020 for rent stabilized apartments. That being said, under Bloomberg there were 467,000 jobs added to the city compared to 585,000 jobs added (albeit including 31,000 city jobs) under de Blasio. So under their leadership how did CRE values change? Let’s look at the pricing on multifamily housing and office in Manhattan. We have used the last two terms of Bloomberg’s administration for an apples to apples comparison with de Blasio’s two terms:
You will notice that both multifamily and office values went up under both administrations. Multifamily increased 49.1% under Bloomberg compared to de Blasio’s 14.9%. Interestingly, fair market multifamily rents actually climbed higher under de Blasio at 36.6% compared to Bloomberg’s 17.7%. Meanwhile, office values went up a staggering 79.3% under Bloomberg compared to another big gain under de Blasio at 46.7%. Surprisingly, office rents skyrocketed 50.1% during de Blasio’s terms, whereas office rents actually dropped 2.3% under Bloomberg. That discrepancy would be difficult to explain. The above would suggest that there are a lot more to a city’s real estate values than who is the current mayor. Macro trends no doubt have a major impact. One of the most important considerations is the 10 year treasury rate. Consider that when Bloomberg took his second term in office, the 10 year rate was at 4.37% and when he left it was 3.04%. de Blasio then benefited by historic low 10 year treasury rates dropping all the way down to 1.52%.
We must also look at what is happening with overall market cycles. In 2013, Bloomberg benefitted from capital flowing freely which produced $33.9B in NYC sales. As de Blasio was wrapping us his term, the market was still recovering from the pandemic. In 2021, NYC had less than half the 10 years average sales at $15.4B. This is no different than what happened across the country. It’s no wonder sales values didn’t increase as much under de Blasio.
In all, it’s important to remember that a mayor has limited direct impact on CRE values. There are two significant levers that drive real estate values: cap rates and rent growth. Both seem to be moving in the right direction in New York City.