Housing Changes That Are Hard To Dance To

This has been an incredible, if not a surreal week for those housing market professionals in New York City. It’s as if old ideas are being covered with new clothes. What would Judy Garland think?


New Interpretation

And many other versions.

But I digress…

Elliman Report Released: February 2019 – Manhattan, Brooklyn & Queens Rentals

I’ve been the author of the expanding Elliman Report series since 1994 for Douglas Elliman Real Estate. This week’s release known as the Elliman Report: Manhattan, Brooklyn & Queens Rentals 2-2019 is the only monthly version of our series.

As it turns out, the slow down in sales is helping the rental market as more would-be buyers are “camping out” in rentals until they are comfortable with sales conditions.

Bloomberg news covered the report with a chart, which always makes life worth living:

Here are some key points I made about each of the three boroughs and have included a few of our related charts:


“Landlords were better able to retain tenants as the sales market slowdown continued to drive rents higher.”

– Landlord concession market share falls year over year for the second straight month after rising for forty-three.

– Net effective median rent rose for the second consecutive month

– Number of new leases fell year over year for the fourth straight month

– Non-doorman median rent outperformed doorman median rent for the second time in seven months

– New development median rent rose annually for the fourth straight month and outpaced existing median rent gains

– Market share of leases above $10 thousand was second highest in nearly six and a half years


“Rising use of the rental market by would-be buyers to ‘camp-out’ until they are comfortable with purchase market conditions.”

– Net effective median rent rose year over year for the third straight month

– Concessions market share declined year over year for the second consecutive month after thirty-five months of increases

– Upward price pressure remained strong in the starter market


“The market optimism that developed before the Amazon HQ2 decision to withdraw mid-month was largely offset in the second half of the month.”

– Net effective median rent fell year over year for the first time in four months

– Market share of concessions rose year over year at a diminishing rate for the past six months

– New leases fell year over year for the first time in seven months

The Proposed NYC “Pied-A-Terre Tax” Could Be Catastrophic to NYC Real Estate

The New York political zeitgeist was recently reset towards anti-luxury development. The shift began with the following recent events:


– November: The introduction of the Amazon HQ2 deal in Long Island City
– November: Control of the state assembly and senate shifted the party that prevented the 2014 pied-a-terre tax from being introduced as a bill would no longer be held back
– January: The closing of the $238,000,000 Manhattan condo sale in January (2015 contract)
– February: The withdrawal of Amazon from the LIC deal after well-coordinated political pushback
– March: Introduction of the Fiscal Policy Institute’s 2014 “pied-a-terre” tax proposal for properties valued at or above $5,000,000 in New York City was introduced in the Senate

Here’s the Senate bill S44 or this format. It is short on details and is both wide-sweeping and ominous to the real estate industry.

How this proposed S44 tax seems work

But I am not a tax advisor and this is not a law yet. Please seek appropriate counsel first. I am simply interpreting what I think is the points made in Senate Bill S44.

– The tax has NOTHING to do with pied-a-terres. It is a tax on non-primary residences as written. Therefore it should apply to investor units as well.
– It is a property tax – will be paid annually, not just upon sale
– It is a marginal rate tax – only the amount above each threshold is taxed
– It taxes residential properties valued at $5 million and above in NYC, most of which are in Manhattan

VERY CONCERNING I am very curious whether LLCs could be interpreted as “non primary residences” even if they are used for primary residences since New York State defines LLCs as: An LLC is an unincorporated business organization made up of one or more persons.

Why Senate Bill S44 is So Bad For NYC

– New York City is one of the last “international cities” that is not hostile to foreign buyers and real estate investors
– It is targeted to condo development since there are few co-op and townhouse non-primary units over $5M
– It will crush new, new development activity because land prices will take years, maybe more than a decade to reset to levels that will support new affordable housing because landowners take long-term buy and hold positions.
– This could destroy any progress made with inclusionary zoning to create more affordable housing
– This will obliterate future transfer tax revenue from real estate activity and could very well result in lower net receipts from the real estate sector than if this tax were not enacted. The 2014 whitepaper doesn’t provide this but rather presents it in a vacuum as if market forces don’t respond.
– Substantial damage to high-end property values. Existing owners could panic sell. Luxury real estate buyers do not simply absorb new taxes as is commonly thought. They modify their purchase behavior and go elsewhere.

This new law, which seems likely to be passed in the current environment and embedded into the budget, will become effective on July 1, 2020. I can only imagine the lobbying and litigation activity between now and then. There is a need/hunger for more revenue by the governor and the mayor for the MTA.

Hudson Yards: Yea or Nay?

Since the 1970s as Penn Central was going bankrupt, ideas to create something useful with the railyards began and the Hudson Yards concept formally in the early 2000s. Hudson Yards has been an expensive endeavor and it officially opened this week to much fanfare and media coverage against the backdrop of the Amazon HQ2 disconnect. The project is spectacular and it comes online at a time where high-end development is being challenged within the political realm.

Here are two differing views from two people I know in the media that always have thoughtful things to say, wade into the debate about the development. They are short clips and each are worth a listen.

Yay: Greg David, Columnist for Crain’s New York Business”

WNYC Money Talking Podcast – listen to segment.

Nay: Justin Davidson, New York Magazine architecture critic:

Bloomberg TV 3-11-19: The Malling of Hudson Yards

For the record, this is the first time I recall using the word “cognizant” on national television. A personal lexicon triumph.

There has been a lot of fanfare about the new Related Companies ‘Hudson Yards‘ mixed-use development being created over the West Side Yard in Manhattan and is connected to ‘The Highline.‘ The centerpiece or “hook” is a $2 billion mall in the middle of the complex. While ‘malls’ are generally a non-starter in Manhattan, there is a successful precedent. The same developer built Time Warner Center at Columbus Circle (southwest corner of Central Park) nearly twenty years ago and it was considered a significant success. I used to live two blocks to the west of Time Warner Center and it was a pretty rough area at the time but that submarket has been significantly upgraded.

Related has pushed out a media blitz on the mall opening this week. It is important to note that NYC gave Hudson Yards more tax breaks than were proposed for Amazon in Long Island City. However, as Barry Ritholtz writes in his excellent comparison between the two deals (LIC v. Hudson Yards) offered by the city. Related seemed to do this deal right and Amazon came across as greedy in the end.

The $3.4 billion dollars committed to parks, subways, etc. in the Hudson Yard project is exactly what the government is supposed to do. You can create incentives for companies to relocate in a way that directly benefits every taxpayer in the region. The incoming company could have burnished their reputation as a good corporate citizen, instead of being perceived as rapacious and greedy.

Here is a rendering of the completed Hudson Yards. I think it looks spectacular. And don’t forget ‘The Vessel.

[Source: DeZeen]

Teachable moment for condo development naming strategies that include a company: Don’t do it.

The Time Warner precedent-setting mall scenario included a condo offering plan circa 2000 named “AOL Time Warner Center” and then the project was renamed “Time Warner Center” after they sold off AOL (Someone named Jonathan Miller took over AOL strangely enough). Deutsche Bank is replacing Warner Media as the anchor tenant in 2021 so the project will be renamed for the new tenant. However, Deutsche Bank has been having its share of financial problems and is considering a merger with Commerzbank. Uh-oh.

Perhaps that’s why Related went with ‘Hudson Yards.’ 😉

Getting Graphic

Favorite charts of the week of our own making

Len Kiefer Chart Magic

I continue to be mesmerized by Len Kiefer‘s chart making skills. Len has no peer.


(For earlier appraisal industry commentary, visit my old clunky REIC site.)

But We Have AVMs, So Why Get An Appraisal?

But it’s new construction, why get an appraisal? This is the current zeigeist of the regulatory agencies that oversee the mortgage process. How quickly we forget.

California’s Bureau of Real Estate Appraisers Warns Consumers About Restricted Appraisal Reports

The Appraisal Insitute-pushed SB-70 law I talked about a while back has been in effect since January 1, 2019 and expires December 31, 2019. I just checked back in since it went into effect and was shocked to see this warning on the California’s Bureau of Real Estate Appraisers web site say this:

The real estate appraisal process concludes with the appraiser’s opinion of value. Development of an appraisal includes the gathering of facts and evidence, using recognized methods and techniques of analysis, and applying reasoning and judgement. An Appraisal Report is a summary communication of this process and includes the data, relevant evidence, and an explanation of the reasoning and judgement used to support a credible value opinion.

As a stand-alone document an Appraisal Report can be read and understood by users and be the subject of an Appraisal Review by other appraisers. The Appraisal Reviewer’s role is often an essential part of the business process to establish a level of confidence in an appraisal, given the wide variety of skills, knowledge and experience existing among appraisers.

A new law recently enacted in California makes changes to the reporting requirements for licensed appraisers. During 2019 Licensed Appraisers can for the first time provide broadly circulated brief reports for users other than the client; reports that do not summarize the data, evidence, or reasoning used to develop the value opinion. Similar brief reports labeled for users other than a client could previously only be prepared by un-licensed appraisers.

These reports are known as Restricted Appraisal Reports and do not contain sufficient information to be read and understood as a stand-alone document. Restricted Appraisal Reports may not contain enough information for independent verification of facts, analysis or conclusions without access to important additional information.

If you, as a consumer, are considering a significant financial decision that relies upon the services of a licensed real estate appraiser in 2019, be aware that this change may affect you. The Bureau recommends that you do not rely on a Restricted Appraisal Report. Instead, ask for an Appraisal Report; a report that contains written support for the credibility of the value opinion.

In other words, the state regulator seems concerned about this law and how it exposes the most vulnerable to potential abuse – what SB70 enables. And because the safety of the consumer and the public trust was challenged it looks like they needed to issue a warning. If you want evidence on the level of damage the Appraisal Institue has caused to our industry reputation to the consumer so far, there is no need to look further. If you assume that 20%-25% of appraisals done in California are for private non-FRT (that’s another topic for discussion) such as divorces, partnerships, private loans, small carries, family notes, and other non-mortgage work, certified appraisers can do restricted appraisals without intended users and not show their work.

Here’s how it works. The entire idea of a restricted report is to be able to present something directly to your client who probably knows the property better than the person valuing it. In SB70 the report writer is required to include the following disclaimer in each restricted appraisal report, and I’m assuming the legislators could see how reckless this law is:

There may be assumptions that the appraiser has not verified that may significantly impact the appraised value of the subject of the report.

What credible, someone who can sleep at night, licensed appraiser would place their name on a report with this disclaimer? Yet the Appraisal Institute sees SB70 as an incremental win.

Draft 4 of USPAP effectively takes care of the intended user loophole on April 1 if licensed appraisers choose to do a restricted appraisal report by requiring them to include specific names rather than a class of users so if you are a certified appraiser doing these in California in 2019, I’d think twice about doing these restricted appraisal reports.

With SB70, accountability or need for a license becomes obsolete for a large swath of appraisals being completed in California. I believe this is part of the broader AI goal to remove licensing, get rid of TAF/USPAP and restore days of yore to their designation relevance. SB70 is essentially an attempt to make appraisal certifications and some bare minimum standard of qualifications obsolete for non-FRT work. AI leadership in favor of this are still reading their own press releases from the late 1970s about how important a designation is and think the consumer understands quality differences outside of the consumer’s busy personal lives. No disrespect to appraisers with hard-earned MAI and SRA designations, but in reality the organization has failed to keep the branding relevant.

The Appraisal Institute has essentially taken the position that this law makes its members competitive with a tv-repairman (no offense meant to tv-repairmen who are long obsolete) looking to make a few bucks writing restricted reports on the side. What this does in the real world is damage the meaning of “Certified Appraiser” by placing them on a level playing field with anyone writing restricted reports, i.e. pool cleaners, pet groomers, barbers, tv-repairman, nurses, or anyone who wants to do these reports on the side.

NOTE: The reason for any type of licensing is to paint a bullseye on your back – as a professional you are held to a higher standard and jump through more hoops to maintain that professional stats of which you are compensated. This is why appraisers are paid more than TV-repairman moonlighting as appraisers. Certified appraisers need to carry e&o insurance because of the likelihood of being sued and that is another reason why the market pays higher fees for professionals “you get what you pay for.” If you want some electrical work done in your house and get your unlicensed buddy to do it cheaply and illegally, you may not be aware of the potential risks such as fire and sellability later. In the case, of SB70, AI efforts are focused on taking down the difference between appraisal professionals and tv-repairmen so appraisers can get more business by being more competitive with tv-repairmen. In the quest for more appraisal volume at any cost, the cost is a lower consumer value placed on certified appraisals. This mentality has plagued our industry and was the subject of a blog post I wrote on August 9, 2005. Some of the links are broken after 14 years, but the point was made.

Speaking of bullseyes, Realtors hate the exposure this law gives them on these deals when something blows up – they will see such an appraiser as nothing but a crook. How is that for branding our industry to consumers?

The California Chapters of the Appraisal Institute are now pushing SB131 (likely without informing their members as I’m told they didn’t do with SB70) to extend SB70 for another two years.

OFT (One Final Thought)

UPDATE I forgot to to insert this video in these Housing Notes on Friday. It is a follow up of the congressional take down of the new head of the CFPB director who doesn;t understand what an APR is. Good grief.

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Jonathan J. Miller, CRP, CRE, Member of RAC
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog

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