Episode 41: NYC Regulation – Enemy or Friend?

00:00 Introduction

Derek: All right, we’re back here at The Real Estate Roundtable with IPRG. We have Luke Sproviero back in the room.

Luke: How you doing?

Derek: How you doing? I’m back too.

Luke: I missed the last one. I think I was out east. And then we missed one because you were away, right?

Derek: We didn’t miss one because I was away, but I was away as well.

Luke: We were supposed to shoot last week. We’re shooting this week.

Derek: Donal Flaherty.

Donal: Hello. Good to be back.

Derek: Good to have you. And Steve Reynolds.

Steve: Derek, good to see you.

00:31 Back after Labor Day

Derek: And this is Derek Bestreich. So, guys, it’s after Labor Day. How are we feeling in the real estate world in New York right now?

Steve: Sad that summer’s done, but it’s good to get back in the swing of things. I’m excited, and optimistic for the remainder of the year.

Donal: It’s good to see the season start. It was a little slow for the past couple of weeks, and now you see people reaching out. It’s good to see the activity starting to percolate back up.

00:58 A ten-year deal finally closes

Derek: Donal, I heard you sold your first proposal in the business.

Donal: One of my first proposals, yeah.

Derek: Was that a ten-year-old deal?

Donal: About a ten-year-old deal. We all went on that meeting. That was when we first started the company. Full circle moment.

Derek: What property was it?

Donal: 205 Ashland Place, 30 St. Felix.

Derek: Congratulations.

Donal: Thank you, appreciate it. That was a cool property. Definitely a full circle brokerage moment. Probably the first one in my career where you met someone ten years ago and the deal just happens to fall in your lap, and you’re able to get it done, with some help. With my buddy over here, Luke.

Derek: Right place, right time type of thing.

Donal: Right place, right time. It was an up and down process, but we were able to get it done and got someone to pay a very good price. That guy was trying to sell for the past, I would say, seven years. And honestly, the price was always sixteen. He could have moved his price over those seven years. He didn’t. He kept it at sixteen. And I’ll give him credit: once we hit sixteen, he was all gas, no brakes. He made a decision, he was very decisive. He was like, okay, let’s go.

Derek: I think it’s a good property for the buyer. It’s a really unique building, great location, a lot of room for long-term growth.

Donal: The buyer did his due diligence. He took a lot of time, looked into the building, found things other buyers didn’t see, and made it work. He saw the advantages.

Derek: Congratulations.

Donal: Thank you. Appreciate it.

03:03 The renovation problem: sub-rehabs, Spitzer and DHCR

Derek: All right, so we’re back into the fall season. The summer season’s over. And what everyone keeps talking about is the legislation in New York and how the laws make things so difficult. There’s an article that came out in The Real Deal this week, which I thought was great, and it basically said the city is trying to limit rents with all this legislation and all these programs that make it hard to renovate and improve properties. But the irony is that if you’re able to get properties renovated, or through all the legislation, you have the best properties in the market.

It outlined what’s happened with sub-rehabs, where they’re not counting buyouts toward the vacant unit count anymore, and now you need the substandard condition as well. They’ve made that incredibly hard, and there’s basically no capital going into sub-rehabs at this point. There was that lawsuit Spitzer filed this summer against DHCR, where he called DHCR the valley of death. They basically stalled him out on a demolition project in the city, where he’s trying to end rent stabilized leases under the law to redevelop a new property.

Luke: Under the law, which is the key thing. All these things are under the law.

04:39 Seven years of attorneys, and all the layers of regulation

Derek: The article went on to say that Gary Barnett had to fight for seven years and hire teams of attorneys to do the same thing. Then there’s HSTPA, which I think everyone listening is well versed in at this point, and what that has done to limit renovations in properties. Good cause eviction, keeping tenants in place. Certification of no harassment zones, which have been expanded. Loft Law. SROs. There are just so many layers. And I feel like all the liquidity and all the capital is trying to figure out how to navigate it, where you can turn a profit, renovate, make some money, and unlock the upside in these buildings. Kind of like this Ashland deal that you just sold, which sold for a million dollars a unit.

05:35 Selective capital and a 5.5 cap

Donal: A million dollars a unit. Sold for a five and a half cap. I just think capital is very selective. I don’t think there’s any shortage of capital in New York City. If anything, I think there’s more capital coming into New York City. If you look at the first-half stats, January to June, I think it was something like $17 billion. I forget the percentage, but citywide, it’s up. It’s just selective capital. Rent stabilized buildings are obviously completely—

Derek: I wonder how much of that was from the fall of 2025, when I felt like a lot of people sold into the new mayoral administration.

Donal: Yeah.

06:20 What’s actually under contract

Derek: But the truth is we’re still seeing significant activity. Our new deals under contract pipeline has been great.

Donal: And what’s leading the way is multifamily. Out of those statistics, multifamily is leading the way. Free market buildings — I classify free market as 25% or less rent stabilized — those are leading the way. The next thing is development. Development’s up. But multifamily is the biggest contributor.

06:48 Luke disagrees: the buyers just moved

Luke: I disagree. I think everyone that was buying is still buying, except for your historic rent stabilized buyers. I think they’ve taken a step back, because there’s only one product that they manage and own and buy, and they’re probably not buying as much, if anything.

But everyone else is just switching what they’re buying. Everyone’s buying bigger deals. Everyone’s becoming a developer or a redeveloper, whether it’s ground-up deals, retail repositioning, or industrial into retail. I have two buyers in my head right now. One was buying small mixed-use buildings; now they’re buying bigger industrial pieces for retail. Another was historically buying smaller buildings, and now he’s doing ground-up construction, 30-unit buildings, 40-unit buildings.

So I think everyone’s going toward what you can do without regulation. You can build a new building without crazy regulation. The small mixed-use deals, the small three-, four-, five-unit buildings, are phenomenal. If those buildings are vacant — because obviously you knock out good cause, which was on your list — and they’re free market, and they’re not in some anti-harassment district, like a certification of no harassment zone, if you can get through all of that, they go for crazy numbers. But the issue with those deals is they’re small. So I think everyone’s gravitating toward business plans that get out of all the things on your list, where you can raise some money and make a profit.

08:21 “Thou shalt not renovate”

Derek: There was a line in this article from The Real Deal that said, “Thou shalt not renovate.” And it’s interesting, because on these smaller buildings, or these pieces of land, you end up with such quality units. And for the other properties that fall under this legislation, you’re just left with complete crap.

Luke: What do you mean, small buildings that are existing?

Derek: These small buildings, the three-families and four-families that are vacant, the stuff that’s getting gobbled up, the two-over-ones. People are renovating them and you’re getting beautiful, high-quality apartments. And then you look at — we can talk about this a little later — these three buildings that just sold in Crown Heights that were in AEP. They sold for $88,000 a door and had a thousand violations among the three properties. And all this rent stabilized product throughout the market, or anything that falls under SRO or Loft Law, any of these buildings that would have been sub-rehabbed, you’re left with a very poor quality asset, and there’s really nothing you can do about it.

09:24 Nobody voted on it

Luke: The thing about your list that really drives me crazy is, at least with the laws of 2019, a law changed. It’s a law. With sub-rehab, no law changed. They just came up with it in a room: let’s do this. No one voted on it. You have the director who used to handle all this saying this is never how they historically operated, but they just did it. And on top of that, let’s take two years to approve a sub-rehab. Like the Spitzer case, like the sub-rehabs: they kill deals by just not doing anything. People follow the law, they file applications, and DHCR sits on them for years.

And these anti-harassment districts are the same thing. Even if you go through it, I hear it takes a year or 18 months to hear back just to start the renovation. They call the previous tenants and make sure they weren’t harassed, and they obviously take their sweet time doing it.

10:25 Vacant SROs and the harassment certificate

Derek: It depends what it is. I have a client who has an SRO building. It’s been vacant, and I think the rule is it has to be vacant for three years. But that’s SRO. It has to be vacant for three years so he can get the certification of no harassment. That’s ridiculous. So he’s been sitting on this thing, just waiting and waiting.

Donal: Yeah.

Luke: They come up with these rules, the timing. With what we just discussed, the amount they’re overstepping, just because they want to, is insane.

10:59 Is the legislation our enemy or our friend?

Derek: That brings me back to my big overarching question. Is the legislation our enemy, because it’s made something so bad? Or is it our friend, because it’s made other opportunities so unique and so good if you’re able to manage through the nuance of all the laws and all the regulation? I think it’s a little bit of both.

Donal: Obviously no one at this table is complaining that rents have gone up. That’s helped valuations, and it’s helped people buy these buildings. I think rents have gone up 60% since 2022. If that doesn’t happen, with all the things that are going on, I don’t see how people are buying these buildings for the prices they’re paying.

11:52 Did the 2019 laws accidentally save New York real estate?

Luke: I think by accident they saved investment real estate in New York City. These people actually saved it, compared to Austin, Texas, and all these other markets like Denver, Colorado. Everywhere.

Donal: Transactions are up for the first half, like, since 2022.

Derek: Because with where interest rates are at this point, the market would be underwater. It’d be over for the entire market if rents didn’t go up in New York by as much as they did.

Luke: Correct. That’s why these guys like Grant Cardone, who have funds that buy in Florida and all these places — I don’t know how they’re surviving, because they don’t have the rent growth.

12:31 Rent stabilized buildings below their loans

Derek: Meanwhile, with the rent stabilized buildings, how many of those are selling for under the loans at this point?

Luke: There’s no rental growth, and there’s expense growth.

Derek: And you have the interest rates. Cap rate expansion.

Luke: New York City always survives. But these laws are artificially keeping rents stupid high, because they’re not letting anyone build new stuff, nothing can be renovated, and they have so many apartments vacant. Who cares? It’s insane.

13:05 57,000 vacant stabilized units

Donal: There’s a report that came out. 57,000 reported to DHCR on the annual filings. 57,000.

Derek: That’s a huge amount.

Luke: So they’re keeping everything there. Because rents are so high, we’re thriving in an interest rate market that every other state isn’t. I don’t know how you’re surviving in Denver, or in Austin, Texas, where everyone’s building, rents are going down, and rates are going up.

13:30 Regulation drives up pricing

Steve: Like any industry, regulation drives up pricing in every sector of the market. That’s why you’re seeing it in real estate. There’s a limited supply of housing in New York only because of regulation.

13:50 The city leasing entire hotels

Derek: It’s artificially high pricing. I saw a post on Instagram from Urban Explained that was really interesting. In New York, I think the city has to provide a bed for every person who wants a bed. So basically the city has to provide beds for all the homeless people throughout the city. And what the city is doing is going to these cheap, low-end hotels, like Ramadas and Best Westerns, and leasing them up.

Steve: There are probably some worse ones than those.

Derek: The city’s leasing up the entire hotel for homeless people. And they’re paying a rate, I think, of $125 per room per night, at 100% occupancy. So there are all these units that would never have 100% occupancy in Flatbush or Sunset Park. There are ones they were talking about in this post on Empire Boulevard — not great locations, where people would never be renting a hotel room in New York City. But the city’s occupying the entire building, $125 per room per night, full occupancy. And this guy was showing a building on either Linden Boulevard or Empire Boulevard where the rent roll, on not that big of a building, is something like $8 million a year, because the city is paying to occupy the full hotel and put homeless people in there.

Now, the crazy thing is, if we have 57,000 vacant rent stabilized apartments, what are we doing? That would handle that whole issue. Meanwhile, the city’s spending tens and hundreds of millions of dollars on these hotels to house homeless people, and they have this giant blind spot for all these vacant apartments throughout the city.

Steve: Maybe it’s a blind spot, but anything politically driven makes no sense. And you wonder why. It’s probably on purpose. You could very easily come up with a program today that says every vacant rent stabilized unit can house a homeless person for $125 a night, and every owner would sign up for it. Every single one.

Derek: For sure.

Steve: What is that equal to per month? I just calculated it: $3,750 a month. If I own in the Bronx, I can’t get that rent.

Derek: Or if you own in other, deeper parts of Brooklyn. And I know these hotel rooms are very tiny.

16:09 What a hotel room does to the person in it

Steve: But it’s also almost degrading to the person, right? They don’t have a kitchen. It’s a hotel room. It’s just a room with a bed. And they always want to be the voice of the people, to help people in need, and it does the exact opposite. It gives them no incentive. They’re living below any means. Obviously it’s better than the street, but give someone a home. Give them a reason to want to get up and work the next day.

16:32 How hotel owners got rich

Luke: We’re also making these hotel owners very rich. My family did own some of these garbage hotels you discussed, these Best Westerns and Microtels. We were in Connecticut, where it’s not like you’re in Flatbush, and it was $80 a night.

Derek: And that’s without 100% occupancy.

Luke: Right, without 100% occupancy, and that thing lost money. It’s insane. They’re probably doubling the nightly rate, full.

Derek: Full occupancy, seven days a week, 100% throughout the building. Anyway, I thought that was interesting.

17:07 The Crown Heights trade

Derek: And getting back to this Rubin Dukler trade to Mark Schwartz, which just happened in Crown Heights, where the administration went out and celebrated that they transferred ownership. Rubin Dukler had passed away years ago. They transferred it from a slumlord to a quote-unquote good operator. And it sold for more per door than the Pinnacle portfolio, where the administration is basically saying that at that pricing you can’t operate the buildings. But this just sold for more, and they’re celebrating it. What they’re going to do is give him tax incentives and tax breaks. And apparently it’s cheap city funding, to help subsidize the cost of getting the building.

17:56 What is this operator doing differently?

Luke: But what is he doing? Besides being on their nice list, what is he doing differently than Summit, the operators of the Pinnacle portfolio?

Derek: Well, there’s a tenant union, no different than Pinnacle. So we’re dealing with tenant unions in both. I think they call themselves the Dukler Tenant Union. Dukler had three little walk-ups, but these tenants all unionized.

Luke: No, I get it, but my point is, how is Mark Schwartz’s management of those buildings going to be different from Summit’s management of the Pinnacle portfolio?

Derek: He calls himself an affordable housing operator. Apparently he has a number of affordable housing projects. And I think he’s basically going to work through fixing all the violations.

Luke: But they all have to do that. There’s no reason to believe Summit is doing anything differently.

Derek: Correct. Summit is working through that too. The tenants are all upset that it’s not going fast enough. And I don’t know how this works, but Mark Schwartz is apparently giving these tenants some kind of path to potential ownership one day.

19:03 Tax breaks, co-ops, and the landlord as tax collector

Luke: Maybe at a premium, down the road. There’s a way. This guy’s doing it to make money.

Donal: It’s probably going to turn into some sort of co-op.

Luke: Or a massive tax break.

Derek: Or accelerated depreciation. Here we are again. All these buildings are doing so poorly because these owners, these landlords, are essentially a tax-collecting front man for the city. As long as the tenants pay their rent — and even if they don’t pay their rent — the landlord is paying all this money toward real estate taxes, and then has to do all the repairs and expenses and everything else. Meanwhile, because this guy is a favored, good operator, they’re going to give him major tax breaks. So the city’s making less money now than it was. And here’s another new invention of a rule.

20:05 Who decides who’s a good landlord?

Luke: They gave themselves the ability to decide who’s a good landlord, and then give them tax savings, which the taxpayers are paying for. I can’t believe it. It’s just the inventing of the rules.

Derek: It’s pretty arbitrary. If they like someone and think they’re good, you get all this tax savings, all this benefit, “we’ll make the numbers work for you, we’ll give you cheap financing.” But if you’re not on their good list, you still have to pay the full tax bill, pay for financing at prevailing market rates, go operate the buildings and make them nice and clean. So where are we going with all that?

20:50 Smaller and more expensive

Luke: I think where you’re going with it is: if someone’s trying to take a unit out of rent stabilization, or any kind of regulation, they’re going to come up with ways not to allow you to do that, and they did, successfully. So it basically shrunk the market. And there are certain assets people will pay any price for: land, and vacant free market buildings. That’s really where the market is right now.

Steve: It’s just gotten smaller and more expensive.

21:22 Condo filings and bigger buildings

Derek: That’s it. And condo prices have gone up and up. Apparently new development filings for condos are down a lot, especially with where interest rates are.

Luke: And I don’t know how people are buying bigger buildings. I really don’t. A big Tax Class 2 rent stabilized building, even though the pricing looks so good today, how do you do it? The expenses are going to go up every year, and there’s no sign that rates are going down. You almost have to say that in five years you have to pay down that loan. You can’t refinance.

21:53 Five times the rent

Steve: A lot of these deals are selling at five times the rent. It gets to a price point where it makes sense. It’s just a cash-flowing opportunity with heavy regulation. Historically, they’re down 70, 80% from five years ago. It’s getting ridiculous. At that point, they’re just taking the cash flow and hoping for the best.

Luke: Yeah.

22:24 New leases down, and listings going private

Derek: Going back to property values being very high. I saw online that new leases are going down and down and down. People are renewing their apartments, but there aren’t new leases available. The inventory is down. And we talked about this a little before we started recording: Compass is telling their agents not to put listings on StreetEasy anymore. I’ve seen a number of these private listings from Corcoran, Compass and Sotheby’s, and they’re not going on StreetEasy. They were sent to me directly from contacts who thought I’d have an interest.

Compass owns Corcoran and Sotheby’s and a bunch of other real estate companies as well. Apparently they control 80% of the inventory for residential sales and rentals. So if you go on StreetEasy, you’re starting to see less and less inventory, and it’s being reported that new leases are dropping. If you’re a tenant already in a building and you go to look for a new apartment to rent, and it’s not on StreetEasy — it’s not publicly available anymore, it’s private — there’s no inventory. You basically don’t have a choice. You’re just going to renew for whatever the landlord tells you.

Steve: I agree with that, but I think it’s probably going to be a short-term issue. Compass, which controls the inventory, is using it as leverage over Zillow and StreetEasy. And something’s going to change, because it’s going to impact someone’s bottom line.

23:55 Compass, Zillow and StreetEasy

Luke: I disagree with all of it. I think what they’re trying to do is knock out StreetEasy. They’re talking about building their own StreetEasy to overtake it. Because they own all these companies, they control the listings.

Steve: But that’s what I mean by short-term. Eventually they’ll come out with a product, or they’ll settle with Zillow. Either way, or they’ll just buy StreetEasy.

Derek: They’re saying they’re upset with Zillow for their Zestimates, which are complete [bleep]. And because StreetEasy tracks days on market, which they think negatively affects their sellers, and it tracks price cuts as well. So if you overprice a listing and sit on the market for 30 or 45 days and take a price cut, now the general public sees it’s been on the market for 45 days with price reductions, and they think buyers and buyers’ agents are using that as leverage.

24:41 Zestimates and days on market

Steve: I always thought it was because they were taking leads and selling them to other agents.

Luke: Well, this is what they say, and days on market does deter. Even my wife will look at a rental listing where we live, and she’s like, “Oh, it must be [bleep]. It’s been on the market for 110 days.” It must be awful.

Donal: Honestly, they’re probably trying to get StreetEasy’s price down so they can acquire it. StreetEasy is only in New York City. And Jersey now, the tri-state. They’re trying to kneecap it and buy it.

Derek: Zillow has such market control outside the city. If you go anywhere outside the city and want to see what’s available, you go to Zillow.

Luke: But Zillow owns StreetEasy.

Steve: That’s the whole battle. There’s been a whole battle between Zillow and Compass nationwide.

25:48 Who controls the inventory

Luke: What about that guy on TV who was trying to buy houses — “we’ll buy it at the estimate”?

Steve: That’s Redfin.

Derek: They do the same thing. Didn’t Zillow have that whole home-buying program?

Steve: They did. I think it failed.

Luke: They had to stop. They overpaid for a ton of houses.

26:24 When homes stop being public

Derek: The point I’m getting back to is this: if homes or condos are not publicly available anymore — and I know of deals, good properties, that are not listed publicly, and rentals that are not publicly available — it shrinks the inventory, or the perception of inventory, in the market even more. And it makes people stay where they are. It gives landlords on these free market apartments, with good cause or not, significant leverage over tenants. New leases are down, and renewals are up significantly.

26:59 New leases down, renewals up

Steve: That doesn’t surprise me. I think it’s a function of moving being expensive — picking up your stuff and going to another apartment at a greater price.

Luke: It sucks to move. It’s awful. But also, if you can’t find something better, why would you do it?

Steve: And usually renewals are cheaper than what’s on the market. As someone who rents, you look around all the time: a three-bedroom is asking two to three grand more a month than what I’m paying. What are you going to do? Usually the renewal is five to ten percent, and you’re just happy with it and you move on.

27:38 A warning on free market pricing

Luke: I honestly think people need to be careful, though. Going back to buying buildings: people are paying for this free market stuff. There are buyers paying any price, just trying to buy it. And the rents they’re getting are crazy. I looked the other day, and some of these rent rolls are crazy. It reminds me of 2015, when people were just buying because rates were two or three percent. People were saying, I’ll pay any price, because rates are three. And anyone with any historical experience knew that rates were very, very low and could easily go up. Then what happens? Rates go up, and all these people are losing buildings.

And they could easily fix this supply issue. With a couple of laws, these supply issues are fixed. And then you’re like, okay, my rents are going down a lot.

28:21 The appraiser and two Brooklyn comps

Derek: I had an appraiser reach out to me last week asking about two comps we sold. Two five-family buildings in brownstone Brooklyn, both around seven million dollars. And I don’t think they’re relevant comps, because I always thought they sold for very high prices. I think they were anomaly buyers. But appraisers are using them as comps, and basically it’s saying buyers are paying any price for this kind of product.

Luke: That’s the thing with sales, right? If something goes for a big price, there’s a reason. We all track the comps. You look at what traded and you say, this guy bought a two-over-one for 4.4, I saw it in the comps. But then you look at the buyer and you know he’s in a 1031. There are reasons why buyers pay what they pay on specific deals. And to go price that in as a comp is crazy.

29:36 What an appraiser can and can’t see

Derek: It is crazy. But I don’t know if the market or an appraiser necessarily sees that, or knows that.

Luke: The appraiser doesn’t have to. It’s a sale.

Derek: Five-family sales in greater brownstone Brooklyn.

Luke: And he’s not doing anything wrong. They are comps. They’re just really high ones.

30:01 COPA is back

Derek: All right, more legislation coming down the pike. COPA is back. Apparently it has all the votes it needs to be approved.

Luke: Doesn’t surprise me. What is it now?

Derek: Now it applies to buildings with four apartments or more that have an average of three violations per unit, or have an affordability component, or are in AEP. Basically, if it’s four units or more and has three or more violations per unit, it falls under COPA. Didn’t they change the unit count?

Steve: I think it was three before.

Derek: It’s four now.

30:37 Anyone can put a violation on a building

Steve: Not that it makes a difference. The scary thing for me is that anyone can put a violation on a building.

Donal: I know. That’s what it’s going to be.

Steve: You just call 311, they go check out the property, and they can find something. It’s almost like if you want to go find the crime, you can. That’s the only thing that really scares me about COPA. Everyone’s at risk. Even if you have a clean operation and a clean building, you get one tenant who can’t afford their rent, and they’re calling the city.

31:08 Can the city keep up?

Donal: What’s the percentage that 311 complaints have gone up? I just saw 25%. They’re up 25%.

Steve: That’s insane. And they’re going to be encouraging tenants to do that.

Donal: I don’t think the city’s even going to be able to keep up with it, to go out and check.

Derek: They care so much about the city.

Donal: I know they care on TV. Let’s just see if it happens.

Steve: Violations will go up.

Derek: What they really care about is making it hard on landlords and improving tenants’ quality of life. I get it.

Luke: Donal’s saying they don’t have enough of those little inspection Priuses. They need more Priuses.

31:58 Four families and up

Donal: But we’re talking about four-families and up. We’re not just talking about big walk-up buildings. How many more buildings are we talking about?

Steve: HPD already handles all of them. That doesn’t stop.

Luke: But at least as an owner, you can handle your tenants in a four- to ten-unit building. You know everyone. When you buy big buildings, 40 units, 60, 70, 80-unit buildings, you can lose the narrative really quickly. That’s the scary part. How do you control that?

Steve: Those buildings are at risk to begin with.

Luke: I think there are targets. That’s what scares me.

Steve: I think anyone’s at risk of having a disgruntled tenant use this to their advantage.

32:48 Regulation pushes housing to condo

Luke: So that carve-out for the threes and the fives is going to make that market even crazier.

Steve: Because what it’s going to do is make people buy them and convert them to condos or single family. Any time regulation gets crazy, housing just keeps getting wiped off, because people don’t want to deal with it. What’s a way to not deal with tenants? Condos. What’s another way? Single family. New development. That’s what they’re going to keep doing.

Donal: That’s a good point.

Steve: Look at some of the most highly regulated places. Look at Jersey. I’m familiar with Hoboken, for example. Hoboken has the worst rent control in the nation, and it’s 80% condo now. There’s no rental supply other than new development.

Luke: It’s all townhouse condo. And these big buildings are getting absolutely clobbered. This COPA thing is because that’s what the city wants. They want the bigger buildings. What does a four-family do for them?

33:54 Taking out the for-profit aspect

Steve: I think for them, they want to take away the for-profit aspect of real estate.

Derek: Definitely.

Steve: That’s what it does to, say, a four-family. If it makes it harder to liquidate, it’s no longer as desirable. But New York is New York. Lucky for us, the housing stock is huge. There are hundreds of thousands of properties. You just have to keep pivoting and finding where the next opportunity is.

34:33 130 Hope Street

Derek: The last thing I was going to mention, unless you guys have anything else, before we cut: we saw the 130 Hope Street deal, which had been quietly on the market for a while, hit the wire this week. New construction, 421-a, 35-year, about 70% free market.

Luke: Remember, I said all the same buyers are buying, they’re just buying other things. Does that buyer own buildings like this? No, he doesn’t. Everyone’s doing other things, buying other properties.

Derek: And how many calls have we gotten from profile buyers raising a lot of money, looking at the same thing? That is not his profile.

Luke: We can all agree. He owns in the area, but does he own buildings this size? No.

Donal: Does he own any building with a 421-a tax exemption?

Luke: He owns small mixed-use buildings.

Derek: So why do you think he bought this and paid more?

35:34 Why this buyer paid more

Luke: I’ll tell you why he bought it. He’s very familiar with the location. And it’s a play on rental growth.

Derek: 70% free market, statutorily. A 35-year tax abatement from when construction finished, which is about three years ago at this point.

Luke: And it’s easy to raise money for this stuff.

Derek: I ran the numbers before we came in here. I showed the deal at about a five and a half cap going in.

Donal: That’s crazy, especially in a higher interest rate environment.

Derek: He must be projecting rent growth there.

Donal: I get it. Good luck to him.

36:30 Closing

Derek: Based on everything we just discussed throughout the show, it makes sense. Anything else you guys want to touch on? All right. Enjoyed it, and we’ll be back again soon. Thanks.