Issue 120 – The Unspoken Hidden Third Lever

These past two quarters of 2026 have been extremely productive in the real estate sector. The big question is: “Will this continue into the spring selling season?”

The biggest variables remain New York City policy changes, elevated mortgage rates, and broader global uncertainty.

While I touched upon this in my last newsletter, I think the most obvious concerns will continue to be NYC policy changes in conjunction with mortgage rates.

Though Mamdani has proposed a 2% “millionaire tax” on incomes above $1 million to help close New York City’s $5.4 billion budget gap, the city cannot enact such a measure on its own. It would require approval from the State Legislature and Governor Hochul, who has expressed opposition, making passage uncertain.

If the state does not approve the income tax, the mayor’s fallback is a proposed 9.5% increase in NYC property taxes, which could be enacted locally by the June 30th budget deadline. Once adopted, the new property tax rate becomes effective for the fiscal year, impacting nearly three million residential units and over 100,000 commercial buildings across NYC.

For condo/co-op buyers, this change translates into higher common charges (condos) and higher maintenance fees (co-ops). It also puts pressure on cap rates for rental buildings.

However, a “hidden third lever” option — now gaining traction in both Albany and City Hall — is a hybrid approach that closes the gap without major tax increases. It relies on a combination of general reserves, state aid, and internal cost reductions.

The mayor’s preliminary budget already assumes nearly $1 billion from the “Rainy Day Fund” and additional reserves to help balance the books. These funds were built after the 1970s fiscal crisis precisely for situations like this.

Governor Hochul has already signaled $1.5 billion in assistance for NYC over two years. State legislators are also proposing targeted taxes on corporations and ultra-wealthy residents that could send several billion dollars to NYC, potentially filling most of the gap. This approach allows Albany to help NYC without approving Mamdani’s specific millionaire tax plan.

Some City Council leaders argue the gap does not warrant tapping rainy-day funds and instead push for efficiencies, such as eliminating long-term vacant positions and agency cuts, which could generate about $1.7 billion in savings without new taxes. NYC agencies are already being instructed to identify savings to cut spending.

The likelihood of the 2% millionaire tax being approved is low to moderate, whereas the 9.5% property tax hike scenario is slightly higher. The third lever option — a compromise that avoids new tax hikes — is now being discussed publicly and gaining traction, for three main reasons: Hochul doesn’t want a “tax-the-rich” headline going into an election. The City Council isn’t eager to push through a major property tax hike. And while Mamdani is focused on generating revenue, he still needs to balance the budget.

Ultimately, this hybrid approach would have a far more muted impact on real estate, especially at the high end.

Beyond local policy, global economic pressures and interest rates will shape the market. Mortgage rates for 30-year fixed loans are now hovering in the 6%–6.5% range, depending on the borrower and structure. While rates have edged up slightly from their recent lows, many lenders are still offering options in the high-5% range, suggesting we may be settling into a more workable and predictable environment for buyers.

Rather than a sharp shift, we’re seeing a market that is beginning to find its footing — offering buyers more clarity and the potential to re-engage with greater confidence, helping them break through an affordable barrier.

Overall, buyers, sellers, and investors remain optimistic. However, some are sidelined by fears of volatility.  At the same time, international demand continues to support the market, reinforcing New York’s global appeal.

One of the big concerns that looms over New York City was highlighted in a recent Politico piece, signaling a worrisome sign: “Moody’s, the bond rating agency, revised its fiscal outlook for New York City from ‘stable’ to ‘negative.’ It suggests Moody’s could eventually downgrade the city if its fiscal situation isn’t rectified.”

As always, many moving parts will determine whether the upcoming months are a boon or a bust for real estate.

To recap: Looking ahead, one of the key factors to watch will be how Mamdani and Hochul ultimately align on closing the budget gap. There’s a real opportunity here for a thoughtful compromise — one that balances fiscal responsibility with economic growth and keeps New York City competitive on a global stage.

If approached strategically, this moment could reinforce the city’s long-standing strength: its ability to adapt, attract capital, and remain a place where both investment and innovation thrive.

For real estate, the focus should remain on preserving and enhancing New York’s status as a world-class market. History has shown that when the city leans into smart policy and long-term thinking, it not only protects value — it creates it.

This is less about risk and more about execution. If leadership gets it right, New York is well-positioned to continue its upward trajectory.

It remains to be seen which path will be chosen, but as the days grow longer, we should be getting more clarity on how our local, state, and national political and economic factors will impact real estate for the rest of the year.

Issue 127 – The Price Isn’t the Price

A new calculation is changing what a New York apartment is actually worth. For decades, NYC real estate has been obsessed with price per square foot. However, now we may be entering the era of cost per year.

Consider two apartments of the same size, price, amenities, light, view, and location. If one has $6,000 in carrying costs and the other $11,000, are they really worth the same amount?

Increasingly, I would argue they are not because buyers aren’t simply purchasing apartments anymore. They are purchasing the economics of the buildings they’re in, which are starting to matter enormously. Think: insurance, labor, utilities, repairs, taxes, assessments, energy compliance, staffing, capital improvements, and reserves. While monumentally important, none of these photograph well, but all determine whether an apartment is easy to own — and eventually sell.

We have always understood that certain characteristics affect value: a lower floor trades differently from a higher one, an awkward layout matters, a protected view commands a premium, and poor light equals a discount. However, I contend another discount is related to the aforementioned carrying costs.

The sexiest amenity in New York real estate may soon be a healthy balance sheet. That sounds less exciting than a lap pool, unless you are the one writing the checks. Operating costs in New York have been rising, putting pressure on building budgets and making previously deferred capital projects harder to ignore.

The 2026 New York City Price Index of Operating Costs — which tracks expenses for the city’s rent-stabilized building stock — illustrates the broader pressure. Over the five years through 2026, insurance costs in that index increased more than 80%. Maintenance increased 29%, utilities more than 26%, administrative costs more than 21%, and labor nearly 16%.

Those figures aren’t a direct proxy for every condominium or cooperative in Manhattan. But they illustrate something anyone involved in operating New York buildings already understands: buildings are getting more expensive to run.

One mistake buyers can make is falling in love with the apartment and treating the building as secondary. In New York, you aren’t just buying four walls; you’re buying into a small economy. You’re inheriting its management decisions, staffing structure, physical plant, reserve philosophy, insurance exposure, and capital planning.

A building that deferred maintenance may appear inexpensive today because it hasn’t yet charged owners for the work it needs. That doesn’t necessarily make it inexpensive. It may mean the bill hasn’t arrived yet. Conversely, a building that recently completed an expensive façade project, replaced major mechanical systems, or invested in energy efficiency may initially appear less attractive because owners have already absorbed those costs. We need to consider which building presents the greater risk over the next decade. The answer isn’t always obvious from the monthly maintenance number.

Buyers understandably love low carrying costs, and brokers value them because they make a property easy to market. But low monthly charges deserve as much scrutiny as high ones. A good broker asks: Why are they low? Is the building extraordinarily well managed? Does it have other income? Are the reserves substantial? Or has the board resisted increasing common charges while postponing expensive work?

An important distinction exists between efficient and underfunded. A well-run building with appropriately funded reserves may ultimately be far more economical than one with artificially low monthly charges followed by recurring assessments. It’s not just the number that is meaningful, but the story behind it.

Few words cause more anxiety in a New York transaction than “assessment.” Even here, context matters because not every assessment is a red flag. An assessment financing a necessary capital improvement can actually strengthen the building. A new roof, elevators, façade work, upgraded mechanical systems, or energy improvements may protect long-term value.

The more important questions a sales pro considers are: What is the assessment for? Why didn’t reserves cover the expense? Is it part of a thoughtful capital plan or the latest in a recurring series of emergencies? And, perhaps most importantly, what comes next? A $500 monthly assessment with a clear end date concerns me considerably less than a building with no assessment, minimal reserves, and several million dollars of foreseeable work.

New York’s environmental requirements add another layer of complexity. Local Law 97 places emissions limits on many large buildings and creates increasingly stringent requirements over time. The encouraging news is that the overwhelming majority of covered privately-owned buildings are currently meeting the applicable limits.

But buyers should still understand what their particular building is facing; Has the Board commissioned the appropriate studies? What capital improvements may eventually be required? Has money been allocated? Is compliance incorporated into long-term planning? The concern isn’t whether a building faces a penalty today; it’s whether the building has a credible plan for tomorrow. That, increasingly, is part of due diligence.

New development creates its own version of this problem. Buyers are understandably attracted to pristine buildings with spectacular amenities and, sometimes, surprisingly reasonable initial common charges, but what will the building actually cost to operate when it is fully functioning?

Pools, spas, private dining rooms, screening rooms, landscaped terraces, playrooms, fitness centers, and mechanical systems all require staff, maintenance, and money long after the sales office closes.

The glossy brochure tells you what you’re getting. The budget tells you what you’re buying — both matter.

This conversation also requires nuance when comparing co-ops and condos. A co-op’s maintenance can initially look dramatically higher because it often incorporates expenses that a condo owner pays separately, including the shareholder’s proportionate share of the building’s real estate taxes. A condo may show a lower common-charge number while property taxes sit alongside it.

So, comparing maintenance to common charges without understanding what each includes is meaningless. The correct question isn’t: Which monthly number is lower? It is: What is my total cost of ownership, and what am I receiving in return? I believe strong building economics will increasingly become an amenity in their own right.

Brokers spend an immense amount of time learning how to talk about marble, appliances, ceiling heights, views, and finishes. We should be equally capable of explaining the financial health of the building we’re selling, because that is a big part of valuation.

None of this means price per square foot is irrelevant. It’s still an important metric. But like any metric, it becomes dangerous when used without context.

I’ve spent my career watching New York buyers pay premiums for things that cannot easily be replicated, including light, views, ceiling height, architecture, location, outdoor space, great proportions. But I always add another thing to the list: financial soundness. That may not command the same emotional response when someone walks through the front door. But increasingly, it may command something just as valuable – confidence, which matters in uncertain markets.

For years, we’ve asked buyers how much apartment they can afford. Now we need to start asking them how much building they can afford.  Because in New York, you don’t just buy the apartment — you inherit the economics beneath it.

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