Shares in companies tied to New York City’s real estate market took a hit on Wednesday, driven by investor concerns following rent advocate Zohran Mamdani’s rising prominence.
Major developers like Vornado Realty Trust and SL Green fell more than 5%. Meanwhile, other real estate investment trusts, such as Equity Residential and Empire State Realty Trust, dropped by 3% and 4%, respectively, with LXP Industrial Trust down 2.5%.
Investors also began offloading shares in the Bank of New York, particularly its real estate assets. Flagstar Financial and Dime Community Bank saw their stock decline by 5% and 4%, respectively, while Flushing Financial decreased by 3%.
Mamdani, a 33-year-old self-identified democratic socialist, has promised to implement a rent freeze on all rent-stabilized apartments in the city. Analysts raise concerns that this could negatively affect building owners who are already grappling with rising costs. Such restrictions might complicate debt repayment for some landlords.
“Politicians are likely to follow risky paths with the multifamily sector, limiting cost increases,” warned Stevens from a brokerage firm.
The New York real estate market is facing challenges as higher interest rates create unease among borrowers, and many office spaces remain vacant.
Mamdani’s rent freeze proposal could lead to decreased corporate spending and employment within the city, which might further diminish office leasing demand.
SL Green controls 205.3 million square feet of property, with 96.6% of it located in Manhattan, primarily commercial. Vornado has 75.1% of its properties in the city.
Meanwhile, Flagstar’s multi-family loan portfolio, estimated between $16 billion and $18 billion, could be significantly impacted by the rent freeze, according to analyst Bernard von Gizaik from Deutsche Bank.
Manan Gosalia, a Morgan Stanley analyst, suggested that if rent-affecting units make up over half of the buildings, their total could fall to $11 billion to $12 billion.
City analyst Ben Gehringer indicated that Flagstar’s stock may show ongoing pressure due to Mamdani’s freeze campaign, although he noted that the long-term effects on bank stocks may be minimal.
Current regulations already restrict rent hikes to below the rate of cost increases, which Barclays analyst Jared Shaw pointed out won’t drastically change investment strategies.
Republican Governor Ron DeSantis, from outside Florida, expressed his belief that Mamdani’s approach would only push affluent New Yorkers to relocate, possibly leading to increased real estate values elsewhere, such as in Palm Beach.
Mamdani has also campaigned for creating a city-owned grocery store and providing free public transportation. Following a recent primary victory over former Governor Andrew Cuomo, he’s now a strong contender for the Democratic nomination, facing off against incumbent Mayor Eric Adams and independent candidate Curtis Swah. Cuomo’s future campaign intentions remain unclear as results from the ranked-choice voting are awaited.
