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FEATURE STORY
benefits. Unsurprisingly, the expectation is that should GCE be enacted, multifamily property values would decrease due to the significant constraints placed on buildings’ cash flow. This would, in turn, hurt tax assessments and thus revenue collected by local governments to fund essential services -- a concern voiced by multiple Senators at the January 7 committee hearing on GCE. In fact, we are already seeing lenders take notice that the Legislature is considering GCE and -- although we understand that the bill does not yet have majority support -- build the possibility of GCE’s enactment into their underwriting analysis. The result is less favorable terms for multifamily property lending than we were seeing before GCE was on the Legislature’s agenda. Should it become law, GCE would likely be challenged on multiple constitutional grounds. The United States Supreme Court recently held that a state regulation compelling property owners to permit certain individuals access to real property for three hours per day, 120 days per year was a per se physical taking for which just compensation is required. If requiring such limited access to real property is a physical taking requiring just compensation, then requiring perpetual occupancies and rendering it impossible to remove buildings from the rental market must also be an unconstitutional taking. In addition, the United States Constitution’s Contract Clause provides that “no state may pass a Law impairing the Obligation of Contracts.” GCE, however, impairs the obligation of contracts in that it impairs a lease or rental agreement for a defined period at the conclusion of which the tenant or occupant must vacate, and instead confers perpetual occupancy rights. While temporary contractual impairments are more likely to be upheld in the face of Contract Clause challenges, the courts view permanent impairments like those occasioned by GCE far more skeptically.
As indicated, our current understanding is that GCE does not yet have majority support in the New York Legislature. Additionally, Governor Hochul has been noncommittal on GCE and has not mentioned it in public appearances. Nevertheless, given that 2022 is an election year and that the bill has a fervent and motivated base of support, we expect an effort to push GCE at some point during the current legislative session. While industry representatives are working to oppose the bill because of its potential deleterious impacts across the real estate industry, we recommend that owners also contact their elected representatives to register opposition to GCE and detail the negative effects it will have on their properties and on New York State more generally.
