1315: Rent Control & Building By Building, Block by Block with Paul J Massey, Mayorial Candidate for NYC

Hey, Jason, it's Mark. Living here in Europe, the Czech Republic. I'm down at my Airbnb in Austria right now and I just wanted to congratulate you on the thousandth show. Congratulations on all the shows. You probably don't hear from only a fraction, probably don't hear from most people, just how much the shows have helped, how much we listen to them, how much we appreciate them, and just all the best. Congrats.

Welcome to the Creating wealth show with Jason Hartman. You're about to learn a new slant on investing, some exciting techniques and fresh new approaches to the world's most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine, self made multimillionaire who's actually been there and done it. He's a successful investor, lender, developer and entrepreneur who's owned properties in 11 states, had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason's footsteps on the road to your Financial Independence Day. You really can do it. And now, here's your host, Jason Hartman with the complete solution for real estate investors.

Welcome, listeners. This is episode number 1315. 1315. And our guest today will be Paul Massey, mayoral candidate for New York City. Maybe he should have won the mayorship. I think it might have been a better thing than what they're currently doing in New York. And what they're doing in New York is very similar to what they're doing in Los Angeles. Or I guess, I guess you could say LA is following in New York's footsteps of bad property decisions. Right. So two things before we get to our guest today. Number one, of course, we've talked somewhat extensively about the absolutely scary rent control, statewide rent control we now have in the Socialist Republic of California, my former home state for most of my life. Then of course, Oregon, another, another mismanaged state. Oh, there are so many. Out of the 57 states we have, that's an Obama. Out of the 57 states we have, there are many making very bad decisions, but not all of them. Some are making great decisions. So two things here. Number one, I want to talk about housing affordability and homebuyer migration. But before we get to that, of course, let's just address some of the reaction that we're already seeing to this soon to be disastrous rent control scheme they've got in California. Now, the law will go into effect January 1st of 2020. It's right around the corner, right around the corner. And hey, since Today is Halloween. This is some scary stuff. Scary. Boo. Boo. Yeah, paying attention. Okay, now I know some of you had your AirPods in your ear and I'm going boo. And you're thinking, this guy is super annoying. Okay? So look at this. The Los Angeles City Council in all their absolute stupidity. This is so reminiscent of what they did in Zimbabwe during the hyperinflationary era. In a unanimous 14 to 0 vote just recently, the LA City Council approved an emergency ban on, quote, unjust no fault evictions to stop landlords from evicting some of their tenants. Now, no fault evictions are those that are outside the resident's control. Okay? So when the tenant is, you know, they're paying their rent, but the landlord wants them out anyway, right? This is when a landlord decides to end their lease and not to renew it. So get this investors, someone has a one year lease, it comes up for renewal and the landlord says, I don't want to renew the lease. What exactly is wrong with that? The deal was they agreed to lease it for a year and the landlord agreed that they couldn't raise the rent during the lease because they have a lease, right? So now the LA City Council, the communist idiots that run the LA City Council, says landlords aren't allowed to end the lease. Now, I don't know how long they have to keep it going. Is it indefinite? Who exactly knows? Let me tell you what's next. I told you this would be a slippery slope. I predicted this and there would be all sorts of new unintended consequences. I said this would happen. Jason Hartman told you so, okay? And here it's already happening and the law hasn't even gone into effect yet, okay? Already happening, all these crazy things. Now here's what happened in Zimbabwe, talked about this years ago when we had this massive crazy hyperinflation in Zimbabwe, guess what the idiots did there? You know, Zimbabwe, I mean, many countries have been through these hyperinflationary absolute catastrophes, right? Well, what the government said in Zimbabwe was they said, well, you know, prices are going up too quickly because of their idiotic governmental, monetary and fiscal policies, right? The central banker, a guy named Gono, I guess I think that was his name, Gono in the Central Bankers hall of Fame for complete idiots. He just completely debased the money supply. One of you listeners sent me some Zimbabwe multi trillion dollar bills years ago that are basically worth like $4. You could buy a cup of coffee with them. In Zimbabwe, the prices were going up too fast. So what they said is they made a law, okay, and this is just like the LA City Council. Same kind of law, same same concept. Exactly. They made a law saying the merchants in Zimbabwe were not allowed to increase their prices. That if they raised their prices, they would be arrested. Oh, so what did the merchants do? Well, since they couldn't raise their prices to keep up with the ridiculous inflation caused by the Zimbabwe government and central bank, they just decided, well, if I'm going to get arrested and go to jail for raising my prices, I can't afford to stay in business. Now this is exactly what the Los Angeles landlords will soon be experiencing. I'll just stop being a merchant and I'll stop selling things. And guess what happens when you decide to stop selling things? When you punish all the providers of the widgets, the properties, the inventory, the rental housing, whatever, guess what they do? They create a new supply shortage. Oh my God. You can't make up this, this stupid frickin stupidity. It just happens all the time, right? Okay, so in a statement on his website, Los Angeles Mayor Eric Garcetti. I remember Gil Garcetti, I don't know who's that? His father, when I was a kid. I remember Gil Garcetti said the emergency measure seeks to protect his residents, his residence. Oh, so he thinks these people are his residents. The communist mayor. Right. This is insanity. It's insanity to protect his residence before Assembly Bill 1482 takes place. That's the rent control bill, right? Quote, our city is experiencing a housing crisis and we should be using every available tool to keep people in their homes and run away. Rents in check, unquote. Garcetti said in the statement, garcetti, you are a stupid fool. I'd love it if you're an idiot. I mean, Eric Garcetti, come on the show, you idiot, and let's talk about this, okay? Tell me why I'm wrong and you're right, because this is absolutely unbelievable. You know, and by the way, the rents in LA are not out of control. They are not runaway rents. The landlords there have terrible rent to value ratios. So this is absolutely insane. Okay, he goes on to say, quote, the ordinance is an important measure that will prevent evictions before the new state law takes effect. And I am proud to be able to sign it into law today. Unquote. This is a Housing Wire article, by the way. California and Oregon are the first states nationwide to enact rent control. In March, Oregon approved a law placing annual limit on rent increases of 7% plus inflation. Now see, that sounds innocent enough. Hey, Nobody's raising the rent 7% usually, plus inflation. That sounds fine, but it's all of these slippery slope ancillary laws and regulations that come into effect that absolutely make the housing crisis even worse. And that's what these kind of politicians like to do. They like to make the problem worse than to hurt the people they promise they're helping so that they can come to the rescue and fool all their uninformed low information voters into thinking they're helping them when they're really hurting them. Article goes on to say efforts to increase affordable housing have long been talked about in California, which battled over statewide rent control measure for several years. In November of 2018 election, California voters shot down a previous rent control Initiative, Proposition 10, by 61.7%. And that proposal would have capped annual rent increases to prevent unjust evictions. Unbelievable. Let me tell you what's next, folks. These idiots will probably make a law saying that if you're a landlord in California or Los Angeles, maybe more specifically, not only are you not allowed to tell your tenants they got to move at the end of the lease, you won't be allowed to sell your property. They will make selling your property illegal. Hey, it's not that far fetched. It's not that far fetched. It really isn't. Okay, now another Housing Wire article. Good website, by the way. Housing Wire, you got some good stuff there. So thank you for that, listeners. Check out their website, US Housing Affordability Woes Spurs Uptick in Home Buyer Migration. Subtitle Redfin says Boston has become the nation's most desired housing market for relocation. Now, why is that? Because the question is, compared to what? Compared to New York City, Boston looks like a bargain. And in California, Sacramento, where Aunt Joanie, who you've heard on the show, my aunt, owns lots and lots of rental properties, possibly, I don't know, Aunt Joanie might be the largest single family home landlord in Sacramento. I would, I would venture to guess that might actually be the case. Or she's one of the largest. Now, first off, Redfin. I got a bone to pick with Redfin. You know, it seems like a good idea, a real estate company that doesn't have people on commission. But guess what? Their people are not motivated enough because they're not on commission. You can't get a phone call back from Redfin agents sometimes. It's super annoying. But anyway, they do do a good job of keeping statistics and such. So anyway, they've got this report and it's showing basically that Boston is a hot market. And people in New York City and surrounding more expensive areas than Boston are searching for homes in Boston. Surprise, surprise, surprise. Now this is only doing this on, on kind of a city by city basis, their report, but it's also showing that Sacramento, very desirable market. Compared to what? Compared to San Francisco in the Bay Area. Right. This is not doing it state by state, which I wish it would have because it would have verified something that yours truly. I told you 15 years ago, 15 years ago I was telling you this. You know, sometimes it takes a while for the market to catch up with things. I told you a decade and a half ago, but there you go. Look, Einstein, this is obvious. When you create a housing shortage by, you know, rent control, you're going to have problems. You're going to have an even shorter supply. You don't have to be a rocket rock, I was going to say a rocket surgeon, a brain surgeon or a rocket scientist to know that. And you don't have to be a rocket surgeon to know that. Rent control, home buyer migration. You know, these are all so obvious, right? They're just totally obvious. You know, just look at, follow the money, follow the incentives and you'll know everything you need to know. Okay, hey, go to jasonartman.com check out some of the properties there. Make sure you have listened to and if you haven't listened to, make sure you've listened to the, or watched the video on the front page of Jason hartman.com super important. Learn how to evaluate a real estate investment. And, and, and, and if you have watched that video, that 27 minute video, go back and watch it again. Watch it every six months. You need that basic primer over and over again. It's the fundamentals. Like Vince Lombardi would say, the famous coach Vince Lombardi would say at the beginning of every season, he would hold up in front of his players and he would hold up a football and he would say, gentlemen, this is a football. The fundamentals. Got to keep in touch with the fundamentals. That's what that video, free video on the front page of Jason Hartman.com will give you some of those fundamentals that you need to stay in touch with. Okay, let's get to our guest and see what he thinks about New York City and building by building, block by block. Okay, that's what we're going to talk about today with our guest, Paul Massey, mayoral candidate for New York City. It's my pleasure to welcome Paul J. Massey. He is former candidate for mayor of New York City, challenging Bill de Blasio, founder And CEO of Massie Knockal, which was sold to Cushman Wakefield in 2014. Founder and CEO of B6 Real Estate Advisors, short for building by building, block by block. Paul, welcome. How are you?

Jason, thanks for having me today. I'm great, thank you.

Good to have you. And I'm sorry to hear that you are not mayor because I don't know if de Blasio is doing such a great job.

You know, I hear that a lot, I think, you know, we had 20 great years of leadership in New York City between Mayor Giuliani and Mayor Bloomberg, and that is now lacking.

Yeah, well, you know, it's kind of amazing, the cycle of these sort of trophy cities, I'll call them, around the world, they get to this point of prosperity. States, cities, countries, you know, societies, whatever. But in this case, cities, they get to this point of prosperity by doing all the right things. And then once they're prosperous, they start doing all the wrong things and get into this cycle of decay. It's just terrible. I mean, I look at my home state, the Socialist Republic of California, it's a disaster. I'm glad I left. I mean, it's just crazy, you know. What are your thoughts?

Well, back in the day, Mayor Giuliani came around at a time where we needed a huge dose of discipline and crime fighting and rebuilding the city. And he initiated that. And to his immense credit, he gives Mayor Bloomberg credit for continuing and in fact, improving a lot of the metrics and a lot of the departments that ran the city. And I felt that New York needed another leader like that, a more CEO, management oriented, discipline oriented leader. And, you know, sadly, we do not have that now.

Yeah, yeah, that's for sure. What are some of the, like the, you know, drill down on some of the issues, particularly in New York City and, and you know, how they can be a mirror for, for the rest of the country and the world?

Well, interestingly, you hit it. New York City had a golden era for a long time and it took for granted certain fund fundamental things. And the fact that we're involved in the real estate business makes us focus on the fact that New York was always considered a banking capital, a business capital, but really the underpinning and the foundation of New York City is real estate, New York City and many other of the major cities. Because in our case we've got a $95 billion annual budget and half the revenue from that budget is derived directly from real estate taxes. So the real estate world that I'm in and the health and the well, being of city are directly linked. So what's happening in New York now is there's been an overbuilding of luxury homes, luxury condominium, and that's gotten very squishy lately. And the state legislature and the city have seen in their wisdom to put very, very strict rent regulation laws into effect very recently in June of this year.

Yeah, you know, rent control always works well.

It's very likely hurting the very people that it was trying to help because.

Surprise, surprise.

The rent regulation now makes it really untenable and unprofitable to own property. There are also regulations that effectively penalize any work done to create new housing, to improve older housing. People are deeply concerned. And again, getting back to the underpinning, if these rent regulations caused assessed values to go down, there'll be an erosion of the tax base, there'll be an erosion of the city budget. And this current administration has not experienced anything like that and is probably not prepared for it.

Tell us more about what they're doing in terms of rent control and you know, you can just see what will happen. I mean nobody needs to be a genius to figure that out. But, but like what are some of the specifics of what's going on there?

The two key fundamental things are that there were regulations and laws that allowed landlords to increase rents on the vacancy of a unit to incent them to improve the properties, those incentives have been taken away. The ability to raise rent has been eliminated. And if you consider operating expense inflation and increased taxes, most landlords perception of rent regulated apartment buildings now is that they're a diminishing asset. The second leg of this is that there were systems, laws, regulations in place where you landlords were rewarded for improving units. One of the things that people are surprised about and when they hear the fact that the average age of a New York City apartment building is over 80 years old, these are properties that need constant retrofit rehabilitation. And now the city has taken away your ability to increase rents to make that viable. So it effectively means that if you put a dollar in to renovate your building, you'll never see it again.

Yeah. So why would anybody ever improve their building? I mean these buildings will just become, they'll just eventually become slums, you know, and how we've just got to ask ourselves what is behind the mind of people who enact these absolutely stupid policies? Are they trying to ruin their city? Are, is it just sort of this unintended consequences thing? Like they think it's a good idea for some unknown reason or you know, what are their reasons?

You know, I think it's payback time. I think the state legislature was controlled by the Republican Party for a long time, and this is some form of, you know, oddly focused punishment for that now that the pendulum swung back. And I don't really believe that the legislators have done the math on what the core effect is going to be to the city, which is my most feared tax base erosion scenario.

Yeah. So, like, give us an idea in terms of numbers on that tax base. I mean, will investors just. Are they looking to escape their properties or they'll see the values drop and so the taxes will drop.

Interestingly, Blackstone, through one of their real estate funds, had purchased a very, very large housing development called Stuyvesant.

That's a huge. That's like, how many units is stytown? It's giant, right?

Thousands. But they announced that they were ceasing all renovation of units, and then they secondarily announced that they were ceasing renting units until they saw where the legislation went and where. Where it settled in. They've since backed off the position than the not going to rent units because Blackstone has an agreement with the city that provided them with tax abatements. And they might be potentially, I'm not sure exactly, but they might be in. In violation of that abatement program. So they're now saying they're beginning to rent units up again, but they're certainly not happy, and they certainly are pointing out where the major deficiencies of the new legislation are.

Wow. Yeah. Something else.

So the big picture is, I think we all benefit from New York being one of the capitals of the world, the financial capitals of the world. And I don't think people across our country are going to be very happy if New York City's being allowed to erode.

Well, certainly it's not going to be good for tourism, is it? And it's not going to be good for anybody. I mean, it's just. It's just a bad deal all the way around. That's the way these things work. It really is. Tell us a little bit about the real estate specifically. And, you know, not necessarily because of this, but just in general. You've had such a long career in real estate and especially the housing component of real estate. I, I know your firms did all of a lot of different things, you know, in terms of office and specialty, like hospitals and so forth, but. But you did a lot of multifamily as well. So you have the residential side going. You know, what are your thoughts about that. Yeah.

So our business was we are and we're and have been building sales brokers, commercial building sales brokers. So 40% of our activity was representing owners of multifamily property, selling, financing, providing equity for those projects. It's been a fantastic business. In New York City is a massive market. It's the biggest market in the country. There are 200,000 investment properties in the five boroughs of New York. And when people visit Manhattan, most of the time they don't realize the breadth of the market. There are about 25,000 buildings in Manhattan, but there are 55,000 buildings in Queens. There are 88,000 buildings in Brooklyn, and then the Bronx has another 40,000. So spread around the five boroughs of New York are a very, very big and historically have been a very, very healthy market. So we have 8.5 million people living here. So the size of the multifamily market here is. Is very large. And except for recently, a very, very healthy market.

And so tell us about some of those big giant deals that you did there. And, you know, if any. Just any interesting stuff you want to share with that. I mean, you know, this is like, and I hate to mention it, but Donald Trump scale deals. Right. You know that I read his book when I was 24 years old, and I have to say it inspired a lot of my real estate career. Yeah.

Well, the residential market has been very, very healthy. The success to our business is that we focused on each submarket. So There are roughly 55 neighborhoods in New York City, very distinct submarkets in each of the boroughs. And we had a team in each of those markets. So that was a competitive advantage. And we also focused on the middle market. So about 85% of what we did is in that 2 million to $100 million space. We didn't play as much in the. The large trophy apartment building space, but we loved the area that we're in because it was 85% of the velocity of the market. Very fractured from a competitive landscape perspective and very profitable from a brokerage perspective because the clients wanted the premium that our company could deliver. So. And our fee was relatively nominal relative to the upside that they can unlock in selling. So we fell into a lucky market share position, which we held for 15 years, got to a point in Manhattan where we're repping one third of everyone was selling their building. And then we branched out into the outer boroughs, kind of. We joke. Before Brooklyn was Brooklyn. We've been all over the city for a long period of time and have enjoyed that Position.

Yeah, yeah. What kind of cap rates do they see on multifamily in New York City nowadays? I mean, it just sort of surprises me that people buy those kinds of properties. They're just, they're so expensive. So the cap rates are so poor.

Yeah, well, the historical appreciation again, barring the last year or two, had pretty. Yeah, roughly probably 8% compounded over a 40 year period. And Warren Buffett always says that 8% compound is the most powerful thing in the world. Oh, sure, we've seen great rental growth, we've seen great asset appreciation. And so it has benefited people and caused people to be willing to pay occasionally in the high threes on a cap rate basis, but more recently probably in the low fours. We're now bifurcating the multifamily market analysis that we're doing to put a cap rate on fair market units to the extent that they're in a property. The fair market units at one cap rate and the rent regulated stabilized fair.

Market unit means just not rent controlled.

Fair market unit means that it was taken out of the rent regulation program. So we're capping those still in the low 4 range and talking with our group and strategizing because we don't have that many data points, but capitalizing the rent regulated units more, closer to probably a 6% return.

6% return means the cap rate. Yeah.

6% cap, yep.

Well, that's not bad at all. Right, right.

But you're going to look and you're going to say, well, that's strong, but am I going to be able to move the rents up? Am I going to be able to maintain that net income? And that's a big question mark now with the new legislation. So you don't know in effect whether you're buying a diminishing asset which would make cap rates even higher.

Yeah, yeah, that's something. Yeah. Give out your website and tell people where they can find out more.

Well, I've enjoyed talking to you, Jason. This has been fun. And for anybody who wants to talk about the New York City market, we're@b6real estate.com. that's B as in boy 6 as in the number real estate.com.

Excellent. And Paul, I'm curious, you going to run for office again in any capacity?

I would have loved that job. I think I'm very happy with our new business right now and I think I'll probably miss the next cycle. But you never know. It was a very, very positive experience and I'm a huge New York City fan.

Good stuff. Well, thanks for joining us.

Thanks Jason, very much. Nice talking to you.

Thank you so much for listening. Please be sure to subscribe so that you don't miss any episodes. Be sure to check out the show's specific website and our general website, hartmanmedia.com for appropriate disclaimers and terms of service. Remember that guest opinions are their own, and if you require specific legal or tax advice or advice in any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to itunes or Stitcher Radio or whatever platform you're using and write a review for the show. We would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.