Partner Eric D. Sherman, a member of Pryor Cashman's Real Estate Group, was one of three industry insiders featured in The Real Deal's recent Q&A examining New York City's commercial rent tax reform. Below is an excerpt from the interview.
How will the new commercial rent tax exemption bill impact the retail market?
I think the City Council's new bill — which, among other things, raises the exemption to $500,000 for businesses with income of $5 million or less — is long overdue and will provide some much-needed relief for Manhattan's small businesses and retailers.
There are questions about whether a commercial rent control law would be constitutional. What potential legal snags do you see?
Any law or regulation that forces people or business to enter or remain in contractual relationships with one another is bound to be subject to constitutional criticism.
How might commercial rent control affect New York City landlords?
If these measures became law, they would have the same effect as residential rent regulations: They would benefit insiders at the expense of outsiders. Tenants in place today would benefit from the protections in these laws. But those seeking to enter the market in the future would be penalized, as rents would escalate due to the diminished supply of [available] space. Landlords would also be more likely to lease only to the most creditworthy, least troublesome and substantial of tenants if they feel as though they might be "stuck" with a tenant.
Some elected officials have floated the idea of a vacancy tax. What would that do to the market?
A vacancy tax might have the effect of inducing landlords to reduce rents or otherwise take measures to more quickly lease vacant properties. But the other side of that coin is that such a tax likely would also discourage landlords from investing in their properties, which could suppress values and increase blight.
What do you think would be the most crucial legislative change that could help boost the city's retail market?
Enhancing the streetscape in NYC could drive more traffic into stores. If the retail experience is made more pleasant, because our main shopping arteries are furnished with attractive street furniture, expansive sidewalks, bike-docking stations and other amenities, they could better compete with e-commerce.
To read the full Q&A, please click here.
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