The budget mess in Albany has had landlords feeling the pinch as some state tenants in Manhattan have put off paying rent for months until New York can get its fiscal house in order.
Landlords and representatives from the state agencies say that some tenants have been unable to pay their rent since April, when the state’s current fiscal year began with legislators unable to come to an agreement on a budget.
Since then, the deadlock between the State Legislature, Senate and Governor Paterson on how to close New York’s gaping $9 billion deficit has dragged on, with lawmakers instead passing a series of emergency extensions to keep the state running in the meantime but that have left a number of agencies without the funding to pay their rent.
“Some agencies have been behind on their rental payments because the state has run out of money three times since last year,” said Erik Kriss, the state’s budget office spokesman. “The April budget extender was really bare bones and didn’t contain the authority for tenants [in some cases] to make rental payments. It has been our intention to pay late, but we will pay our rent when we are able to stabilize the cash flow situation.”
The budget impasse has forced a collection of building owners in the city to forgo rent collections from state offices, many of whom are located in lower Manhattan, an office neighborhood already hard hit by the downturn in the leasing market. At 217 Broadway, a roughly 200,000 square foot building near City Hall, the New York State Office of the Medicaid Inspector General (OMIG) has stopped paying rent for its roughly 20,000 square feet of space of space and also put a planned expansion of about 5,000 square feet on hold.
The OMIG also has space at 90 Church Street, a building owned by the large New York City landlord Boston Properties. At 90 Church, both the OMIG and another state tenant, the Public Service Commission, haven’t paid their rent due in May or June according to a knowledgeable source.
“We can’t do anything until the budget is passed,” said Wanda Fischer, a spokeswoman for the office. “The landlord is well aware that as soon as the situation is cleared up the rent will be paid in full.”
Although the sense among landlords is that the state will eventually restart payments and settle its back rent, the hiatus has been enough to prompt some to begin prodding for a clearer sense of when.
“We’re trying to get the ducks in a row and begin to have a dialogue with them to get a better sense of the situation,” said Sam Saegh, an executive at Wolfson Real Estate, a real estate company that owns a number of buildings downtown and has a handful of government tenants currently in arrears because of the delayed budget. “We just sent out a notice to one so that we’re on record that they’re late and that we’re starting a dialogue. We’re asking questions such as when they think the payments are going to start again.”
As of Monday, it still wasn’t clear if the state would come up with a budget plan after the State Legislature rejected Gov. Paterson’s emergency extension bill over the weekend on account of the spending cuts it sought.
Ironically, state tenants are usually considered among the most secure because of their creditworthiness. The situation hasn’t yet sullied the state’s reputation among real estate circles, but a sense of understandable frustration has begun to grow.
“It’s not like I can tell Con Ed and Keyspan and the bank holding my mortgage that I will begin paying them when I get my tenant to pay,” said Nathan Wasserman, an executive at AM Property Holding Corp., a real estate company that owns a number or buildings downtown, including 123 William Street, where Wasserman says that he has a handful of state tenants some of whom haven’t paid since April.
Wasserman said that the impact of the loss in rental income has been limited because the state offices occupy only a small portion of the building. But Wasserman said that the rental delays combined with separate efforts by the state to require their landlords to begin paying higher wages to building workers such as maintenance men and janitorial staff is beginning to prompt landlords to reconsider whether state offices will continue to be a preferred class of tenants.