Why the Rich secretly LOVE Mamdani for Mayor.

The coverage this Mombi guy has been

getting is crazy. Look at this. Boca

Ratan mayor trying to lure people away.

Apparently, people are freaking out

because there's talk about him uh

wanting to tax richer and whiter

neighborhoods more and suggesting that

billionaires shouldn't exist. A lot of

people actually agree with that, that

billionaires shouldn't exist. Carolyn

Levit this morning said misqued him and

said that wealthy people shouldn't exist

is what he said, but he actually said

billionaires shouldn't exist. So, this

there's a little bit of madness going on

on both sides, but that's that's pretty

common. Uh, it does look like you've

also got President Trump warning that

federal funding for New York could be at

risk if he wins, that he's a communist.

And I think that's very bad for New

York. And now other people are calling

him the Fidel Castro of New York. And uh

yeah, Boca Raton says, "Move to Boca

Raton, the mayor, because uh we won't

tax you like Mom Dami will."

Interesting. But we've got more to talk

about with Mom Dami. Last week, we

talked about Mom Damiy's interest in

freezing rent. And we talked about how

ironically when you freeze rent, you

actually constrict the level of housing

that's available because well rent

freezes often apply to larger

multifamily properties. So you

disincentivize building vertically and

turning duplexes into like 10unit

apartment buildings and adding supply to

Manhattan or Brooklyn real estate. So

what ends up happening is prices go up

over time. Last week, we in our video

showed how an over supply of new homes

in Austin, Texas led prices to come down

and rents to come down, whereas

Democratic policies that constricted

supply led rents and prices to go up.

So this is where the economist looks at

what Mami says and what the likely

results are going to be and sees the

problem that Mamiy's policies are likely

to make housing more unaffordable.

Which ironically a lot of people like

Mombi because they're like, "Oh well, if

Wall Street doesn't like him or rich

people don't like him, then he's my

guy." But the irony is rich people who

already own real estate in Manhattan

benefit from someone like mom dami

because you're going to build fewer

homes making the existing stuff more

valuable. So the existing owners,

imagine this, the existing rich get

richer under a mom dummy.

The new people trying to get in get

screwed and you stay a forever tenant.

You know, this is why people like what

happened in Austin where, you know,

prices became more affordable again.

More affordable, not as affordable as it

used to be, uh, but prices came down

because we built more, right? Okay, this

is important when you're thinking about

investing and understanding real estate,

the economics of this. But now, this is

a new piece here out from the uh, Wall

Street Journal financial analysis and

uh, commentary section. Uh, it says rent

freeze to chill office conversions. All

right, this is a big deal. So commercial

real estate market has really slowed

down in most cities because banks have

lost a lot of money on commercial

mortgage back securities. Uh and that's

because postcoid fewer people work in

the office. We have hybrid work

environments and offices are just less

desirable. A lot of offices in Manhattan

are from the 60s which are really hard

to turn into residences. So you see a

lot of 1920s offices get converted into

residences. A lot of the ' 60s buildings

probably have to be rebuilt because of

how they're designed. Think about like

those, you know, think like 1960s

cubicle office. Okay, that's kind of

what you have to think about. Uh and

yeah, here's here's kind of I mean this

is an extreme kind of like picture here.

Uh, but think more more like this where

if you you have windows along the

outside which makes it really hard to

make apartment buildings because what a

lot of them try to do is they actually

try to core out the center of the

building and then you have windows in

the middle and then you can make

apartments all the way around. But

there's a lot of work involved in that.

You know, trying to convert one of these

sort of floors, these 1960s style

buildings from these cubicle office

disasters into a functional building is

for residences is hard. The 1920

buildings weren't that bad. We've looked

into a lot of this stuff with my real

estate startup. How I know a little bit

about it. But anyway, uh I thought this

interesting. This piece was very

interesting. Rent freeze to chill office

conversions. Basically a way of saying

like, hey, if there's a threat of an

office freeze, people might not hire

architects to try to redesign these

buildings because why spend the money if

it's just not going to be profitable to

do it? And so you'll just have more

abandoned offices and once again fewer

homes. turning Manhattan's unloved

offices into apartments is becoming a

profitable venture. True. And we want

people to make money because it means

they're providing a service that people

are willing to pay for, right? Like you

don't like if if somebody told you, hey,

you know,

go build that fireplace for your

neighbor and we'll buy you a meal and be

like, bro, I'm going to need more than a

meal. Like I I I can subsist off the

meal, but like I need to be in business

to make a reasonable profit. Doesn't

have to be an excessive profit. the

reasonable profit, right? So, the

potential unlocks a new source of supply

for New York's housing market, right?

So, like firms come in, they convert

office projects to uh essentially

apartment buildings. This makes sense.

Uh okay. So, then what we have is in

theory this uh MAMI's rent freeze should

not affect office conversions because

these are new units coming to the

market. However, the conversions

typically take advantage of a tax

incentive that gives them a 90%

tax break exemption for up to 35 years.

This is something that we noticed as

well when we were looking at investing

in Brooklyn is that if you add units or

there have been plenty of other

circumstances, you might get tax

abatements that lower your taxes if you

invest in the area to provide rental

property to people. So, this is a really

big thing that that boosts cap rates in

the areas. However, to qualify, 25% of

the apartments in the conversion have to

be rent stabilized, but rent increases

on those apartments are decided by the

city's rent guidelines board. The

mayoral election is obviously still way

off, but if these get hit by the rent

freeze, they could end up stalling the

office conversion market because people

aren't sure that they would get their

tax breaks. around 16% of New York's

office is empty uh office space. That's

crazy. So that's like one in six office

units are just vacant right now. Only

1.4% of the apartments are empty,

showing a really big shortage, right?

Turning those old workplaces into homes

is starting to make more financial sense

because of that difference. Big reason

is owners of distressed offices are

getting more realistic about what the

buildings are worth. So they're selling

them for 20 to 30 cents on the dollar.

These discounts make the math work on

conversions.

Makes sense to compensate for the loss

of office values. Uh we yeah ended up

getting I mean sometimes discounts as

much as 50% now. Well larger well I

guess 20 to 30% on the dollar would be

potentially as much as 70 to 80%.

Uh offices are also about 56% cheaper on

average right now per square foot

compared to multif family. This makes

sense because an office per square foot

is usually just well like blank cubicle

space. Each square footage relative is

ever relatively the same. Whereas in a

house, you know, you have a kitchen, you

have landscaping, entertaining rooms.

The rooms are much more complex than

what you have in an office. So it makes

sense that home uh square footage is

usually more expensive. New York City

has a high share of offices that are

ideal candidates for conversion. 19.5%

of the total stock is feasible for

conversion compared to just 4.6%

nationwide. This is because a lot of the

city's office stock is close to

well-located transit hubs. In other

words, it would be great to keep

converting these empty office buildings

to functional places people can live.

But again, if somebody like Mami kind of

puts a wedge in this, you or like what

what do we call it? a gear and a wrench

in the gears, then uh then again you're

making houses more unaffordable because

you're not bringing this supply to the

market, which again benefits the

existing rich people who already own.

Now you're not benefiting the rich

people who are doing the conversions

because they're just like, "All right,

I'll go invest somewhere else, but the

people who are already rich who already

owners, they benefit."

Developers also need to uh carefully

reconfigure the layouts to maximize

rents. It's a bit like the Rubik's cube.

Yeah, we know that. Uh the attraction of

conversion is that they can be done much

faster than building from scratch,

usually in 18 months compared to 3 years

to build for new. That creates lower

risk for investors to provide housing.

Here's how rent freezes could complicate

things. Developers currently pick up old

offices for around $300 a square foot

and spend another $450 on conversions.

Works out to about $750 in total costs.

They could sell for about $1,000 per

square foot. A rent freeze of 25% on the

units would make it much harder to flip

these converted apartment buildings to

investors who would then hold them for

the longer term. Yeah. Right. That's

because usually what happens is the

builder doesn't hold it. Usually the

builder sells it to an investor who's

then going to rent it out. Uh and if you

have a rent freeze, the builder can't

sell it for enough uh to actually profit

on the build. So they just don't do it

because the investor's like, "Nah, bro.

I'm, you know, rent freeze, bro. I'm not

going to be able to actually get what I

need for these units. And so, you just

don't build it. It's interesting. It

adds another sort of wrinkle to the M

dami equation. You know, one thing you

find with people like Mammi is they say

things that are really popular because

they're essentially a style of populist.

Yeah. And and I always get concerned

like

is M dami like there there are two

options. Does M dami not understand

basic economics? in which case he's just

dumb in economics. You know, he could be

socially smart but dumb in economics.

Or does he understand that his economic

policies are dumb, but he doesn't care

because he thinks other people are

dumber and they're going to vote for his

dumb policies so he could get into

office. That would make him not dumb, it

would make him evil.

So, I guess there's that risk, too. Why

not advertise these things that you told

us here? I feel like nobody else knows

about this. We'll we'll try a little

advertising and see how it goes.

Congratulations, man. You have done so

much. People love you. People look up to

you. Kevin Praath there, financial

analyst and YouTuber. Meet Kevin. Always

great to get your take.