For many people, 2022 yielded a new “normal.” While dreaded pandemic lock downs fortunately did not recur, many businesses grappled with limited availability of labor, supply chain delays and inflation pricing. While residential real estate prices softened somewhat, interest rates rose. While some businesses downsized their office space as more employees worked remotely, other business expanded their leased premises, taking advantage of reduced rent opportunities.
As 2022 draws to a close, we gaze into our crystal ball to see what is in store for 2023. In general, we maintain a positive outlook and we look forward to working with our clients to help achieve their goals.
The Residential Housing Market in 2023
While interest rates are expected to continue to rise in 2023, there may be some good news for home buyers. Some sources predict that home prices may fall as much as 5% in 2023. After several years of rapid growth, these price reductions will surely be welcomed by purchasers and, in particular, first-time home buyers.
Most local real estate brokers will tell you that inventory remains low. Interestingly, we have seen a trend toward older couples selling their homes in New York and relocating to other parts of the country to be closer to family or warmer climates with year-round outdoor recreation opportunities, including golf and fishing, etc and a lower cost of living. We expect to see that trend continue in 2023, especially as more people have the option to work remotely.
During the pandemic we witnessed a mass exodus out of major cities. Since that time, we have seen people gradually returning to the cities. The New York City housing market has seen a resurgence, especially in desirable neighborhoods in Manhattan and Brooklyn, including new construction. Barring unforeseen circumstances, we expect to see that trend continue in 2023.
We look forward to working with residential real estate brokers, buyers and sellers to close existing and new deals in 2023.
NYC Local Law 97 Preparedness in 2023
Local Law 97 became effective on November 15, 2019. The law limits greenhouse gas emissions from buildings in New York City beginning in 2024. Therefore, we expect to see building owners preparing in 2023 for compliance with Local Law 97. The law is designed to achieve a 40% reduction in greenhouse gas emissions by 2030 and an 80% reduction by 2050. Certain buildings must take prescriptive measures to reduce energy consumption by 2025. The law includes reporting requirements and deadlines and stiff financial penalties for noncompliance.
By way of background, buildings are the single-largest source of greenhouse gas emissions in the City of New York. Local Law 97, passed by the City Council in 2019 as part of Mayor de Blasio’s “Green New Deal,” is designed to address these harmful emissions thereby creating a more sustainable City.
Implementing emissions reducing technology and meeting reporting deadlines may result in significant costs to building owners. We expect this issue to be addressed in lease agreements and other transactions in the future.
For more information about Local Law 97, click here.
The Commercial Leasing Market in 2023
In 2022, we saw the retail leasing market improve dramatically, especially in New York City. Generally speaking, occupancy rates increased and so did rents. Existing tenants expanded their demised premises, especially medical office and professional office. Landlords refinanced and pulled equity out of their buildings before rates increased further. The restaurant and bar industry continued to recover and, in some cases, took advantage of new opportunities to expand.
In 2023, we expect to see more of the same with one wrinkle. More commercial landlords seem to be requiring Letters of Credit in lieu of cash security deposits. A Letter of Credit is considered to be largely “bankruptcy proof” whereas a cash security deposit can be “frozen” if the tenant declares bankruptcy. While tenants may prefer a Letter of Credit for cash flow reasons, Letters of Credit can take time to process. Therefore, there are some nuances to be aware of and drafting these clauses to satisfy the landlord but give tenant some flexibility, particularly on timing, can be tricky.
In 2023, we can also expect to see the legalized cannabis industry blossom in New York. Cultivators may lease raw land. Processors may lease warehouse space and light industrial spaces. Dispensaries and Consumption businesses may lease retail storefronts. Law firms, accounting firms and other professionals serving this multi-billion-dollar industry may also expand as they staff up. Perhaps in the long term, the federal prohibition and resulting banking issues confounding the cannabis business will also be addressed by Congress.
We look forward to working with commercial real estate brokers, landlords and tenants to complete existing and new deals in 2023.
Telecommunications Leasing in 2023
In 2022, we assisted some commercial landlords with leasing space to wireless telecommunications carriers for rooftop antennas or cell towers. Other landlords with existing telecommunications tenants considered assigning the leases to third-party management companies. As wireless carriers such as Verizon Wireless, T-Mobile and AT&T expanded their 5G network, we also saw some local municipalities balancing with compliance with federal law and minimizing the visual impact to nearby residences.
In 2023, we expect to see the wireless carriers continue to expand their 5G network and seek to remedy gaps in service both from a coverage and capacity perspective. We may also see new entrants into the wireless telecommunications market as smaller carriers obtain FCC licenses and seek to co-locate on existing towers. Lastly, we expect to see commercial building owners continue to contract with telecommunications providers to bring fiber optic lines into their buildings, especially to serve commercial tenants.
We look forward wo working with commercial landlords and municipalities alike to address telecommunications matters in 2023.
What to Expect with Land Use/Zoning in 2023
Due to state-wide legalization of cannabis for adult use, we expect municipalities to amend their zoning codes to address this new industry in New York. Presumably municipalities will limit the “time, place and manner” in which such businesses are permitted to operate, similar to restrictions on liquor stores, “vape” shops and bars. Some municipalities who “opted out” of dispensaries and consumption sites may choose to opt back in.
In addition, some municipalities will continue to make efforts to revitalize depressed downtown areas. We expect to see some rezoning efforts similar to that which occurred in places like Yonkers, Port Chester and Mount Kisco. Other municipalities will continue to work on their longer-term Comprehensive Plans and address environmental issues including stormwater management resulting from global warming and a trend toward more extreme weather events.
We look forward to working with applicants and municipal clients alike to address land use and zoning issues in 2023.
What to Expect with Trusts & Estates in 2023
Over the past few years, we have seen a steady uptick in estate planning. In general, older clients continue to update their estate plans as life circumstances change and younger couples seem to be completing their first estate plans.
For younger families, the couple sometimes desires to appoint a guardian for their children and pets. Others seem to be more focused on completing a living will (i.e. health care proxy) and durable power of attorney. Still others wish to make specific bequests of personal property, such as a valuable coin collection or jewelry, such as a wedding ring that has been passed down through the generations. In short, young families are acknowledging that estate planning is not just for elderly and/or high net worth individuals.
It should also be noted that as of January 1, 2023, the New York State estate tax exemption is estimated to increase to $6,540,000. This is almost half of the federal estate tax exemption. New York residents should be thinking about the large estate exemption discrepancy when planning to gift assets in trust during their lifetime. Without estate planning, a New York resident’s estate may pay up to a combined federal and state estate tax rate of a whopping 49.6%
The gift, estate and generation skipping transfer (“GST”) tax exemption will also increase substantially in 2023.
These threshold increases create estate planning opportunities to maximize one’s legacy, make charitable gifts and minimize estate taxes that go to the government. We look forward to working with clients in 2023 to create new estate plans and update existing estate plans.
For questions or general information about our firm, please contact us at (914) 338-8050 or send an e-mail to email@example.com. We look forward to hearing from you.
Betensky Law PLLC
118 N. Bedford Road, Suite 302
Mount Kisco, New York 10549
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