As New Yorkers' own love-hate relationship with the residentialversion of rent control has shown, such regulation comes fraughtwith so many problems, both macro and micro, that it can end uphurting the people it is supposed to benefit. Certainly this willbe the case with commercial rent control which is a foolhardyattempt to tamper with a real estate transactional market, a marketproviding a fundamental stimulus to local enterprise and to thelong success of our city as a world financial capital.

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No one doubts that ours is a free market that runs in cycles.Through the 1990s and the early part of this decade, office spacein New York was relatively plentiful and reasonably priced for anytenant willing to look and negotiate. In the middle part of thedecade, office rents soared to unbelievable heights, causing alandlord's market and forcing some companies to relocate, close orsettle on an unwanted compromise.

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Now, with the economic downturn, tenants are back in thedriver's seat and in a position to negotiate leases on the mostfavorable terms. While this tenants' market will not last forevereither, it is testament to why this market must remain unbridled bypolitically- motivated city legislators.

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The proposed bill would require that a landlord submit tomediation and subsequently formal arbitration if they and theirtenant cannot agree on renewal terms. The bill further freezes atenant's increase at the end of a lease until they come to termswith the landlord or unless the landlord receives a higher offer tofill the space.

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Such a law would create more difficulties than already existsand do little, if anything, to help tenants. The result would be aparalysis of the real estate market and a host of disincentives forlandlords and tenants to do business, a consequence that wouldfurther cripple our already struggling economy.

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Landlords, for example, instead of being fairly compensated bythe market, would expect limited or no return on investment. Theywould have no incentive to invest in or maintain property becauseof an inability to replenish capital and recover increases inoperating expenses such as fuel, electricity, and labor. Over time,as we have seen on the residential side, there would be adeterioration of building stock from lack of maintenance, cleaningand attention. Hallways would be dirty, HVAC would not function andwindows would begin showing cracks. Buildings and eventually theentire city would seem run down.

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Furthermore, landlords would have no incentive to negotiate ingood faith if there were a third party who imposes a solution. Whynegotiate in earnest, if an arbitration panel might provide abetter deal?

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Tenants, on the other hand, would have a false sense ofentitlement and not be inclined to engage in good faithnegotiations. The bill would replace the currently healthygive-and-take with posturing "to make points" that would later beeffective in winning over an arbitrator. The atmosphere wouldchange from free face-to-face exchange and negotiation to one of acourtroom where parties are adversaries.

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Tenants would be more inclined to remain in offices that are thewrong size or located in the wrong place, just as home renters havea powerful incentive to stay put under rent control. This wouldmean that other prospective tenants who might be able to better usethe space would be shut out. There would be no incentive to achievethe best use of properties and a greatly reduced or nonexistentmarket for commercial space. Fewer deals would be consummated.

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Think about it. We will have an illiquid market and tenants andlandlords behaving and making decisions for all of the wrongreasons in a market that depends on the smooth functioning of itsreal estate stock.

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Over time, rent control would subsidize businesses that are notcompetitive and keep out other, more competitive businesses.Transactions would go into a long-term hold file as the waitinglist for arbitration decisions lengthens, reducing the amount ofbusiness done in New York. Some business may be forced to moveoutside the five boroughs just to get a deal done. Others willchoose to do so because they prefer a real estate market not drivenby coercion.

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Finally, consider the economic impact. One critic estimates aloss of over a billion dollars in tax revenues. Many constructionjobs would be lost as well as jobs for the people who clean,maintain and renovate existing properties. Of course, New York willlose jobs of highly paid executives who seek an effective,responsive marketplace. We need more jobs, not fewer, in New Yorktoday.

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Marisa Manley is president of New York City-based CommercialTenant Real Estate Representation. To contact the author, click here.

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The views expressed in this article are those of the authorand not GlobeSt.com.

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