It's Up To You, New York, New York

The Real Estate Espresso Podcast

It’s Up To You, New York, New York

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It’s Up To You, New York, New York

Welcome to the Real Estate Espresso Podcast. Your morning shot at what’s new in the world of real estate investing. I’m your host, Victor Menasce. On today’s show, we’re talking about the mobility of wealth. Everyone I know, folks I speak with in New York City, are extremely fearful of the change that appears likely in the mayor’s office next month.

Based on early polling results, many are in fact considering leaving the city. Even those who want to continue to work in the city are moving to nearby cities and states. Some are moving to New Jersey, some to Connecticut, possibly others to Pennsylvania. New York City has become a tale of two cities.

There’s a lot of wealth in Manhattan specifically. Roughly 350,000 millionaires are concentrated in a small radius on the island of Manhattan. There are also about 120 billionaires in New York. But New York is more than just a financial capital. It’s a city of 8.5 million people spread across the five boroughs of Manhattan, Brooklyn, Queens, The Bronx, and Staten Island.

Last night’s mayoral candidate debate pretty much sealed the outcome for the election. We’re only 19 days away. Front-runner Zoran Mondani is an eloquent speaker, he speaks nonsense with conviction, with stories and with data to back up his nonsense. A great orator can be persuasive, as we saw with Obama, who might just be the greatest orator of his time.

New York was a city, a corporation. It’s unlike the federal government which can print green pieces of paper at will. A corporation and a city need to balance their books, they need to afford their expenses from the revenue sources. Cities are not allowed to borrow funds to pay for day-to-day operations, even though there’s many examples of New York having done that in the past.

When asked how he’d pay for his utopia, offering free buses, free child care, city-run groceries, and state-sponsored everything, Mondani pointed to a shining beacon of fiscal competence in that economic center of gravity next door, New Jersey. He said he was going to raise business taxes and get the money there just like New Jersey has.

So, let’s look at where New York City gets its revenue. The number one source, of course, is from property taxes. They obtain about a quarter of their revenue from property taxes, approximately $35 billion a year. The second source is intergovernmental funding, specifically from the federal government. That’s about $12 to $13 billion on any given year. Then there’s personal income tax, a local New York City income tax, accounting for roughly $18.5 billion, though it’s a highly variable number. They also receive anywhere from $14 to $18 billion a year from the state of New York, plus $10.3 billion in sales tax and around $10.3 billion in business income tax.

We go further down the list and there’s various miscellaneous revenues, including real estate transaction taxes of about $2 billion. Then we get into some of the smaller line items. Now, my family is from New York City. I recall what it’s like to have a bad mayor in the office. I remember the days when Abraham Beam and David Dinkins were mayors. The city was bankrupt back in 1975. The city’s infrastructure was crumbling and water main failures were a nearly daily occurrence.

The most immediate cause of the crisis back in those days was unsound budgeting and accounting. Mayor Beam failed to reverse many of the sins of his former mayor, despite the fact that he had been the financial controller in the city prior to being the mayor. Perhaps that’s a clue. The city routinely and illegally used long-term debt, specifically bonds, which should only fund significant capital projects, to pay for routine operating costs. In the 1974-75 budget, roughly $715 million of operating costs were improperly moved to the capital budget to disguise the deficit.

Now, city spending had been expanding at a rate much exceeding growth, boosted by the expansion of social services and bountiful politically negotiated labor contracts. If this is sounding familiar, it’s because the city has seen this movie before—with different actors and the same plot. And it will have the same outcome. If we examine the city’s current financial health, the monitoring agency, specifically the New York City Controller’s Office and the Independent Budget Office, concur that the immediate budget is technically balanced through the use of prior year surpluses. However, the longer-term outlook is precarious.

We need to recall that New York City has already experienced a measurable loss of taxable income, particularly following 2021. That migration has been particularly high among high-income earners, those making over $200,000 a year. The number one destination is Florida, primarily due to its lack of state income tax, it is the top destination attracting people out of New York City. This migration trend is quite familiar. My uncle, who lived on Fifth Avenue, also had an apartment in Palm Beach, he declared Palm Beach to be his primary residence. Thus, he was a Florida resident, despite mostly living in New York. As a result, we could see an outflow of both income and wealth from the city.

I understand that people who don’t understand money think that someone else is going to pay for their sense of entitlement. Free stuff can be attractive on Election Day. In the 1970s, it was hard to believe that New York City could ever recover from the terrible condition that it was in. Many believed it was doomed to a life of decay, crime, and outright chaos. We’ve seen the resurgence of the city, slowly at first under Mayor Ed Koch and then more recently under Mayors Rudy Giuliani and Michael Bloomberg.

This podcast is about real estate and real estate investing, not New York City politics. So why are we discussing this? Because businesses are not going to return to New York, and these wealthy people are not coming back to New York either. The situation in New York is going to be grim for a while. And if wealth is leaving, the critical question is, where is it going? Where are these people relocating, and who will be the biggest beneficiaries of New York City’s loss?

We’ve seen a kind of ebb and flow in markets in Florida. From the period of 2020 through 2023, we saw a significant movement from New York into Florida. Things slowed down and maybe even reversed a little bit in 2024 and 2025. But I predict it’s going to pick up again in 2026. It might just be time to re-invest in Florida again. Of course, that’s not the entire state; some areas will be more desirable than others for this wealth that’s leaving New York. As you think about that, consider conducting additional analysis on submarkets in Florida.

Have an awesome rest of your day. Go make some great things happen. We’ll chat again tomorrow.

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