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The Real Estate Addicts (REA) podcast is a must-listen for anyone interested in real estate development, investment, construction and entrepreneurship. Each episode dives into a wide range of industry topics and features conversations with savvy, successful entrepreneurs who candidly share their career paths, challenges, breakthroughs, and the stories behind the remarkable companies they’ve built. Expect big personalities, thoughtful insights, and conversations that both educate and inspire.
Co-hosted by Ray Hurteau, Dan Rubin (Instagram: @rhinvestgroup), and Marc Savatsky (Instagram: @choose_boston)
Follow the Real Estate Addicts Podcast on YouTube: @RealEstateAddicts
00:11
You want that on video? the Real Estate Addicts podcast with your host, Marc Savatsky, Choose Boston. Ray Hurteau, RH Investment Group. Dan Rubin, RH Investment Group. oh This episode is brought to you by the Union, which is a collaborative real estate, it's a co-working space for real estate professionals. Our soft launch was April 1st, that's like when you open the restaurant, but you only invite your friends in case.
00:41
you know, takes two hours to get food. How the food come out. The food so far is excellent. It is not a restaurant. No, honestly, like the energy in there. good. It's been awesome. That's great. Yeah, we're we're like co founders of it as well. And it's a very cool space, I have to admit, like you did a really good job with it. And we'll have to do some episodes from there for sure. If you you'd if you'd have us.
01:04
Oh, now now. I'm doing what you do every every week. Mark has dissected the microphones here in this this episode. This not how this is not a judgment of how Mark Pibbles. I mean, I've seen like screws nuts and bolts. This is not good work. OK, I'm doing that motion. All right. On the ballot right now, Massachusetts is rent controlled. Yes. The hot topic. There's a ton of discussion back and forth.
01:33
I think folks likely know where we stand on it, but there's a little more to the story and Ray has been educating Dan and I. So we're going to kick this one to Ray Ray. Tell us what it passes, right? Let's say it passes. Do you think it's going to pass? And if so, what does that mean? take those one. Well, maybe we should, maybe we should back up and like, how did we get to this point? Right? Like, how did we get to this on the ballot? Correct. Yeah. So a petition was started by ordinary citizens and.
02:00
It's funny, if you read those, you'll find like half of them are the same, like three people. So someone's really active out there, uh, creating petitions, but it's no surprise that rent, the rent is too damn high and, uh people are rebelling and they want rent control in place. And, uh, Mark's gonna definitely try and make me laugh on this. If you're listening to this on Apple podcasts or anything, do us a favor, just check out YouTube and just, this is entertainment.
02:29
So it started as a petition. got enough signatures to get on the ballot. The AG, the attorney general, Andrea Campbell, she's certified that it will go on the ballot. But before we get to the specifics of it, because, well, we'll cover what high level, like what it is. Essentially, it repeals Chapter 40P, which was the 1993 and 94 ballot initiative where they essentially banned rent control statewide. Yeah, so Massachusetts did have rent control for a very long time.
02:58
It had local options and I believe Brookline, Cambridge, I'm forgetting the third, Boston. They all implemented some flavor of it. And, you know, the interesting thing about Massachusetts is that everything that you want to bring locally that would be a statewide issue or even something locally, like a home rule petition. So city of Boston's tried to do this a bunch of times passing some form of rates, rent stabilization, rent control. uh
03:25
It still has to get signed off at Beacon Hill, right? It's got to go to the state house. And while Massachusetts leans heavy to the left, the state as a whole is more balanced. even, know, at what point in time, even- mean Boston? Well, no, no. Massachusetts would pass something and then it's still got to get signed off at the state level. Boston would pass something. Boston would pass something. You basically said that the state is very liberal, but fortunately the state-
03:54
Yes, as a whole. Yeah, as a whole. I mean, I would say if you say Massachusetts, people are thinking. I would I guess I would say Eastern Massachusetts. Eastern Massachusetts. Yeah. There's enough more balanced representation. So long story short, um know, you can have you can have really strong feelings in one jurisdiction and you still need to go through the state or what you want. And yeah, it is it is things kind of.
04:21
But a lot of people get frustrated because nothing But if you put something on the ballot and the people vote to pass it, does the state legislature still have the option to repeal it or say no? Well, that was something we looked into. Does the governor have veto power? And she does not. So Maura Healey is our uh state governor here. And she has come out against it publicly um here in Boston, Mayor Wu's for it, obviously. But she wants a different flavor.
04:50
So it's kind of interesting that even when you have these goals aligned. Yeah, what's the flavor? So the flavor is a 5 % maximum annual increase or CPI, consumer price index, whichever is lower. So if inflation's like 3%, you can only go up on rents 3%, even if you're, and this is what we gravitate towards, like even if our expenses go up more.
05:19
There are some other carbouts, like if you live in a owner occupied building, you don't have to do it. Is there like a cap? No, it's 5%. 5%. Or, I'm saying like, what if you get a massive inflation? 5%. 5 % or CPI. That's crazy right now. I mean, with oil doing what it's doing and all the rest. Yeah. I mean, look at back when like we had really bad winter. To me, it's like you're going to tie into it.
05:48
Then tie it to 10 % that year. mean, what happens if you're only capped to five? happens if- two there, because our costs went up by 5%. Here's the real crap. What if CPI is negative? Like what if there's deflation? I mean, it doesn't happen often, but COVID was a great example of that. Like, do you have to lower your rent? So I don't know what this means in terms of implementation, like rent control boards and this and that and the other thing. It's a legislative nightmare and burdensome to implement in the first place. But I actually want to talk about the state audit. Familiar with that?
06:18
Quickly, there are, like you said, there are a few car votes, right? Owner occupied homes, think, is it four units or less? Four units or less, yep. And new construction. Are exempt. And they're occupied. Owner occupied. So if you own a three family, four family. And you live in it, you're exempt. But if you just own a small QN. Right, right. And new construction. New construction, you're exempt for 10 years. years. And I don't know if they're trying to backdate that. That's the other thing is they're trying to sort of
06:47
do this retroactive thing like California probably put it in their head. They want to increase their state income tax. And they go, well, if you left the state five years ago, you're still part of it somehow. like, all right, let's see if. But they haven't really, like, what if you're doing, what if you buy a 20 unit existing building and you've got it? Is that considered new construction or is that not considered new construction? It would not be included. It's not. if you essentially even on turnovers,
07:15
It's think of like New York city, right? New York city has rent stabilization. That's why all these units are mothballed because the ball has gotten so far off the court. Like you're not even playing basketball anymore, but the ball's in a swamp. Yeah. mean, you know, they New York city has rent stabilization. so you'll hear about units that just kind of sit vacant because they're decrepit. They've been run down. They, the costs to renovate them. You can't increase the rent and come back and recoup it. So.
07:45
let's say the units $1,000 and you bring it back to market, you could increase it by 30 bucks, that's 3%. And those don't quote me on those numbers, but long story short on that end, you can't readjust and reset. It's almost, you know. There's no incentive.
08:04
to renovate or improve your unit. You'll always get a thousand and thirty dollars like correct. Whatever just correct. Hey, I this sucks that I have to run it. The five percent is not worth spending 50 grand because your return on that 50 grand is 20 years. And a lot of and a lot of people I can already hear the YouTube comments. Oh, poor rich, you know, landlords not wanting to increase the rent and you know, God forbid you fix a unit like.
08:31
The dollars matter, there's only so many dollars. This isn't the government, right? We are a private business and we can't just issue bonds and just borrow money. So if you're capped at 5 % and then inflation is 7 % and then the city of Boston raises your taxes 10 % or 13 %- but they just did. So now your taxes are raised 13%, plus the 3 % overinflation of the 5 % cap.
09:00
So it's like every year, you're just going to continue to bleed. Yeah. It's, uh, you know, I think what's going to really speak to people is, uh, the financial argument. So basically everyone's, uh, taxes went up this past year and it's because the value of the commercial downtown spaces plummeted. Um, and that's in the rent rolls and the assessed value is plummeted. So what we took in as a city plummeted and, it's a fact, everyone's residential.
09:29
Tax rates went way up. They did get to make up for that shortfall So if you impose this all of the downtowns and those office spaces and those big multifamily buildings I just think they're gonna suffer and as a result, you know, everyone who owns a house today's what real estate taxes Is gonna suffer more. Yeah at the end of the day. That's what I hope carries today Yeah at the end of the day when you're talking about a municipal budget and taxes for real estate. You've got to understand it's
09:59
Here's the total dollars we need to spend for the year. Here's our approved budget. Here's the total tax base. And here's how it chops up. And yes, commercial and residential are separate. But ah I think with, I think the unintended consequences that everyone seems to always say we're wolf on ah is that, you know, oh, they're not going to build more or it's going to slow down or it's not going to slow down or we'll still be able to increase taxes and get more money from the landlords. And it's just not going to happen. There's a lot of downstream effects. But I wanted to get back to
10:29
the state audit in 2024. Did you guys know that the voters here passed a petition saying that we're going to audit the state legislative branch? OK. So that was on the ballot. And I'm lying. And I wasn't on the ballot. Who cares? I think, from what I've read, Massachusetts has a very strong constitution that protects the legislative branch from any kind of oversight. Only the legislative branch can really create an ethics committee internally.
10:58
oversight and I think with all the things that have been happening geopolitically, nationally and locally, the auditor, the state auditor wants to find out like, where did some of the money go? But the problem there is that by asking that question, the legislative branch is saying, no, that's like asking to audit instead of the finances, you're going to start auditing our legislative process and you're going to, you're going to have scope creep and you're going to start seeing.
11:27
things that you're not supposed to see or touching those things. Like what? They're just giving examples. Like you're gonna end up, you know, seeing how like caucuses are run or, you know, things that you're not supposed to, yeah, things that you're not supposed to see or be in scope. Why am I bringing this up? I know, why am I bringing this up? I know Mark is blazing over. I'm bringing it up because even though the voters voted for this, 72 % said yes.
11:55
Say you get the same turnout for rent control and you could have the same parallels to marijuana, for example, like when it passed in the state, they didn't take the exact text that was given to them that passed on the ballot. It's still a statute. It still has to go through the legislative process. So with Maura Healey being against it and others not coming out in full support of it and this legislative audit not happening and being fought tooth and nail, I think there's a potential that maybe some
12:24
more balanced reasoning may happen after it passes. So saying if it passes. So you're saying if it passes. Yes. Then the legislature still has the option to tweak the language? Absolutely. Oh. So we- what's the whole purpose of freaking out? voting on something. Well, I mean, that's the power of the legislative branch here in Massachusetts. And so this is more of like a therapy thing. Like, hey, let's not freak out about rent control. We hear about it all the time. Obviously we don't want any of it, but if it does come,
12:54
I certainly hope that the same amount of energy that's put into protecting the legislative branch will be put into providing some rational thought. Should we make some small little wagers here and come back and revisit this in November? I think we should. And I think it's important that we had this discussion. And I know you guys have been harping on this for a while, but I think you brought something new to the conversation. Yeah. mean, it's a question I get all the time. Is it going to pass? Am I going to crystal ball? Right. doesn't disagree. I don't think it will. I think it will.
13:23
Yeah, I think Dan and I think it will. I think it's gonna pass. And then where I guess where I'm gonna differ now is having gone down this journey and learning all these different parts of the legislative processes, whether or not we're going to actually see it in its raw form that it passes as the petition's written or if it's going to be tweaked. No, it'll be tweaked. I mean, I can tell you right now that other people that I've spoken to, like larger developers, I can say that
13:52
there's definitely a pause in people that are looking and acquiring and kind of waiting to see what happens. Yeah, I would say that NAOP is starting a big advertising campaign. NAOP is? It's like a trade association for real estate developers and professionals, but that's focused largely on what I was mentioning earlier, which is that like Joe, homeowner, your taxes are going to go up with the statuses. Yeah, and you're gonna hear a lot of.
14:20
And that's, think that's the problem with this is I just want it to bring sort of this middle of the road. I don't want to have a bias one way or the other. I do think that, you know, obviously I'm against it personally, but I do think that it's way more nuanced than a lot of the headlines give credit to. I hate the headline articles and stories because you got to get into the weeds a little bit. And Dan knows this. Dan knows, see the problem is I will go so far in the weeds that I'm into the reaps.
14:49
Ray has been asking us to do this episode for six months. But not in this incarnation. this as as you hoped? No, no, no, not in this incarnation. I wanted to talk about it from a middle of the road type thing. Like, what do we think will happen? And then this state audit thing is quite interesting if you follow it, you know. And if you don't, follow it. I mean, it's pretty interesting to see the attorney general is the only one that can represent the state auditor. And then the attorney general has chosen to represent the legislative side.
15:17
And now the Supreme Judicial Court's gonna get involved. Now, do I think this is gonna get, if rent control passes, do I think it's gonna be this play out the exact same way? Hell no. I think there's gonna probably be some infighting and maybe you'll see some of these trade groups come through and try to claim it's unconstitutional or it's some kind of takings, but there's rent control in other places. So I don't know if it's gonna reach that level. I'm not really sure. I mean, there's lawsuits now against.
15:44
affordable affordable housing, similar or similar to the bull frames. Yeah. Just say like some illegal taking of property. Yeah. So find out. don't get like gender, you know, if you own restaurants, you don't have to see like 20 % of your diners who can't around food stamps and you can't can't afford food. Like great if you do. And, know, if you're a developer and you want to subsidize in that way, like fantastic. Like why is this the one profession? Pharmaceuticals aren't even forced to sell their life saving products to at a certain rate.
16:14
Why is real estate falling to the special category? Probably the biggest line item of people's lives, right? Like it's supposed to be a third of their income in theory, you know, in a healthy economy. And here it's probably closer to 50%. But. Cardial issues don't have to sell to a specific. don't mean to sell them to companies or screws. They're Where they? They're chair of the stuff and I'm here for it. But like, just don't like being forced. Well, it's like a grocery store. Give away 30 % of your food, you know?
16:43
So yeah, no, I'm with you. Um, it'll, it'll be quite interesting. So, all right. I don't know. We'll see if you're one in November. Hold on. Let's get some comments. What do you think? Right? Like, let us know what you think, or if we miss something and we can do another episode, I'll jam this back on the agenda. All right. Thanks guys. Appreciate you all listening and reading and subscribing. And check out the Union. See you next one. Later.