Andrew Bary

The sharp selloff in New York office REITs in response to leftist Zohran Mamdani's upset victory in New York City's Democratic mayoral primary looks like an overreaction, according to one real estate analyst.

Piper Sandler analyst Alexander Goldfarb on Wednesday reiterated an Overweight rating on SL Green Realty, one of the two leading New York office real estate investment trusts, along with $Vornado Realty Trust(VNO-N)$. He says it's too soon to call the November election.

Mamdani has proposed freezing rents on a large group of city apartments but he hasn't offered any ideas on office rents. The concern among investors is that his proposals to boost city income taxes from the current top rate of close to 4% and potentially shift funds away from policing to social services would lead to an exodus of high-income city residents and make Manhattan a less desirable place for big companies to rent swaths of office space.

As a result, SL Green stock tumbled 5.7% to $58.85 Wednesday, while Vornado was off 6.7% to $35.89. Empire State Realty Trust, the owner of the Empire State Building, dived 7.6% to $7.57. Goldfarb has a $72 price target on SL Green, or about 13 times projected 2025 fund from operations, a REIT cash-flow measure.

But many of those stocks were already recovering in Thursday trading, with SL Green rising and Vornado both rising more than 2%.

While Mamdani is the clear favorite in the general election in November with a 75% chance of winning on Polymarket, Goldfarb sees a chance that current Mayor Eric Adams, running as independent, could upset Mamdani in November.

"We remind investors November is a long way off and much can change between now and then," Goldfarb wrote.

"Whether that means incumbent Mayor Eric Adams sees a sufficient boost to win reelection or NYC needs to experience the consequences of further socialist policies to revert, we believe the trade unions and Albany fears of more 1% flight could well prove a powerful counterbalance."

SL Green has been the most favored New York office REIT due to its concentration of buildings around Grand Central Terminal, which is a popular location for financial companies, while Vornado has been focused on the less desirable area around Penn Station. SL Green stock yields 5% while Vornado yields 2%.

The state and city rely heavily on the top 1% for income tax revenues. Billionaire investor Bill Ackman tweeted Thursday on X that if "100 or so of the highest taxpayers in my industry chose to spend 183 days elsewhere (per year), it would reduce NY state and city tax revenues by around $5 billion to $10 billion or more, and that's my industry." The city's budget is more than $100 billion annually.

In his note, Goldfarb wrote: "A few things to consider: 1) the appeal of incumbent Mayor Adams is likely to rise, 2) premium office availability continues to dwindle, and 3) there is no material supply for the next 5-10 years."

Write to Andrew Bary at andrew.bary@barrons.com

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June 26, 2025 12:09 ET (16:09 GMT)

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