Industry groups in New York are seeking to defeat proposed state legislation that would require mezzanine and preferred equity agreements to be recorded as mortgages, claiming the law would impose recording taxes on such debt and would significantly increase the cost of those investments.

The legislation debuted in the New York State Assembly in January and seeks to require the recording of UCC financing statements for mezzanine debt and certain types of equity investments in real estate with underlying mortgage debt. It also would allow municipalities to collect recording taxes relating to those debts and investments. The bill is a new iteration of similar legislation proposed last year that did not advance in either of the state's chambers.

The Commercial Real Estate Finance Council has come out swinging against the bill, saying the tax "could not come at a worse time for the New York real estate market, which has seen transaction volume plummet 40% from 2019 to 2020." Additionally, a group of CRE associations including the Mortgage Bankers Association, have written the governor to lay out what the ramifications of the measure would be. "Increasing the cost and availability of mezzanine and preferred equity capital will directly impact the development of both affordable and market-rate apartments," according to the letter. "Owners of other commercial real estate categories such as office and hotel will also be deprived of critical financing capital over and above what "conventional" lenders make available, which might lead to additional stress in the commercial real estate industry at a time when the average owner (and tenant) are already suffering."