The Push to Tax Empty Commercial Space Gains Momentum in California

• Empty threat: Sacramento is weighing a vacancy tax, testing whether penalties can spur landlords into action or cause more harm than good.

• Office odds: Rithm’s $1.6B Paramount deal signals fresh confidence that prime office assets still reward the long game.

• No dice: Two Manhattan casino proposals were rejected in back-to-back votes, knocking SL Green’s Times Square plan and Silverstein’s West Side project out.

Policy & Finance

The Push to Tax Empty Commercial Space Gains Momentum in California

Sacramento leaders are again debating whether to impose a vacancy tax on long-empty commercial buildings, a move aimed at nudging landlords into action. The city’s Law and Legislative Committee has just opened the conversation, weighing options that range from stronger code enforcement to a new tax on blighted properties. While councilmembers admit this is only the earliest stage, the idea of charging property owners for letting prime real estate sit idle is now officially on the table.

Other cities have already tested this approach. San Francisco approved a tax on vacant storefronts in 2020, charging landlords thousands of dollars each year a space goes unused. Washington, D.C., Portland, and New York have floated similar measures, and California lawmakers are even considering a statewide tax. Supporters say the goal is not to raise money but to push owners to lease space faster, spurring redevelopment and revitalizing neighborhoods.

Still, the policy is far from settled. Business groups argue that vacancies often last a year or more because of tenant improvements and market conditions, not neglect. Developers warn that penalizing owners could backfire, draining resources needed for renovations or forcing deals with unsuitable tenants. Sacramento’s discussion adds to a growing national debate: should governments use taxes to prod commercial property owners into action—or will vacancy penalties end up doing more harm than good?

Overheard

Rithm’s $1.6 Billion Bet on Paramount Signals Office Market’s Long Game

The U.S. office market has struggled since remote work surged in 2020, keeping vacancy rates high and values low. Yet Rithm Capital’s $1.6 billion acquisition of Paramount Group signals that some investors see a turning point. The firm, which is betting on prime office assets in New York and San Francisco, views current prices as discounted enough to justify the risk. Commercial real estate values remain 25–40% below prepandemic levels, making well-located office buildings appear attractive to long-term investors.

The deal comes as other players are still cautious. Delinquency rates on commercial mortgage-backed securities are climbing, and demand for office space is still uneven. Even private-equity giant Blackstone has acknowledged that recovery will be slow, though it has also begun to selectively reinvest in Class-A office projects. Meanwhile, in markets like New York, supply is shrinking due to conversions and stalled construction, while San Francisco is seeing fresh momentum around AI companies leasing premium space.

Rithm is positioning itself as an early mover. Its executives argue that “A” office properties are in demand again, and falling interest rates should make financing more attractive. The company has already taken control of other office assets through debt acquisitions and says investor appetite for office deals is returning. With Wall Street rewarding its Paramount announcement, Rithm is betting that the cycle’s bottom is behind us and that a slow recovery is underway.

While office headwinds remain, history shows that commercial real estate and urban downtowns have always rewarded the long play. Investors who can ride out near-term uncertainty and focus on prime locations often emerge with the most valuable assets. Rithm’s Paramount deal may be less about timing the exact bottom and more about positioning for the inevitable rebound that has defined downtown markets for generations.

Two Manhattan Casino Bids Go Bust in One Day

Manhattan’s casino hopes took a double hit on Wednesday. The Community Advisory Committee reviewing SL Green Realty and Caesars Entertainment’s Times Square bid voted 4–2 to reject the $5.4 billion proposal to transform 1515 Broadway into a casino, hotel, and Roc Nation entertainment hub. CEO Marc Holliday lashed out after the vote, calling the decision “a despicable display of cowardice.”

Later the same day, a separate CAC delivered the same verdict to Silverstein Properties, Rush Street Gaming, and Greenwood Gaming’s $7 billion Avenir project on 41st Street and 11th Avenue. The plan promised a 1,000-key Hyatt hotel, new restaurants and bars, and the conversion of 2,000 office units into housing, but was also voted down 4–2.

Silverstein’s team had requested a delay, saying the committee sent them a major request late Tuesday night, leaving no time to respond. Gov. Kathy Hochul’s appointee Angel Vasquez agreed the vote should have been pushed, but the panel went ahead and rejected the project.

With both rejections coming today, Manhattan is effectively out of the casino race and Silverstein’s West Side site will remain, in the developer’s words, “a giant hole in the ground.”

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