New York City CRE-exposed bank stocks underperform amid mayoral race

The recent underperformance in New York City bank stocks tied to commercial real estate comes as Zohran Mamdani, a self-proclaimed Democratic Socialist with a focus on affordable housing, is gaining traction in the city's mayoral race.

The probability that Mamdani will win the Democratic primary climbed 13 percentage points to 30% since June 8, which is still well below former New York Governor Andrew Cuomo's 70%, analyst Brandon Berman pointed out in a note written to clients.

NYC CRE-exposed bank stocks, including Dime Community Bancshares (NASDAQ:DCOM), Flushing Financial (NASDAQ:FFIC), Flagstar Financial (NYSE:FLG), Valley National Bancorp (NASDAQ:VLY) and Webster Financial (NYSE:WBS) lagged peers (BKX) by 300 basis points, on average, over the same period, he added.

Housing sits at the core of Mamdani's platform. He's pushing for a framework that would impose tight limits on yearly rent hikes for all rent-stabilized apartments, a move that would "significantly impact multifamily cash flows, compress valuations, and increase credit risk, we think," Berman wrote.

As such, "NYC CRE-exposed banks could remain under pressure in the near-term (primary is on 6/24). On the other hand, the group could see a potential rebound if another candidate were to win the democratic nominee."

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