NEW YORK CITY, New York: New York City's financial markets reacted sharply this week as shares of local banks and real estate investment trusts (REITs) declined, following growing momentum behind Democratic mayoral candidate Zohran Mamdani and his proposal to freeze rents citywide.

If elected mayor, Mamdani, a 33-year-old state lawmaker and self-described democratic socialist, has proposed a sweeping rent freeze on all rent-stabilized apartments. The idea has sparked unease among investors and analysts, who warn that such a move could tighten margins for building owners already squeezed by high costs.

"Politicians continue to march down a perilous path for rent-regulated multi-family with allowable rent increases lagging expense growth," brokerage Stephens wrote in a note.

The proposed policy comes at a time when the real estate sector is already under strain. Higher interest rates have made debt more expensive, and the long-term shift to remote work has left office space underutilized, adding further pressure on property owners and lenders.

On June 25, shares of New York-based banks with significant exposure to rent-regulated housing took a hit. Flagstar Financial fell five percent, Dime Community Bancshares dropped four percent, and Flushing Financial declined three percent. Analysts note that Flagstar and Dime Community are particularly vulnerable due to their heavy exposure to New York's multi-family housing market.

REITs with substantial New York portfolios also traded lower. SL Green Realty and Vornado Realty Trust each fell five percent, while Empire State Realty Trust dropped four percent and Equity Residential slid three percent. LXP Industrial Trust declined 2.5 percent.

Bank of America analysts noted last week that Mamdani's proposals could keep pressure on New York banks in the short term, even if implementation faces hurdles. "While Mamdani's proposals could face budgetary constraints and opposition from industry participants, banks in New York City could remain under pressure in the near term," they said.

Still, some on Wall Street are urging caution against overreacting. Citi analysts said the immediate risks tied to Mamdani's platform may be overstated. While the "freeze the rent" proposal has stirred concern, they argued the fundamental impact on bank balance sheets is likely to remain minimal in the short to medium term.

For now, however, Mamdani's growing lead in the mayoral primary appears to be rippling through real estate and financial markets, reflecting investor anxiety about a potential shift in the city's housing policy.