By Arasu Kannagi Basil

(Reuters) -Shares of several New York-based banks and real estate investment trusts fell on Wednesday as Zohran Mamdani's lead in New York City's Democratic mayoral primary stoked concerns that his proposed rent freeze could pressure building owners.

On the campaign trail, Mamdani, a 33-year-old state lawmaker and self-described democratic socialist, vowed to lower costs for New Yorkers as a mayor by freezing the rent for all rent-stabilized apartments.

Wall Street analysts have warned that the move could hurt building owners already grappling with higher costs, as constraints on their ability to raise rents might make it more difficult for some to repay their debt.

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

The real estate sector has already been reeling under pressure as higher interest rates strained borrowers while the post-pandemic adoption of remote working left office buildings vacant.

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, BofA analysts said last week.

Shares of Flagstar Financial and Dime Community Bancshares fell 5% and 4%, respectively, while Flushing Financial was down 3%.

Flagstar and Dime Community have a heavy exposure to rent-regulated multi-family in New York, according to analysts.

Among New York-exposed REITs, SL Green Realty and Vornado Realty Trust fell 5% each.

Equity Residential and Empire State Realty Trust fell 3% and 4%, respectively. LXP Industrial Trust was down 2.5%.

However, while Mamdani's proposals have rattled investors, some analysts said the immediate risks may be limited.

Analysts at Citi said the concerns stirred by his sweeping "freeze the rent" campaign promise could bring forward incremental credit concerns, but the actual fundamental impact on banks is likely to be minimal in the short to medium term.