Unraveling The Aftershocks Of Rent Stabilization In New York City’s Multifamily Market – Forbes

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Buried in New York State’s recently approved housing policy is an update to the Housing Stability and Tenant Protection Act (HSTPA) of 2019 that increases the dollar amount owners are allowed to spend on upgrades to rent stabilized apartments.

The State Legislature tweaked HSTPA slightly by raising the cap for Individual Apartment Improvements (IAIs) from $15,000 over a 15-year period to $30,000 or up to $50,000 if the unit was either occupied continuously for 25 years or registered as vacant in 2022, 2023 and 2024. Modest rent increases will accompany the renovated units and will be permanent.


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“We are glad that the Legislature acknowledged the problem and understood that there needs to be a long-term ability to recapture the investment back into the property, but it really isn’t substantial enough to move a lot of these units that are permanently vacant and put them back into long-term occupancy,” said Jay Martin, Executive Director of the Community Housing Improvement Program (CHIP), noting that the true cost to rehab units vacated by long-term tenants is between $100,000 to $150,000.

Apartments with 2024 Costs Locked in 1984 Rents

CHIP has lobbied the State Legislature for five years since the approval of HSTPA to allow owners to increase rents upon vacancy. Otherwise, rent stabilized apartments are locked in 1984 rents with 2024 costs, Martin said. As a result, it’s estimated that over 20,000 units remain vacant today.

The median monthly rent in 2022 for New York City buildings containing rent stabilized units, excluding Core Manhattan, was $1,220, according to the 2024 New York City Rent Guidelines Board Income and Expense Study. The operating budgets for rent stabilized buildings rely on the Rent Guidelines Board, which approves annual lease increases each June. This year the proposed increases are 2%–4.5% for one-year leases and 4%–6.5% for two-year leases.

Meanwhile, expenses are outpacing revenues because operating and maintenance costs have skyrocketed. Between 2020 and 2024, insurance costs rose by 224%, real estate taxes rose by 118% and water and sewer costs rose by 115%, the RGB’s Price Index of Operating Costs shows.

Disinvestment and Distress: Back to the 70s?

Matt Engel, the Chairman of CHIP and President of Langsam Property Services Corp., which owns or manages around 300 buildings in the Bronx and Upper Manhattan, said HSTPA removed incentives to invest in rent stabilized buildings, creating a situation reminiscent of the 1970s when the city saw disinvestment in properties and neighborhoods.

Engel argues that rent regulated buildings need a capital incentive program, comparable to the new housing policy’s 485x tax incentive designed to spur new development. Such a policy would support the reconstruction and stability of 100-year-old rent stabilized buildings so that the buildings remain structurally sound and provide housing for another 100 years.

“You can’t build your way out of this (housing shortage),” Engel said. “If we lose old, regulated buildings year after year, we’ll never be able to catch up with new construction.”

Number of Distressed Buildings Rise

Annual RGB surveys show that the number of distressed rent stabilized properties built before 1974 have steadily risen since 2016, more than doubling in 2022 to 1,409, the latest survey year available. The RGB defines distressed properties as those with operating and maintenance costs exceeding gross income and excludes financing costs.

“A typical building is either narrowly above water, basically breaking even or more likely than not, underwater and losing money every month,” Engel said, adding that he believes the number of distressed properties published in the RGB survey is too low.

NYC Metro Area Has the Highest Proportion of Households Behind on Rent, 18.5%

In the post-Covid world, rent arrears also continue to contribute to distress. An average of 18.5% of the households in the New York City metro area were behind on their rent between April 2023 and March 2024, the highest in the country and above the national average of 11.9%, according to the RGB’s 2024 Income and Affordability Study.

Values and Transactions Fall

The distress is evident in pricing with the value of rent stabilized properties falling by 30% to 50%. Sales have declined and the dollar volume of buildings with over 75% of the units rent stabilized fell to $1.1 billion and approximately 6,500 units in 2023 from $4.8 billion and over 22,500 units in 2015 (based on buildings sold in 2015 that are at least 75+% rent-stabilized today). I explored the drop in values and transactions in more detail in a previous Forbes article.

Rent Stabilized Multifamily Transactions for Buildings with 75+% Rent Stabilized Units 2010-2023

Martin observed that some City Council members see distressed buildings as an opportunity to “de-commodify” housing by eliminating private ownership and helping nonprofits buy buildings through the Open Door and and Neighborhood Pillars programs.

But if expenses exceed revenues, it doesn’t matter who runs the buildings, the buildings won’t survive. Engel manages at least 2,000 rent stabilized units on behalf of nonprofits and said those buildings are facing the same financial hardships as buildings owned by private entities.

In fact, one nonprofit, Food First, was forced to auction off over 20 rent stabilized apartment buildings in Brooklyn and the Bronx in April because of high maintenance costs, rent arrears and time spent in housing court trying to evict non paying tenants, the Real Deal reported.

Economic Shocks Contribute to the Pain

Owners with mortgage maturities will be particularly challenged because interest rates soared by 525 basis points between March 2022 and July 2023 to the highest level in 20 years. Current mortgage rates are around 7%, which is hindering refinancing options.

Rent stabilized owners are also facing limited refinancing choices, prompting lenders to extend loans and avoid property market devaluations. This “slow burn” trend could persist.

Sour real estate loans contributed to last year’s failure of Signature Bank, which had approximately $15 billion loans collateralized by rent stabilized or rent controlled properties, and damaged the finances of New York Community Bank, of which nearly 50% of the bank’s $37 billion multifamily portfolio is concentrated in rent stabilized properties.

Creative Solutions to Preserve Buildings

The State Legislature’s change to HSTPA’s IAI caps this session, while modest, is encouraging. Additionally, there are several other creative solutions being discussed including:

Converting Rent Stabilized into Affordable Housing: Rent-Stabilized buildings have no income restrictions, therefore, even a high earner can occupy one. However, obtaining a tax shelter from the city could change that. The tax shelter comes with a regulatory agreement and forces the owner to keep rents within a certain Area Median Income (AMI) bracket, effectively converting the asset to an Affordable Housing building. In addition to lowering property taxes, owners can rent to Voucher tenants that are set and subsidized by the government, legally bypassing the lower registered rent. So, this is a win-win for the City of Yes: these newly converted assets will be included in the Affordable Housing count and the landlord could over time operate an Affordable Housing building with a higher Net Operating Income (NOI). As it stands now, the City is very selective in providing these incentives. Should the City decide to provide “As Of Right” incentives to Rent Stabilized owners, this could be a clever solution for all stakeholders and create a meaningful reduction in the city’s Affordable Housing challenge over the next decade.

Reinstatement of the J-51 program. Gov. Kathy Hochul signed a bill last year allowing the city to create an updated version of the J-51 program, which provided incentives for repairs and renovations and lapsed two years ago. The City Council is considering a bill targeting the tax benefit more narrowly to buildings with low-cost housing such as rental buildings where “at least half of the units are rent stabilized at between 20% and 80% of the area median income,” Crain’s New York reported. The issue here, however, is owners currently aren’t allowed to use means tests for existing rent stabilized tenants.

Tax Reform: Solving the underlying problem of over taxation of multifamily rental properties relative to other property types will ultimately reduce the largest expense for rent stabilized properties. A lawsuit challenging New York City’s property tax system is currently moving through the court system.

Investors See Opportunity

Despite the difficulties, sophisticated buyers with a long-term horizon are buying rent stabilized assets today. They see opportunity in price declines and believe that the dramatic changes to the rent stabilized market brought about by the HSTPA regulations are unsustainable. Our hope is the worst is behind us. Especially if the Fed lowers rates this year, we can expect gradual nuanced improvements in the future.

For a full discussion with Shimon Shkury, Jay Martin and Matt Engel, please listen to a recently recorded podcast highlighting the challenges facing rent stabilized buildings available here.

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