Last month, I got a call from a broker who sells rent-stabilized buildings. It’s been a brutal six years for people like him. And he needed to vent.
“I cannot believe how bad the environment in New York is,” he began. “Almost every building is underwater.”
He was talking about rent-stabilized buildings without enough free-market rentals to offset the effects of the Housing Stability and Tenant Protection Act of 2019.
The broker was so worked up, he hardly knew where to begin. But he had to start somewhere. Selling buildings with rent-stabilized units, he said, is now like traversing a minefield.
“The due diligence is impossible,” he said. “If you don’t have the paperwork from 15 years ago when you deregulated a unit, when the rent was $900, and now you’re charging $6,000…”
He didn’t need to finish the sentence, because rent-stabilized owners know exactly what he’s talking about: the risk of having to pay a tenant years’ worth of “overcharges” because they can’t document renovations that removed a unit from stabilization, back when that was allowed.
“If you don’t have [the documents], and you end up going to court with a tenant, you lose,” he said.
The records must be precise about what renovations were done to each unit and the cost. An invoice from a contractor without those specifics doesn’t cut it. Landlords better have saved the canceled check, too.
“Banks get rid of their records after seven years,” the broker lamented.
No record-retention law existed, so not all landlords kept the paperwork. But years later, new laws and court rulings required it. Without the benefit of a time machine, some landlords are vulnerable to rent-overcharge lawsuits.
If a unit’s deregulation is reversed retroactively, the owner must reimburse the tenant for the difference between the “legal rent” (had the unit remained stabilized) and what the tenant has been paying. If the action is deemed to be fraud, the payback triples.
“One unit with treble damages can be more than $200,000,” the broker said. “It’s no longer an asset, it’s a liability.”
I asked what metric best captures the devaluation of rent-stabilized buildings. Gross rent multiplier, he said. Multiplying that figure by the rent roll produces the expected sale price.
“Depending on the building and location, it can be anywhere from 4 to 6.5 times the rent roll,” he said. “It used to be 14 to 18 times the rent roll.”
He paused to let that sink in.
“You’re talking values dropping 75 percent,” he said. “Imagine if your stock portfolio dropped 75 percent in five years.”
He could not understand why the New York Times and other major media outlets are not writing about this. I pointed out that the Times virtually stopped covering commercial real estate in the city when reporter Charles Bagli left the staff in 2018.
The broker recalled urging owners to sell their rent-stabilized buildings in the early part of this decade, as the city rebounded from the pandemic. But owners were still shell-shocked by the 2019 rent law and figured the state legislature would fix it.
Big mistake.
“The prices just keep coming down,” he said. “They have come down every day since June of 2019. Every day.”
He pointed to a building with a $1 million rent roll now worth about $5 million. “I could have sold that five years ago for $10 million — during Covid!” the broker said. “And people just did nothing.”
Another client bought a Bronx building in 2018 and got a $33 million mortgage. Today, the owner thinks the property is worth $13 million.
“He hasn’t paid the loan in months, and the bank hasn’t even put him in default yet,” the broker said. “They don’t want it. No one wants these buildings!”
Actually, some investors are looking to buy — at steep discounts. Yet owners sometimes overplay their hands.
“Buyers are able to get financing, but I wish sellers really understood how difficult it is to get a deal done. They overnegotiate sometimes,” the broker said.
Even if largely ignored by major media outlets, the plight of rent-stabilized housing — which is nearly a third of the city’s housing stock — has become increasingly apparent. Yet the state legislature has shown no urgency to address the issue, passing only a nearly useless tweak to the individual apartment improvements program.
“There is nothing on the horizon that indicates any type of rent reform is near,” the broker said.
If anything, he sees things getting worse, with Assembly member Zohran Mamdani expected to win the mayoral race on a freeze-the-rent campaign.
“Mamdani, he’s got Cea Weaver [advising his housing agenda]. What? These are all activists!” he said. “The real estate industry is not waking up to this reality.”
Weaver has called private property “a weapon of white supremacy.”
Now, City Council members are trying to pass the Community Opportunity to Purchase Act. COPA is a version of the state bill TOPA, or Tenants Opportunity to Purchase Act. Both would pause multifamily sales for months to give tenants a chance to buy their buildings.
“That’s a disaster,” the broker said. “I think prices will go down another 10 percent if and when that happens.”
Values are falling so fast, he said, that “if you have to wait six months [to sell], it could cost you a million dollars.”
To him, TOPA and COPA are part of tenant activists’ agenda to socialize rent-stabilized buildings — to wrest them from their owners.
“They are trying to take back the housing, and they are not hiding from this,” he said. “The first step is devaluing it. Check. The next step is making it impossible to run a profit. Check. The next step is [giving tenants] a first or last right of first refusal.
“My clients say, ‘It cannot get worse.’ Well, what about this?”
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