Latest news with #HSTPA
Forbes
04-06-2025
- Business
- Forbes
Six Years After HSTPA, NYC Owners Face Escalating Costs, Falling Values
View of Upper Manhattan. Six years after New York State passed the Housing Stability and Tenant Protection Act (HSTPA), owners of rent stabilized buildings are struggling with rising expenses, declining income, falling values and increasing distress. HSTPA was designed to protect tenants, but its consequences have been severe for rent stabilized buildings resulting in: HSTPA blocked multiple avenues to increasing income, forcing owners to rely solely on the Rent Guidelines Board (RGB) for relief. The RGB sets rents annually for New York City's nearly 1 million rent stabilized units, which outside of core Manhattan had an average rent of $1,406 in 2023. The RGB will vote June 30 on raising rents by 1.75% to 4.75% for one-year leases and 3.75% to 7.75% for two-year leases. According to the RGB research, operating expenses for rent stabilized buildings rose 6.3% over the last year. An analysis by Ariel Property Advisors shows that since 2020, expenses have risen by about 28%, while rents approved by the RGB increased by only 10.5%, indicating a shortfall of about 17% between expenses and income. Rising operating expenses over the five-year period include taxes, up by 16%; labor costs, up by 19%; fuel costs, up by 42%; utilities, up by 29%; maintenance, up by 33%; administrative costs, up by 20%; and insurance costs, up by 115%. Additionally, rent arrears in some rent stabilized buildings are substantially higher than before Covid because of post-Covid collections issues and Housing Court delays. Since 2020, expenses for rent stabilized properties have risen by about 28%, while rents approved by ... More the RGB increased by only 10.5%. The cost of capital also has doubled since 2022. Interest rates have risen from 3% to 6%-7%, making it more challenging for owners to refinance buildings because in many cases the assets are worth less than their mortgages and the current loans can't be refinanced without an injection of equity. The misalignment between expenses, including interest payments, and rent growth is creating both operating and financial distress. Owners caught in a downward spiral don't have an incentive to pay bills and operate the building. Consequently, rent stabilized buildings are suffering from deferred maintenance such as leaky roofs, broken windows, non-functioning boilers, peeling paint or unsafe wiring, and neglected capital needs such as a new roof, elevator replacement, HVAC system upgrades and façade restoration. Borrowing for improvements in a building worth less than the mortgage also is out of reach, which leads to further distress, nonpayment of bills, increased violations and deteriorating conditions for tenants. The misalignment between expenses, including interest payments, and rent growth is creating both ... More operating and financial distress. In the two years preceding HSTPA (2017 and 2018), over 80% of lending activity for rent stabilized assets was concentrated in banks, with a notable amount in Signature Bank, New York Community Bank, and Chase Bank, according to research by Ariel Property Advisors. Regulators closed Signature Bank in 2023 and New York Community Bank, now Flagstar Financial, Inc., has pulled back on lending. Thus, bank lending has fallen to around 40%, with agencies, non profits and debt funds taking up a larger piece of a smaller pie. When a building isn't profitable, existing lenders prefer not to take it back. The most favorable situation for them is to sell the property via a deed in lieu arrangement. This allows a buyer to purchase the asset at a steep discount—50% or more—while also agreeing to handle any required improvements. However, L+M Development Partners sued Santander Bank for allegedly refusing to honor a loan agreement it had with its original lender, Signature Bank, which would have allowed a deed in lieu of foreclosure for a rent stabilized property at 320 St. Nicholas Ave, Bisnow reported. Santander, which bought a 20% stake in Signature's rent stabilized loan book after it closed, is seeking to seize L+M's other assets to recoup possible losses from the mortgage. In the lawsuit, L+M blamed HSTPA for the firm's failure to execute its business plan for the building. Additionally, Flagstar Bank filed four separate pre-foreclosure actions against more than half of Pinnacle Group's residential portfolio over a group of loans totaling about $600 million, the Commercial Observer reported. In response, Pinnacle recently placed roughly 5,000 residential units it owns in Manhattan, Brooklyn, Queens, and the Bronx into bankruptcy. The bankruptcy filings indicate that the portfolio's assets and liabilities are each estimated to be between $500 million and $1 billion. Pinnacle is one of New York City's largest multifamily owners, with approximately 136 properties totaling 7.5 million square feet and 8,700 residential units, according to PincusCo. A sample survey of properties initially sold between January 1, 2013 and June 14, 2019 before HSTPA, ... More and sold again after January 1, 2023 shows that values have dropped by as much as 80%. Over the past five years, New York City has seen a sharp pullback in institutional investment in rent stabilized buildings. These investors once brought billions into the sector, funding renovations, improving buildings and units through Major Capital Improvements (MCIs) and Individual Apartment Improvements (IAIs), and enhancing overall building and neighborhood quality—without displacing existing rent-stabilized tenants. Since HSTPA, that capital has largely disappeared, and with it, the ability to reinvest in this critical housing stock. Investors such as Ares, Apollo, Fairstead Capital, the Praedium Group, Sentinel Real Estate Corp. and Related are among those exiting the market. Related recently sold 2,000 rent stabilized units in five neighborhoods in the Bronx for $192.5 million, a 24% discount from the $253 million the firm paid in 2014. Related had also spent another $30 million on renovations to buildings in this portfolio, the Real Deal reported. The article cited a Crain's analysis finding that as of January, Related had sold around two dozen rent stabilized assets over the past few years. In April, the institutional investor sold five buildings for $18 million, or 45% of the purchase price in 2015. The buyers of rent stabilized assets today are private individuals and family offices attracted by the low basis and the belief that HSTPA will eventually be revised. While institutional investors hold the largest share of rent stabilized units, the vast majority of owners – nearly 80% or about 3,500 individuals or families – are small-scale landlords, owning 100 or fewer units. These smaller owners are facing significant challenges, including eroding net operating income and a tremendous loss of equity. For many, these properties have been in their families for decades, meaning the current financial strain will lead to a loss of generational wealth. In a previous Forbes article, I examined the financial strain many owners are experiencing. From the perspective of the owners our firm represents, income can only increase through rents set by the RGB. There are no other tools left. That puts the full weight of the system on the nine-member RGB board, which is unfair to landlords, tenants and to the board itself. Until broader changes are made to HSTPA at the legislative level, however, the board's decisions are critical in ensuring these owners don't lose their rent stabilized buildings to the banks, fall into the Alternative Enforcement Program (AEP) or rack up violations that ultimately diminish the quality of life for tenants. Rent increases are needed to ensure that owners don't lose their rent stabilized buildings to the ... More banks, fall into the Alternative Enforcement Program (AEP) or rack up violations that ultimately diminish the quality of life for tenants. Using internal data from our firm, I shared the following key points at a recent hearing before the RGB: Sam Campion, Director of Housing and Economic Development Studies at the Citizens Budget Commission (CBC), also sounded the alarm when he testified before the RGB, declaring that New York City must immediately address the physical and financial decline of its rent regulated housing. Otherwise, these buildings risk falling into a maintenance "death spiral' similar to what has occurred in New York City Housing Authority (NYCHA) buildings. This 'death spiral' happens when deferred maintenance leads to repair costs so high they nearly equal the cost of new construction. Ignoring the problem will only increase future repair burdens on the City and State and degrade the quality of life for New Yorkers living in rent stabilized housing. In other testimony before the RGB, Mark Willis, Senior Policy Fellow at the NYU Furman Center, was equally concerned about the future of rent stabilized housing. Willis highlighted that the financial gap in rent stabilized buildings, especially those that are 100% stabilized, is expected to continue growing, potentially at an accelerated rate. To prevent the deterioration of these vulnerable properties, solutions beyond the standard RGB process may be necessary, he said. Moving forward, tenants and landlords alike can benefit from more governmental accountability in the form of:
Yahoo
14-04-2025
- Business
- Yahoo
Rent-stabilized shortfalls may grow 'exponentially,' new data shows
It's no longer just landlords and their advocates screaming into the void about the ruination of rent-stabilized housing — NYU's Furman Center has joined the din. At the Rent Guidelines Board's second meeting of 2025, New York University's center for housing research presented data showing that older, entirely rent-stabilized buildings — particularly those in the Bronx — are grappling with revenue shortfalls caused by the Housing Stability and Tenant Protection Act of 2019. The HSTPA made it impossible to substantially raise rents outside of the annual adjustments approved by the RGB annually. which have historically failed to keep pace with inflation. 'The rent shortfall has likely grown since HSTPA passed and will continue to grow, potentially exponentially, in 100 percent rent-stabilized buildings,' a presentation delivered by Furman Center Senior Policy Director Mark Willis concluded. The New York Apartment Association, which represents rent-stabilized landlords, said the commentary marked the first time the Furman Center had expressed concern about the future of rent-stabilized housing. The center did release an initial analysis of HSTPA in 2021, but it found little evidence of falling values or disinvestment. 'Their [recent] findings paint a sobering picture: a growing number of rent-stabilized buildings, especially in the outer boroughs, are on the brink,' NYAA CEO Kenny Burgos said. The center's data shows older rent-stabilized buildings in the Bronx that were just breaking even before HSTPA have fallen farther into the red every year since it passed. In 2024, the average unit was operating at an annual shortfall of $1,444. Per the research, absent alternate routes to raise revenue, the RGB's rent adjustments aren't cutting it. The Furman Center seized on the findings to make a case for intervention — something both sides of the landlord-tenant divide have broached in recent years. 'To preserve the long-term viability of the most vulnerable sub-segments of this stock, the shortfall may need to be dealt with outside of the RGB process,' the center's presentation reads. Landlords have long claimed that the board's data-based rent adjustments don't account for all of their expenses — debt service is notably missing — and that public members are swayed by tenant interests. Renters, meanwhile, claim the mayor-appointed board bends to real estate's asks. But each year, conversations around shifting the system fail to progress past finger-pointing. Willis' presentation did not propose specific solutions either, but it did warn that the city alone couldn't plug the hole created by the HSTPA for many building owners. The problem, he said, was too great. 'Unless we vastly increase the amount of budget for subsidized housing, almost all of it is going to have to go to rescuing these buildings,' Willis said. 'So we won't be building any new ones in the future either,' he added. 'That would be the risk.' Landlords refute rent board's report on rising profits Rent board approves 2.75% hike as landlords, tenants take aim at broken process Rent board is worst show on Broadway This article originally appeared on The Real Deal. Click here to read the full story.
Forbes
26-03-2025
- Business
- Forbes
Free Market Trades Boost New York City Apartment Sales To $8.9B In 2024
Apartment buildings line Manhattan's First Avenue. New York City's multifamily sales totaled $8.9 billion in 2024, a 14% increase in dollar volume from 2023, according to Ariel Property Advisors' Multifamily Year in Review New York City 2024. Transactions rose 4% year-over-year to 1,107. Citywide, predominantly free market buildings accounted for 63% of the multifamily dollar volume and 48% of the transaction volume in 2024, followed by predominantly rent stabilized assets, which accounted for 29% of the dollar volume and 47% of the transactions. The remaining sales were for buildings with regulatory agreements. New York City's multifamily market recorded $8.9 billion in sales in 2024, a 14% increase from 2023. Manhattan's multifamily volume reached $3.44 billion in 2024, an 11% annual increase, while Brooklyn's surged to $3.48 billion, a 59% rise. This growth in both boroughs was largely driven by free market sales, which comprised 76% of the dollar volume in each market. Attractive pricing was a key factor in free market sales in 2024, particularly in Manhattan. For example, Canvas Investment Partners acquired 210-220 E 22nd Street for $104.5 million, 15% below its 2015 sale price of $123 million. Other factors included strong fundamentals–Manhattan rents have risen over 20% in the past three years and nearly 4% in the last year alone because of the lack of supply–mortgage maturities and prime locations. The free market multifamily sector in New York City continues to attract a diverse group of investors, including private individuals, institutional firms (like Carlyle, Stockbridge, and Stonehenge), and international buyers. Lenders are also actively involved, providing capital for investments in this asset class. This broad pool of investors and readily available capital indicates strong interest and confidence in the free market multifamily market. Select firms investing in free market multifamily properties in New York City. Conversely, the rent-stabilized multifamily sector in New York City remains under stress. Values for rent stabilized buildings have dropped around 35-60% below their 2017-2018 peak as owners continue to struggle under the weight of rising expenses combined with the 2019 Housing Stability and Tenant Protection Act (HSTPA), which capped rents. My partner Victor Sozio, who was a recent guest on my Coffee & Cap Rates podcast, observed that many rent stabilized assets have extremely high leverage from loans that were placed either pre-HSTPA or in a market that had much lower interest rates. Now these assets are suffering from increased expenses, including rising insurance costs, and are also struggling with collections. Rent stabilized sales in 2024 accounted for 53% of the Bronx's multifamily dollar volume, which plummeted 59% year-over-year to $457.9 million; 51% of the multifamily dollar volume in Northern Manhattan, which saw a slight 7% year-over-year increase in volume to $674.5 million; and 72% of the dollar volume in Queens, which saw volume rise 13% year-over-year to $851.4 million. According to Sozio, many owners of rent stabilized buildings are actually eager to sell and move on from their investments. However, they are in a difficult position. The financial performance of these properties isn't strong enough to cover their loans, preventing them from selling. Sozio added that unless they get some sort of relief or cooperation from their lenders in many cases, they won't be able to transact. 'Hopefully that's a trend that we're starting to see where lenders will be more pragmatic and open to these types of discussions to facilitate an exit even if it amounts to a short sale or some sort of modification or discounted payoff,' he said. Discounted pricing is attracting buyers to the rent stabilized asset class. Investors in rent stabilized buildings continue to be primarily family offices and private individuals drawn by the drop in valuations and belief that the current regulations are unsustainable. With long-term strategies in mind, these buyers often acquire properties using all cash or minimal leverage, banking on potential regulatory changes in the future. 'You can make a pretty strong argument that it's a very intriguing buying opportunity in New York City today in this asset class in particular based on where it was historically, ' Sozio said. 'We're seeing asking prices at 7% plus cap rates in many cases for these rent stabilized assets.' Sozio noted that these cap rates are considerably higher than those recorded in Ariel's partner offices in the GREA network, where properties in unregulated multifamily markets are achieving sub-5% cap rates, fueled by perceived growth. Values for rent stabilized buildings in New York City have dropped around 35-60% below their ... More 2017-2018 peak as owners continue to struggle under the weight of rising expenses combined with the 2019 Housing Stability and Tenant Protection Act (HSTPA), which capped rents. In 2024, the affordable housing sector represented 8% of New York City's total multifamily dollar volume, or $713 million of the $8.9 billion sold last year. This is a significant decrease from 2023, when it accounted for 35% ($2.6 billion of $7.4 billion), largely due to the sale of major portfolios like the $1 billion Omni affordable housing platform. Preservation remains a primary focus for mission-driven investors and operators, who continue to show strong interest in these assets, which offer risk-adjusted returns. Key transaction drivers include in-place assumable financing and potential collaboration between the city and state to preserve affordable housing. This could involve providing subsidies, extending benefits and incorporating Section 610 of the Private Housing Finance Law into regulatory agreements. Sozio said the 610 amendment stems from Senate Bill 7235, a law passed at the end of 2022 and eventually rolled out in 2023 and 2024. The law allows any building that is encumbered by a regulatory agreement in New York State to obtain a 610 amendment, enabling owners to rent apartments to tenants with vouchers and collect those rents even if they are above the previous legal rent level, which is particularly valuable for owners with rent stabilized units. So, if the voucher standard is $2,600 for a one-bedroom apartment and the legal rent is $1,300, the owner can collect the higher rent. 'This is a meaningful piece of legislation sought after by some property owners to drive revenue higher while preserving affordability for the tenants because the rents are subsidized by the government,' Sozio said. 'From a tenant's perspective, they're still paying the same percentage of their certified income, but it allows owners of these projects to get higher rents and address some of these increased expenses and improve their bottom line over time.' A bright spot in the multifamily market space is that there is ample capital for well-positioned investments. Matt Swerdlow, a Senior Director in Ariel's Capital Services Group, explained, 'Lenders have shown a strong preference for the free market asset class, which they view as a "risk off" lending opportunity in New York City commercial real estate due to the potential for rent increases and rents that keep pace with rising taxes and insurance costs.' Swerdlow added that the lending market for rent-stabilized assets, while smaller than pre-2019, is still available. 'Several entities are active in this space, including banks without legacy balance sheet issues, government-sponsored enterprises like Fannie Mae and Freddie Mac, CMBS, and life companies (for sizable assets),' he said. Additionally, private lenders, which have abundant capital seeking deployment, are now filling a role once held exclusively by banks. Investors are receptive to this private capital, seeking more flexible financing options that allow for early prepayment to capitalize on future appreciation, or refinancing into longer-term fixed rates when interest rates decline. On his recent podcast, Ariel Property Advisors' President and Founder Shimon Shkury interviewed ... More Victor Sozio, Founding Partner, and Matt Swerdlow, Senior Director, about trends in the multifamily market.
