New rent control laws in New York are being blamed for eating away at landlords’ profits and putting many in a financial bind. Some real estate professionals and investors told The Wall Street Journal that the laws could cause rent-stabilized apartment buildings to drop 20% to 45% in value. That could put the building owners at risk of default. “It’s all over,” Lazer Sternhell, a real estate investor and broker of rent-regulated properties in New York, told the Journal. “You can’t raise rents. You can’t deregulate.”
Landlords were once able to get a bigger boost in rents by using exceptions within the city’s rent control system. The city usually sets annual increases to less than 5%, but after a vacancy, landlords were once able to raise rents up to 20% prior to the new laws. They also used to be able to factor unit improvement costs into the rent they charged. But under the new laws, which took effect in late June, those exceptions have been limited or abolished.
The real estate community warns that asking prices on regulated buildings are already dropping. For example, a partially vacant, 22-unit building in the East Village of Manhattan has had its price cut by 17%. “Every spreadsheet in New York just changed,” Steven Vegh, a real estate broker who sells buildings to investors, told the Journal.
“This event will cause foreclosures, which will devalue properties,” adds Joseph Ficalora, the CEO of New York Community Bancorp, a major financier of rent-stabilized apartments. However, “those devalued properties represent opportunities for our owners to actually buy into the market at a discount.”
Source: “New York Landlords in Financial Bind From New Rent Law,” The Wall Street Journal (June 24, 2019) [Log-in required.]