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This article was originally published on by THE CITY
By Greg David, The City
A closely watched report from the city Rent Guidelines Board released Thursday showed signs of flagging financial health for buildings that include apartments subject to rent regulation.
The RGB’s latest Income and Expense Report finds that net operating income declined by 9.1% between 2020 and 2021, while expenses increased by slightly more than 3%.
The board also found that the share of buildings in financial distress rose to almost 9% in 2021 from about 6% the previous year.
The annual report begins the New York City spring ritual of reports and often raucous public hearings that ends each June with the mayor-appointed RGB setting maximum permitted rent increases on new leases in the coming year.
Landlord groups seized on the report to call for a large, possibly double-digit, increase in rents. Tenant groups disputed its significance since the biggest decline occurred in Manhattan buildings in highly desirable neighborhoods, while pointing to new census data that showed Manhattan’s population rebounding.
“The report does not account for the tens of millions of dollars landlords have since reaped in profits from driving rents to unprecedented levels throughout the five boroughs,” said The Legal Aid Society, which serves as lawyer for many tenants, in a statement. “These findings do not reflect the current struggles facing local tenants, particularly the increase in eviction filings and executed evictions, as well as high inflation and New York City’s skyrocketing cost of living.”
The key number in the report is net operating income, which is the income a landlord has after paying operating expenses but before making mortgage payments, paying debt service for other loans, or putting money aside for capital improvements.
The 9.1% drop is the third in four years, and exceeded the previous record decline that followed the 2001 terrorist attack on the World Trade Center. The costs of fuel, energy and insurance drove up landlords’ expenses.
Rental income dropped by 1% amid a mix of pandemic-related factors. Many tenants weren’t paying rent during an eviction moratorium that ended in January 2022, while others had their rent covered by the federal Emergency Rental Assistance Program, or ERAP.
The biggest decline occurred in what the report calls “core Manhattan,” where net operating income dropped by 21%. But the drop occurred throughout the city, in every borough, and in buildings with some rent-regulated apartments along with those entirely composed of such units.
“Building owners are not only struggling, but the health of the city’s rent-stabilized affordable housing stock is spiraling into deterioration,” said Vito Signorile, vice president of the Rent Stabilization Association, an association of larger landlords.
The financial stress documented in the report comes after years of financial stress that started before the pandemic. New York City has approximately 1 million rent-stabilized apartments, mostly built before 1974 but also including some more recently built subsidized and tax-abated apartments.
State law reforms in 2019 prohibited removing apartments from rent regulation in most circumstances and sharply limited landlords’ ability to raise rents through improvements. Since then, property values on buildings that include regulated units have sunk between 20% and 65%, according to an analysis by Maverick Real Estate Partners.
The recent failure of Signature Bank has also shaken the industry, since it was the major lender to regulated buildings. Worse, New York Community Bank declined to take over those loans when it bought most of the other loans made by Signature. Its CEO said the bank, which is also a lender to regulated buildings, did not want to increase its exposure to the sector.
With interest rates much higher than even a year ago, landlords have great difficulty refinancing their loans when they come due.
The Federal Deposit Insurance Corp. hired a firm on Wednesday to sell the loans to a financial institution. The worst-case scenario would be a sale to a private equity or hedge fund, known as the most aggressive financial institutions in maximizing profits.
“You will have owners who are only interested in making money. Therefore, less maintenance, less spending on repairs and if they can get a tenant out they will try legally, maybe illegally,” said Jay Martin, executive director of CHIP, which represents small- and medium-sized landlords of rent-regulated apartments. “And people who know how to operate buildings with longterm tenants won’t be involved.”
The Legal Aid Society called for a freeze on rents even after the report. Landlords want a big increase.
“These numbers would say that nothing less than a double-digit rent increase is needed to keep those buildings solvent,” said Martin.
But he also argued for outside help to bridge the gap.
“We need government to lower costs and help renters so the need for a massive rent increase isn’t as pressing,” he added.
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The entire city is full of decrepit and grimy buildings because landlords don’t have the cash flow – or simply the economic incentive – to properly maintain them.
We have landlords, tenants, bureaucrats, politicians, lawyers and professional “tenants rights advocates” wasting valuable time and resources squabbling over what the proper rent should be.
Meanwhile, the quality and quantity of our housing stock is a disaster.
This is the inevitable result of our archaic rent regulation laws and progressive politics.
Maybe we should do what every other city in the country – besides San Francisco – does and let the free market determine proper rent and efficiently allocate our housing stock.
Last paragraph is not wholly true.
New Jersey, California, Oregon, New Jersey, all have either state wide rent regulation or at local government level. Many also have in addition to rent regulation “good cause” eviction laws piled on as well.
California for an example:
https://www.doorloop.com/laws/california-rent-control-laws
https://la.curbed.com/2019/9/24/20868937/california-rent-control-law-bill-governor
https://sf.gov/information/california-tenant-protection-act-2019-ab-1482
Important difference between statewide CA or local rent regulation is for one thing how increases are calcuated.
Instead of the annual circus show staged each year as RGB considers how much to raise rents, in CA things fall largely to a standard predictable formula. Five percent (5%) plus portion of Consumer Price Index (CPI) for a total increase not to exceed ten percent (10%) per one year lease.
If NY tried doing that all heck would break loose. Given current inflation RS apartments in NY would be looking at near ten percent increases last and this year for one year leases. Same numbers those in CA actually saw their rents increase because of above legal formula.
Exactly. I pay market rate but some in my building are rent controlled and pay a fraction of what I fork over every month. They’re incredibly loud because they “can’t afford” the carpet that I’m required to have on 80% of my floors and like to blast music because hey, they know they can’t be kicked out. Incredibly unfair. Let the free markets reign.
Anecdotal evidence makes bad policy.
If the government wants to maintain an equitable degree of “social engineering” in housing, then it should provide income-based subsidies rather than exert control over rents.
Then that would be welfare you have to apply for. That’s a system that can be cut.
The government is already in the social engineering business by maintaining rent regulations. At least subsidies would be income-based which makes more sense than what we have now. And of course that could be eliminated, as rent controls could also be. I just think it would be fairer.
No, subsidies have the weaknesses I listed. That’s why they’re advocated for.
I agree, the government engineers socially, in NY the government massive tax breaks to real estate, and the Feds give massive support to ibanks.
There’s a brownstone close to me that is fully rented out. Combined rent is about $20,000 a month.
Oh yes-and and the owner is probably carrying a costly mortgage as well.
Taxes in that building may exceed over $110,000 a year. Expenses-heat, hot water, electricity. super, maintenance, replacement of broken appliances, etc. etc. often exceeds over $100,000 a year. Building ownership is becoming untenable. So while $20,000 / mo sounds like a lot (and it is), it may not even meet the monthly expense of maintaining the building.
Thanks for the reply. Fortunately, with Zillow i’m able to see that they pay $46,000 per year. There is no (live in) super in the building.
Whether or not there is a live in super, someone is paid to provide regular custodial services. And others are paid to provide heating fuel, boiler tune up, electricity, water, insurance, accounting, bookkeeping, rent collection, rent roll, legal, broker, compliance, etc. I just did a quick realistic estimate for all of these and even before considering a mortgage the building owner very likely operates at a net loss. Which, without rent increases, they can only recoup via a property sale, assuming sufficient increase in property value minus selling expenses and taxes. Until then the owner carries the operating costs and the risk. That does not sound greedy to me.
We are going through record inflation. Landlords should be able to cover their costs. Perhaps their requests are a bit extreme, but bargaining has to start somewhere.
This system is completely out of control. There needs to be a complete overhaul that works well for everyone and helps those truly in need of help with a goal of graduating people out of the system as quickly as possible while still protecting the elderly (but less so their descendants).
“record inflation”, perhaps for your lifetime.
Graduating out of what system? Maybe the multitude of slumlords shouldn’t be so greedy. Mine keeps buying up unsold shares in co-ops and tries to push the rent stabilized tenants out, while he’s taking in millions and living in a tent stabilized apartments.
As to not protecting the descendants of the elderly, they’ve given up their
apartments and often their full time jobs to live and care for their elderly parents. You think they should then be thrust back into the overpriced rental market upon their parent’s death?
The idea that a rent stabilized apartment can be passed from one generation to the next is everything wrong with rent policy.
Someone else owns that apartment, that’s why it’s called renting. No one is talking about pushing elderly people onto the streets. But it’s also unreasonable to turn an apartment into an intergenerational birthright for someone who doesn’t own it and hasn’t invested capital in maintaining the building that houses the apartment.
Succession (taking over the rent stabilized lease in one’s own name) is only possible if the person who wants the apartment is family (not including aunts, uncles, cousins), or family-like AND has been living WITH the tenant of record for at least 2 years. (If the person who wants the apartment is disabled or a senior, it’s reduced to 1 year.) Landlords require documentary (and often video) evidence that the person has actually been living there. So it’s not just that your third cousin moved in as you left for Florida and gets the apartment. Someone shouldn’t be forced out of the home they’ve been living in for 2 years because their loved one has died.
Exactly. I know of a number of people who have used various loopholes to inherit rent stabilized apartments from relatives. This is not the spirit of the rule. I do not want to kick elderly people out on the street. But their children should not be able to inherit the home.
I know of a number of these people who pay virtually nothing for their homes and own lavish vacation homes.
Rent stabilization should be for those who truly cannot afford market rents. It should be annually means tested. There are way too many exceptions and loopholes. If this was better enforced, there would be a lot more apartments opened up for those who truly need them.
List those “loopholes”.
I wonder if they would still come out ahead by hiring and paying lawyers to evict tenants 🙂 plus the fact that it may take years to come to housing court.
Eviction rates are already increasing and have done so for some time now.
Expiration of various covid pandemic protections, end of “free money”, and other factors have meant tenants who cannot pay rent are being taken to court for nonpayment.
https://gothamist.com/news/nyc-eviction-rate-continues-to-rise-since-ban-was-lifted-as-homelessness-surges
Keep in mind any sort of published numbers don’t take into account number of households who simply vacated apartments without being taken to court.
My rent increased 25% last year and another 11% percent this year for a total of over $800 more per month. I have fortunately just found myself a rent-stabilized apartment in Manhattan, so am happy to say goodbye to my highly overpriced apartment.
Are we really feeling sorry for landlords? The rents are obscene in most of the city.
I grew up in Manhattan at a time when a single mother–my mother–as a waitress could afford a decent one to two bedroom apartment here. Now they rent out cubby holes as places for people to live. for $2-$2,500 a month!
The working class can no longer afford to live even in the outer boroughs without spending 60-70% of their monthly income. This impacts everything: ability to spend money in local businesses; to save for retirement; recover from catastrophic expenses; for the young to afford to obtain housing without having to live with three or four people in a small apartment. I could go on.
The building I now live in was once home to waitresses, policemen, union organizers, theater critics, actors, students. Now the apartments are bought and sold for millions.
Real estate in this city has had a field day in raking in huge profits over the past 40 years. we need more government controls–not less. Otherwise, we will be stepping over more bodies in the streets.
@L. Gerson, Market rate “cubby hole” apartments (studio or small 1br) on UWS have been have been more than $2000/mo for at least 20 years. A similarly sized co-op with mortgage and co-op maintenance has exceeded $3,000/mo for 15-20 years as well. Rents have to cover operating costs which are high and rising. The recent garbage hour changes for example increase our building annual operating costs by 1.7%. Landlords have to fund this somehow and so the defacto sanitation tax logically will be passed to tenants. That tenant income does not rise as quickly is not the fault of landlords (or co-op board) who need to cover operating costs. Tenants should lobby for fair wages or income-based support programs or for price controls for utilities, taxes, insurance, and government services that tenants pay directly or indirectly. Landlords’ hands are tied and rent control is not the solution, it is not economically sustainable.
True those of us in coops see how much operating costs are and the rise every year with real estate taxes and services – my maintenance is double the mortgage!
The RGB found rents dropped in the wealthiest parts of Manhattan, especially in buildings with market-rate as well as rent stabilized units, But it’s inappropriate for landlords to cry poverty with net operating income up 50% since 1990, as the Community Service Society found. Tenant incomes have not risen by the same amount. If landlords really need the income, they can rent out the 38,000 to 60, 000 vacant stabilized apartments they are warehousing. Owner’s have been making hundreds of dollars per month per stabilized apartment for decades. What have they been doing with that money?
Sue,
Some are waiting for the building to empty so they can sell for teardown/luxury development.
Walking around East Side especially, entire blocks have been emptied and luxury high-rises going up in their place.
That is not allowed under the rent stabilization laws. You can only demolish a building if it is in an almost unliveable condition.
Anyone who has taken M72 cross town bus will note nearly entire corner of 72nd and Second has been demolished. A church and rental housing all gone. None of which were in any danger of falling down or in “unlivable condition”
https://newyorkyimby.com/2023/03/demolition-finishes-at-1357-second-avenue-on-manhattans-upper-east-side.html
In fact up and down Madison, Lexington, Third, Second and First small two to six story buildings have been emptied out and coming down for years now, and more are in the works.
Not true!
https://hcr.ny.gov/system/files/documents/2020/11/fact-sheet-11-11-2020.pdf
https://rew-online.com/demolition-one-of-the-last-ways-to-deregulate-a-building/
https://www.landlordvtenant.com/article/landlord-seeking-dhcr-demolition-approval-neednt-prove-finances-post-demolition-work
https://patch.com/new-york/upper-east-side-nyc/lone-upper-east-side-tenant-defeated-extell-quest-new-tower
https://eastsidefeed.com/real-estate/score-one-for-the-big-bad-developer/
Very long story short NYS cannot dictate too heavily what private LLs may do with their property. Doing otherwise goes up against takings clause of USC.
As other poster stated UES and rest of Manhattan along with city in general is seeing entire buildings emptied out of RS tenants.
These warehoused apartments are all rent regulated and in disrepair. It would cost the landlords more to upgrade them and make them inhabitable than what they could collect in rent.
This is why they are warehoused and why the rent regulation regime is dysfunctional.
Correct. The 2019 rent regulation overhaul drastically reduced the amount that can be recouped for repairs and made it almost impossible for landlords to recoup costs.
Rents are dropping at higher end of things due to competition from tons of new construction.
All those luxury rentals or condos all over Manhattan, Brooklyn and Queens offer rents that aren’t much more than what some LLs want for apartments in old tenement or other rental buildings.
On other side of things for those who can afford (and or have excellent credit) buying a condo makes sense over renting due to tax advantages.
Either way people are getting brand new apartments in amenity filled buildings with lots of services.
According to the US government, prices are 2.5x higher today than in 1990. So for operating income to have kept pace with inflation, it should have increased 150% and not 50%.
Plain and simple truth is for decades now RS has been turned into something it never was meant to be; affordable or low income housing.
If RS rents increased to numbers you suggest there would literally be blood in the streets of NYC. In particular plenty of seniors and middle aged persons simply would be forced out of their homes due to issues with affordability.
This is such a sad situation — for renters and for many landlords. Just feels like it is impossible to fix the affordability crisis in NYC.
Landlords bought their properties for pennies on the dollar BECAUSE of rent regulation.
They are in no position now to complain that it is hurting them.
Perhaps if regulation is ever loosened the landlords should be hit with a windfall tax.
Landlords can’t have it both ways.
You aren’t completely correct with your statement.
Yes, an owner of a rent controlled/stabilized building likely bought the property for less than a different owner who acquired a similar building that is not rent regulated. But, it is not fair to say that owner bought it for “pennies on the dollar.” They paid the appropriate value for the property based on the fact that the rents paid by tenants will be less (and in some cases significantly less) than the owner of a “market rate” building and, aside from capital improvements, most of the costs of the building owners (insurance, fuel, etc.) will be the same.
If and when the property is ever deregulated the value would arguably be increased and (1) real estate taxes will be higher and (2) when the owner sells the property they will have to pay transfer tax based on a purchase price tied to the higher value.
The same people who are arguing that rent cost too much are those going to Birch Coffee and ordering a $13 latte and acasi bowl. #prayforNIMBYS
What’s that about good intentions and unintended consequences? Therein lies the conundrum with the 2019 law. I anticipate further unintended consequences with local law 97. WSR, how about an article on that?
If a landlord can’t afford to own and operate a building, they should sell it and get into a business better suited to their skillsets, and sell the building to a more capable manager. I have no sympathy for landlords, it’s a business, not a birthright. My rent went up 20% last year with no updates made to the building or unit. When I asked how they were justifying the increase, I was told that the market would bear it and they could rent my unit out for 40% more in a day. It’s just greed, plain and simple.
SB, you are complaining about your rent being 20% below market.
If someone is willing to pay 40% more than what you’re paying then this is not “greed”. It is the fair market value of the apartment.
Your landlord is running a business, not a charity. As such, he is entitled to maximize his profit. He is under no obligation – legally or morally – to provide you with an apartment that rents below its market value once your lease expires.
If you believe your rent is too high then move to a smaller apartment or a less expensive neighborhood.
Housing is a right not a privilege. The people who clean your houses, take care of your kids, cook your food, and run this city need to be able to live in it. For the record, these neighborhoods were working class until they were de-stabilized. The rest of the country prefers to live in a gated community, maybe wealthier folks would be more suited in these locations if it suited their needs better than the city of workers.
These neighborhoods were not working class, they were for wealthy people before they became de-gentrified. Look up at UWS or UES 120-140 years ago. Mostly mansions. Brownstones were single family housing.
The beautiful brownstones were not built for rent stabilized tenants or for the poor.
Landlords own private property. They are under zero legal or moral obligation to provide low income housing to folks at below market rates. They are running for profit businesses, not philanthropies.
Since you’re so concerned about housing being a “right” you should buy a building and provide free apartments to whoever wants one.
If the wealthy leave the city as you suggest, the city will not transform into an affordable housing oasis, but rather devolve into The Purge.
I live in a large, UWS building that is 25% affordable housing. A one bedroom now rents for $5,500. Mo they. Squeeze the people any more, and say goodbye to additional restaurants, entertainment venues, and other brick and mortar establishments. You could say that further rent increases are a form if urban suicide.
My landlord is trying to raise my rent by 50%. They have unlawfully deregulated many apartments. What’s worse is that they claim to specialize in low income housing all while bragging about flipping buildings by pushing tenants out of regulated apartments. I don’t feel remotely sorry for 95% of landlords. Also, Real Estate is an INVESTMENT not guaranteed income. If fewer buildings were owned by hedge funds, perhaps more people would be able to get their foot in the Real Estate market and own their own home.
https://commercialobserver.com/2017/03/castellan-sells-100-unit-harlem-portfolio-for-23m-double-what-it-paid-in-2013/
https://www.nydailynews.com/new-york/nyc-real-estate-group-forces-tenants-jacks-rent-article-1.2153178
People all too often forget the point that Gretchen makes here. Real estate shouldn’t be a one-way ticket to riches — if a landlord buys a rent-stabilized property and fails to make whatever profit he or she was hoping for, perhaps the landlord’s own lack of investing acumen is to blame. You made a bad bet, sorry. It happens all the time.
And on that point, landlords are increasingly major investment outfits with a laser-focus on profit maximization. In economics world, that might be fine, but it a) ignores that housing is more than just an abstract financial asset and b) leads to degraded, hollowed-out communities. Witness the numerous empty storefronts along Broadway whose occupants have been driven out by rent-hiking REITs, for example — yes, that is commercial, rather than residential property, but the impact on a neighborhood from losing a diversity of families, professions, income brackets, etc. is no less detrimental.
In addition, these real estate investors do frequently target rent-stabilized properties with the express intent of emptying them out, deregulating them and capitalizing on the unlocked rent value upside. The Tishman Speyer purchase of Stuy Town is one of the most famous examples of this strategy in practice, but it remains a widespread phenomenon across the city to this day.
When that strategy goes wrong, as it did for Tishman, why should the mom-and-pop renters be expected to bail out the real estate investors who miscalculated?
Thank you Brandon! I just fail to understand why so many folks see owning real estate as guaranteed income. If my stocks don’t return 10% year over year, no one is crying for me! And while I do appreciate the “mom & pop” landlords, they are a very small percentage of the market and there are already quite a few protections written into the law for them. We need GOOD CAUSE EVICTION!
I think the city needs to have two set of regulations. One for those billion dollars corporate landlords and one for small mom and pop landlords. To group all into these regulations will only drive all the buildings to these billion dollars Corp landlords that can spend millions on lawyers to drive the everyday working folks out of affordable housing.
Many of the regulations have unit thresholds and the like….it’s not a perfect system but it exists. Also, unfortunately, many of the “mom & pop landlords” are less likely to stay in compliance with regulations…for good and for bad. Mayor Adams can’t seem to get the rats under control at his rental. Yet, I have a friend who lives in an “illegal” basement apartment and must pay her rent in cash….it’s the only way she can afford to live on the UWS…but I also don’t blame her landlord, he’s a nice man who lives in and owns the building so why shouldn’t he be able to rent the space if the tenant is willing?