Owners/operators/multifamily funds, what are you guys hearing in your world?
State assembly reached an agreement last night in Albany. The new regulations, expected to be signed in the law:
* eliminate vacancy decontrol (ability to bring up to market-rate when tenant leaves)
* limit Major Capital Improvement and Individual Apartment Improvement programs (little to no rent increases through reno)
* eliminate income-related deregulation (cannot charge market-rate for an apartment if the tenant’s income hits $200,000)
Seems to me this will hurt small landlords, further incentivise bad ones to keep their properties slums, stop refinancing, and ultimately distress a good chunk of housing stock. This affects 1 million units in NYC.
Shoot my bad, must’ve hit publish at the same time. I’m on my phone which makes this site harder to use.
It will hurt/destroy the small operator. Not only will the ROI be capped, the rents themselves are already so low. Any owner who doesn’t think that’s a problem is one major repair away from bankruptcy.
I used to work for an operation similar to yours, and their model was to legally deregulate small walk ups from $800 (for a large 2BR in Manhattan) to $2000. Still reasonable in absolute terms, but preposterous in the eyes of these new regulations.
Whoa whoa whoa. It is most definitely not a "cap" on renovations. It is a cap on renovations you can charge back to your tenants. Any operator who isn't an out-and-out slumlord should be budgeting opex for R&M that they weren't going to try and take IAI's for. Yeah, apartments are going to go to shit over time, I'm not disputing that the law is bad policy.
But this really should not "create" more slumlords. Any operator who isn't willing to cut into their profit margin to ensure their tenants live in reasonable health and safety is a slumlord, and that was the divide before, as well.
And you're right about construction, but it won't impact the unions at all, so the political ramifications of that won't be felt by anyone in Albany.
My expectation is that the NYC RGB is going to come back with some hefty renewal increases - you can't take away all of these mechanisms and give nothing in return. They had already hinted at this if all of these laws were to pass earlier in the year.
Pre-war stabilized building values just got absolutely crushed.
Old stabilized walk-ups are going to start falling apart. Disincentiziving MCIs is absolutely idiotic. This is what happens when a bunch of people who don't understand a thing about how real estate works get to enact laws. Can't wait to hear everyone crying bloody murder about how their living conditions are terrible in a few years! EVEN BETTER - can't wait till these idiots start complaining about how their rent increases went up. BUT WAIT I THOUGHT...LOL.
Just came here to rant about the last two weeks spent updating the potential impact of this asinine legislation on the collateral values for our entire multi-family portfolio.
Can't wait to see how well this all works out.
A lot of these reforms on an individual basis had been expected or at least speculated upon for a while, but did not expect such a sudden and comprehensive roll out with one swing of the bat. Some of these regulations do have good intent (trying to curb criminal or unethical practices of a few bad apples), but the sudden drop of the hammer all at once is irresponsible for the sake of the wider industry. A more progressive roll out perhaps focusing on a few of these changes would have been an ok middle ground, and perhaps be more successful politically in the long run (I find such sudden broad based changes are rarely well executed). For example, as a starting point maybe focus on reforming one of either renovation based increases, MCIs, or vacancy boosts, while enhancing oversight of the other regulations.
Now eventually the market will re-adjust and we'll find a new equilibrium, but it will be difficult for a few years no doubt and punish anyone who's been over confident (which is a lot of people). Also, any potential deals in what's already been a relatively dry market will stay locked up until we get better clarity on what's going to happen (read: gonna be boring AF if you're in acquisitions) . BUT, might see some more opportunities from distressed assets starting in about a year or two which might liven things up. So that's one potential positive depending on your current position.
But everyone should take it as a major lesson to ALWAYS make sure your deal pencils out above water in a sort of "worst case scenario" event, be it from a recession, a political shift, anything. Maybe you've seen 8% rent growth for three years, but things always find a way to average out in the long run. No doubt NYC's real estate has been a bit of a runaway train for the last decade (good for you if you own a stake), but this move feels like pulling the emergency brake when perhaps they didn't need to. Will be interesting to see if the RE lobbyists change their long term strategy and structure, or if they'll keep playing the same game. Based on trends in current politics, I'd choose the former.
Agreed, but there are plenty of “honest” operators who are about to have their worldview turned upside down. Many 20-unit walkups (Nolita/EV/Harlem/Williamsburg) will be worth their 1999 prices, if they trade at all.
That would imply this was not political theatre.
Blue states like to regulate housing. News at 11.