Rent Stabilization - NYC Multifamily

BBA18's picture
Rank: Senior Gorilla | banana points 917

Anyone familiar w/ NYC MF who could explain how this works? My group doesn't do much in NYC and I just got this deal sent to me a few hours ago. My understanding is that tenant's receive a right to renew and the LL can't re-lease at a rate that represents a percentage increase greater than that prescribed by the city gov.

The issue that I'm having is finding anything on the city's website that gives a schedule for allowable rental increases. Could anyone point me in the direction of where to find this info? We have close quickly on this one, so it'd be ideal if I could get the model banged out tonight rather than waiting for the start of business tomorrow to call the city and figure out where this info is.

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Comments (23)

Jul 13, 2018

I PM'ed you since I'm too new to post the link. But check the link I sent you it's the ordinance. Looks like it's capped at 2% a year increase while also requiring you allow for a two year lease with some tenants at that below market rate. Yikes. Good luck

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Jul 13, 2018

2% max increase. You can spend a certain amount of capital sometimes and increase the legal rent, therefore allowing for a higher increase but this is only if the tenant vacates.

Jul 13, 2018

Things change year-to-year but there are a few ways to increase the rent of rent stabilized buildings in new york

  1. Normal Rent Increases - There are specific increases for 1-Year & 2-Year Leases
  2. Increases when Tenant Vacates - This varies depending on a few things: (1) Last time LL increased rents, 20% if there hasn't been an increase in a while, etc
  3. MCI - Major Capital Improvements
  4. IAI - Individual Apartment Improvement
  5. When a unit hits $2,500 Per Month in Rent, the unit is no longer rent stabilized and moves to market rate. Achieving this is usually the ultimately strategy of any NYC Rent Stabilization Value-Add Play. By using #1-4, an investor aims to hit the $2,500 rent number and then exit once at market.
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Jul 16, 2018

Mostly agree with this, just two things to add:

  1. The high-rent vacancy destabilization limit is currently $2,774 not $2,500
  2. If you have pref rents below legal rents on renewal, you have to calculate the increases over the pref rent (unless the lease had a clause that specifically stated the pref rent was only for the current term of the lease).

All of this information is readily available on the NYC sites. This is just a taste of what kind of a nightmate RS deals in NY are. If your firm has no experience in this, I wouldn't recommend going into it without a partner that has lots of reps for these types of deals.

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Jul 19, 2018

To give a little more detail on these responses, which are true as far as they go but not super detailed:

The Duke of Wall Street:

Things change year-to-year but there are a few ways to increase the rent of rent stabilized buildings in new york

  1. Normal Rent Increases - There are specific increases for 1-Year & 2-Year Leases

The Rent Guidelines Board sets 1 and 2 year increases. They are mostly appointed by the mayor; under de Blasio, increases have been frozen on one years or (as this year) under 2.00% - 2 year leases tend to get bigger increases, obviously.

There is also the issue of preferential rents; sometimes a tenant is paying a number which is less than the legal maximum a landlord can charge. If pref rents are in place, you can raise rents as high as the delta between the legal rent and the preferential rents.

The Duke of Wall Street:

2. Increases when Tenant Vacates - This varies depending on a few things: (1) Last time LL increased rents, 20% if there hasn't been an increase in a while, etc

Technically the vacancy is allowance is 20% less that year's increase. This year the RGB gave 1.75% increase on one year leases, so on vacancy a landlord can raise rents by 18.25%

The Duke of Wall Street:

3. MCI - Major Capital Improvements

These are repairs to major building systems; boiler, roof, facade, etc. They have a 60 month payback., applied across the building

The Duke of Wall Street:

4. IAI - Individual Apartment Improvement

Anything within the unit; painting, new fixtures, appliances, etc. 40 month payback for that individual unit. This is the reason tenants don't like allowing landlords to fix shit and why many RS buildings go to shit.

The Duke of Wall Street:

5. When a unit hits $2,500 Per Month in Rent, the unit is no longer rent stabilized and moves to market rate. Achieving this is usually the ultimately strategy of any NYC Rent Stabilization Value-Add Play. By using #1-4, an investor aims to hit the $2,500 rent number and then exit once at market.

As others have said, this number is now higher. Additionally, landlords are now required to give an additional rent stabilized lease even after hitting High Rent Vacancy Decontrol, to deter predatory landlords from screwing over tenants. Which means you can hit 3,000/month on your legal rents, file your paperwork, and still end up with a tenant who has a pretty ironclad right to stay (though there are obvious ways around this).

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Jul 13, 2018

Additionally I would assume a 1-2% roll on any RS or RC units and include a buyout budget in your assumption as it relates to the roll. The game in NYC Is to get as many tenants out without getting in trouble for tenant harassment and or a NYT article written about you. This is why I would never invest in these deals.

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Jul 13, 2018

at the "peak" of the cycle, these deals have some very good downside protection.

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Jul 13, 2018

I've modeled RS and RC a lot PM if you want some detailed info. *The above have it right, but they aren't getting into the weeds, which you unfortunately need in this product to prohject proper cash flows.

If you want to do research look-up DHCR, department of housing and community renewals, but it's not as clear cut as the info they give you.

Jul 14, 2018

would greatly appreciate a breakdown/outline on rc/rs.

Jul 15, 2018

I would hire an attorney that specializes in NYC rent control laws if this is your first time diving into it. This stuff is way more complex than it needs to be.

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Jul 15, 2018

NYC Rent Stabilization requires a lot of specialization in order to become highly profitable. Unless you plan on purchasing multiple buildings with a portfolio exit to a more institutionalized player, I'd recommend against it as you need droves of people dedicated to this investment.

Robert Clayton Dean: What is happening?
Brill: I blew up the building.
Robert Clayton Dean: Why?
Brill: Because you made a phone call.

Jul 19, 2018

Looks like the question has been answered, so now I feel OK "hijacking" the thread with my anti-rent control screed.

https://www.nytimes.com/2013/07/28/magazine/the-pe...
The problem, though, is that these programs [rent stabilization, etc.] actually make the city much less affordable for those unlucky enough not to live in a rent-regulated apartment, Mayer says. The absurdity of New York City's housing market has become a standard part of many Econ 101 courses, because it is such a clear example of public policy that achieves the near opposite of its goals. There are, effectively, two rental markets in Manhattan. Roughly half the apartments are under rent regulation, public housing or some other government program. That leaves everyone else to compete for the half with rents determined by the market. Mayer points out that most housing programs tie government support to an apartment unit, not a person. "That is completely nuts," he says. It creates enormous incentive for people to stay in apartments that no longer fit their needs, because they have had kids or their kids have left or their job has moved farther away. This inertia is a key factor in New York's housing shortage. One East Village real estate agent told me that only 20 to 30 units are available in the entire area any given month.

Jul 19, 2018

Well, since you're determined to hijack another thread with this, I'll respond again.

First and most importantly, NYC =/= Manhattan. As of 2014, Core Manhattan (basically the north edge of Central Park on down) had 166,000 rent stabilized apartments out of a NYC total of 1,025,000. So, roughly speaking, 16.2%. 4,690 units came out of stabilization in 2016, of which 54% were in Manhattan. A further 6,660 went through HRVD in 2015. Assuming a similar distribution, that means that 6,130 or so units came out of stabilization in Manhattan alone in 2 years. Understanding that I'm adding a lot of "ifs" here, it's not hard to see that something along the lines of 5% of Core Manhattan RS housing stock has disappeared over the last 3 years since that report.

All of this is to say, rent stabilization in expensive neighborhoods is disappearing at a meaningful rate. Furthermore, rent stabilized housing in the outer boroughs is often not significantly below market rents, and therefore the macroeconomic effect of all this stabilized housing is less than might be assumed. I will be the first in line to say that Rent Stabilization Law of '74 is flawed, and allows for significant abuses by wealthy folks to stay in apartments which could be released into the marketplace to allow for housing prices to adjust. But this is a small percentage; the vast majority of tenants in rent stabilized housing are people who genuinely need the subsidy and cannot afford NYC housing.

Many people take the same approach as you do and assume that Manhattan is synonymous with New York City and only look a pricing there, which isn't the case. Frankly, wealthy people just don't want to live in outer borough neighborhoods. Anyone could move out to East New York and find easily-accessible, low rent housing, but they don't want to. They want to live in Manhattan. If prices dropped by 10% in Manhattan, you'd see demand shoot right back up as everyone who has been priced into Downtown Brooklyn or Long Island City came shooting right back in, and you'd be right back where you started.

TL;DR - arguing this as if the entirety of NYC is equally desirable is absurd, and ditto even talking about "Manhattan". Most RS units in Manhattan are located north of the Park, and to say that a rent stabilized unit in Inwood is causing meaningful price increases at rental buildings in Tribeca is silly and out of touch with the way the NYC market functions. I look at hundreds of rent stabilized apartments a month in which the actual rent is less than the legal rent; places where more money could be charged, but the market won't bear it. Of the 1mm+ apartments subject to rent stabilization (of which many have significant income restrictions in place to prevent the kind of abuses mentioned), a meaningful percentage are not having any impact on overall rental pricing. Yes, public housing is a mess. Yes, there are folks abusing the system. And while you might think that abolishing the system altogether is the right way to go, there is a meaningful public policy argument to be made that pushing thousands if not tens of thousands of poor families out of their home is not a reasonable trade off for lowering rental prices in downtown Manhattan by 5% or whatever. Anyone who could take advantage of that isn't at risk of living on the streets, merely of having a commute that takes an extra ten minutes.

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Jul 19, 2018
Ozymandia:

Well, since you're determined to hijack another thread with this, I'll respond again.

First and most importantly, NYC =/= Manhattan. As of 2014, Core Manhattan (basically the north edge of Central Park on down) had 166,000 rent stabilized apartments out of a NYC total of 1,025,000. So, roughly speaking, 16.2%. 4,690 units came out of stabilization in 2016, of which 54% were in Manhattan. A further 6,660 went through HRVD in 2015. Assuming a similar distribution, that means that 6,130 or so units came out of stabilization in Manhattan alone in 2 years. Understanding that I'm adding a lot of "ifs" here, it's not hard to see that something along the lines of 5% of Core Manhattan RS housing stock has disappeared over the last 3 years since that report.

As suspected, like the close-minded person you are, prior to posting a counter, you didn't even read the article, which specifically acknowledges what you just said, that NYC is on the path towards organically ridding itself of rent stabilization. The larger point isn't about NYC--it's about the economics of rent control and similar schemes--how they actually hurt the people they are intend to help.

Jul 23, 2018

@BBA18 I would check out this website http://rsanyc.net...... they have helped me navigate the NYC RS market for years.

As someone who is an RS investor in NYC (grandmother got into this game long way back), I read a lot of bs on this thread. The bottom line is that rent stabilization is hurting families that need help. @Ozymandia as someone who has spent a large part of his time in housing court section 8 housing is largely in part abused by these so-called needy tenants that are driving Mercedes and BMWs. I would recommend spending a few days in housing court to see the circus first hand. You would find that it's not needy or helpless families for the most part but skillful lawyers or individuals who show up with law firms that charge $700 per hour..Secondly just because you don't see artificial constraints doesn't mean that they aren't there. I'll give you one, for example, the reason I charge preferential rent is that my lawyer has advised me to....the reason being is that it helps me in future legal cases that I might have where the heavily biased courts against landlords cant paint a picture of me being a sleazy slumlord that charges for every penny I can.....or how about a rent-stabilized tenant being able to pass down his apartment to his family members even when he is not living there anymore (hint this causes the only 20-30 units are available in a given month to come true)....and the list goes on and on

As always whenever gov steps in it usually make things worse furthermore I would recommend reading the history of rent control and what it was originally intended for because it certainly was not this. I always try to put it in this way how would you feel if let's say you started a business from the group up, went to the bank got a loan in your name, busted your ass navigating the legal world, only to have the gov tell you how high you can price your product? That's exactly what the gov is doing in rs real estate.

Jul 19, 2018
Mikesilverback_investor:

As someone who is an RS investor in NYC (grandmother got into this game long way back), I read a lot of bs on this thread. The bottom line is that rent stabilization is hurting families that need help.

Wow. You own a couple rent stabilized buildings. Congratulations, you must really get a good feel for the entire NYC rent stabilized market. We buy several thousand units a year and build several hundred more. We deal with City and State agencies, we get a feel for their priorities and concerns - yeah, it can be frustrating to not make as much money as you want because other actors in the market ~gasp!~ have differing priorities. Without insult to a business you've perhaps built, you cannot possible claim to have a grasp on this market if you only own a handful of units.

Mikesilverback_investor:

@Ozymandia as someone who has spent a large part of his time in housing court section 8 housing is largely in part abused by these so-called needy tenants that are driving Mercedes and BMWs.

You see, this is why you don't know as much as you think you do. You show up to housing court and see wealthier tenants (though being NYC, I doubt they drive cars, but I take your point) and think "the system is broken". What you don't seem to understand is that the tenants who are genuinely in need of the system, who aren't the small percentage who are exploiting it - they don't show up. They can't afford a lawyer, or they don't understand the complexities of housing court, or they work two jobs and can't take hours off for days... those are the majority of the people being impacted by housing court, not the handful of pro bono cases or wealthier tenants who snarl up the proceedings for years with endless appeals and bogus motions. I've been embroiled in housing court for 3 years with a tenant blatantly violating zoning and fire codes and admitting to the judge she won't stop or make it safer. Yeah, it's f**king frustrating. That's a tiny percentage of cases and while I know you want to sound like an insider when you say "go to housing court", every person who knows jack about housing court knows most cases aren't heard there for the reasons I described above. It self-selects for the wealthier assholes.

Mikesilverback_investor:

Secondly just because you don't see artificial constraints doesn't mean that they aren't there. I'll give you one, for example, the reason I charge preferential rent is that my lawyer has advised me to....the reason being is that it helps me in future legal cases that I might have where the heavily biased courts against landlords cant paint a picture of me being a sleazy slumlord that charges for every penny I can.....or how about a rent-stabilized tenant being able to pass down his apartment to his family members even when he is not living there anymore (hint this causes the only 20-30 units are available in a given month to come true)....and the list goes on and on

OK lets make something clear: housing court isn't meant to be impartial. It was begun to help tenants get a speedy resolution to their cases (which isn't going great, obviously), specifically so that landlords couldn't deliberately let housing stock deteriorate in an attempt to force tenants out.

Second, you wouldn't be considered a "sleazy slumlord" if you actually maintain your building. If you're letting rats run wild and have your roof leak and your boiler goes out every winter, then you're a shit landlord and a criminal and you deserve all the opprobrium you get from the "heavily biased courts". And if you run your building right, you won't have any issues if you charge a legal rent. This isn't rocket science. If the courts are coming after you because you charge to the last cent and don't invest anything in capex or into a replacement reserve, you deserve that. You are the reason housing court exists in the first place.

Mikesilverback_investor:

I always try to put it in this way how would you feel if let's say you started a business from the group up, went to the bank got a loan in your name, busted your ass navigating the legal world, only to have the gov tell you how high you can price your product? That's exactly what the gov is doing in rs real estate.

No, it isn't, and its an incredibly shallow and stupid argument that I hope everyone here can see through immediately. Rent Stabilization has been around since 1974, Rent Control since 43. If you've bought a building since then, you knew what you were getting into. The fact that you try and put it in the terms you do is why you're so upset; you made a stupid business decision and now actually want the government to bail you out. Rent stabilization exists, and has, almost certainly since you got into this business. You chose to buy those buildings; if you didn't understand the responsibilities that came with it, you're a poor businessman. Stop asking for a government bailout.

Better example: How would you feel if you started a business from the ground up, went to the bank and got a loan in your name, busted your ass in the legal world, and then had the government tell you you can't just dump chemicals out the window into a nearby river? You might be pissed, but 99% of people are going to tell you your and idiot for not realizing that there were existing regulations you ignored.

I can almost guarantee that I deal with more rent stabilized and affordable units, and tenants, in a given year than anyone else commenting on this subject. And I do so on a personal level; I walk hundreds of apartments through dozens of buildings. I don't claim to know all there is to know, and I certainly don't claim that the system is perfect or free of abuse. But the concept of the welfare queen, or in this case rent control queen, is a myth, pure and simple. Maybe there are a handful of them, but the vast majority of tenants are poor people living in often squalid conditions. And the reason they don't move out of apartments that are infested with roaches or mold or what have you is because they have no where else they can afford to go. They'd be on the street

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