Rent Stabilization - NYC Multifamily

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.

 

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

 

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.
 

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.

 

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).

 

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.

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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-perverse-effects-of-ren…

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.

Array
 

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.

 
Most Helpful
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.

Array
 

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.

 

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