Unable to raise rents, owners of rent-stabilized buildings face financial trouble

Many owners of rent-stabilized buildings originally took out loans under the assumption that they’d eventually be able to use legal loopholes to significantly raise rents on their tenants, but a 2019 law made it tougher to take units out of rent stabilization – and now those landlords are underwater and looking for help from Albany.

The real estate lobby is hoping that during next year’s state legislative session, lawmakers will revisit the landmark 2019 Housing Stability and Tenant Protection Act – not because of shifting public perception but out of necessity. Rent-stabilized multifamily real estate in New York City is undergoing a market correction to account for closed deregulation loopholes, and a rise in foreclosures as loans come due could spell trouble for tenants and landlords alike. 

The HSTPA ushered in a variety of progressive housing reforms while closing loopholes that had previously allowed building owners to take units out of rent stabilization. 

Under prior law, if a tenant’s income or the price of the lease exceeded a certain threshold, landlords could deregulate the unit. Landlords could also see an automatic lease increase of up to 20% when a rent-stabilized unit became vacant. And they could also register a higher rent with the state, while initially charging a lower “preferred” rent, only to adjust the cost of a unit to the higher price when there was a vacancy. 

Many of these loopholes are now closed, save for concessions on Individual Apartment Improvements that made rental increases tied to work done on a unit permanent. This has decreased landlords’ ability to turn a profit on rent-stabilized multifamily housing, and landlord groups say that this has made it more difficult for building owners to refinance their properties and maintain their buildings.

Jay Martin, executive vice president of the New York Apartment Association, told City & State that banks are in a predicament where they can only adjust loans so much to ease the burden of lowered valuations, and landlords are having trouble recouping the original value of their property. Banks aren’t eager to foreclose on loans and take control of the properties, but they will do so when necessary, as many saw when A&E Real Estate Holdings defaulted on a loan of more than $500 million that covers thousands of units across the city. 

As situations like that continue to happen, Martin said a bubble is approaching, which could require some kind of legislative fix – either to adjust the rent stabilization laws to enable landlords to raise the rents in more situations or to create more mechanisms for property to be taken up by government or nonprofit entities. 

“There are thousands of loans that were underwritten under the premise that certain units in the buildings would be deregulated at certain rent thresholds, and therefore they'd be able to pay back these loans under those terms, and now they're no longer able to do that,” he said. “So as they become mature, and we're out of the five years post 2019, we're starting to see that, and that is part of what is leading to the foreclosure crisis.”

Progressives have proposed ambitious solutions like a Social Housing Development Authority, which would set up a sort of statewide landbank, but they have yet to pick up steam. The real estate lobby would like to see some of the rent regulations rolled back, which tenant advocates and progressive lawmakers fiercely oppose.

Given that 2026 is an election year and the state faces serious budget upheaval, few people are expecting that lawmakers will support a radical solution – but something will eventually have to be done to address the coming crisis.