The Future of the Investment Market
Of all the potential scenarios right now, there are two that stand out as more likely.
- - Scenario 1
Due to protracted and high levels of rent non-payment by tenants and regulations preventing evictions, the State and City Of New York will be forced to provide long-term revenue subsidies to ease the burden on owners of rent-stabilized multifamily assets and units. With the HSTPA in place, which already limits owners’ abilities to take recourse in the event of non-payment, landlords will face eroding incomes and face further rent collection challenges.
If this happens, multifamily buildings with a significant number of rent-stabilized units will lose market value in the near term and lenders will foreclose or sell debt notes at a discount.
Under this scenario, owners can really only create value on the property through lowered expenses (e.g. lower taxes) and the use of city, state and federal subsidies for maintenance. New York City would have to respond to the tax burden by providing incentives that, at the moment, are rarely available, such as abatements and tax shelters. Under pre-Covid-19 rent-stabilized property laws, government subsidies usually apply to necessary maintenance on units and building infrastructure, such as New York City’s 421-a Tax Incentive. Essentially, in this future scenario, there is a dearth of private and institutional capital to maintain rent-stabilized units and, over time, city and state governments will have no choice but to respond.
- - Scenario 2
Seeing the shifting landscape, there will be swift rent regulation reform. Currently, there are actually several legal contestations of the HSTPA as unconstitutional. One, in fact, has already succeeded: Regina Metropolitan Co. v. New York State Division of Housing & Community Renewal, which deemed that overcharge calculations cannot be applied for dates before the HSTPA was enacted.
In this scenario, pending legal lawsuits will bring lawmakers, landlords and tenant groups together to discuss adjusting the legislation for everyone’s benefit.
Topics: Real Estate, Investment Market, New York
Work cited: Forbes, June 2020
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