Six years after New York State passed the Housing Stability and Tenant Protection Act (HSTPA), owners of rent stabilized buildings are struggling with rising expenses, declining income, falling values and increasing distress.
What Happened? Understanding the Impact of HSTPA
HSTPA was designed to protect tenants, but its consequences have been severe for rent stabilized buildings resulting in:
- Disinvestment and Vacant Units: Eliminated incentives for apartment and building improvements.
- Valuation Collapse: Removed the ability to grow rents, resulting in eroding Net Operating Income (NOI) particularly in a significantly higher interest rate environment.
- Historical Parallels: Created conditions similar to the 1970s, when systemic disinvestment led to widespread housing deterioration.
HSTPA blocked multiple avenues to increasing income, forcing owners to rely solely on the Rent Guidelines Board (RGB) for relief. The RGB sets rents annually for New York City’s nearly 1 million rent stabilized units, which outside of core Manhattan had an average rent of $1,406 in 2023. The RGB will vote June 30 on raising rents by 1.75% to 4.75% for one-year leases and 3.75% to 7.75% for two-year leases.
Expenses Outpacing Rents
According to the RGB research, operating expenses for rent stabilized buildings rose 6.3% over the last year. An analysis by Ariel Property Advisors shows that since 2020, expenses have risen by about 28%, while rents approved by the RGB increased by only 10.5%, indicating a shortfall of about 17% between expenses and income. Rising operating expenses over the five-year period include taxes, up by 16%; labor costs, up by 19%; fuel costs, up by 42%; utilities, up by 29%; maintenance, up by 33%; administrative costs, up by 20%; and insurance costs, up by 115%. Additionally, rent arrears in some rent stabilized buildings are substantially higher than before Covid because of post-Covid collections issues and Housing Court delays.
Higher Rates and Underwater Assets
The cost of capital also has doubled since 2022. Interest rates have risen from 3% to 6%-7%, making it more challenging for owners to refinance buildings because in many cases the assets are worth less than their mortgages and the current loans can’t be refinanced without an injection of equity.
The misalignment between expenses, including interest payments, and rent growth is creating both operating and financial distress. Owners caught in a downward spiral don’t have an incentive to pay bills and operate the building. Consequently, rent stabilized buildings are suffering from deferred maintenance such as leaky roofs, broken windows, non-functioning boilers, peeling paint or unsafe wiring, and neglected capital needs such as a new roof, elevator replacement, HVAC system upgrades and façade restoration.
Borrowing for improvements in a building worth less than the mortgage also is out of reach, which leads to further distress, nonpayment of bills, increased violations and deteriorating conditions for tenants.
Shrinking Pool of Bank Lenders
In the two years preceding HSTPA (2017 and 2018), over 80% of lending activity for rent stabilized assets was concentrated in banks, with a notable amount in Signature Bank, New York Community Bank, and Chase Bank, according to research by Ariel Property Advisors. Regulators closed Signature Bank in 2023 and New York Community Bank, now Flagstar Financial, Inc., has pulled back on lending. Thus, bank lending has fallen to around 40%, with agencies, non profits and debt funds taking up a larger piece of a smaller pie.
When a building isn’t profitable, existing lenders prefer not to take it back. The most favorable situation for them is to sell the property via a deed in lieu arrangement. This allows a buyer to purchase the asset at a steep discount—50% or more—while also agreeing to handle any required improvements.
However, L+M Development Partners sued Santander Bank for allegedly refusing to honor a loan agreement it had with its original lender, Signature Bank, which would have allowed a deed in lieu of foreclosure for a rent stabilized property at 320 St. Nicholas Ave, Bisnow reported. Santander, which bought a 20% stake in Signature’s rent stabilized loan book after it closed, is seeking to seize L+M’s other assets to recoup possible losses from the mortgage. In the lawsuit, L+M blamed HSTPA for the firm’s failure to execute its business plan for the building.
Additionally, Flagstar Bank filed four separate pre-foreclosure actions against more than half of Pinnacle Group’s residential portfolio over a group of loans totaling about $600 million, the Commercial Observer reported. In response, Pinnacle recently placed roughly 5,000 residential units it owns in Manhattan, Brooklyn, Queens, and the Bronx into bankruptcy. The bankruptcy filings indicate that the portfolio’s assets and liabilities are each estimated to be between $500 million and $1 billion. Pinnacle is one of New York City’s largest multifamily owners, with approximately 136 properties totaling 7.5 million square feet and 8,700 residential units, according to PincusCo.
Capital Flight from Rent Stabilized Assets
Over the past five years, New York City has seen a sharp pullback in institutional investment in rent stabilized buildings. These investors once brought billions into the sector, funding renovations, improving buildings and units through Major Capital Improvements (MCIs) and Individual Apartment Improvements (IAIs), and enhancing overall building and neighborhood quality—without displacing existing rent-stabilized tenants. Since HSTPA, that capital has largely disappeared, and with it, the ability to reinvest in this critical housing stock.
Investors such as Ares, Apollo, Fairstead Capital, the Praedium Group, Sentinel Real Estate Corp. and Related are among those exiting the market.
Related recently sold 2,000 rent stabilized units in five neighborhoods in the Bronx for $192.5 million, a 24% discount from the $253 million the firm paid in 2014. Related had also spent another $30 million on renovations to buildings in this portfolio, the Real Deal reported. The article cited a Crain’s analysis finding that as of January, Related had sold around two dozen rent stabilized assets over the past few years. In April, the institutional investor sold five buildings for $18 million, or 45% of the purchase price in 2015.
The buyers of rent stabilized assets today are private individuals and family offices attracted by the low basis and the belief that HSTPA will eventually be revised.
While institutional investors hold the largest share of rent stabilized units, the vast majority of owners – nearly 80% or about 3,500 individuals or families – are small-scale landlords, owning 100 or fewer units. These smaller owners are facing significant challenges, including eroding net operating income and a tremendous loss of equity. For many, these properties have been in their families for decades, meaning the current financial strain will lead to a loss of generational wealth. In a previous Forbes article, I examined the financial strain many owners are experiencing.
The RGB’s Impossible Burden: The Sole Lifeline for Distressed Rent-Stabilized Buildings
From the perspective of the owners our firm represents, income can only increase through rents set by the RGB. There are no other tools left. That puts the full weight of the system on the nine-member RGB board, which is unfair to landlords, tenants and to the board itself. Until broader changes are made to HSTPA at the legislative level, however, the board’s decisions are critical in ensuring these owners don’t lose their rent stabilized buildings to the banks, fall into the Alternative Enforcement Program (AEP) or rack up violations that ultimately diminish the quality of life for tenants.
Using internal data from our firm, I shared the following key points at a recent hearing before the RGB:
- Looking ahead. We estimate that roughly 60% of our advisory assignments and asset evaluations over the next 12 to 24 months will involve distress, driven by elevated interest rates and broader financial dislocations. These buildings may end up under lender control or in foreclosure.
- Operating Expenses Are Rising Faster Than Revenues. Between insurance premiums, property taxes, and inflationary costs, landlords cannot keep up. Before HSTPA, owners could renovate and re-rent rent-stabilized units up to the market rate to cover the cost of the upgrades. Instead, many are keeping them vacant.
- Tenant Experience is Declining. The financial strain often cascades into physical distress, as owners are forced to triage expenses—prioritizing debt service over maintenance—resulting in increasing levels of deferred upkeep across many properties and poorer living conditions.
Sam Campion, Director of Housing and Economic Development Studies at the Citizens Budget Commission (CBC), also sounded the alarm when he testified before the RGB, declaring that New York City must immediately address the physical and financial decline of its rent regulated housing. Otherwise, these buildings risk falling into a maintenance “death spiral” similar to what has occurred in New York City Housing Authority (NYCHA) buildings. This “death spiral” happens when deferred maintenance leads to repair costs so high they nearly equal the cost of new construction. Ignoring the problem will only increase future repair burdens on the City and State and degrade the quality of life for New Yorkers living in rent stabilized housing.
In other testimony before the RGB, Mark Willis, Senior Policy Fellow at the NYU Furman Center, was equally concerned about the future of rent stabilized housing. Willis highlighted that the financial gap in rent stabilized buildings, especially those that are 100% stabilized, is expected to continue growing, potentially at an accelerated rate. To prevent the deterioration of these vulnerable properties, solutions beyond the standard RGB process may be necessary, he said.
Our Call: A More Balanced, Data-Driven Approach
Moving forward, tenants and landlords alike can benefit from more governmental accountability in the form of:
- Reintroducing Targeted Incentives: Encourage investments in building systems and apartment quality.
- Public-Private Collaboration: Strengthen cooperation between government, lenders and property owners to stabilize the affordable housing market. In 2022, New York State approved Section 610 of the Private Housing Finance Law. The law permits owners of certain regulated buildings with amended agreements to rent units to voucher holders at a level above the legal regulated rent, without increasing the amount the tenant has to pay. However, due to budget constraints—particularly at the federal level—the availability of vouchers remains limited, reducing the near-term impact of this otherwise promising tool.
- Transparency and Data Sharing: Use empirical data to guide smart decision-making that benefits all parties.
Research for this article was prepared by Ariel Property Advisors’ Head Analyst Adam Pollack and was part of the testimony I presented to the Rent Guidelines Board on May 22, 2025. A video of this presentation was posted to the RGB YouTube Channel here.
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