An Open Letter to Jamie Dimon on Rethinking Collateral in Rent-Regulated Lending

Dear Jamie,

Over the past several years, the landscape of multifamily lending in New York City, particularly in the rent-regulated sector, has undergone a dramatic transformation. With the collapse of Signature Bank and the pullback of New York Community Bank (now operating as Flagstar), J.P. Morgan Chase has emerged as the dominant lender in this space. You have, in effect, become the 800-pound gorilla.

With that position comes both opportunity and responsibility.

The issue I want to raise is not about volume, market share or even credit quality in the traditional sense. It is about a fundamental misalignment between how loans are being underwritten and what actually drives value in rent-regulated multifamily properties today.

Simply put: The building is no longer the primary collateral. The paperwork is.

For decades, real estate lending has been grounded in a straightforward premise: The physical asset secures the loan. Location, condition, income and replacement cost formed the backbone of underwriting. That framework worked because the income stream from multifamily properties was relatively stable, predictable and, most importantly, legally durable.

That is no longer the case.

Since the passage of New York’s Housing Stability and Tenant Protection Act (HSTPA) in 2019, the value of rent-regulated buildings has become inextricably tied to the documentation supporting the legality of the rents being collected. The income is no longer simply a function of leases and market conditions. It is a function of whether every dollar of rent can be substantiated, line by line, unit by unit, with proper historical documentation.

In practical terms, when I speak with property owners today, I tell them something that would have been unthinkable a decade ago: “You are not selling the building. You are selling boxes of paperwork in the manager’s office. If the paperwork is good, your price will be good. If the paperwork is bad, your price will be bad.” 

Those boxes contain rent histories, invoices, contracts, permits, proof of payment and detailed records of apartment and building-wide improvements. They document whether units were legally deregulated, whether increases were properly calculated, and whether capital improvements were executed and substantiated in compliance with the law.

And here is the critical point: If that paperwork is incomplete, inconsistent or missing, the value of the building can be impaired — sometimes dramatically. We are now seeing situations where borrowers in distress claim that key documentation has been lost or cannot be located. In some cases, there is an implied, or explicit, suggestion that such documentation might “reappear” under more favorable circumstances, such as relief from personal guarantees. That dynamic alone should be a flashing red warning signal for any lender. Because what it reveals is this: The true collateral is not fully within the lender’s control.

From a credit perspective, this is a structural flaw. A lender can foreclose on a building. But can it reconstruct a decade’s worth of missing invoices, payment records and compliance documentation? In most cases, it cannot. 

And, without that documentation, the income stream, and therefore the value, becomes uncertain and is impaired. Yet, today, loans continue to be made with the building treated as the primary collateral, while the documentation that substantiates its income is treated as secondary, if it is addressed at all beyond initial underwriting.

That approach is outdated.

If J.P. Morgan Chase is going to continue to lead in this space, and I believe you will, then the collateral framework must evolve to reflect this new reality. Specifically, I would suggest two fundamental changes.

First, lenders must treat the full body of rent-supporting documentation as core collateral. That means not only collecting it at origination, but also ensuring it is complete, organized and independently verified. It should be under the same level of scrutiny and control as the mortgage itself.

Second, and more importantly, the bank should consider establishing an in-house property management and compliance platform designed specifically for rent-regulated assets. This platform would not operate as a traditional third-party manager, but as a collateral oversight mechanism.

Its mandate would be clear: to track, collect and maintain every piece of documentation that supports the legality of rents and the integrity of the income stream. Every invoice for capital work. Every proof of payment. Every lease, registration and rent history. All digitized, standardized and continuously updated. Yes, this would represent an incremental cost. But it is not an expense if viewed properly. It is a protection of collateral value.

Because, in today’s environment, the difference between a well-documented building and a poorly documented one is not marginal. It can represent a material percentage of value. In some cases, it can be the difference between a performing loan and a non-performing one. The buildings themselves still matter. They always will. But, in the rent-regulated world we now operate in, they are no longer sufficient on their own.

The value lives in the paper. And, if the paper is not controlled, the collateral is not controlled. As Denzel Washington’s character, Alonzo, said in the movie “Training Day,” “It’s not what you know, it’s what you can prove.”

Jamie, J.P. Morgan Chase has the scale, the resources and the market position to redefine how lending in this sector is approached. The question is whether it will. Because the institutions that recognize this shift and act on it will not only protect themselves. They will also set the new standard for the industry. Those that do not will eventually learn the same lesson the hard way.

Respectfully,
Bob Knakal

Robert Knakal is founder, chairman and CEO of BK Real Estate Advisors.