New York City’s Rent-Stabilized Stock Appears to Be Drawing More Investors

For a tenant, finding a rent-stabilized apartment in New York City has long felt like finding a needle in a haystack — and even when found, the needle might cost $2,500 a month and probably doesn’t come with air conditioning. Or a recent paint job. Or a deadbolt.

For an investor, it’s different. Or was different. 

Since the designation was created in the 1960s, owning and trading one of the city’s rent-stabilized units — there are about 1 million now — was a dependably lucrative endeavour considering the city’s perennial demand for housing, along with laws that generally made it easy to turn regulated apartments into
market-rate units. 

That was until the Housing Stability and Tenant Protection Act (HSTPA) of 2019. This suite of state laws was designed to protect tenants from sharp rent increases that could push the monthly cost over the threshold for keeping a unit stabilized. Once that happened, the rent could be whatever the free market supported. (A mayor-appointed board sets the potential rent increases for stabilized units.)

The protections, then, pretty much removed incentives for landlords to upgrade their housing stock, and the business model crashed. Since 2019, the market value of rent-stabilized buildings has plunged dramatically. Investment sales brokerage Ariel Property Advisors pegs the decline at between 35 to 60 percent from highs in 2017 and 2018. Sales of buildings with at least 75 percent of units that are rent-stabilized declined to $1.1 billion in 2023 from $4.8 billion in 2015, Shimon Shkury, president and founder of Ariel Property Advisors, wrote in Forbes. 

Recently, however, transaction activity has picked up. 

David Schechtman, senior executive managing director with Meridian Capital Group and a longtime investment sales broker in New York, said his firm alone sold 12 predominantly rent-stabilized properties in 2024. Shkury told Commercial Observer his firm sold seven last year as well. 

Rent-stabilized apartment buildings, then, are seemingly more coveted now by investors than at any time in recent years — and this during a period of elevated borrowing costs and political uncertainty. What gives?

Buyers are coming from outside the New York area, for one. Also, the recent investment activity has overwhelmingly come from private sources, and these investors are comfortable with a longer hold on the buildings. 

Schechtman said he has worked with buyers from Canada, Israel and throughout Asia. These investors see opportunity in entering the market at what’s normally a discount to market-rate buildings and are comfortable betting the long-term gains will outweigh any current challenges in the rent-stabilized property market. New York investors might be more cautious, spooked as they have been by the drops in values due to the 2019 legal changes. 

“Rent-stabilized buyers are long-term owners who see an opportunity in the value decline that we’ve seen in rent-stabilized housing,” Shkury said. “Pretty much the only investors are private investors. They look at it as a long-term horizon investment, and they expect things to change over time. They expect the rules to change over time.”

Buyers are financing these transitions through recapitilizations and “creative” capital stack restructurings, according to research from Ariel. The firm also noted that rent-
stabilized properties accounted for 25 percent of dollar volume and 46 percent of total multifamily transaction volume in 2024. 

But just because there is buyer interest doesn’t mean it’s an easy sell. 

“Selling a rent-regulated apartment building in New York City — in any of the five boroughs — is much like the famous R.E.M. lyric: It feels like pushing an elephant up the stairs,” Schechtman said. “It can be done, but you’ve got to lean into it.”

In a few weeks, Meridian will be closing an $8 million deal for a 16-unit, fully rent-
stabilized building on East Eighth Street in Manhattan. Schechtman said it took four months to get the contract signed when the typical time frame is a few weeks.

It’s taking longer for all parties to be satisfied with the deal. As a result, the sales process is far more arduous and time consuming than it used to be.

“Once there was a handshake, once there’s a contract issued, it took two or three weeks and they’d get signed,” Schechtman said. “Now, it could take months to gather documentation for the lawyers to be satisfied and for the buyer to be satisfied. It’s a very, very different game.”

Amid all these challenges, value issues and regulatory red tape, it’s often hard to see a path to profitability for those investing in rent-
stabilized buildings. But the path is there. 

The immediate returns on rent-stabilized buildings may not be as robust as they once were, yet buying at a low enough price relative to the income these buildings generate can result in a tidy long-term return.

“If you buy a property for $10 million and it’s a 7 percent return and you get 50 percent debt at 6.2 percent, even your mortgage is accretive to the income and expense,” Schechtman said. “So, you’ll make a high single-digit return, which is good. And people perceive it differently. For years it’s ‘I’m going to buy something in New York City, and three years later it’s going to be worth 50, 75, 100 percent more.’ [Today] those investors are going to be wrong. However, if somebody says, ‘I’m going to invest in this, and over the next 10 years I’ll make 7, 8, 9 percent,’ those people are right.”

Another path to profitability is the legislative changes that these long-term investors hope will happen sooner rather than later. 

“If the vacancy treatment changes — where a vacant unit would become free market, or could even go up to market and stabilize at that level when the unit becomes vacant — that is a path to profitability,” Shkury said. “So, even small regulation changes could show a path to profitability.”

Yet another possible avenue to profit is the conversion of rent-stabilized housing into affordable housing. Shkury said this is difficult but not impossible. 

For example, the owner of a building with a few hundred units that is already rent-
stabilized can go to the city and ask for a tax abatement that would allow for the conversion, Shkury said. He specifically referenced Article XI. The long-term tax break is designed to spur the construction or rehabilitation of affordable housing by what’s called a housing development fund company, an entity formed to build low-income housing.  

“So you could go to the city and say, ‘Look, why don’t you give me that tax abatement, that Article XI, and I will make sure that my tenants [get] affordable housing,’ ” he explained. “And, over time, I can make an amendment to the agreement as well, and can also include [federal] Section 8 tenants there, and get more like market rents because the vouchers are going to pay me more or less market, and so on.”

While the rent-stabilized market in New York City has certainly shifted, then, it hasn’t shut itself away from investment opportunities. There is still potential for investors willing to play the long game and wait out the regulatory landscape, while understanding how unpredictable the market can be. 

At the center of all of this talk about investment opportunities and making the rent-
stabilized trade profitable again, there is the tenant. The everyday New Yorker needs an affordable place to live while battling the ever-increasing cost of living and the seemingly endless housing crisis plaguing the city. 

“When we talk about all these properties, so often we forget about the human element, and whether regulation is something that’s needed,” Schechtman said. “Nobody who profits off the sale of these buildings would debate the fact that there is absolutely a need for some form of rent regulation.”

Amanda Schiavo can be reached at aschiavo@commercialobserver.com.