Rent Regulation Uncertainty Affecting NYC Rental Building Sales

The current rent law expires in June and major reforms to New York’s rent regulations are on Democratic lawmakers’ agenda now that they control the entire state Legislature. Proposed changes to the rent laws are expected to make it harder for landlords to raise rents on regulated apartments.

As a result of the uncertainty caused by potential rent reform, the market for multifamily apartment buildings has seen a significant drop in the first quarter of 2019, according to a report from B6 Real Estate Advisors. The report finds that the first three months of the year saw just 127 residential rental buildings change hands in the city, well below the deal volume of 243 a year before, while dollar volume fell by 43 percent.

The report found a shift in investor demand since the third quarter of 2018 for two- to four-unit residential properties and mixed-use buildings. There was a considerable reduction in transaction volumes for the multifamily sector: Elevator properties saw 21 transactions for $807 million in the first quarter, while walk-up multifamily properties saw 106 transactions for $522 million citywide. Together, both property types saw a 48 percent drop in transactions and a 43 percent reduction in dollar volume of $2.3 billion to $1.3 billion compared to the first quarter of 2018. Overall transactions were down 24 percent from their five-year average.

The report attributes the reduction in transaction flows of these property types to uncertainty in the state capitol. With New York’s rent stabilization laws up for renewal in June, properties containing at least 50 percent free-market units represented 45 percent of all multifamily sales in the first quarter. And a 21 percent jump in price per square foot from 2018 for free-market or renovated assets shows a premium for these properties.