The Real Deal New York

Fitch warns that rent-stabilization change poses risk to New York City buildings

February 25, 2009 06:26PM
By David Jones

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 Peter Cooper Village (left) and the Belnord (right)

Fitch Ratings today warned that a proposed change in the New York rent-stabilization laws could weaken the loan ratings at major residential buildings, including the Belnord and Stuvesant Town-Peter Cooper Village.

Current rent-stabilization laws allow landlords to convert rent-stabilized apartments into market-rate units when the rent exceeds $2,000 and tenant income exceeds $175,000 for two consecutive years. Landlords can only raise annual rents by 4 percent for tenants in these units.

Proposed legislation would raise the rent trigger to $2,700 and the annual tenant income limit to $250,000.

Eric Rothfield, managing director at Fitch, said the proposed legislation makes it far more difficult for landlords to meet their debt obligations.

“It potentially can delay the ability to move that unit into a market-rate [status] by eight years,” Rothfield said.

Rothfield noted that from 2006 to 2007, there were eight multi-family loans in New York that Fitch reviewed, totaling $70 million, which were financed based on the ability to convert the apartments from rent-stabilized to market-rate or into condo units. Under New York law, rent-stabilized units cannot be converted into condos until they reach the deregulation thresholds.

Fitch says that the following three properties have at least 65 percent of their rents averaging $1,000 to $2,000 per month, and potentially face a short-term risk, including Stuyvesant Town-Peter Cooper Village, the 80-acre apartment complex at 332 First Avenue secured by a $3 billion loan; the Belnord, at 225 West 86th Street, which was secured by a $375 million loan among a pool of loans issued by JP Morgan Chase; and the Parkoff Eastside Portfolio, which was secured by a $175 million loan in a pool issued by Morgan Stanley. The portfolio includes six buildings on the Upper East Side.

Other buildings with a longer-term risk include the Riverton Apartments in Harlem, Independence Plaza at 310 Greenwich Street, Sheffield57 at 322 West 57th Street, 301 West 53rd Street and Savoy Park in the Bronx, according to Fitch.

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