You would’ve thought the door to 1F was the gate to hell, the way Eric Gray was talking.
“This is as bad as it gets,” Gray told his boss, the new owner of 1F’s building, 100 East Moshulu South.
In Charon’s boat to cross the river Styx were three souls: the owner, PH Realty’s Peter Hungerford, in a blue suit; Gray, his polo-clad COO, and the property manager, Jamel Trusty.
Across the threshold, Hungerford was getting his first look.
“Basically, don’t touch the walls,” Trusty instructed.
The apartment wasn’t the underworld, but it could have doubled as a haunted house.
Black mold had bloomed from ceiling to hardwood thanks to a radiator leak left to fester. The bathrooms were busted — plaster crumbled on cracked tiles, shocks of rust streaked the tubs. The rooms were littered with left-behinds set in creepy relief by the surrounding decay: a shower seat, an upright piano. A Paw Patrol four-wheeler leered from an entryway corner.
Hungerford was hunting through his phone for a dollar figure. He knew, walking in, the apartment needed hundreds of thousands of dollars in work. He just needed to confirm the juice wasn’t worth the squeeze.
In the six years since the Housing Stability and Tenant Protection Act stripped landlords of every meaningful route to raise rents in rent-stabilized units, landlords have been forced to self-sabotage, shuttering units where the monthly income can’t cover repair costs.
“Eric, you totally overestimated the legal rent,” Hungerford said. Gray had ballparked $900, and he now apologized: “It was actually $1,124 a month — much higher.” They both laughed. An extra $224 per month wouldn’t change the calculation on a renovation this extensive. Then the landlord went searching for a working toilet.
In the principal’s absence, the COO offered his two cents: “This unit is a poster child for the 2019 rent law” — by which he meant the rent law’s unintended consequences, like the fact that places like 1F have mushroomed.
Zoom out and entire buildings are bleeding. Expenses keep rising, revenue is fixed and owners are scrambling to get out, no matter the losses. And Zohran Mamdani, surprise winner of the Democratic primary, has pledged to freeze rents.
Hungerford and his frequent partners, Joe Listhaus and David Kaye of Rockledge, are intimately aware that the house is on fire.
“I was impacted to the point where I’m working for someone now.”
And yet, they’re one of few running in.
The team in a year and change has cemented itself as one of the most prolific buyers of rent-stabilized buildings — 3,321 units bought and more coming down the pike — and some of the ballsiest investors in New York City right now.
As the industry sounds the alarm that these buildings on a long enough timeline will all fall into the red, the trio claims to have found an upside to that existential threat: If they buy properties with high enough rents at a low enough basis, they can turn a good-enough profit for a good long while.
“They’re making a bit of a psycho play,” one broker admitted.
That is: It’s so crazy, it just might work.
If the bet doesn’t bear out, it’s no mystery where PH and Rockledge will end up.
Their oracle was the guy giving the Moshulu tour.
Gray had started with PH just a few months before, but he’d worked in rent-stabilized for a “long, long time.” He’d even had his own shop. He used to buy “stuff like this before 2019,” he said in the marbled lobby.
“I was impacted to the point where I’m working for someone now,” he said.
Boys in the band
The Moshulu building with the horror show unit is one of 34 rent-stabilized properties PH and Rockledge picked up from Related Fund Management in May and is a perfect example of the type of deal they go for.
At $192.5 million, Related let the entirely rent-stabilized package go at a 24 percent discount to what it paid in 2014. Thirteen percent of the portfolio is vacant, Hungerford said, which leaves room for fixes and small rent increases — 2.75 percent on each one-year lease, according to the Rent Guidelines Board’s most recent adjustment, plus $100 or so more depending on the scope of renovations. (Hungerford said units like 1F were the minority; most needed paint jobs, new kitchen appliances and a bathroom refresh.)
Critically, the average rent was high enough that the deal would be cash-flowing Day 1, brokers said.
A rent check of $1,500 per unit was the sweet spot where “there’s potential to buy that property and still be paid something to be a landlord,” Hungerford said in a June interview in the firm’s 515 Madison Avenue corner conference room.
“For example, the Related portfolio has an average rent of $1,508,” he offered.
It would be easy to dismiss Hungerford, Kaye and Listhaus — who are blonde, brunette and balding in that order — as newbs. They’re all in their early 40s, and none owned real estate during the depths of the Great Recession nor suffered the drama and pain of the 2019 rent law.
But brokers vouch for their track record.
“They’re a credible group,” a principal who has worked on their deals said.
“They’re picky,” Lev Mavashev of Alpha Realty weighed in. “They don’t buy everything, they’ve made very good offers and they’ve bought right.”
Related, for example, was looking for over $200 million on the Bronx deal, a source familiar said. Up against a few other interested parties — local operators, private equity and affordable investors — PH and Rockledge still notched the discount.
And though the firms really only hard-launched their rent-stabilized strategy last year with the discounted purchase of Sentinel Real Estate’s entire portfolio, they’ve been investing for over 10. Or in Hungerford’s case, 20.
Hungerford was a residential leasing and investment sales broker before he opened his value-add shop in 2011 and started “turning things around.”
“I like being able to make a bet and see it all the way through,” he said of rehabbing properties in poor shape.
The “track record” section of his website is littered with HGTV-esque makeover shots: before and afters, for example, of an Upper West Side building he bought for $3.7 million in 2021, rapidly cleared of 200 violations and “smartly” pumped $2 million into to double its value, according to a blurb.
Listhaus and Kaye’s background is entrepreneurial. They made their first real estate investment in 2013 with profits from a legal services business Kaye started out of his mom’s basement in Queens, which he ultimately brought Listhaus in on.
“We’ve had a lot of successful businesses and a lot of not-so-successful businesses,” Listhaus said.
The team is so closely tied that they share an office on the 29th floor of the DuMont Building, a GFP Real Estate property. (Kaye is a Gural by marriage and holds an executive position at the firm.)
But Listhaus and Kaye, who sat shoulder to shoulder during the conference room interview, go back much further. Their origin story: a summer camp counselor meet-cute 20 years back that turned into a gap year in Israel, where they shared a dorm.
Hungerford listened to the tale from the head of the table: “I’m learning something,” he said.
Neither the duo nor Hungerford could quite place where they had met one another — on an introductory phone call, they guessed.
“When you’re partnering with someone, whether it’s a spouse or in business you have to enjoy interacting with them,” Kaye said.
“I would say our first date was at the Smith on a sunny, summer afternoon with a light breeze,” Hungerford joked, referring to the New York-based American brasserie chain.
“While eating an avocado toast,” Kaye yes-anded. “With an egg on top of it.”
Polite laughs followed.
On the margin…
Apart from a millennial self-awareness, the three claim to share a commitment to affordable housing that extends beyond the rent-stabilized space.
The PH-Rockledge portfolio includes extended-stay hotels and, increasingly, value-add multifamily. They own some buildings in upstate New York and are shopping for more market rate in Texas. Their strategy is to “reimagine and repurpose” the buildings “to actually drive down the cost in areas that have had a ton of rent growth,” Kaye said.
That may sound like a bad business plan, but many Sun Belt markets topped out a few years ago and the threat of recession still looms. Many renters can’t afford to pay more for nicer digs.
“We just don’t feel like putting $50,000, $100,000 into units is going to be good for the tenants or going to be good for the operator,” Kaye said.
Turn back to the rent-regulated deals and the team is effectively copy-pasting that approach.
“We’re not putting in, like, marble countertops and brand new stainless steel appliances or something,” Hungerford said between tours of two Bronx properties later that day. “But it’s totally habitable and functional.”
But the risk profile is different. The nation’s housing shortage ensures demand in almost any market-rate unit, so even barebones renovations can draw a tenant willing to pay a slightly higher rent.
In rent-stabilized, the city’s record-low vacancy rate guarantees a speedy lease-up and at the price the partners paid, there is a window for profit. But there’s not much of a path for profit growth.
Still, the scenario hasn’t scared off investors. The PH-Rockledge landlords have raised from family offices, brokers say; Hungerford and his partners declined to say whom.
“We don’t kiss and tell,” he said.
The way PH and Rockledge see it, investing is about understanding the stakes. And they know their enemy.
“We think about risk and reward in similar ways,” Hungerford had said early in the interview.
“The three of us are very tolerant of taking risks provided we understand it and we think we have conviction about what happens next,” he added.
“We focus on the risks we can control,” Kaye clarified. “Risks that are out of our hands — we’re going to calculate that risk, but there’s nothing we can do.”
Risky business
Real estate is risky but rent-stabilized is a unique beast.
The fact that expenses will overtake revenue isn’t even a risk, per se; it’s a certainty.
“Over time there will be less and less margin to cover increases in operating costs, let alone to support a market value for the property — I don’t think there’s any question of that,” Mark Willis, a senior policy fellow at the Furman Center said.
“The terminal value of these buildings is zero,” one rent-stabilized owner who lost scores of properties to foreclosure said.
That erosion is already happening.
According to a study Willis recently produced, the average entirely stabilized older building in the Bronx — the ones Hungerford and company like — has been running a deficit since 2020. Last year, the annual average shortfall reached $1,444 per unit — more than the average monthly rent.
Distress in older buildings, measured as negative net operating income, doubled citywide between 2019 and 2023, according to the Rent Guidelines Board’s most recent report. In the Bronx over the same period it nearly tripled.
The Citizens Budget Commission in May warned of a “maintenance ‘death spiral’” if the city didn’t step in.
“Our message is these buildings are in increasing financial distress,” Robert Riggs, an executive at nonprofit lender Community Preservation Corporation, who is handling much of the rent-stabilized Signature Bank loan book, recently told The Real Deal.
The new PH-Rockledge portfolio’s collateral is largely older and highly rent-stabilized.
But Hungerford insists — and brokers back up the claim — that the PH-Rockledge buildings are in better shape than the borough’s typical 50-year-old asset.
“Risks that are out of our hands — we’re going to calculate that risk, but there’s nothing we can do.”
The average rent is higher: that $1,508 figure, compared to the $969 average it costs to run and maintain a pre-1974 unit in the Bronx, according to the guidelines board.
And most vacant units don’t need that much work, the team said.
Hungerford put the number at $50,000 on average, much less than the $120,000 some owners claimed their units needed even back in 2022. The cost of rehab allocated under the city’s Third Party Transfer program is $250,000. (This is available only in special cases.) For NYCHA units in the Northwest Bronx where PH and Rockledge are buying, recent repairs ran $437,736 per unit.
Thanks to a small grace from Albany last year, owners can now recoup $30,000 in expenses through rent hikes after fixing up individual units, or up to $50,000 if the unit was vacated after 25 years or more or in 2022 or later.
For the larger buildings PH and Rockledge are buying, those rent bumps shake out to $166 per month per year for 15 years and $320 over the same period, respectively.
First the firm has to set aside $15 million for fixes “on the buildings overall,” Hungerford said. One-third of that will go to apartments.
And on the real messes where rents are too low — here’s looking at you 1F — the team can likely shut the door and still do fine.
“We will clean it up first,” Gray clarified, nodding to the health hazards during the tour.
Double check
But what if those numbers aren’t quite right?
In chats with brokers and researchers, practically every source gave a different figure for the rent units would need to average for a building to have cash flow today. Requests for estimates of how long buildings could sustain themselves on that income were met with shrugs. Who knows how fast expenses will rise or where interest rates will go.
One broker intimately familiar with rent-stabilized deals said rents should be “well above $1,500 for sure.”
“Otherwise you’re breaking even on operations so that would be tough unless there was a long-term tax abatement,” he added.
Hungerford said the group was not trying for the only viable tax abatement for the buildings: Article XI. The city-run program offers 30- to 40-year breaks if an owner renovates affordable units.
“[It] is not something we’re willing to bet on because it’s, you know, something that the government may or may not grant a building,” he said.
Which means the only lever they had was the price they paid, he said.
“If we don’t get the right price on the front end, then there are no other tools,” Hungerford added.
Mavashev insisted the owners are “buying right.” For Hungerford, that’s a price of at least five times the rent roll — give or take a quarter.
The Related deal basically hits that mark. $1,508 per apartment on average per month shakes out to $36.5 million a year — not considering the current vacancies or any non-paying tenants. (The investors said there are few.)
Which means, at $192.5 million, the team paid a little over 5.25 times the rent.
The savior
In what will come as a relief to tenant advocates and electeds, the principals say their business strategy for these buildings is responsible, long-term ownership. They’re not looking to “suck them dry,” as one researcher put it: collect rents and forgo repairs.
But despite their insistence that they are not willing to bet on government — they don’t even “spend time talking about it,” Hungerford said — the success of their business plan is inextricably tied to the government’s ability to intercede and in enough time.
No matter how little rent-stabilized owners pay or how strong starting rents are, the cost-income mismatch means deferred maintenance will eventually spiral into defaults. Either the bank will come calling or the city will, and on the rent-regulated deals PH and Rockledge could succumb to risk.
“If that happens, New York City will be forced to take over all private housing,” he said.
“We don’t think that’s possible,” he added. “Something has to change.”
Yet that change can only come from the government.
Across the industry, there’s no shortage of ideas of what state and city should do.
Landlord group, the Community Housing Improvement Program, which is now part of the New York Apartment Association, proposed a “vacancy reset” bill in 2023 whereby owners could raise rents that would remain stabilized after a tenant vacates to fund repairs. That legislation has not progressed.
A broker suggested the government might subsidize work in rent-stabilized buildings or offer carrots via tax benefits, for example, so owners would reinvest. The city property tax abatement J-51, before it was eviscerated, would have fit that mold.
Furman’s Willis said the rent board could institute bigger hikes, though he doubted it could ever raise the rent enough to fill the gap. He also floated an operating subsidy whereby the government might bridge the gulf for buildings with bottom-barrel rents — the $1,100 per month 1F, for example — so expenses didn’t overcome revenue.
Even Hungerford, when pressed, threw out a couple shifts that could help: a property tax overhaul or a government-backed cap on insurance costs.
So far, neither the city nor the state has shown an appetite for change. Still, there has been a shift this year: a handful of researchers, think tanks and nonprofits for the first time have piped up at rent board hearings about the growing distress.
Missing from that commentary, though, were viable solutions. CBC proposed the RGB approve rent hikes that match inflation and track the distress in rent-stabilized buildings. If the former moved forward, owners would still be losing money — the RGB does not factor debt service into operating costs. The latter would perhaps help with awareness, but it is not a fix.
Willis, who did not propose solutions in his testimony, stressed that the city alone could not afford to help the scores of rent-stabilized buildings falling into distress — contrary to Hungerford’s take.
If history is any indicator, Willis, a former New York Federal Reserve economist and Ford Foundation scholar who spent 19 years overseeing JPMorgan Chase’s community development program, has a point.
In the bad old ’70s, when New York City was on the cusp of financial ruin, it did take over buildings where owners could not pay their taxes.
But timing is everything in investments. Back then, government didn’t steer the boat away from hell before the crisis climaxed and the Bronx burned.