As Rent Freeze Looms, Landlords are Feeling the Pain

New York City is set to vote on a rent freeze for stabilized apartments Thursday. For rent-stabilized landlords, it’s just another grievance on the pile.

After rising insurance costs, water bills, property taxes and a statewide legislation that cratered the value of their buildings, what’s a revenue cap?

“We are literally fighting to stay alive,” said Jerry Waxenberg, who owns 900 units across several boroughs. “We are running a negative cash flow.”

Landlords say the real trouble started in 2019 with the Housing Stability and Tenant Protection Act of 2019. The law closed avenues for landlords to increase the rent in rent-stabilized units. That took the upside away from rent-stabilized housing, making it into the equivalent of junk bonds. As housing policy experts ask politicians to think about a “soft landing” for the sector, landlords say they’re feeling the pain.

Waxenberg said the outcome of the Rent Guidelines Board vote, even if it’s on the higher end of the range the board has already signaled approval for, won’t stop finances from going downhill.

“Maybe we’ll get 1.5 percent if they want a two-year lease,” he said. “Do you know what that amounts to? Nothing.”

One landlord, who spoke to The Real Deal on the condition of anonymity, said he is considering cutting services in his building as expenses rise.

“I said to my super, put the heating on summer mode, even if it’s 45 degrees outside some mornings,” said the landlord, who bought two buildings in Two Bridges in 2016. “I don’t care if they call 311. Right now I can’t pay.”

Of the 25 units he owns, six of them are rent-stabilized.

“Even though we’re able to raise rents in the free market units, we still can’t make it because interest rates went up,” he said. “I would love to sell but nobody wants to buy.”

Property tax increases have also been a thorn in landlords’ sides. Lincoln Eccles, vice president of the board for the Small Property Owners of New York, said he hasn’t been able to pay property taxes or water bills on his 14-unit building in Crown Heights. Eleven of his units are rent-stabilized.

Because tenants have stayed in some of the units for decades, they have extremely low legal rents, one under $500. The cheapest renovation he could do is $87,000, he said.

The political mood has gotten heated. Eccles said his property was vandalized this week with a brick through a glass door. He suspects it’s because he is outspoken about politics.

“The mayor uses that term ‘stewards,” Eccles said. “That’s really what they’re trying to force us to be. Instead of being the owner of our property, we’re the stewards of a property that is owned and controlled by the government.”

Not every landlord is financially on the edge. Izzy and Lav Bauta at Zion Equities own about 1,000 units, about 800 of which are stabilized.

They were originally attracted to the asset class because they could raise rents after renovating apartments and through tenant turnover. That’s no longer possible.

The Bautas are doing okay financially. They haven’t been pushed to the edge as badly as some, but are feeling the impact of rising costs.

“A lot of people borrowed against their assets so that they could fund these costly repairs,” said Lav Bauta. “All the local laws, all the energy retrofits, that money didn’t necessarily come from the spreads or NOIs. That money came from borrowing at a very low rate.”

The HSTPA closed avenues for landlords to increase rents in their buildings. That has made them reliant on the increases approved by the Rent Guidelines Board, which has kept increases under 3.25 percent for one-year leases the past several years.

Some observers from groups like think tanks and nonprofit lenders have testified that the whiplash in the market is bad for tenants as well, as landlords struggle with debt and let their buildings deteriorate.

“In terms of the effects of resetting a basis like that, there’s going to be a lot of pain,” Lav Bauta said. “It’s going to be felt in the community and on the tenants. I’m hoping that that’s not the goal because then everyone will suffer.”

For Waxenberg, the board’s vote is a lead-up to a future he feels he knows. After the 1970s financial crisis, he purchased buildings from the city after a trial period managing them. He still has some of those buildings today.

“Unfortunately, today they’re losing money,” he said. “So the city may get its wish and get them back.”