Can NYC Landlords Maintain Rent-Stabilized Buildings?

When landlords don’t collect enough in rent, they can’t maintain their buildings — that means poor living conditions for tenants.

This is a major argument made against freezing the rent in rent-stabilized apartments, as New York’s Rent Guidelines Board voted to do last week.

But how is that playing out in reality? Are all poorly-maintained buildings just suffering from low cash flow? Let’s look at the data.

A report I obtained from the Rent Guidelines Board shows that buildings with a high number of housing code violations indeed have lower rents and lower net operating income on average. But those buildings still have positive cash flow.

The board’s staff looked at 2023 data from buildings with rent-stabilized units built before 1974. The data isn’t perfect. For one, it’s three years old and only looks at buildings with more than 10 units. Additionally, a violation can remain open sometimes even if it’s been cured. A city inspector needs to come and clear it. A building can also be in poor condition without carrying open violations, if tenants are not calling 311 to report them.

Having a high violation count here means three to five open hazardous housing code violations per unit, depending on the size of the building.

Here are some takeaways from the data:

Rents are generally lower in buildings with high violation counts, compared to other older, rent-stabilized buildings

Percentage-wise there was usually a double-digit difference between rents in buildings with several violations and those without. Citywide, the average rent is 16 percent lower in older, high violation count buildings than in other old rent-stabilized buildings. Without “core Manhattan,” below 96th Street, that difference was 9 percent. The Bronx was the only borough where high violation count buildings typically had higher rents, with a 3 percent difference between the two medians.

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Net operating income is lower in high-violation count buildings than in other older buildings

Median net operating income per unit was 45 percent lower in high-violation count buildings than in other older, rent-stabilized buildings. That works out to about $185 per unit per month. In the city without core Manhattan, this was a 38 percent difference, or about $136 per unit per month. Net operating income doesn’t include debt service and, as the board measures it, major building improvements.

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A higher share of high-violation buildings are considered distressed

Citywide, nearly one-quarter of older rent-stabilized buildings with high violation counts are distressed, compared to about 10 percent of all older rent-stabilized buildings.

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Net operating income in high violation count buildings is going down, while other older buildings see NOI going up

In almost every case, high violation count buildings saw NOI trending downward. Not the case with the general sample.

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Most buildings with high violation counts still have positive cash flow

Tenants and their advocates often complain that revenue in some buildings isn’t being used for repairs. Indeed, the data shows that even where violation counts are high, cash flow is reduced but still positive. When I talked to RGB member Arpit Gupta about his idea for a “rent freeze for slumlords,” he said he thinks the positive cash flow means these landlords on the whole can afford to maintain their buildings and keep violation counts low if they so choose. These landlords might be paying debt service, but commercial debt often isn’t part of the city’s multifamily calculus.

What we’re thinking about: I’ve been in some gross buildings. Maybe you have too. Is it money or is it neglect? Let me know at lilah.burke@therealdeal.com.

A thing we’ve learned: After a viral video of a woman stealing a Knicks-themed trash can got her fired from her JPMorgan Chase position, New Yorkers can now enter for a chance to win one of their own. The Department of Sanitation is giving away five Knicks-themed blue-and-orange trash cans via an online lottery running through July 3.

— Spencer Davis

Elsewhere…

— NYCHA officials admitted Friday that they accidentally canceled Section 8 rent subsidies for some tenants due to a backlog of annual income recertifications, The City Reporter reported. The mistaken cancellations caused landlords to charge tenants full, unsubsidized rent and, at times, send eviction notices to tenants for non-payment.

— New Jersey Congressman Tom Kean Jr. was absent from Congress for three months because he was hospitalized with depression, he announced in a speech on the House floor Tuesday, according to Gothamist. Kean, who recently won an uncontested Republican primary election for the party’s nomination, is seeking reelection for his seat in New Jersey’s 7th congressional district against Democratic challenger Rebecca Bennett.

— The landlord of Mayor Zohran Mamdani’s former rent-stabilized apartment in Queens has raised the rent of the unit by more than 30 percent for the new tenant, The Wall Street Journal reported. Despite the Rent Guidelines Board approving a rent freeze for one- and two-year leases of rent-stabilized apartments last week, landlords are able to raise rents to the highest price allowed by the state for new leases.

— Spencer Davis

Closing time

Residential: The most expensive residential sale recorded Tuesday was $8.55 million for a 3,319-square-foot condominium at Metal Shutter House, 524 West 19th Street. Daniela Sassoun and Mark Mistovich with Sotheby’s had the listing.

Commercial: The most expensive commercial transaction was $45.8 million for a mixed-use property at 227 Grand Street. The Real Deal reported that the property has 41 apartments, 10 retail spaces and 21 parking spots. Delshah Capital also had 452 Keap Street and 456 Grand Street in East Williamsburg closing today for $43 million and $39 million.

New to the Market: The highest price for a residential property hitting the market was $9.8 million for a 3,300-square-foot condominium at 221 West 77th Street on the Upper West Side. Carrie C Chiang and Emmitt Tilyou with Corcoran have the listing.

Breaking Ground: The largest new building permit filed was for a proposed 44,142-square-foot, 74-unit project at 78 West 180th Street in University Heights. Nikolai Katz filed the permit on behalf of Yitzi Salamon of Builders Group USA.

— Matthew Elo