A new article from the Commercial Observer is shedding light on the ramifications of the rent reform laws on smaller landlords. The loss of significant equity due to rezoning is making smaller landlords want to leave the market as the changes have wreaked havoc on equity on their properties.
Under the rent reform laws, owners essentially will not be allowed to deregulate apartments. This would make all properties subject to rent stabilization without the opportunity of landlords either taking the market into market rents or passing on rent hikes due to investments. It is now only allowed to transfer only $15,000 worth of apartment renovations over 15 years to tenants. The result of these changes have causes property values decrease by “30 to 50 percent” from a year ago.”
There are two types of landlords of smaller units. Ones that have enough equity in their properties and want to get out of the market and others that will hold onto the properties until the market changes. They are hoping to see changes either through lawsuits pending or legislation which will hopefully change the law in 5 years or so.
Michael Tortorici, an investment sales broker at Ariel Property Advisors says “The people that are putting properties on the market right now tend to have a lot of equity, and they can be more discretionary sellers. These are generational families that are moving on or splitting up partnerships. Or it’s owners that have some holdings [in which] they have a decent amount of equity, and maybe [the property] doesn’t fit in with the rest of their portfolio.” He added that baby boomer owners retiring and getting their estates in order will also be a factor driving these kinds of sales over the next couple years.”
Shaun Riney, a broker who focuses on multifamily sales at Marcus & Millichap, believes lifestyles choices and seeing no signs of positive changes as reasons for smaller landlords of getting out of the market. “We’ve put a lot of newer listings on the market from people who wouldn’t sell if there were any other way of making money. What the [state] has done has stripped out all the ways of making money from rent-stabilized buildings.” He further adds “there’s a lifestyle choice that also comes into factor. You’re asking people to show up every day, work 60 hours a week and have no idea if they’re going to increase their net operating income. And you are targeted and treated like you’re an evil person at every step. There’s a lot of people doing that lifestyle gut check feeling like, ‘This is not how I want to live my life.’ ”
Another issues that is affecting smaller landlords is rezoning in the city. With the recent decision of a State Supreme Court justice to overturn the Inwood rezoning and the opposition of rezoning in Bushwick, landlords have seen dramatic loss in equity. Andrew Sasson, an investment sales broker at Ackman-Ziff called the decision “terrifying” and property owners lost 70%-80% of equity in one night.
The article also states that out of state investors may be more interested in investing in New York City as they believe there is more opportunity than ever before. As out of state investors look into the city, in-state investors will attempt to diversify their portfolios out of state. Many believe that politics are driving businesses out of the State and if they need to diversify they will do so in less burdensome States for business.
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