'The Titanic Is Sinking' As Maintenance Costs Push NYC Multifamily Owners Underwater

Nationally, multifamily owners are being squeezed. In New York City, they are being crushed.

Landlords across the country, many of which invested in the sector during a time of high prices with floating-rate debt, have struggled to keep up with rising costs and slowing rent growth.

Interest rate cuts have been positioned as a soon-to-be saving grace, but in New York City, a slew of additional pressures, from the aging housing stock to local policies, have killed any optimism for owners of properties with rent-stabilized or affordable housing units.

“Generational owners have told me, ‘My great grandfather began this business or bought some of these properties, and I fear that they will not be passed on to the next generation,’” New York Apartment Association CEO Kenny Burgos said. “This is the eradication of what it means to be a New Yorker, to be an American.” 

In 2024, costs for buildings that contain rent-stabilized apartments increased across the board. That includes 3.2% for taxes, 4.3% for labor, 3.5% for maintenance and a whopping 21.7% for insurance costs, according to the Rent Guidelines Board's price index of operating costs.

The average cost to insure an affordable apartment is $1,770, a 103% increase from four years ago, according to the New York Housing Conference.

This year, the RGB index projects overall costs to go up 4.4%. However, on average, over the last five years, such forecasts have been 1.5% below actual costs, according to an analysis by NYAA. 

Meanwhile, the owners of rent-stabilized apartments are only allowed to increase rents up to 2.75% for one-year leases and 5.25% for two-year leases. That increase is slightly larger than what had been approved over the past two years.

Like any homeowner, owners of those units have had to face intense inflation. The only difference? An inability to earn more to compensate, real estate experts say.

“The free market category is doing OK. I would say that they're treading water for the most part,” Marcus & Millichap broker Shaun Riney said. “But the rent-regulated space is in a doom loop.”

“It takes a long time to sink the Titanic, but the Titanic is sinking,” he added.

Nearly 1 million apartments in the five boroughs are rent-stabilized and subject to RGB's limits on rent increases. Another 26,000 rent-stabilized units were vacant as of last year, dilapidated and off the market, an issue attributed to 2019 laws that removed the ability for landlords to renovate and increase rent after a long-term tenant moved out. 

Outside Manhattan’s core, 61% of pre-1974 buildings are 100% rent-stabilized, according to the NYAA. 

In addition, many developers have invested in creating affordable housing due to tax exemptions such as the now-expired 421-a program. At least 32% of apartments built between 2010 and 2020, approximately 52,000, are income-restricted, with the vast majority targeted to households earning 80% of the area median income or below, according to the NYU Furman Center.

Among the challenges for owners of these buildings is the cost of utilities, which has also skyrocketed for residents across New York City.

In 2024, in a plan approved by the state, National Grid increased its rates by 19.4% in Brooklyn, parts of Queens and Staten Island. Con Ed similarly announced that it will be hiking rates 12% for electricity and 19% for natural gas over the course of three years. The NYC Water Board also approved raising rates by 8.5%, the largest increase since 2011. 

Yet, market insiders say the greatest drain is often insurance. While states like California, Florida and Texas have seen premiums jump due to high-risk exposure to climate change, in New York, the situation is more comparable to a snake eating its own tail as insurers dodge the high risks of affordable housing.

“For small owners, it's even harder for them to get decent insurance, because if you have one or two buildings, insurance companies are less motivated to work with you versus someone who has a big portfolio of different types of assets,” TerraCRG partner Matthew Cosentino said. “Then it’s an even bigger issue for small owners who have affordable tenants or have assets that aren't in what’s considered prime markets.”

Burgos, who advocates on behalf of landlords, said that all of those costs add up to an impossible task for an owner with rent-stabilized units.

A study by the Citizens Budget Commission found that the New York City Housing Authority spends more than $1,400 to operate an apartment each month without the requirement of paying property taxes or debt service. In the average rent-stabilized unit, rent is $1,205 while property tax is $258, leaving $947 to pay for other costs, according to data provided by Burgos.

That means that rent-stabilized owners receive roughly $450 less than what NYCHA requires to operate similar buildings, Burgos said. And while insurance and maintenance costs are ballooning, activists and some politicians have demanded that rent be frozen for such properties — an idea that could take center stage during this year’s mayoral election.

“The city and state are essentially asking private owners to operate housing at a more efficient rate than the largest public landlord in New York state that doesn't even pay some of the largest costs associated with operating housing,” Burgos said. “It's quite ridiculous.”

Despite interest rates falling, creating an opening for property owners to rework their debt, for some, it may be too late or not make sense at all. 

In an RGB mortgage survey of eight financial institutions from April, lenders on average reported that 1.2% of their rent-stabilized loan portfolios were non-performing, up from 0.5% in 2023.

Three lenders reported foreclosures, whereas none did the year before. The average number of refinanced loans decreased from 34 in 2023 to 20 in 2024.

Sales that would allow owners to liquidate have been slow. In 2023, 583 buildings containing rent-stabilized units were sold in New York City, down 34% from 889 buildings sold the prior year, according to the RGB report. Many of the sales that have happened traded for 50% or less of their previous value.

“A lot of people are coming out of pocket every month to run the buildings, even those who don't have big mortgages,” Riney said. “They're drawing down from their retirement accounts to keep feeding the building.”

Other forces are on the horizon, too. 

For buildings larger than 25K SF, Local Law 97 is in place to fine landlords who don't reduce their carbon emissions. Oftentimes, the buildings bearing the brunt of the requirements are older — as is most of the affordable housing stock in the five boroughs. Those landlords will likely have to spend the most to bring their buildings up to code.

For many buildings, compliance has already begun. However, affordable and rent-regulated apartments will be treated a bit differently, with the first compliance report for many being due in May 2025, according to city guidance. 

Buildings with 35% or fewer of their units under rent restrictions must hit their emissions target by 2026 or fines could be imposed in 2027.

Freestone Property Group President Prashanth Rayapudi said that the plethora of costs are difficult to navigate for large owners and free-market units, too. His firm manages approximately 400 buildings owned by its parent company, Greenbrook Partners. 

“[Landlords are] struggling to justify the higher rents,” Rayapudi said. “When rents do increase, there's an expectation from residents for enhanced amenities. You're going to want to provide better maintenance across the board, you're going to do additional property upgrades.”

In 2022, investors spent $13.2B on multifamily properties with 10 units or more, according to a report by Ariel Property Advisors.

Buying at what turned out to be the height of the market, investors sought to capitalize on surging rents. By the end of 2022, rents jumped 23% year-over-year, according to a report by Douglas Elliman and Miller Samuel.

That trend was fleeting. New York City's rent growth has plateaued, but the costs to maintain buildings have continued to rise, and even market-rate owners might have to make big upgrades to their buildings to comply with Local Law 97. 

“Ultimately, there isn't a lot of room for landlords to absorb a lot of this increase,” Rayapudi said.