LISTEN: Rehabilitations in New York Are Impossible. Why?

New York City’s multifamily landscape is trapped in a vicious cycle, one that will only make the housing shortage in the Big Apple worse.

On this week’s episode of The Real Deal’s “Deconstruct” podcast, hosts Hannah Kramer and Lilah Burke talk to columnist Erik Engquist, who always has his finger on the pulse of policy and political discussions impacting the real estate industry.

In a story for this month’s magazine, Engquist wrote about how state and city policies — ones that predate the Mamdani administration at the city level — have plagued value-add investors in the market by prioritizing tenants’ rights at the expense of landlords in the name of curtailing rising rents.

On the podcast, Engquist listed the laws that have created the chilling effect for landlords and investors, including policies seemingly designed to help them, only to do the opposite.

In one example, a path called “substantial rehabilitation” — which developers had long used to turn aging apartment buildings into free-market rentals — was choked off by the state housing regulator, the Department of Homes and Community Renewal.

https://open.spotify.com/episode/7neczzw9mmjrxq5debxtlb?si=0_iwa17ftyyt83s5va4piw

A former DHCR senior executive, Woody Pascal, filed a sworn statement in a lawsuit with an insider’s account of what happened after progressives won control of the state legislature. The agency, he said, turned against landlords.

It’s not the only landlord-favorited route to suffer a blow in recent years.

The 2019 Housing Stability and Tenant Protection Act ended a 20 percent rent increase allowed upon vacancy and limited improvement-based increases in stabilized rents to $83 a month, based on a maximum renovation cost of $15,000, later amended to a still-unhelpful $30,000.

In 2023, the state legislature passed “good cause eviction.” It meant that vacating a building for a sub-rehab became more time-consuming, with no guarantee of success, forcing investors to carry a near-empty building for longer before they get any return.

Landlords can still deny lease renewals to rent-stabilized tenants to demolish a building, but such demolitions almost never happen. It is extraordinarily difficult to get DHCR to approve them, as Gary Barnett and Eliot Spitzer have learned firsthand.

Ultimately, there is a “conflict between tenant protection and the ability to fix buildings,” Engquist said on the podcast. The question is how to rehabilitate the multitude of buildings that need fixing.

This episode of “Deconstruct” also dives into Ken Griffin’s rumored $700 million-plus purchase of Mana Wynwood, Charles Cohen expanding his South Florida ambitions with a spec office development in Dania Beach, Hackman Capital Partners losing the Sony campus in Culver City to Fortress and memories 25 years on from the September 11th terrorist attacks.

Be sure to check out “Deconstruct” on Spotify, Apple Podcasts and wherever else you listen to podcasts.

— Holden Walter-Warner