Ah, the Housing Stability and Tenant Protection Act of 2019, otherwise known as Bill S6458. Lauded by supporters when signed into law by New York Governor Andrew Cuomo on June 14, 2019, this new legislation has been described as the strongest law protecting tenants in the state’s history. The basic intent of the legislation was to permanently close loopholes in New York’s rent-stabilization system, enable the system to expand to the entire state, and provide eviction protections to renters and manufactured-housing residents everywhere in New York.

But as we all know, for every well-intentioned law, there can be consequences. And boy, are we seeing the impact among landlords in NYC. Property owners are not only grappling to understand and comply with the 18 distinct components of this 74-page bill, but they’ve watched their property values fall since the law went into effect. It’s been estimated that values on apartment buildings in New York City fell 25% on average* after the bill was signed.

This has left landlords in a precarious position. If they decide the requirements of the bill are too restrictive for them to invest in adequate upgrades and repairs on existing properties, then either the properties will fall into some form of disrepair or the landlords will simply sell. What we’re seeing is that, in increasing numbers, they are making the decision to sell.

A Buyer’s and Seller’s Market

Commercial real estate remains one of the most resilient and active markets in the world. People need places to live, shop and conduct business. That won’t change. For New York residents who own investment property, the transaction process of buying and selling real estate will likely continue to be as active this year as it has been in the past. And while bill S6458 certainly has had a disruptive effect, some real estate professionals in New York City are indicating the market is becoming stabilized again.

Many property owners, and especially landlords who own property in New York City, have benefited from significant property appreciation over time. And while the current environment may not present the premiums they hoped to receive upon a sale, a lot of those landlords recognize they will still benefit from significant gains, and they are increasingly putting their properties up for sale.

For potential buyers, some real estate professionals have argued that rent control measures disincentivized investors and buyers. We’ve not seen that play out. Transaction volumes have been healthy, as value buyers, many from out of state, are taking advantage of depressed prices and for the first time, seizing on the opportunity to own property in New York City.

Sellers Reinvest

Many of our clients who have owned investment property in New York for a long time, are selling their properties and reinvesting in more landlord-friendly states like Georgia, North Carolina, Texas and Colorado. Thanks to the structure of the Delaware Statutory Trust (DST) which enables sellers to reinvest in like-kind property under 1031 exchange rules, they are taking advantage of this moment in time to cash-in on the properties they have owned and use the proceeds to invest in institutional quality properties far beyond the state’s borders.

In fact, if the market continues to be as active as we’re experiencing right now, the only remaining question will be, “are you going to be the last landlord standing?”

Contact us today if you are a landlord considering a sale and we can discuss if a DST investment could be a good fit for you.

In our next post, we will continue this discussion and focus on how the Covid-19 pandemic may affect real estate prices in NYC.

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This is for informational purposes only and is not an offer to buy/sell an investment. There are risks associated with investing in Delaware Statutory Trust (DST) and real estate investment properties including, but not limited to, loss of entire principal, declining market value, tenant vacancies and illiquidity. Diversification does not guarantee profits or guarantee protection against losses. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. This information is not meant to be interpreted as tax or legal advice. Please speak with your legal and tax advisors for guidance regarding your particular situation.

Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Insurance products offered through Concorde Insurance Agency, Inc. (CIA) Fortitude Investment Group is independent of CIS, CAM, and CIA.

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