Tougher Rent Laws Are Behind Trouble at NYCB

Values drop at rent-stabilized apartment buildings, squeezing lender

By Will Parker of The WSJ. Excerpts:

"When New York Community Bancorp posted large losses last month and warned of more difficulties to come, it pointed to a significant cause for concern: troubled loans in a sinking corner of the New York City apartment market. 

NYCB is the city’s largest lender on rent-stabilized apartments. About $18 billion of its loans are backed by the city’s rent-stabilized units, representing more than 20% of its total loan book.  

Many of these loans were made when developers had more flexibility to upgrade rent-stabilized units and then boost the rent to market rate, or convert them to condominiums. 

In 2019, new laws capped the amounts that landlords can raise rents at these properties. Though these buildings could still deliver steady returns, business plans that were based on steeper rent increases no longer penciled out. Property values started to plummet. 

Sale prices of buildings containing rent-regulated units have fallen 34% since then"

"The bank said 14% of its loans on New York City rent-stabilized buildings are now considered “criticized,” meaning they face elevated default risk."

"as loans on these apartments mature and the cost of borrowing resets to today’s interest rates, some property owners will face financing costs that have doubled."

"Even one of the city’s Democrats warned that New York’s multifamily market would suffer a severe blow if NYCB goes under. “A failure at NYCB would destabilize not only the banking system but also the largest multifamily housing market in the country,” Rep. Ritchie Torres, who represents part of the Bronx, told Politico."

"NYCB’s average multifamily borrower pays an interest rate below 4%, but that would jump to as high as 8% for landlords whose terms are set to expire and who need to refinance"

"For many of NYCB’s landlord customers, 8% interest would mean the properties are no longer profitable"

"rising insurance costs are adding to the pressures in the multifamily category. Owners of rent-stabilized buildings might feel it most acutely."