According to two of the country’s largest credit ratings and financial advisory firms, New York state’s new tenant-friendly rent-regulation laws pose negative financial implications for property owners and lenders, potentially lowering values and in some cases creating refinancing troubles.
The overhaul of rent laws enacted this month removed landlords’ ability to spike rents by up to 20% after a regulated apartment unit was vacated. And there’s a new 2% cap on rent increases stemming from major capital improvements, down from 6%. Individual apartment improvements are now limited to $15,000 over 15 years, and owners can no longer take a unit to the free market once its rent reaches $2,774 per month and the tenant leaves as they could in the past.
A report by credit rating agency Moody’s Investors Service has deemed the new laws a credit negative for owners and lenders, including those who finance through CMBS loans, or mortgages secured by commercial properties. In an interview about the report’s findings, Bill Fitzpatrick, Moody’s vice president of structured finance, said constraints on rent increases will limit the growth of net operating income and may require landlords to revise their businesses plans.