Reframing Rent Stabilized (RS) Assets

It’s time to radically rethink how we approach rent-stabilized (RS) multifamily real estate in New York City. In a post-HSTPA world, RS assets are no longer speculative real estate plays. They are income-oriented, policy-constrained, and structurally stable—more akin to infrastructure than traditional multifamily investments. And yet, despite aligning perfectly with the mandates of pensions, life insurance companies, and other institutional allocators, these assets remain broadly misunderstood and undercapitalized.

RS Assets as Infrastructure

RS buildings operate like public utilities, providing a social good—affordable, long-term housing—through tightly regulated and predictable cash flows. Like toll roads, transmission lines, or public transit concessions, RS buildings exhibit:

- Long-durations, income-based performance

- Minimal exposure to market volatility

- Regulatory caps on pricing (RGB rent increases)

-Required Investment without revenue upside (HSTPA limits on IAIs and MCIs)

Note: Table comparing RS assets with Infrastructure, as a way of reframing what rent-stabilized buildings are like and how they should be treated.

These are the same characteristics that make core infrastructure attractive to institutional investors. They’re stable. Predictable. Boring—in a good way. But NYC’s RS assets haven’t yet been adopted as such because the market still understandably clings to an outdated equity-style valuation model (which made investors lots of money in the last cycle).

RS Assets as Bonds

From a portfolio theory lens, NYC multifamily splits cleanly into two types:

(1) Free market (FM) assets = equities: growth, volatility, repositioning risk and reward

(2) RS assets = bonds: stable yield, interest rate sensitivity, and long-duration income

Allocators typically match capital types to return profiles. But RS assets have lacked a champion because private equity—traditionally dominant in NYC midsize deals—requires velocity and short-hold upside. Since HSTPA eliminated that pathway, RS buildings have been left in a capital vacuum.

This, despite RS aligning beautifully with the objectives of pension funds, endowments, and insurance capital seeking stable, long-term cash flows. These groups should gravitate toward RS-heavy or hybrid deals with stable yield and inflation resilience. Family offices and long-horizon lps: May favor “convertible RS” strategies—income-driven assets with optional upside if regulations change.

Supporting Data

The 2024 NYC RGB Income & Expense Study reports that operating expenses for RS buildings grew by 4.9% annually from 2016 to 2023, while allowable rent increases averaged just 1.9%. The math is straightforward: NOI is being squeezed and income can decline due to tenant arrears or court backlogs, as seen during COVID.

Source: RGB’s PIOC & RGB rent Increases. Note: The chart above shows the real growth in operating expenses (blue line) contrasted with the rent increases allowed by RGB for rent-stabilized properties in red.

Investors must stop modeling RS deals for IRR pops. Instead, they ought to model them like infrastructure or fixed income:

- 6.0% real yields on 20-year holds

- 2–3% annual OPEX growth

- 1–2% unit turnover annually

This is how allocators think—and RS performs accordingly. And there is an opportunity for buyers and investors to take advantage of the bid ask spread disconnect right now. Most owners have not reframed their thinking around what they own, but they do know that their properties are worth closer to ~9% cap rates. The opportunity could be a boon for savvy investors who understand what RS assets can do to balance portfolios and provide stability in times of great capital market uncertainty due to tariffs and geopolitical conflicts.

The Mighty Call Option

Despite being income-first, RS assets contain latent upside. Like convertible bonds, they carry a sort of call option that can be triggered if:

- Laws change to re-enable IAIs or rent decontrols

- (Rent Control) Units turn over organically and “first rents” apply

This embedded optionality shouldn’t be underwritten but can provide a material lift to long-term holders. In a similar vein, if a) tax reform stabilizes tax growth, 2) insurance premiums stop growing so rapidly, and 3) housing courts unthaw from their current logjam, further upside would be created for these assets. Notwithstanding that, these deals reward patience, not engineering.

Note: The table displays the different upside case scenarios for multifamily, according to which lever is pulled.

To de-risk RS investments, investors need to:

- Buy properties with limited cap ex requirements or well-maintained assets

- Use low leverage to preserve DSCR during arrears periods

- Build diversified portfolios (100+ units to smooth out any NOI bumps due to arrears) across boroughs and tenant types

- Use green financing and HPD programs to offset rising costs

- Assume no rent growth; focus on yield preservation

The Call to Action

The NYC RS market is not ruined, it’s just misunderstood. Investors must stop treating it in terms of private equity structures. The market is regulated, income-oriented real estate that mirrors infrastructure, muni bonds, and core fixed income. The market needs capital partners that understand this new identity. Love it for what it is. It's time for pensions, life insurers, foundations, and long-term focused capital to reconsider investing in NYC’s overlooked multifamily segment. With 1.2 million RS units across the city, this is not a niche opportunity. It’s a foundational one.

Reframe RS.

Redeploy capital.

Reimagine stability.

I am bullish on NYC Multifamily

Best Regards

Romain Sinclair

646 326 2220