in order for NYC rent stabilized properties to become a business again, where noi grows at least with inflation, the rent laws need to change. Even if rates come down it won't fix the shrinking NOI. The reason why all rent stabilzed properties were able to maintain profitablity in the past was due to the vacancy bonus, Mci and IAI. Under the current laws all apartment rents will shrink relative to operating cost over time even if the RGB increase the rents for a few years, they won't do so year after year. The proof is there are so many apartments which the legal rent is under the operating cost due to tenant longevity. Apartmentrs with longevity did not have Vacancy Bonuses or IAI and rents stayed very low. Under current law there are no apartments which have vacancy bonus and IAI is negligible. For Example we have apartment 3B which legal rent is 2800, apartment 4b legal rent is 800, operating cost is 1300. Had the current laws been in effect for the last 30 years all apartments would have a rent of 800 and 3b would also be 800 today. 3b Went up due to IAI and Vacancy Bonus due to turnover. We need the governement to change their sentiment and realize that they have created a real problem.
We are seeing NOI shrinking year over year due to low increases and high expenses in stabilized properties. Unless you think cap rates will go down significantly the building value will be less in the future with lower NOI. Rgb has never given enough increases to stay ahead of inflation.
Hi Avi, you make a great point. To think these properties will go up in value is mere speculation, basically? I understand where you are coming from and largely agree if the time horizon is two-three years. But if we consider a longer period of time, say 10 years, I think the value increase is much more plausible. Either rates will loosen or rent laws will, or both. Perhaps not in drastic fashion, but yes a mix of those scenarios will happen. Also, RGB increases in the last 10 years have been at historical lows, if you consider the life of NYC's RGB, dating back some ~40 years. I think 8% has been the average. Together these forces should enable NOI to grow faster than expenses and compress cap rates.
in order for NYC rent stabilized properties to become a business again, where noi grows at least with inflation, the rent laws need to change. Even if rates come down it won't fix the shrinking NOI. The reason why all rent stabilzed properties were able to maintain profitablity in the past was due to the vacancy bonus, Mci and IAI. Under the current laws all apartment rents will shrink relative to operating cost over time even if the RGB increase the rents for a few years, they won't do so year after year. The proof is there are so many apartments which the legal rent is under the operating cost due to tenant longevity. Apartmentrs with longevity did not have Vacancy Bonuses or IAI and rents stayed very low. Under current law there are no apartments which have vacancy bonus and IAI is negligible. For Example we have apartment 3B which legal rent is 2800, apartment 4b legal rent is 800, operating cost is 1300. Had the current laws been in effect for the last 30 years all apartments would have a rent of 800 and 3b would also be 800 today. 3b Went up due to IAI and Vacancy Bonus due to turnover. We need the governement to change their sentiment and realize that they have created a real problem.
We are seeing NOI shrinking year over year due to low increases and high expenses in stabilized properties. Unless you think cap rates will go down significantly the building value will be less in the future with lower NOI. Rgb has never given enough increases to stay ahead of inflation.
Hi Avi, you make a great point. To think these properties will go up in value is mere speculation, basically? I understand where you are coming from and largely agree if the time horizon is two-three years. But if we consider a longer period of time, say 10 years, I think the value increase is much more plausible. Either rates will loosen or rent laws will, or both. Perhaps not in drastic fashion, but yes a mix of those scenarios will happen. Also, RGB increases in the last 10 years have been at historical lows, if you consider the life of NYC's RGB, dating back some ~40 years. I think 8% has been the average. Together these forces should enable NOI to grow faster than expenses and compress cap rates.