There is a growing threat to thousands of rent-stabilized apartments in NYC as landlords are increasingly defaulting on their mortgages, leading to foreclosures and making these coveted units even scarcer, insiders have revealed to The Post.
Since 2022, a total of 176 rent-stabilized units in various buildings have been foreclosed upon, with an additional 2,093 units being notified by banks in April that landlords are failing to make mortgage payments, according to an analysis based on PropertyShark data.
“It’s a bloodbath,” said Sarah Saltzberg, co-owner of Bohemia Realty Group, which specializes in renting pre-war units in upper Manhattan.
Owners of rent-stabilized units are finding it difficult to make a profit, leading them to leave the units vacant or even walk away from their properties, resulting in foreclosures, Saltzberg explained.
“The owners are underwater, which is why we see this happening repeatedly over the past year,” she added.
Many of the buildings constructed before 1974 are in dire need of repairs, but owners have stopped investing due to rent laws implemented in 2019 that limit rent increases after improvements to 2% and prohibit landlords from raising rents by more than 20% upon vacancy, thereby reducing property values. Additionally, rising interest rates over the past three years have further hindered renovations.
Tenant advocacy groups and Democratic state legislators pushed for these changes to protect tenants from rent hikes and evictions, resulting in what is considered the most significant overhaul of New York’s rent laws in a generation.
Despite the success in protecting tenants, the repercussions may be felt by NYC residents as a whole.
“Many of us could end up displaced — a new owner may come in and evict us all,” said Coco Portofe, a resident of an East Village rent-stabilized building currently involved in court proceedings.
If a landlord defaults, a new owner is required to maintain the rent-stabilized status of the units and keep the rent the same. However, the financial unattractiveness of properties with rent-stabilized units may deter potential buyers, potentially leading to evictions for the building’s residents.
“In some cases, due to the rent-stabilized nature of the tenancy, any purchase price over $1 would be unreasonable,” explained foreclosure attorney Alexander Paykin.
Experts cite a recent incident in Harlem where Santander Bank refused to take possession of a foreclosed rent-stabilized building as a sign of potential challenges ahead. Some fear a repeat of the 1970s when landlords abandoned deteriorating buildings that were no longer profitable to maintain.
Portofe’s landlord, Madison Capital Realty, has been accused by its lender, the Community Preservation Corp., of failing to make mortgage payments since January 2024, according to court records.
“I have to pay rent on time, but they are not fulfilling their part of the agreement,” said Portofe, who pays $2,200 a month for a rent-stabilized one-bedroom apartment on East 12th Street.
Market rates for similar apartments in her neighborhood average $3,800, according to StreetEasy.
A total of 209 rent-stabilized units across 15 buildings in the East Village are part of the lawsuit against Madison Capital Realty, which acquired the residential portfolio in 2021 for $153 million as part of its $22 billion assets under management.
Madison Capital is accused of “intentional misconduct” and “gross negligence” for collecting rent but failing to turn over the money to its lender, to whom it reportedly owes over $76 million in mortgage payments, interest, and late fees.
Madison Realty Capital did not respond to requests for comment from The Post.
According to data from the Rent Guidelines Board, an estimated 64,314 out of the 643,140 pre-1974 rent-stabilized apartments in New York City are operating at a loss, a number that has doubled since 2019 and is projected to increase further.
Before the changes in rental laws, rent-stabilized buildings were much more profitable.
“The extent of this rent shortfall will continue to grow, posing a risk to the long-term viability of these crucial segments of the city’s affordable housing stock,” said Mark A. Willis, a senior policy fellow at NYU’s Furman Center for Real Estate and Urban Policy.
Adding to the challenges is a tax-lien sale planned by the city Department of Finance on June 3, where debts of landlords who have delayed property tax, water, or sewer payments may be sold. The buyers of these debts could potentially foreclose on the properties to recover what is owed.
This article includes additional reporting by Helayne Seidman.
