The mechanics of an apartment building, rent stabilization and REBNY - by Joseph Aquino
Soon after I was married, New York’s rent stabilization laws began changing in ways that dramatically affected Manhattan. Over time, many apartments that once enjoyed rent stabilization became subject to market rents once they were vacated. The theory was straightforward: allow more apartments to enter the free market and competition would ultimately balance rents.
That was the argument.
The reality was very different.
In Manhattan, rents generally moved in one direction — up. It took a once-in-a-century pandemic to temporarily interrupt that trend, and today rents have climbed back to record levels. That isn’t what most people think of as a truly competitive market.
For years, the Real Estate Board of New York (REBNY), of which I was once a member, argued that owners needed greater flexibility because buildings required more income for repairs, maintenance, insurance, taxes, and capital improvements. There is certainly truth to that argument. Buildings are expensive to operate.
But there is another side to the story.
My friend Howard, whom I mention in my book Memoirs of a Watch Salesman: A New York Real Estate Story, managed me when I ran Jack LaLanne Health Clubs in Sutton Place. During the 1980s he sold an apartment on East 86th St., made about $175,000, and instead of buying another apartment, purchased a 24-unit building in Harlem. Over the next 20 years he acquired two more buildings.
This was Harlem before gentrification.
Nearly every apartment was either rent controlled or rent stabilized. Howard often had to borrow money simply to buy heating oil during the winter. He wasn’t living lavishly. He was trying to keep the buildings operating.
That experience taught me something important: not every landlord is wealthy, and not every landlord is greedy.
At the same time, I have also known landlords who leveraged their properties to the limit, withdrew every dollar of equity they could through refinancing, provided minimal services, and delayed repairs whenever possible. Like every profession, there are good landlords and bad landlords.
Here’s how many apartment buildings work financially.
An investor purchases a building based upon its projected Net Operating Income (NOI). That income determines the property’s value and how much financing the owner can obtain. As rents increase and the building appreciates, many owners refinance and pull equity back out of the property. Some maintain healthy reserve accounts for future repairs. Others leave very little behind.
Perhaps that is where public policy should focus.
Instead of simply debating rent increases, why not require owners to maintain minimum capital reserves dedicated to repairs, emergencies and major building systems? Those funds could not be withdrawn during refinancing. Tenants would receive better-maintained buildings while responsible landlords would still earn reasonable returns on their investments.
People sometimes forget that apartment buildings are not just investments.
They are people’s homes.
My relationship with REBNY eventually came to an end. I publicly outlined 14 reasons why I chose not to renew my membership. One issue was financial. My annual dues were approximately $1,500, while the annual black-tie dinner at the Waldorf Astoria rose from roughly $800 to nearly $3,000 in less than a decade. I questioned whether members’ money was being spent wisely.
Another issue was more fundamental.
REBNY proudly states that it tracks roughly 1,700 pieces of legislation each year. During one appellate court case, I watched the organization spend approximately $1 million challenging a city action. From my perspective, that position worked against the interests of many real estate brokers, who make up the majority of REBNY’s membership.
That was the moment I decided I was finished.
Housing policy affects far more than landlords and tenants. When middle-income families devote an ever-larger percentage of their income to housing, they have less money to spend in neighborhood restaurants, retail stores, theaters, concerts, and local businesses. The economic ripple effects reach every corner of New York City.
Recently, I wrote about a landlord I knew who owned not one Ferrari, but 24 Ferraris. Those individuals certainly exist. But they are not representative of every property owner any more than irresponsible tenants represent every renter.
As New York debates the future under its new political leadership, I hope policymakers remember the middle class. We hear a great deal about helping low-income residents and about retaining the wealthy. The middle-income family often receives far less attention, yet it is the backbone of the city’s economy.
My wife and I even tried leaving New York during the pandemic. We moved to Long Island. We lasted only 10 months before returning. New York remains home. When the rich threatened to leave, I hope you do not miss New York as much as we did.
Finally, I cannot write about housing without mentioning the financial strain many New Yorkers experienced during COVID-19. Retail brokerage, my specialty, came to a virtual standstill as stores were forced to close. I accumulated nearly $50,000 in credit-card debt carrying interest rates approaching 30% before finally paying it off.
Whether those rates are the product of federal policy, state law, or banking practices, one thing is clear: many hardworking Americans find themselves trapped by debt that becomes almost impossible to escape. Decades ago, charging desperate families excessive interest was widely condemned, and you were labeled a shylock. Today it is often perfectly legal.
Perhaps it is time to ask whether our economic system is serving ordinary working people as well as it should.
“A great city must protect both its housing stock and the people who live in it. New York shouldn’t force us to choose one over the other.”
The message is clear; “Let’s stop looking at our checkbooks and start looking at people”
Joseph Aquino is president of JAACRES, Manhattan, N.Y.