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Updated about 2 years ago on . Most recent reply
Destabilizing a Rent Stabilized building post 2019 in NYC
Is there anyone that invests in New York City multifamily that has successfully de-stabilized/deregulated a rent stabilized multifamily apartment building in New York since the 2019 changes to rent regulations?
It seems that the only way to destabilize/deregulate a rent stabilized building at this point is to do a condo or co-op conversion. I have been fortunate enough to come up on a potential off market deal which would work for condo conversion (i.e. already over 50% vacant for close to a decade).
Is my understanding that only a condo conversion would work correct? Are there other ways to get the units to market rate with out doing a condo or co-op conversion?
For those that have completed a condo conversion (architects, investor, attorney etc.) in New York (whether a rent stabilized building or free market) is there anything that I should be looking out for as I analyze this deal?
Most Popular Reply
According to this article, if you have 80% of the units vacant and do significant capital upgrades, you can destabilize the building.
https://rew-online.com/how-to-...
That is, if 75 percent of the building-wide systems (i.e., there are a total of 17 building systems, including, among others, plumbing, heating, fire escapes, elevators, kitchens, bathrooms, pointing or exterior surface repair) are completely replaced when the building is 80 percent vacant, units subject to rent stabilization can be deemed permanently exempt and converted to free market status.
In addition to at least 13 of the 17 building systems that need to be upgraded, all ceilings, flooring and plasterboard or wall surfaces in common areas must be replaced; and ceiling, wall and floor surfaces in apartments, if not replaced, must be made as new as determined by DHCR.
From a valuation perspective, buildings that are at least 80 percent vacant will likely begin trading at a significant premium if they can qualify for the building-wide system improvements.
For example, a six-unit building with five-vacancies is 83 percent vacant and an investor would likely go through the Substantial Rehabilitation process to deregulate the vacant apartments. This building would trade for a significant premium to a comparable six-unit building with fourvacancies (i.e., 67 percent vacant and not eligible for the Substantial Rehabilitation exemption), as a purchaser in this instance would have to underwrite based on cash flow from the existing legal rents.
According to this article, if you have 80% of the units vacant and do significant capital upgrades, you can destabilize the building.
https://rew-online.com/how-to-...
That is, if 75 percent of the building-wide systems (i.e., there are a total of 17 building systems, including, among others, plumbing, heating, fire escapes, elevators, kitchens, bathrooms, pointing or exterior surface repair) are completely replaced when the building is 80 percent vacant, units subject to rent stabilization can be deemed permanently exempt and converted to free market status.
In addition to at least 13 of the 17 building systems that need to be upgraded, all ceilings, flooring and plasterboard or wall surfaces in common areas must be replaced; and ceiling, wall and floor surfaces in apartments, if not replaced, must be made as new as determined by DHCR.
From a valuation perspective, buildings that are at least 80 percent vacant will likely begin trading at a significant premium if they can qualify for the building-wide system improvements.
For example, a six-unit building with five-vacancies is 83 percent vacant and an investor would likely go through the Substantial Rehabilitation process to deregulate the vacant apartments. This building would trade for a significant premium to a comparable six-unit building with fourvacancies (i.e., 67 percent vacant and not eligible for the Substantial Rehabilitation exemption), as a purchaser in this instance would have to underwrite based on cash flow from the existing legal rents.
