Fitch: NY State Rent Regulation Changes To Pressure Large CMBS Loans

Proposed tenant-friendly changes to New York state rent regulations will adversely affect several New York City-based large multifamily loans backing U.S. commercial mortgage-backed securities (CMBS), according to Fitch Ratings. If realized, increased cashflow stress could result in investment-grade downgrades for these transactions.

New legislation would slow the pace of deregulation of New York City apartments by raising the minimum rent and tenant income thresholds. ‘Passage of this legislation would make it far more difficult for property owners in question to achieve their business plans,’ according to Managing Director Eric Rothfeld. ‘The increased threshold could delay conversion of stabilized units to market rents for approximately eight years, hindering the ability for borrowers to remain current on debt service.’

Currently, New York City landlords cannot increase rental rates on rent stabilized units more than approximately 4% annually until they reach $2,000 per month and the tenant income exceeds $175,000 for two consecutive years. Proposed legislation includes an increase of the rent trigger to $2,700 and the income trigger to $250,000. This can extend a unit's participation in the rent regulation program up to eight additional years.

Fitch says it will continue to monitor the status of New York state rent regulation laws and the potentially impacted loans to determine if cashflow growth is being realized as expected.

SOURCE: Fitch Ratings


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