The Impact of Housing Stability and Tenant Protection Act of 2019 to CRE Credit Underwriting
The Impact of Housing Stability and Tenant Protection Act of 2019 to CRE Credit Underwriting
The Housing Stability and Tenant Protection Act of 2019 (HSTPA) represents the most sweeping overhaul of New York State’s housing laws in more than four decades. Enacted in response to escalating housing costs and growing concerns over tenant protections, the legislation significantly expands and strengthens rent regulation, enhances tenant rights, and imposes stricter oversight on landlord practices. The law has broad implications, reshaping the landscape for property owners, lenders, and tenants across the state.
The key legislative objectives include
Making laws on rent stabilization and rent control permanent
Prevents deregulation of stabilized units from rent or income thresholds
Increased enforcement of rent-setting and leasing practices
Provides greater tenant protections
Sharply limiting vacancy bonuses
Two provisions in particular have significantly reshaped the economics of regulated housing:
Major Capital Improvements (MCI): Rent increases tied to MCIs are capped at 2% per year, dramatically limiting owners’ ability to recover investment costs.
Individual Apartment Improvements (IAI): Improvements are capped at $15,000 every 15 years, and must be amortized across that period.
Tenants are also provided with greater protections on security deposits, late fees, rent change notices, non-renewals, and eviction proceedings, further constraining operational flexibility for owners.
Another key component of the Act is that the rent laws are now permanent and no longer subject to periodic expiration, removing the financial uncertainty for tenants but materially changing the long-term operating and financial dynamics for landlords.
Unintended Consequences for Property Metrics and Valuation
While well-intentioned, HSTPA has created significant financial strain for owners of regulated properties. In my final years as a commercial lender, I witnessed firsthand how this Act began reshaping CRE underwriting, prompting lending teams to reassess risk metrics and adopt more conservative approaches. Since then, I dove deeper into the subject matter. Through research and extensive dialogue with bankers and real estate professionals, one theme has been consistent – the economics of regulated multifamily housing have fundamentally changed in the New York City and immediate surrounding metro area.
Property owners can only rely on modest, at best, annual increases approved by the Rent Guidelines Board (RBG). Meanwhile property expenses have accelerated rapidly since 2020. Operating expenses are up ~28%, while RGB-approved rents are up by just ~10.5%, resulting in about a 17% decrease to Net Operating Income (NOI). Insurance costs between 2019 – 2025 have jumped 150%, along with sharp increases to maintenance (driven by inflation and building material costs) and utilities.
As referenced in my article, Overview of Commercial Real Estate Credit Underwriting (https://blog.premiercreditinsight.com/post/new-blog-post-7274), property values on investment CRE are fundamentally driven by NOI and Cap Rates. Cap Rates in NYC and metro region have remained relatively stable – gradually rising as interest rates increased – offering little buffer to declining income. With NOI falling 17% and Cap Rates inching upward, values have naturally contracted.
Industry estimates suggest that values for regulated multifamily assets have dropped ~30% since HSTPA, with some sources reporting loss of values running as high as 40 - 50% for certain buildings.
A Simple Illustration:
A lender originating a loan in 2019 at 75% Loan-to-Value (LTV) with a 1.25x Debt Service Coverage Ratio (DSCR) would now be facing:
a 30% decline in property value
17% reduction in NOI.
The outcome? The borrower’s equity cushion and excess cash flow have largely evaporated. The deterioration in collateral and cash flow would likely trigger a downgrade in the loan’s risk rating, increasing the bank’s required loss provision – even if the loan continues to perform according to bank credit terms.
Yikes – indeed!
Has this changed the complexion of lenders toward regulated properties? You bet! Think about it – from a banker’s vantage, these properties now exhibit:
Limited upside
Rising structural and operating costs
Declining collateral values
Heightened regulatory and compliance risk
(oh my…)
In conversations with lenders across the NY City metro area, a clear pattern has emerged: the appetite for rent-regulated multifamily lending has changed dramatically.
Lender Attitudes Have Shifted in the NYC Metro Area
Prior to 2019, multifamily lending was fiercely competitive. Banks were offering 80% LTV – sometimes higher, preferential interest rates, limited or no recourse, and aggressive Cap Rates - as low as 3.5% in some submarkets.
Today, those conditions are nearly non-existent on class C and D properties – typically pre-1974 structures most affected by HSTPA.
Many banks have dramatically reduced or fully paused lending on regulated properties. Some have exited investment CRE lending entirely – including other property classes – given increased regulatory uncertainties - and have redirected resources to C&I and owner-occupied CRE lending, saving their powder for their top-tier relationship clients on the occasional ICRE opportunities.
Shrinking Bank Share. While this legislation affects all residential apartments, the rent restriction components do not apply to newer construction and market-rent properties. Therefore, many banks are still actively lending in the class A and B sectors, but with more caution and tighter underwriting standards. Appraisers are applying Cap Rates on C/D properties between 6.5% - 8.0% while new A/B market-rent properties tend to receive 5% – 6% Cap Rates.
Before HSTPA, banks accounted for over 80% of lending on rent-regulated properties. Today that figure has fallen to 40%. Two additional shock events have been exasperated the pullback: (1) the sale of failed Signature Bank’s rent-stabilized portfolio at ~59 cents on the dollar, and (2) New York Community Bank/Flagstar retrenchment in the market by actively trying to shrink its multifamily exposure.
For existing CRE loans on older structures, it has become more common for banks to require at renewal or refinance:
Principal pay-downs
Increased reserves
Additional guarantor support
Equity infusions where debt exceeds property value
These measures echo the triage portfolio strategies on stressed CRE during the 2008 – 2010 financial crisis (I remember those days all too well).
The decreasing market share of banks in this space is being absorbed by private credit, debt funds, and mission-driven nonprofits. These groups are not subjected to regulatory standards that banks operate from, but typically offer lower leverage, higher pricing, and more stringent loan structuring.
The Bottom Line: Market Scale and Impact
The market for regulated multifamily in the New York metro region is enormous. In New York City alone, there are about 1.0 – 1.02 million rent-stabilized or controlled units, comprising 40 – 45% of all rental apartments in the city.
In Westchester County, there are another 28,700 regulated apartments with 88% of them located in four municipalities: Yonkers, Mt. Vernon, New Rochelle and White Plains, with Yonkers alone accounting for 42% of the county’s regulated stock.
The vast majority are in pre-1974 buildings: NYC 90 – 95% and Westchester 85 – 90%.
HSTPA does not apply to 1 – 5 unit buildings or newer construction unless the owner accepted certain tax incentives that mandate stabilization.
Where Landlords and Banks Stand Today
Credit standards for regulated properties have changed considerably since 2019 for those banks still in the game. Among the typical underwriting themes:
Pro-forma income projections scaled back considerably. Minimal rent growth assumptions are often tied to recent RGB history.
Very limited, if any at all, credit for IAI /MCI rent bumps, in accordance with statutory caps.
Heightened focus on actual rent collections and arrears, as the market continues to grapple with post-COVID collection issues and court delays.
A Department of Financial Services landlord-loan survey shows banks are particularly more prone to:
Verified NOI as the primary metric
Detailed rent rolls
Actual and historical vacancy levels and plans for any vacant units
Regulatory Guidance (or Lack Thereof)
What have the banking regulators done in response? Short answer – not much. Regulators have not imposed rent-stabilized specific rules other than supervision-by-pressure approach, pushing banks to tighten their own credit underwriting and stress testing standards.
There have not been any formal guidelines published by the Federal Reserve, FDIC or OCC for this CRE sector. This includes no new federal underwriting rules, no uniform standards, and no capital-reserve explicit for rent-regulated loans as “high-risk CRE”.
In practice however, the banks are reacting as if new rules exist, even though none have been formally published.
Vacancy Trends and Rent Divergence
It has been widely speculated that there are 50,000 – 60,000 apartments that are left intentionally vacant for economic reasons and in “active warehousing”. While widely discussed in professional circles including those that stand by these claims, there is no hard evidence. NY City records confirm that vacancies did spike around 2021 resulting from the pandemic, but then dropped sharply by 2023. Public records report ~ 26,000 stabilized units as “vacant but not rentable” in 2023. Still, this is a sizeable number of vacant units. Moreover, deteriorating market and building conditions justify the growing conservatism in bank underwriting by lenders that choose to remain in the game in comparison to market rate properties.
Meanwhile, vacancy rates remain notably low across the region:
Regulated units: approximately 0.98%
Market-rate units: approximately 1.84% (Westchester County: 2–3%)
Despite the headwinds created by HSTPA, overall occupancy remains strong. What remains less clear, however, is the number of units burdened by rent arrears or currently involved in collections or litigation - factors that may further affect property performance and credit risk.
Since 2019, market-rate rents have risen significantly faster than regulated rents. HSTPA’s restrictions have greatly limited owners’ ability to realign regulated rents with rising operating costs, while market-rate units have remained free to adjust in response to strong demand, tight supply, and historically low vacancy. This widening rent divergence continues to influence underwriting assumptions, feasibility analyses, and investor appetite. Meanwhile, the market for new multifamily construction remains robust - as it has for many years - particularly in Westchester’s commuter-oriented communities and across various submarkets in Manhattan, the Bronx, Queens, and Brooklyn.
Borrower Perspective: What to Expect Today
For owners of class C/D regulated properties, securing bank financing has become much more challenging. Market commentary and direct lender feedback point to a pattern of:
Lower LTVs: 50 – 60% vs. 70% - 80% a decade ago.
Higher DSCR requirements: north of the ‘standard’ 1.25x; sometimes 1.30 – 1.40x, occasionally as high as 1.50x)
Recourse is back. Lenders are increasingly requiring personal and/or corporate guarantees
Stricter loan covenants: e.g., elimination of interest-only periods, tighter reporting
Increased replacement reserves
In summary, traditional bank financing has become the exception, not the norm, for older C/D rent-stabilized buildings.
Programmatic Capital: A New Path for Regulated Housing
Programmatic capital refers to mission-driven financing designed to support affordable and regulated multifamily housing when bank financing falls short. These include:
HFA (Housing Finance Agency) / HPD (Housing Preservation & Development)
Subsidized, long-term, below-market financing tailored to low- and moderate-income housingLIHTC (Low Income Housing Tax Credits)
Equity raised through tax credits to support new construction or rehabilitationArticle XI Property Tax Abatements
Significant tax reductions for up to 40 years in exchange for affordability commitments - often a critical driver of feasibilityCDFI (Community Development Financial Institution) and mission-driven lending
More flexible in certain respects but often with higher pricing and rigorous compliance
These sources can be powerful, but they require sophisticated underwriting, layered capital stacks, and deep program knowledge. They are generally best suited for experienced developers or newer investors working alongside affordable-housing specialists.
Concluding Thoughts
The evidence is clear: HSTPA has materially reduced the market value of older multifamily, rent-regulated, and rent-stabilized buildings. This impact is most pronounced in New York City and the surrounding metro markets, where regulated units represent a much larger share of the total housing stock. In other regions of the state, where rent-regulated inventory is far more limited, the effects have been noticeably less severe.
The long-term implications of HSTPA remain uncertain, adding to an already challenging investment landscape. Older properties that require significant capital reinvestment are particularly vulnerable. Many of these buildings have endured years of deferred maintenance, and when needed improvements cannot be supported by regulated rents, the economic case for reinvestment collapses. The result is a sharper decline in asset value, physical deterioration, and diminished market appeal.
These dynamics translate directly into elevated risk and underwriting uncertainty. Banks are fundamentally risk-averse institutions – they respond by tightening credit standards, increasing required coverage ratios, reducing LTVs, or withdrawing from the asset class altogether. Investors, too, demand higher returns to compensate for regulatory risk, driving up the cost of capital and suppressing valuations further.
In recent years, programmatic capital sources, such as HFA/HPD financing, LIHTC equity, Article XI tax-abatement structures, and mission-driven lenders, have stepped in to fill part of the void left by traditional banks. However, these capital programs are complex and require a higher level of financial sophistication, regulatory understanding, and development expertise than many smaller or novice investors typically possess.
If you are a real estate owner navigating the challenges of financing rent-regulated properties, preparation is everything. For a comprehensive credit assessment, strategic review, or guidance on positioning your asset for bank or mission-driven financing, contact Premier Credit Insights & Solutions. Together, we can structure the most viable path forward in this rapidly evolving landscape.
