Poised for regulatory changes

On a national level, the new administration in Washington is expected to introduce significant regulatory changes. As a result, New York’s upcoming mayoral and gubernatorial elections could result in state and local policy that could impact the multifamily market. “In particular, investors are hopeful for a recalibration on rent regulation and programs that will help stimulate development,” Richartz said. 

Trade volume up across boroughs

Northern Manhattan was the only submarket where transaction and dollar values didn’t decline in 2024 compared to the highs of 2022, according to Ariel Property Advisors.

Manhattan, Queens and Brooklyn saw an increase in multifamily dollar volume from 2023 to 2024, with free market assets making up a robust portion of the transactions in Manhattan and Brooklyn and rent stabilized in Queens, according to Ariel Property Advisors. 

Rent-stabilized assets remain in demand

“There are still plenty of investors interested in acquiring rent-regulated properties in New York City, even with the Housing Stability and Tenant Protection Act (HSTPA) of 2019,” Richartz said. 

Demand for workforce and affordable housing far exceeds supply in New York, supporting durable rents and vacancies. 

While other cities like Nashville and Austin are experiencing overbuilding, New York’s development pace has slowed, particularly following the expiration of the 421-a tax incentive’s expiration. While the 485-x tax incentive is expected to help with some development, it’s still not enough to fill the supply demands. 

Higher-for-longer interest rates

Interest rates remain elevated as the Federal Reserve seeks more signs of progress on bringing inflation back to its 2% target. 

While additional rate cuts are expected in 2025, a reduction dramatic enough to meaningfully affect the market appears unlikely this year, Richartz said.

“However, we are in an environment where any reduction would be welcomed by investors,” she said. 

The uncertain trajectory for interest rates means investors seeking or refinancing apartment loans may want to consider prepayment options that would allow flexibility when rates decline.

Build reserves and liquidity

“Value declines in rent-stabilized properties from the initial effects of HSTP have settled,” Richartz said. “With interest rates settling in higher for longer and inflation seemingly more under control, it’s reasonable to assume we are entering a buyer’s market.”

The combination of a settling economy, strong rents and low vacancies could also support an increase in investment. “Distressed sales could be a big opportunity for investors in our market,” Richartz said. “As mortgages on rent-stabilized assets mature this year, owners who over levered—or didn’t account for the sharp rise in expenses and interest rates—could look to sell to recoup remaining equity or reduce losses.”  

Even as interest rates stabilize—average cap rates range from 5.5% to 6.0%, according to CoStar data, mortgage rates could remain higher than cap rates resulting in the continued trend seeing some negative leverage acquisitions, Richartz said. 

“Investors who have been successful in New York generally hold assets for a long period of time and are well capitalized to withstand black-swan events, which seem to be happening more frequently in recent years,” she said. “Investors with a long-term outlook and investment plan could benefit from negative leverage value-add plays.”