New York City (“NYC”)’s rent-freeze policies and rent stabilization laws have created significant financial strain on rent-regulated buildings, particularly in the Bronx. Over the last four years, these policies that prevented landlords from raising rents to keep up with rising operating costs, forced many to dip into personal funds to cover expenses. Consequently, there has been a rise in defaults and distressed loans as property owners struggle to meet their financial obligations. With defaults and foreclosures in affordable housing portfolios becoming more frequent, the risks for lenders exposed to these properties add to the growing financial challenges in NYC.

A report by The New York Post on April 6, 2025, revealed that more than 12% of pre-1974 buildings in the Bronx have operating costs that exceed their income even before factoring in mortgage payments or mandatory improvements (e.g. compliance with Local Law 97). In 2024, the number of older, rent-stabilized buildings failing to meet mortgage payments rose sharply resulting with some properties selling at steep discounts. To further illustrate, the 2025 Mortgage Survey Report, published by the NYC Rent Guidelines Board, stated that the average per-unit sales price for 100% rent-stabilized buildings in 2024 was $175,225, reflecting a 37.6% inflation-adjusted decline from the previous year.

Multifamily loan delinquencies in NYC surged as well; some institutions report a staggering 990% increase in non-performing loans largely attributed to rent-regulated properties. The increasing number of distressed loans has led some banks to increase their loan loss reserves and adopt a more cautious approach in lending to affordable housing projects. Additionally, rising commercial mortgage-backed securities (“CMBS”) delinquencies, especially for multifamily properties, puts further strain on the market. As of 2024, NYC’s multifamily CMBS distress rate rose from 7%, at the end of 2023, to a staggering 14.4%.

Alongside the surge in multifamily loan delinquencies, another factor exacerbating the financial strain on landlords is the uptick in NYC tax lien sales. These sales are pushing struggling landlords even deeper into financial distress. Tax lien sales, which allow buyers to collect debts with high interest, may force landlords into foreclosure prematurely and/or result in properties being sold at discounted rates. NYC’s ongoing housing underproduction crisis will worsen as rent-regulated buildings remain financially unsustainable and deepen the affordability issue and limiting options for potential buyers.

This growing distress presents serious risks for lenders involved with affordable housing portfolios. As defaults increase, so does the likelihood of foreclosures. Lenders must take proactive steps to adjust underwriting criteria and reassess their risk models, as these distressed properties become higher-risk assets. Managing loan loss reserves will be essential, as more properties face financial collapse due to their inability to generate sufficient income.

DISCLAIMER

This publication may constitute attorney advertising under the laws and rules of professional conduct of one or more states. The information provided in this publication is for general informational purposes only and does not constitute legal advice. The contents are not intended to be a substitute for professional legal advice, consultation, or representation. No attorney-client relationship is formed by reading or relying on this publication. Prior results do not guarantee a similar outcome. Readers should consult a qualified attorney for advice regarding their individual circumstances or any specific legal questions they may have.

If you have questions about this publication, please contact Adam Friedman, Ralph Vartolo or Michael DeRosa,
Friedman Vartolo LLP, 1325 Franklin Avenue, Suite 160, Garden City, NY 11530, Phone: (212) 471-5100 | Fax: (212) 471-5150.