August 10, 2025

In the first half of 2025, I was frequently hired for Rent Regulatory (Rent Stabilization) Due Diligence for Multifamily Property consulting gigs. Many of those engagements were for clients who are new to the New York City multifamily space. These are not unsophisticated inventors; but they are new to this asset class. Here are three anecdotes from those situations.

I was hired (or almost hired) by a prospective purchaser of a seven-unit building to conduct Rent Stabilization Due Diligence. When the seller heard that the prospective purchaser was hiring me, the seller pulled the potential deal from the table. A representative of the seller said, “Ugh, Michelle Itkowitz! She is going to tell you that all these units are Rent Stabilized, not free market. Because…they are Rent Stabilized. We need to go back out there and find a more gullible purchaser.” This really happened, you cannot make something like that up.

I was hired by a prospective purchaser of a 23-unit building to conduct Rent Stabilization Due Diligence. It was a building that had been owned by the same family for fifty years and it was in very bad shape from a regulatory perspective. It was “hairy”. I told the prospective purchaser that, after an initial look at the source data. The prospective purchaser wanted me to proceed anyway. When I was done with the analysis, however, as is frequently the case, it really was not that bad. It was not great. But it was not terrible.

The investors scheduled a conference with me to review my 50-page report. They were pleased about the good news. Regarding the bad news, their question was – “How do we “fix” the wrongly deregulated units?” I answered decisively. I said, “Oh, I left that part out of the report, I apologize. I take my magic deregulation wand and pass it over the Rent Stabilized units three times and say, ‘Go away Rent Stabilization!’ And poof! You can charge four times as much rent!” I am not sure they were amused.

You cannot “fix” a wrongly deregulated unit in the current legislative climate. My report was actually pretty darn clear about that. A peek at most of the material on my website would get that point across as well. There is no more High Rent Vacancy Deregulation since the Housing Stability and Tenant Protection Act of 2019. Since November 2023, you cannot combine a Rent Stabilized apartment with another apartment and charge a “first rent”. And the Substantial Rehabilitation exception to Rent Stabilization is a massively misunderstood building-wide concept that requires one to start with an 80% vacant building (NOT vacant as a result of buyouts), which MUST be demonstrated to be substandard; the whole purpose of the exception is to take a building which no longer contains viable housing and to put housing back on the market. See 139 Devoe Mgmt LLC; DHCR Adm. Rev. Docket No. LX210022RO [LVT 33149, 3/18/24] (The prior owner paid two tenants at least $175,000 to move out. This showed that these apartments were not substandard and that these apartments had considerable value and, therefore, were in reasonable condition. The pre-project photographs submitted by landlord were not labeled and not all of them depicted a substandard condition.)

There are no pathways to big rent jumps on Rent Stabilized apartments at this time. The rent roll you buy is the rent roll you get. For now. If thirty years in this business has taught me anything, it is simply that the more things change, the more things stay the same. The real key to making money in the multifamily space is to: (a) be young; (b) buy a building where the current rent roll at least supports the expenses; and (c) wait. The pendulum will eventually swing the other way. It always does.

Finally, I was hired by a prospective purchaser of an eight-unit building to conduct Rent Stabilization Due Diligence. My report did not reveal great news about the true regulatory status of the units. The units were not all free market, as the seller’s broker had led the prospective purchaser to believe. However, the prospective purchaser went to contract and bought the building anyway. I am not a transactional attorney, by the way, so sometimes I do not learn the fate of the deal after my consulting piece is complete. The purchasers later consulted me about how to properly file their DHCR registrations, and I said, “I am happy that you are using my report as a resource as you begin managing your new asset. But I am wondering, did the report help you get the price down?” The new owners told me that, based upon my work, the price went from $2.2M to $1.8M. I saved them $400,000! Who knew!?

I should charge more for this service…

Respectfully submitted,

Michelle Itkowitz