What’s happening in the multifamily market today? The answer depends on what type of building you’re talking about. In this article I’ll paint with a broad brush and simplify five different types of deals, the challenges they each face, how buyers respond to what’s available for sale and things to consider when debating if you should hold or sell depending on what you own.
1. Inherently Free Market 2-5 Families Which Are Also Tax Class Protected
There is seemingly an unlimited supply of these buildings, mostly in brownstone Brooklyn. Rents in prime locations continue to rise, due diligence is a breeze because no one can claim stabilization, and the taxes cannot increase by more than 8% per year. The demand for these buildings is at an all-time high. End users, first time buyers seeking low price points, institutional equity, family offices, syndicators raising money all want a piece of this market.
What could derail this asset class and make today a good time to sell? First, rents can go down as a result of a recession, or increased supply. Second and more importantly, there is legal momentum targeting the misaligned property tax system. Buying these buildings carries a risk that in my opinion is not talked about enough.
Here is an example of the problem:
In March my partners Mike and Shaun sold 135 South 1st Street in Williamsburg for $4,350,000. This 3,000 square foot building with three apartments has an annual tax bill of only $1,984! Compare that to 374 Wadsworth Avenue, a 43 unit rent stabilized building with an asking price of $4,300,000. The annual tax bill is $125,000! The same valuation has a tax bill that is 62X higher! Even my 6 year old can’t figure this one out – hence the lawsuit.
Takeaway
The devaluation of rent stabilized buildings and calls from SPONY and NYAA for property tax reform on these assets will have to be supplemented from somewhere. You don’t have to look far to find the money – it’s in your backyard. These are good assets to sell today – the bubble will eventually pop. Ask anyone who still owns a rent stabilized building if they have any regrets.
2. Low Leveraged Fully Rent Stabilized Owners
I haven’t met a long term rent stabilized owner who isn’t exhausted. These folks are often very low leveraged and at retirement age. They’ve been around long enough to know that money isn’t everything and spending time with their family is more valuable than whatever they can sell their buildings for. They know that eventually something with eventually have to change but the unknown will lead many of these people to sell. These landlords have the lowest rent rolls because they’ve run true mom-and-pop businesses—focused on relationships, not squeezing every last dollar.
Takeaway
More of these buildings will be sold but owners will try to sell their problem buildings first or make the mistake of trying to sell as a portfolio – don’t do that. Rent stabilized portfolios mean discount – if you want a premium sell the buildings individually to open up your buyer pool. Often, you have to put two on the market to sell one. There is no shame in selling today – something will change but it won’t be tomorrow, and your life is better than rent stabilized property management (intended as a compliment, not an insult!).
3. Rent Stabilized Notes
If you lent someone money at 3% in 2021, how would you feel? You’d probably want to get your money back so you can do something else with it. That’s how banks feel right now. Rent stabilized valuations continue to fall and delinquencies are on the rise. This, along with other factors are leading to declining note valuations. The maturity wall gets higher each month and banks will continue to try to work out loans with their borrowers, then attempt to sell the notes. There will be a lot more of this inventory on the market with varying degrees of success.
Takeaway
Lenders who act fast and stay realistic will come out ahead. The longer you wait, the harder it will be. Just ask our client who was the first person to sell his entire portfolio after HSTPA – right now he looks like a genius. Borrowers will spend time trying to buy back their notes before looking to buy another building. So far this has been generally unsuccessful/not mature enough yet. When the notes sell at a discount, a slice of equity is created…then the buildings will sell.
4. Rent Stabilized With Little To No Equity
Buildings that are highly leveraged encompass about 80% of our BOV’s (broker opinion of values). These are the people that have impending decisions to make but don’t know what to do. If they sell, they walk away with nothing. If they refinance, they have to write a check and their rate doubles. Not ideal. This is the slowest moving asset class yet takes up the most amount of a broker’s time.
Takeaway
The buildings with preferential rents, low violation counts, minimal capital expenditures required, and a low price per unit will sell. Know the identity of your building and go all in when you try to sell it – don’t try to sell a little bit of everything, it’s not that type of market. These owners for the most part have stayed on the sidelines and aren’t transacting until someone makes them do something. Why sell and walk away with nothing if I don’t have to? Until borrowers get directives from lenders, this asset class will be slow to transact.
5. Mostly Free Market, Resales From COVID Purchases
Rents have gone up every year since 2021. Clients that purchased buildings with a free market component from 2020-early 2023 have squeezed all the juice, are in the money, and are facing a refinance at a significantly higher interest rate. They are opting to put these buildings on the market. Better for a quick turnaround and get in and out if they can. These buildings are all over the market at 6 caps and a high price per foot. Some of the buildings will sell but many of them will not. The operator often has a misaligned incentive model with their equity – the result of this is different depending on the individual situation – some will lead to sales; others will lead to nowhere.
Takeaway
Sellers should put themselves in a position to get lucky and get the building on the market with moderate expectations. There are outlier buyers who believe in the location, love the renovation, have a 1031 from selling something random outside of NY, think the rental market still has room to grow, and believe that eventually the rent laws will have to change for the better. Every so often, a buyer shows up willing to pay 10% over market—maybe they need to park a 1031 exchange fast or just fell in love with your location. When your broker tells you to take the offer, listen. It’s his job to tell you what you might not want to hear.
Looking Forward
The rest of 2025 will be an exciting time in the multifamily market, with plenty of opportunities for those who are ready. Economic shifts and interest rate changes will create both challenges and chances for savvy investors. Whether you’re looking to sell or buy, staying proactive and informed is key.
If you’re considering selling, make sure your due diligence is in place, your pricing is competitive, and you’re ready to move quickly when the right offer comes in. For buyers, this is a great time to assess the market and find value, but don’t hesitate, opportunities come and go quickly.
Let’s talk about your situation and how to position yourself for success in this market.
