WEBVTT - NY Community Bancorp's Problems in the Rent-Stabilized Market 0:00:00.080 --> 0:00:02.440 Hello, Odd Lots listeners, you were about to hear a 0:00:02.440 --> 0:00:05.400 conversation about the troubles at New York Community Bank Corp. 0:00:05.559 --> 0:00:08.640 We recorded this interview on February sixth, and his statement 0:00:08.720 --> 0:00:11.680 to the market, NYCB said that his deposits have increased 0:00:11.720 --> 0:00:15.000 since the end of last year and that liquidity remains ample. 0:00:15.480 --> 0:00:17.799 A spokesperson for the company did not respond to a 0:00:17.840 --> 0:00:20.840 separate quest for comment from Oddlots and now here's our 0:00:20.880 --> 0:00:34.360 episode a New York Community Bank Corp. Hello, and welcome 0:00:34.400 --> 0:00:36.080 to another episode of the. 0:00:36.040 --> 0:00:37.280 Odd Lots podcast. 0:00:37.360 --> 0:00:39.680 I'm Joe Wisenthal and I'm Tracy Allaway. 0:00:39.800 --> 0:00:43.479 Tracy banking troubles again. Obviously, we had that little, I 0:00:43.479 --> 0:00:48.160 don't know many mini crisis at the uffle Kerfuffle last 0:00:48.240 --> 0:00:52.519 March with SVB and a couple other banks, and then recently, 0:00:52.600 --> 0:00:56.600 I think just last week. We're recording this Tuesday, February sixth, another. 0:00:56.280 --> 0:01:01.760 One, that's right. So we saw New York Community NYCB. 0:01:02.120 --> 0:01:06.000 Their shares felt something like almost forty percent in a 0:01:06.040 --> 0:01:11.320 single day after they released a bunch of announcements. So 0:01:11.400 --> 0:01:14.240 let's see, I'm trying to remember all of them. So 0:01:14.280 --> 0:01:17.640 they missed on earnings per share. They cut their dividend 0:01:17.880 --> 0:01:21.319 and they increased their reserves for bad loans. So basically 0:01:21.319 --> 0:01:23.640 the provisions are the amount of money they set aside 0:01:23.680 --> 0:01:27.800 to cover souring credit. And of course this set off 0:01:27.880 --> 0:01:32.600 a wave of conversation and analysis about how much of 0:01:32.680 --> 0:01:37.240 that issue has to do with NYCB specifically, or whether 0:01:37.280 --> 0:01:41.560 it's saying something broader about the outlook for these loans. 0:01:41.600 --> 0:01:44.560 And I should just say that in its statement, NYCB 0:01:44.720 --> 0:01:50.520 specifically cited commercial real estate and multifamily as well, which 0:01:50.600 --> 0:01:52.880 is sort of the I always call it the forgotten 0:01:53.080 --> 0:01:57.880 CRE because everyone focuses on offices, but multifamily also falls 0:01:57.880 --> 0:01:59.520 into the CRE category. 0:02:00.120 --> 0:02:03.040 Yeah right, we did that episode a few months ago. 0:02:03.160 --> 0:02:07.360 I think in October we did an episode on multifamily 0:02:07.400 --> 0:02:10.160 because we know that we know that there was just 0:02:10.200 --> 0:02:13.120 this incredible boom right in twenty twenty one and social 0:02:13.160 --> 0:02:17.640 media influencers. We're like raising money on Instagram for you know, 0:02:18.040 --> 0:02:20.760 sun Belt cire and so there is this big question 0:02:20.840 --> 0:02:24.360 about the category. More broadly, this is of course not 0:02:24.560 --> 0:02:27.720 a sun Belt story. It's New York Community Bank Orp. 0:02:27.880 --> 0:02:29.840 But it gets this question of like, oh, is this 0:02:29.919 --> 0:02:33.200 something idiosyncratic to the bank, Where is this broader are 0:02:33.200 --> 0:02:36.600 we gonna see multifamily problems elsewhere? It feels like each 0:02:36.680 --> 0:02:39.040 one of these banks that's gotten into trouble over the 0:02:39.120 --> 0:02:42.359 last couple of years, there is this furious debate. It's like, 0:02:42.480 --> 0:02:46.200 it's just it's just idiosyncratic. It's just Silicon Valley, it's 0:02:46.360 --> 0:02:50.680 just crypto exposure, it's just New York. But then eventually 0:02:51.000 --> 0:02:53.800 you have enough idiosyncratics when people start to go worry. 0:02:53.960 --> 0:02:56.679 They're like, are there things going wrong? Are there similarities 0:02:56.720 --> 0:02:57.400 with other banks? 0:02:57.560 --> 0:03:00.600 Yeah? And it's funny you mentioned the multifamily episode. I 0:03:00.639 --> 0:03:03.560 think that was with Lee Everett. He was basically saying 0:03:03.760 --> 0:03:07.080 that was the next shoe to drop in the troubled 0:03:07.240 --> 0:03:12.200 cre category. But we did actually do an episode even 0:03:12.400 --> 0:03:16.959 before then titled the NYC Landlord who says the golden 0:03:17.040 --> 0:03:18.880 age of being a landlord is over. 0:03:19.560 --> 0:03:22.960 That's right, So we did do a New York specific one. 0:03:23.200 --> 0:03:27.080 Our guest then, Ben Carlos, type in local real estate 0:03:27.160 --> 0:03:30.440 guy who owns residential real estate. He also does some 0:03:30.560 --> 0:03:33.000 data stuff and other things, and he basically came on 0:03:33.120 --> 0:03:35.600 He's like, look, my family has been in this business 0:03:35.600 --> 0:03:38.440 of renting out apartments for a long time, and the 0:03:38.480 --> 0:03:41.320 business is going bad. This is not a business I 0:03:41.360 --> 0:03:43.960 really want to be in it anymore. He mentioned that 0:03:44.040 --> 0:03:46.440 he would be selling off some or all of his 0:03:46.560 --> 0:03:49.040 assets over time. I think he specifically said he wouldn't 0:03:49.040 --> 0:03:51.480 be doing a fire sell or like a mass liquidation, 0:03:51.520 --> 0:03:53.240 but that he wanted to get out of business. He 0:03:53.280 --> 0:03:55.800 also said that he was interested in ways to essentially 0:03:56.160 --> 0:03:58.400 not just get out of the business, not just remove 0:03:58.480 --> 0:04:01.760 his defecto long position, but seeing if there were ways 0:04:01.800 --> 0:04:04.520 to bet on the downside. It was this, there is 0:04:04.560 --> 0:04:08.080 like a combination of like, okay, gimbiism in New York 0:04:08.160 --> 0:04:10.520 seems to be on the rise, so there perhaps is 0:04:10.560 --> 0:04:13.400 going to be more supply plus a sort of shifting 0:04:13.480 --> 0:04:16.599 political landscape. But I think this is key, such that 0:04:16.720 --> 0:04:19.680 regulations will make life harder for landlords. 0:04:19.960 --> 0:04:23.320 Yes, this is the return to I mean it never 0:04:23.520 --> 0:04:27.880 went away completely, but a newfound popularity of rent control 0:04:28.120 --> 0:04:31.880 and the issues that maybe causes for landlords. And of course, 0:04:32.240 --> 0:04:34.360 I mean the backdrop to all of this is that 0:04:34.440 --> 0:04:38.000 interest rates have gone up spectacularly and so why deal 0:04:38.160 --> 0:04:41.480 with tenants and policy when you can just put your 0:04:41.520 --> 0:04:43.920 money in a money market fund and earn five percent? 0:04:44.240 --> 0:04:44.960 Yeah, that's right. 0:04:45.000 --> 0:04:48.600 And also you know, in New York specifically, we have 0:04:48.680 --> 0:04:52.599 an affordability crisis, and we have an affordability crisis even 0:04:52.680 --> 0:04:56.520 among individuals and families that make a lot of money. 0:04:56.600 --> 0:04:59.960 So plenty of New York City professionals who are rent 0:05:00.400 --> 0:05:05.320 who make decent incomes still find this housing market very frustrating, 0:05:05.680 --> 0:05:08.000 feel that they're paying way more than they should be 0:05:08.040 --> 0:05:11.000 in getting squeezed. And of course, you know, people with 0:05:11.040 --> 0:05:14.160 good money and professional jobs historically have had a lot 0:05:14.200 --> 0:05:17.320 of political power, and so this idea that okay, there 0:05:17.360 --> 0:05:21.719 is this very powerful renter class in New York City 0:05:21.760 --> 0:05:25.400 specifically that politicians have to listen to, which sort of 0:05:25.920 --> 0:05:29.560 tilts the dot, turns the dial more towards pro tenant 0:05:29.560 --> 0:05:33.000 policies that landlords may not like. Well, on that note, 0:05:33.520 --> 0:05:37.880 I'm very excited we have Ben back on the podcast. 0:05:38.000 --> 0:05:39.520 Ben, thank you so much for joining. 0:05:39.320 --> 0:05:40.280 Us, Thanks for having me. 0:05:40.400 --> 0:05:41.640 Let's talk before. 0:05:41.320 --> 0:05:44.080 We get into the conversation, because we want to talk 0:05:44.080 --> 0:05:46.920 to you about this real estate market. We want to 0:05:46.960 --> 0:05:50.640 talk to you about CB specifically and what's going on 0:05:50.680 --> 0:05:54.719 with them. I mentioned in the intro that you said 0:05:54.880 --> 0:05:58.320 on our episode early last year that you're not just 0:05:58.360 --> 0:06:00.960 interested in getting out of the space selling off of 0:06:01.000 --> 0:06:04.520 your assets, but also exploring ways to essentially shorten the space. 0:06:04.720 --> 0:06:08.480 Of course, you've done some work on that, including on NYCB, 0:06:09.120 --> 0:06:11.400 So I think we should start with a disclosure. 0:06:11.520 --> 0:06:13.880 Where are you at right now with this? Sure? 0:06:14.080 --> 0:06:16.240 So, you know, after our episode last year, and really 0:06:16.320 --> 0:06:19.080 really before it, I was exploring, you know, the various 0:06:19.120 --> 0:06:23.159 ways that one could approach shorting multifamily to you know, 0:06:23.200 --> 0:06:25.520 express the thesis that I talked about on that podcast. 0:06:25.640 --> 0:06:27.360 And you know, I found out a couple of things, 0:06:27.440 --> 0:06:29.960 one of which shorting is very hard and requires a 0:06:29.960 --> 0:06:32.359 lot of capital. But in doing so, I settled on 0:06:32.360 --> 0:06:34.800 New York Comedy Bank as a target, and spoke to 0:06:35.240 --> 0:06:38.880 and advised several hedge funds on New York Commedy Bank 0:06:38.960 --> 0:06:41.719 being a good target based on you know, totally public information. 0:06:42.200 --> 0:06:45.720 I can't speak to what trades, if any, they executed 0:06:45.760 --> 0:06:48.880 on this. All I can say is that I neither 0:06:48.920 --> 0:06:51.320 I nor my firm were or are short New or 0:06:51.360 --> 0:06:54.479 Commedy Bank, and I have not received or are not not 0:06:54.640 --> 0:06:57.240 entitled to any compensation tied directly or indirectly to the 0:06:57.240 --> 0:06:58.200 performance of that stock. 0:06:58.920 --> 0:07:02.520 But you were paid, yes, for your advisory services or 0:07:02.560 --> 0:07:05.960 your consulting services to the hedge Fund. Correct, And just 0:07:06.000 --> 0:07:09.120 to be clear, you said on the podcast last year 0:07:09.160 --> 0:07:12.280 that you were planning on getting out of the residential 0:07:12.280 --> 0:07:14.400 real estate business in New York City. 0:07:14.680 --> 0:07:16.680 What's happened between then and now on that front. 0:07:16.840 --> 0:07:19.680 We've sold one of our buildings, we still have a 0:07:19.680 --> 0:07:20.600 few more to sell off. 0:07:22.040 --> 0:07:24.080 So maybe just to begin with, can you talk a 0:07:24.080 --> 0:07:29.640 little bit about NYCB's relationship to multifamily, Like what is 0:07:29.680 --> 0:07:34.160 the exposure here? So they mention a multifamily portfolio, what 0:07:34.440 --> 0:07:36.840 is that? How did they come to own it, and 0:07:36.880 --> 0:07:37.640 what does it look like? 0:07:38.040 --> 0:07:42.360 Yeah, so they are, by their own account, I think, 0:07:42.400 --> 0:07:45.960 the second largest multi family lender in the country, and 0:07:46.720 --> 0:07:49.280 multi family loans represent to forty four percent of their 0:07:49.400 --> 0:07:54.440 entire loan book, not just real estate loans, and twenty 0:07:54.440 --> 0:07:57.080 two percent of their entire loan book is a particular 0:07:57.120 --> 0:08:00.480 type of multifamily loan, which is rent stabilized. It loans 0:08:00.480 --> 0:08:03.520 on rent stabilized buildings in New York City, and this 0:08:03.640 --> 0:08:07.040 is a business they've been huge in for five decades. 0:08:07.440 --> 0:08:11.440 They are currently the biggest lender on rent stabilized buildings, 0:08:11.800 --> 0:08:15.680 even more so than the now failed Signature Bank. And 0:08:16.360 --> 0:08:19.000 the growth of New York comed Back as an institution 0:08:19.120 --> 0:08:22.520 is really tied up in the fortunes and evolution of 0:08:22.520 --> 0:08:25.280 the rent stabilized market over the past thirty years. So, 0:08:25.800 --> 0:08:28.000 you know, let me ask the two of you if 0:08:28.040 --> 0:08:30.200 you ever lived in an apartment in New York City 0:08:30.200 --> 0:08:33.000 within a building that was built prior to nineteen seventy 0:08:33.000 --> 0:08:35.680 four and contained six or more residential units. 0:08:36.000 --> 0:08:39.640 Yes, but it hasn't been rent stabilized exactly. 0:08:40.080 --> 0:08:41.560 And did you pay like, what it felt like, a 0:08:41.600 --> 0:08:42.560 really high rent for it? 0:08:42.640 --> 0:08:44.880 Oh my god, I am still paying a really high 0:08:44.920 --> 0:08:45.559 rent for it. 0:08:45.600 --> 0:08:48.240 Go on, Well, there was a time that all apartments 0:08:48.240 --> 0:08:51.000 and buildings like that were rent stabilized, and the reason 0:08:51.000 --> 0:08:52.760 that you paid a very high rent for that ancient 0:08:52.760 --> 0:08:54.520 apartment is deeply tied up in the story of New 0:08:54.600 --> 0:08:56.160 York Comedy Bank over these past thirty years. 0:08:56.440 --> 0:09:00.600 Wait, so what is the allure of rent controlled apartments? 0:09:00.640 --> 0:09:03.040 Because if I think about I want to be a 0:09:03.080 --> 0:09:07.079 real estate developer or a lender in New York, you know, 0:09:07.200 --> 0:09:09.840 I want some luxury building that's all shiny and new, 0:09:09.920 --> 0:09:12.360 and I can charge an incredibly high amount for people 0:09:12.440 --> 0:09:15.040 to live there. I don't necessarily think oh, I'm going 0:09:15.040 --> 0:09:17.679 to go into rent stabilized properties. 0:09:17.880 --> 0:09:21.559 Right. So, historically, up up until the early nineteen nineties, 0:09:21.960 --> 0:09:25.559 the allure of these properties was a lot less than 0:09:25.600 --> 0:09:28.240 it became, and it was largely based on, you know, 0:09:28.280 --> 0:09:30.320 the solidity of it as a business. You know, the 0:09:30.400 --> 0:09:34.440 rents are low, so the occupancy always stays high, and 0:09:34.840 --> 0:09:37.280 it's a it was a bond of business. And what 0:09:37.520 --> 0:09:40.839 changed in the early nineties is, you know, New York 0:09:40.880 --> 0:09:43.200 City at that time was in really bad shape. There's 0:09:43.240 --> 0:09:46.280 a lot of high budget deficits, high crime, all these 0:09:46.280 --> 0:09:50.280 foreclosed buildings costing city hundreds millions dollars in property tax revenue. 0:09:50.640 --> 0:09:54.880 And in response to that, dynamic landlords claimed that the 0:09:54.920 --> 0:09:57.600 foreclosures and the blight were the faults of rent regulations. 0:09:57.679 --> 0:09:59.640 And if you think about this doesn't really make sense 0:09:59.720 --> 0:10:02.920 because you know, it's a self serving argument and sort 0:10:02.920 --> 0:10:05.480 of gets the causality backwards. Like every city in the 0:10:05.520 --> 0:10:10.920 country was having major problems resulting from deindustrialization, white flight, 0:10:11.360 --> 0:10:14.480 and these other you know, mega trends, most of which 0:10:14.520 --> 0:10:16.840 did not have any form of rent regulation. So the 0:10:16.880 --> 0:10:18.920 real estate industry's claim was like, all right, if you 0:10:19.320 --> 0:10:22.480 let us raise the rents then we'll fix up the buildings, 0:10:22.520 --> 0:10:25.679 property taxes will go up, et cetera. Politicians and the 0:10:25.679 --> 0:10:29.360 New York City Council bought that and implemented a policy 0:10:29.400 --> 0:10:34.760 called vacancy decontrol, which allowed apartments to be deregulated in 0:10:34.800 --> 0:10:37.679 the buildings that we talked about. Once they once the 0:10:37.760 --> 0:10:41.080 legal rents breached a threshold of at the time was 0:10:41.080 --> 0:10:43.920 two thousand dollars. That was later raised several times, and 0:10:43.920 --> 0:10:46.400 I think before it went away it was the highest 0:10:46.440 --> 0:10:49.680 was twenty seven hundred dollars. So, you know, at the time, 0:10:50.280 --> 0:10:53.640 legislators from places like Bushwick, which were very poor, where 0:10:53.760 --> 0:10:55.280 you know, the highest rent in the neighborhood was five 0:10:55.360 --> 0:10:58.480 hundred dollars. They could never imagine that a rent could 0:10:58.480 --> 0:11:00.559 get to two thousand dollars, so. 0:11:00.520 --> 0:11:02.840 They thought they had a long way to go until 0:11:02.880 --> 0:11:03.880 they would reach that cap. 0:11:04.080 --> 0:11:04.440 Yeah. 0:11:04.679 --> 0:11:09.800 So you know, incidentally, that's in nineteen ninety four. A 0:11:09.960 --> 0:11:13.240 little bank known as Queens County Savings Bank goes public 0:11:13.280 --> 0:11:15.400 the year before in nineteen ninety three, that later becomes 0:11:15.440 --> 0:11:19.400 New York Community Bank. So what happens between nineteen ninety 0:11:19.400 --> 0:11:23.840 four and twenty nineteen New York City's economy booms. Like 0:11:24.280 --> 0:11:28.000 many other urban markets around the country, population growth job 0:11:28.040 --> 0:11:31.120 growth far up housing construction, which then sends rents on 0:11:31.200 --> 0:11:34.600 existing housing soaring. So this makes for a very good 0:11:34.720 --> 0:11:38.680 combination for landlords. The apartment value of apartment buildings increases, 0:11:38.880 --> 0:11:41.240 liquidity in the debt and equity markets for a apartment 0:11:41.240 --> 0:11:43.920 buildings in New York sty increases, and New York Community 0:11:44.000 --> 0:11:47.400 Bank really grows along with its landlord clients. Becomes the 0:11:47.400 --> 0:11:51.040 biggest lender on these rent stabilized buildings, provides acquisition loans 0:11:51.040 --> 0:11:55.120 for the landlords to expand, It provides refinancing after refinancing, 0:11:55.480 --> 0:11:58.240 allowing their clients to take money out of these buildings. 0:11:58.640 --> 0:12:02.960 And you know, during this process, where like the BET 0:12:03.000 --> 0:12:07.880 is basically all right, market rents are, it's worth deregulating 0:12:07.920 --> 0:12:10.280 these buildings all over the city. Because the spread between 0:12:10.280 --> 0:12:13.840 market rents and the regulator rents is so high, the 0:12:14.040 --> 0:12:17.600 pricing on these assets gets totally out of whack. The 0:12:17.600 --> 0:12:21.040 spread between buildings that are selling in the Bronx which 0:12:21.080 --> 0:12:24.360 have a very weak credit profile, and buildings that are 0:12:24.360 --> 0:12:29.360 selling in Manhattan really narrows. And that continues for the 0:12:29.400 --> 0:12:30.439 next twenty years. 0:12:30.520 --> 0:12:33.600 Sorry, just to back up, I'm just because I want 0:12:33.679 --> 0:12:38.640 to be precise. What specifically did the New York City 0:12:38.679 --> 0:12:40.680 Council do in the early nineties. When you say that 0:12:40.720 --> 0:12:42.520 twenty seven hundred, what happens then? 0:12:42.559 --> 0:12:45.840 Okay? So up until that point, rents on a rent 0:12:45.840 --> 0:12:48.360 on a regular department like the one that Tracy lived in, 0:12:48.800 --> 0:12:50.640 could only be raised a certain. 0:12:50.400 --> 0:12:52.760 Amount of I didn't live in a regulated apartment. Well 0:12:52.800 --> 0:12:56.800 it was, yes, sorry, yes, it's previous life. 0:12:56.920 --> 0:13:00.280 Yes. And up until that point, the rents could only 0:13:00.320 --> 0:13:02.800 be raised by a certain amount based on what the 0:13:02.840 --> 0:13:07.120 Rent Guidelines Board issues each year. Okay, and starting there 0:13:07.200 --> 0:13:10.280 was some erosion of that system prior to nineteen ninety four, 0:13:10.559 --> 0:13:13.080 but the big change in nineteen ninety four was that 0:13:13.600 --> 0:13:17.520 the apartment could become completely deregulated once once it breaches 0:13:17.520 --> 0:13:21.120 that two thousand dollars threshold, So instead of being able 0:13:21.120 --> 0:13:23.000 to only go up three percent a year, it could 0:13:23.040 --> 0:13:26.800 go from two thousand to four thousand. And there's also 0:13:26.840 --> 0:13:30.480 a bonus for when an apartment goes vacant, so every 0:13:30.480 --> 0:13:32.720 time an apartment turns over from tenant to tenant, the 0:13:32.760 --> 0:13:35.440 rent could be increased twenty percent, as opposed to just 0:13:35.520 --> 0:13:36.920 the rent guidelines board amount. 0:13:37.040 --> 0:13:41.440 So the obvious question here is that would seem to 0:13:41.559 --> 0:13:46.280 create an incentive structure for landlords to basically try to 0:13:46.360 --> 0:13:49.559 get to the twenty seven hundred or twenty eight hundred 0:13:50.360 --> 0:13:53.560 threshold so that they could then raise the rent to 0:13:53.640 --> 0:13:56.559 whatever the market can bear. Did we see that behavior 0:13:56.640 --> 0:14:00.000 and how exactly do they try to speed up that process? 0:14:00.200 --> 0:14:02.840 Yes, so there are three ways that they try to 0:14:02.840 --> 0:14:08.080 speed up that process. One is buyouts, offering people money 0:14:08.120 --> 0:14:13.400 to leave, which is legal. Others are harassment of tenants 0:14:13.400 --> 0:14:16.920 out of buildings and using all sorts of means. And 0:14:16.960 --> 0:14:21.200 the third is inflating the cost of renovations that they're 0:14:21.240 --> 0:14:24.560 doing that are used to justify increases, because that was 0:14:24.560 --> 0:14:27.200 always another way to increase rents. Was like, if you 0:14:27.240 --> 0:14:29.640 need to put in a new boiler in the building, 0:14:29.680 --> 0:14:33.280 you could amortize the cost of that improvement across all 0:14:33.320 --> 0:14:35.640 the rents and the buildings in the building. If you 0:14:35.680 --> 0:14:40.080 need to redo the plumbing in a particular apartment, you 0:14:40.080 --> 0:14:41.360 could amortize the cost over that. 0:14:42.880 --> 0:14:46.560 Sorry, something I'm still confused by, even post nineteen ninety four, 0:14:46.800 --> 0:14:50.080 and I've only lived in New York almost twenty years now, 0:14:50.240 --> 0:14:51.920 But every once in a while you like hear some 0:14:52.080 --> 0:14:55.440 story about so and so has an apartment on the 0:14:55.520 --> 0:14:58.720 Upper east Side and they're living in it and their 0:14:58.760 --> 0:14:59.840 grandmother is still there. 0:15:00.040 --> 0:15:02.440 It is still like crazy, this is a friend's plot line. 0:15:02.240 --> 0:15:03.360 Right, yeah, something like that. 0:15:03.720 --> 0:15:06.480 How did those stories exist in a post ninety four world? 0:15:06.560 --> 0:15:10.240 Sure, so one, there's still the very old system of 0:15:10.240 --> 0:15:13.120 rent control, so like that is a very small number 0:15:13.160 --> 0:15:16.360 of units, but also does represent some of those situations. 0:15:16.360 --> 0:15:18.120 So we're talking about a difference between rent. 0:15:17.960 --> 0:15:20.040 Control rent staabilized. I see, I see. 0:15:20.040 --> 0:15:22.200 So the rent control like they're just like this is 0:15:22.240 --> 0:15:24.640 it and this is the price where someone is That 0:15:24.680 --> 0:15:27.880 actually was not changed. What changed was these was the 0:15:28.000 --> 0:15:30.120 units that were designed to just go very slowly. 0:15:30.200 --> 0:15:32.360 Correct. Well, I mean rent control is also designed to 0:15:32.360 --> 0:15:33.840 go out very slowly in a way. But once a 0:15:33.880 --> 0:15:36.160 rent control, once a tenant at this point, once a 0:15:36.200 --> 0:15:39.280 tenant in a rent control unit vacates that it becomes 0:15:39.280 --> 0:15:41.760 rent stabilized and it sort of enters into the new system. 0:15:41.920 --> 0:15:42.360 I see. 0:15:42.720 --> 0:15:45.360 But to answer your broader point, which I think speaks 0:15:45.360 --> 0:15:49.360 to this dynamic here is post ninety four. You know 0:15:49.440 --> 0:15:52.960 this trade of you know, improving the apartment either actually 0:15:53.120 --> 0:15:55.720 or on paper in order to get the rent above 0:15:55.760 --> 0:16:01.280 the deregulation threshold. Really only works in strong submarkets, So 0:16:02.560 --> 0:16:06.040 there was a time every apartment a building of a 0:16:06.080 --> 0:16:10.960 certain size in below below ninety sixth Street was rent stabilized. 0:16:10.960 --> 0:16:13.560 But Manhattan is the highest rent market in New York City, 0:16:13.880 --> 0:16:16.600 so all of those apartments are excuse me, a huge 0:16:16.640 --> 0:16:19.720 portion of those apartments were deregulated because there was enough 0:16:19.720 --> 0:16:22.280 spread in there for the landlord to be able to 0:16:22.440 --> 0:16:24.440 for it to be worth doing the work. Same thing 0:16:24.480 --> 0:16:28.520 in places like Park Slope and sort of Western Brooklyn Queens, 0:16:28.640 --> 0:16:32.680 you know, the gentrifying areas of the city, whereas in 0:16:32.720 --> 0:16:36.440 the non gentrifying areas. The ways this policy mainly manifests 0:16:36.480 --> 0:16:39.920 itself was in just increasing the rents higher than they 0:16:39.960 --> 0:16:44.280 otherwise could be. But rents never are much more rarely 0:16:45.120 --> 0:16:46.360 reached the threshold. 0:16:45.920 --> 0:16:46.960 To be able to deregulate it. 0:16:47.640 --> 0:16:49.760 Can you talk to us a little bit about the 0:16:49.800 --> 0:16:55.040 financing picture. To what degree did this dynamic become, I 0:16:55.040 --> 0:16:59.800 guess well known in the fundraising side of this whole thing. 0:16:59.840 --> 0:17:04.320 So was it pretty easy to get loans an additional 0:17:04.400 --> 0:17:08.359 capital in order to either buy more properties on the 0:17:08.400 --> 0:17:11.879 assumption that you could eventually get to that threshold and 0:17:12.000 --> 0:17:15.920 raise the rent or to fund renovation to try to 0:17:15.960 --> 0:17:16.960 get to that threshold. 0:17:17.280 --> 0:17:20.840 Yes, it was pretty easy and became particularly so in 0:17:20.920 --> 0:17:24.320 the early two thousands, early to late two thousands, you know, 0:17:24.359 --> 0:17:27.800 with sort of the broader sheends in real estate of institutionalization, 0:17:28.000 --> 0:17:30.720 more private equity, and you know, became a more sophisticated 0:17:30.720 --> 0:17:34.000 business that was putting more capital in more places. So 0:17:34.280 --> 0:17:38.000 prior to let's say two thousand, the rent stabilized business 0:17:38.080 --> 0:17:41.199 was a pretty sleep still a pretty sleepy business in 0:17:41.280 --> 0:17:43.520 so far as like what type of capital played in it. 0:17:43.800 --> 0:17:46.840 So like mom and pop, mom and pop and apartment building. 0:17:46.560 --> 0:17:49.879 Okay, And you know there were certainly large landlords at 0:17:49.880 --> 0:17:51.760 that point that it accumulated a lot of these properties. 0:17:51.760 --> 0:17:54.160 But you know, private equity firms were not a big 0:17:54.200 --> 0:17:57.520 player at that time. But in particularly in the two thousands, 0:17:58.040 --> 0:18:02.320 the private equity and both on and also private credit 0:18:02.400 --> 0:18:05.960 and New York coming back to the world really put 0:18:06.000 --> 0:18:09.920 a lot of capital into this sector, and largely based 0:18:09.960 --> 0:18:12.200 on the premise that they would be able to raise 0:18:12.240 --> 0:18:13.480 these rents a lot more. 0:18:30.000 --> 0:18:32.600 Let's talk a little bit more about that, because Tracy 0:18:32.760 --> 0:18:36.280 mentioned in the beginning like setting aside everything you know, 0:18:36.359 --> 0:18:38.840 it doesn't seem like rent control or rent stabilized buildings 0:18:38.920 --> 0:18:41.320 or any of these buildings are like a particularly exciting 0:18:41.400 --> 0:18:44.720 place to lend in. But if everyone thinks the place 0:18:44.800 --> 0:18:47.080 is not an exciting place to lend and then intuitively 0:18:47.520 --> 0:18:51.320 there's sort of like above market opportunities for the one 0:18:51.440 --> 0:18:53.560 player that goes in. And we see this all the 0:18:53.600 --> 0:18:56.560 time and all kinds of markets where like, yes, like 0:18:56.600 --> 0:18:58.600 you can make a lot of money in distressed assets 0:18:58.600 --> 0:19:00.439 of all sorts because most people don't want it. So 0:19:00.440 --> 0:19:02.560 if you put in a new legwork to make it work, 0:19:02.600 --> 0:19:04.840 you can make a lot of money. Talk to us 0:19:04.880 --> 0:19:08.439 a little bit more about like the relationship that New 0:19:08.480 --> 0:19:12.439 York Community Bank Corp. Had with a fellow landlords in 0:19:12.520 --> 0:19:15.640 your world, why landlords liked working with them, why they 0:19:15.760 --> 0:19:18.760 liked working with landlords, and why this was you know, 0:19:18.800 --> 0:19:21.000 the profits that they accrued during the good times. 0:19:21.160 --> 0:19:25.680 Sure, so the New Yor Community Bank really, like many 0:19:25.720 --> 0:19:28.800 community banks, it's a relationship bank, and clearly as part 0:19:28.800 --> 0:19:32.560 of its strategy it was building relationships with rand stabilized landlords. 0:19:32.720 --> 0:19:36.200 So this has several benefits them. Obviously, making loans is 0:19:36.480 --> 0:19:39.720 what a bank does. But also these community banks typically 0:19:39.720 --> 0:19:43.400 require anyone getting a commercial mortgage from them to have 0:19:43.600 --> 0:19:46.560 deposits at this bank as well, saying and also like 0:19:46.600 --> 0:19:49.480 the deposits from tenant security deposits held in these buildings 0:19:49.800 --> 0:19:52.480 excuse me, at New York Commedy Bank. So it became 0:19:52.960 --> 0:19:55.280 a way for the New York community banks of the 0:19:55.280 --> 0:19:58.439 world to really build their deposit bases and their loan 0:19:58.520 --> 0:20:03.480 books on a product type in which there's a lot 0:20:03.480 --> 0:20:05.040 of product. You know, there's a lot of these buildings 0:20:05.080 --> 0:20:07.560 that need loans, and it's also kind of complicated. So 0:20:07.640 --> 0:20:10.600 like lenders from out of town you know there, you know, 0:20:10.640 --> 0:20:13.720 which were coming to land on office buildings and you know, 0:20:13.720 --> 0:20:17.840 all sorts of other assets were less inclined to land 0:20:17.920 --> 0:20:20.840 on rent stabilized buildings, not because of any sort of 0:20:20.880 --> 0:20:24.080 accurate assessment of risk, but just because like it's easier 0:20:24.080 --> 0:20:27.080 for some for some French bank to you know, loan 0:20:27.160 --> 0:20:30.560 on an office building then figure out the rent stabilization code. 0:20:31.080 --> 0:20:35.160 So if we're looking at all the headwinds that are 0:20:35.359 --> 0:20:40.000 facing this particular segment, in addition to things like the 0:20:40.040 --> 0:20:42.800 fact that rates have gone up enormously, I think there 0:20:42.880 --> 0:20:46.560 was a more recent change to policy in twenty nineteen. 0:20:46.760 --> 0:20:50.080 Can you walk us through what exactly that was and 0:20:50.119 --> 0:20:52.320 how it sort of changed the picture for multifamily. 0:20:52.640 --> 0:20:56.680 Sure, So, prior to twenty nineteen, you know, the bad 0:20:56.720 --> 0:20:59.600 behavior that we talked about earlier of harassment, the lack 0:20:59.640 --> 0:21:03.600 of houses construction, and you know, the general dynamics in 0:21:03.600 --> 0:21:07.360 New York Cities housing market had really produced a terrible situation. 0:21:07.480 --> 0:21:10.480 We have, you know, rent housing burden for tenants across 0:21:10.480 --> 0:21:14.080 the city is way up record levels, homelessness is way up. 0:21:14.520 --> 0:21:19.200 And twenty nineteen, a finally unified statewide coalition of tenant 0:21:19.240 --> 0:21:23.119 groups called Housing Justice for All capitalized on the post 0:21:23.200 --> 0:21:26.800 Trump progressive resurgence to pass the Housing Stability and Tenant 0:21:26.800 --> 0:21:29.399 Protection Act of twenty nineteen, which is now known as 0:21:29.440 --> 0:21:33.480 the HSTPA. This bill did many things, but for the 0:21:33.480 --> 0:21:35.880 purpose of this conversation, the most important things it did 0:21:35.960 --> 0:21:38.199 is it ended vacancy de control, so you can no 0:21:38.280 --> 0:21:40.840