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<\/p>\nLandlords are on the hunt to find ways to reduce expenses on rent-stabilized apartments as costs balloon and a potential rent freeze looms.\u00a0<\/p>\n
An increasingly popular avenue is Article XI, a New York City program that eliminates real estate taxes, one of owners\u2019 largest operating costs. The incentive has the potential to stabilize some buildings in financial crises \u2014 but under the condition that landlords rehabilitate their assets and, in certain cases, restrict the rent they can charge.<\/p>\n
\u201cNew York City has a very high tax burden on multiple dwellings, so that problem goes away,\u201d Adler & Stachenfeld partner Alvin Schein said. \u201cYou’re freezing the building in place so that it’s no longer a really great economic asset, but it makes enough money to get by.\u201d<\/p>\n
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\n More than 60% of apartments are rent-stabilized in the Bronx, according to the Rent Guidelines Board.\n <\/p>\n
Between April 2024 and March 2025, costs for buildings containing rent-stabilized apartments increased by 6.3%, according to a report<\/a>\u00a0by the Rent Guidelines Board<\/a>. Aggregate real estate taxes, which account for approximately 29% of overall operating expenditures, rose by 3.9%.<\/p>\n Receiving an Article XI exemption removes that tax burden, either partially or completely, for 40 years, but it also limits a landlord\u2019s ability to turn a profit.\u00a0<\/p>\n Article XI, alongside other tax incentive programs, added more than 3,100 units to the city\u2019s rent-stabilized housing stock in 2024, skyrocketing from just 88 units the prior year, according to an RGB report.<\/p>\n \u201cThe reason we’re seeing more of [Article XI] is because the buildings do need rehabs,\u201d BBG Real Estate Services Managing Director Matthew DeBlasio said.<\/p>\n To apply, landlords must form a housing development fund corporation, a nonprofit structure subject to increased supervision by the New York City Department of Housing Preservation and Development<\/a>.<\/p>\n Then, owners must negotiate an agreement with HPD over what changes will be made to the building in exchange for the tax abatement. The city council signs off on the final deal.\u00a0<\/p>\n Rehabilitation is core to Article XI. Among HPD\u2019s considerations is whether the tax exemption is necessary to make repairs financially possible and whether housing conditions will be immediately improved.<\/p>\n There are other trades landlords may have to make. That includes converting any market-rate apartments in their building to rent-stabilized or\u00a0making\u00a0units affordable to renters at lower income levels.<\/p>\n Schein called the process \u201cslightly schizophrenic\u201d in that landlords may be eliminating ways to increase cash flow for lower taxes.<\/p>\n \u201cWith Article XI, you don’t know if it’s going to happen until it happens,\u201d Schein said. \u201cThere are some things that could happen along the way that throw it off track, and not every application gets approved.\u201d<\/p>\n Douglaston Development<\/a> applied for the tax break at a 50-unit Upper East Side apartment building last year. The majority of the buildings\u2019 units \u2014 between 38 and 41 \u2014 were already rent-stabilized, but under the deal, the building would become fully regulated. Article XI would save the developer an estimated $26M over the course of 40 years, according to NBC New York<\/a>.<\/p>\n Tenant groups\u00a0told the outlet the addition of a dozen or so units to New York City\u2019s rent-stabilized housing stock didn’t justify the tax break, but they said little of the preservation of existing units. Douglaston\u00a0received Article XI\u00a0approval, an HPD spokesperson confirmed. Douglaston declined to comment.\u00a0<\/p>\n Article XI is case-specific. HPD must evaluate the physical stability of the buildings, their housing affordability and the balance sheets of the landlords.\u00a0<\/p>\n The process is lengthy, in part because city agencies are understaffed<\/a>. Oftentimes, outside counsel must be hired to navigate the associated bureaucracy and negotiations. That all requires funding that many small landlords don\u2019t have, experts said.<\/p>\n \u201cEssentially, yes, it is a lifeline,\u201d DeBlasio said. \u201cBut what we’re seeing here on the ground is that really only large swaths of units are getting approved.\u201d\u00a0<\/p>\n The\u00a0level of relief, which can include\u00a0city-backed loans to fund repairs, varies. And often the deals draw scrutiny from advocacy groups.<\/p>\n Clipper Realty<\/a>\u2019s portfolio of 2,500 rent-stabilized apartments in East Flatbush was approved for Article XI in 2023 in a deal estimated to be worth $191M.<\/p>\n It required the developer to resolve nearly 3,000 outstanding housing code violations at an estimated cost of at least $25M over three years. In addition to keeping all of the units regulated, the developer agreed to reserve a total of 250 apartments for previously homeless residents as the units become available.\u00a0<\/p>\n \n Flatbush Gardens in Brooklyn, a sprawling housing complex, has been exempted from property taxes in a preservation and rehabilitation deal.\n <\/p>\n However, given the condition of the buildings, tenant groups criticized the deal, saying that the city was essentially giving a negligent landlord a write-off, The City reported<\/a> at the time. Clipper didn\u2019t respond to Bisnow\u2019s request for comment.<\/p>\n \u201cThe big picture from the perspective of the tenants is that they get to remain rent-stabilized, and they will get to see repairs they\u2019ve been denied for years,\u201d Samuel Stein, a policy expert at the Community Service Society, told The City. \u201cThe question is, should a landlord who has systematically disinvested in the buildings be rewarded with a large tax break to achieve that?\u201d<\/p>\n HPD Press Secretary Matt Rauschenbach told Bisnow in an email that each applicant is evaluated and allocated staffing response based on the urgency of need.<\/p>\n The process includes sizing the exemption in relation to other possible public incentives, the needs of the property and the level of affordability, he said, adding that Article XI is one of the ways the city supports the physical and financial stability of its affordable housing stock.<\/p>\n The rent reforms of 2019<\/a>\u00a0cut off a variety of methods that landlords used to\u00a0raise rents and deregulate apartments, leaving gradual increases approved by the Rent Guidelines Board\u00a0as the only option. That caused property values to plummet, leaving many property owners underwater on their mortgages<\/a> amid growing inflation.<\/p>\n As of 2024, 57% of the city’s affordable housing owners reported negative cash flow, according to a study<\/a> by nonprofit\u00a0landlords\u00a0National Equity Fund and Enterprise Community Providers.<\/p>\n Plus, much of New York City\u2019s rent-stabilized apartment stock was built before 1974 and is becoming increasingly pricey to maintain. Since 2017, repairs and maintenance costs have risen 35%, according to the report, and insurance costs have doubled.<\/p>\n A wave of multifamily mortgages, which were financed during the period of low interest rates between 2020 and 2022, are coming due. While Article XI wipes away a building’s property taxes, it doesn’t erase the mortgage or give interest rate relief.<\/p>\n \u201cThat doesn’t mean you’re staving off a foreclosure in the future,\u201d Compass Vice Chair Adelaide Polsinelli<\/a> said. \u201cIf your mortgage was originated during a period of time where interest rates<\/a> were much lower and your income was higher, you’re still wading into some choppy waters.\u201d<\/p>\n<\/p>\n